Mayor Proposes Legislation to Protect Residential Property Owners from Increase in Taxes Caused by Declining Commercial Values

Mayor Michelle Wu announced she will file a home rule petition that would protect residential property owners from a potentially dramatic increase in their property taxes due to declining commercial property values. The proposal would allow the City to lessen increases in residential property tax bills caused by declining commercial values by temporarily shifting more of the property tax levy onto owners of commercial and industrial properties. Under the present statutory system, a significant decline in commercial property assessments will result in residential property owners paying higher taxes through a higher tax rate in order to maintain funding for critical City services, rather than an overall revenue decline. The proposal is revenue-neutral and does not increase the total amount of revenue the City is able to collect through property taxes. 

“As Boston invests in revitalizing our Downtown and commercial corridors in response to shifting market trends, we are working with all stakeholders to protect residents and homeowners against sudden and dramatic tax increases,” said Mayor Michelle Wu. “For our seniors on fixed incomes, for families with children, for frontline workers and all our community members, we must have the tools to address rising housing costs and keep residents in their homes.” 

“The City has been closely monitoring and planning for the impacts of declining commercial real estate values on the City’s tax base,” said Chief Financial Officer Ashley Groffenberger. “By taking this proactive step, we are ensuring that we have the tools necessary to safeguard basic City services and create stability for all taxpayers.” 

“The pandemic changed the way we work, and that has had a rather sudden and significant impact on commercial tax bases,” said Adam Chapdelaine, Executive Director of the Massachusetts Municipal Association. “In affected communities, one potential outcome is crushing property tax increases for homeowners, while commercial properties see a reduction. Already tightly constrained by the limits of Proposition 2½, affected cities and towns may want to pursue thoughtful, measured approaches like Mayor Wu’s proposal to avoid making the region’s housing cost crisis even worse.”

State law allows the City, in conjunction with the City Council, to create two separate property tax rates, and by doing so, shift a portion of the property tax levy to commercial property. The present maximum shift allowed is up to 175 percent of what the commercial share would have otherwise been.

The current proposal gives the City the option to modify these parameters in a thoughtful and controlled manner. For the first year of implementation, the City would have the ability to increase the classification shift to 200 percent, at the discretion of the Mayor and the City Council, if a significant drop in commercial assessments occurs. During the subsequent three years the allowable classification shift would gradually decrease and return to the currently allowed 175 percent in year five. 

Initial implementation of the current proposal, if passed, could occur during any of the next three fiscal years, at the City’s election. This flexibility would allow the City the ability to initiate the alternative rate schedules only when absolutely needed.

“This is a measured proposal that will deliver relief as the City adapts to the unprecedented changes to its existing tax base,” said WinnCompanies CEO Gilbert Winn. “Ensuring that Boston is on stable, financial footing is vital for the thousands who live and work in the City, and rely on critical services like housing, education, public safety and health care. Preserving these vital services will allow Boston to continue its growth as a hub for culture, innovation, and education; a City that is welcoming to all.”

“As a resident of Boston and a member of the business community, I support the City of Boston’s tax classification proposal,” said Tom O’Brien, managing partner and CEO of HYM Investment Group. “I applaud the Mayor for using all the tools in her toolbox to alleviate the financial pressures of homeowners. It is my continued hope that this proposal might soon be paired with initiatives that will encourage new growth in our city. “

“Boston is experiencing a significant housing crisis, driven by both a lack of sufficient affordable housing to meet our need and rising costs to build and operate this housing,” said Emilio Dorcely, CEO of Urban Edge. “Because continuing to increase the supply of affordable housing supported by city services is critical to the region’s overall economic success, it is imperative that Boston maintain steady revenue streams. The Wu administration’s proposal presents the opportunity to maintain a level of revenue needed to support such important work while not overburdening homeowners, affordable housing projects, and other residential buildings.”

The proposal would help stabilize housing costs for Boston residents over this period of five years. An increase in residential property taxes would impact all residential property: single family homes, multi family homes, apartment buildings, and residential condominium units. Left alone, the dramatic tax increase would lead to higher costs for residents through higher tax bills for homeowners or a rent increase for renters should their landlords pass the increased costs onto them. 

"The mission of Massachusetts Affordable Housing Alliance (MAHA) is to help low and moderate-income households to buy and maintain the dream of homeownership," said Symone Crawford, Executive Director of the Massachusetts Affordable Housing Alliance. “Given the high home prices, interest rates, insurance premiums, and general housing costs, it is especially important that we act quickly to stabilize real estate taxes for our families. Homeownership provides a sense of permanence and pride, laying down a solid foundation upon which individuals and families can build their lives with certainty and confidence.”

The proposal is similar to one enacted in 2004, when Boston faced a comparable dynamic. According to a 2003 report from the Boston Municipal Research Bureau, the average single-family tax bill would have increased by over 35 percent while the tax for a commercial property could decrease by 15-20 percent. Boston successfully sought similar legislation that allowed municipalities to temporarily increase the classification shift to 200 percent and step down over four years, before returning to the original maximum of 175 percent. At this level, the average residential tax bill still increased by 15 to 18 percent, with commercial taxes decreasing by five to eight percent. The legislation the City is pursuing today builds on this precedent.

"As a senior with a fixed income, a large increase in my property taxes would be devastating,” said Shirley Jones, president of the Meetinghouse Hill Civic Association. “I am so grateful that the mayor is being proactive and taking action to protect residents like me across the city from these potential increases." 

“It's difficult to keep residents in Boston because of the high cost of living,” said Tom Cunha, Chair of the Charlestown Neighborhood Council. “I don't want my neighbors to have to move out because of an increase in their property taxes. This temporary measure is fair and allows us to evaluate over the next 60 months."

The home rule petition will be filed with the City Council, where it must be approved before being signed by the Mayor and then sent to the Massachusetts Legislature and the Governor for approval.