Policy experts battled with Wu administration officials over their assertions that the latest city data indicates commercial values are falling at a faster clip than initially predicted and could wreck Boston’s finances for years to come.
The testimony was provided Thursday at a City Council hearing by the two experts behind a report that projected Boston could be staring down a $1.2-$1.5 billion shortfall over the next five years due to falling commercial property values that are driven by vacant office buildings and eroding the city’s commercial tax base — an assessment that has rankled City Hall brass since its publication last February.
“Boston’s commercial property value is dropping much faster than BPI predicted back in February,” said Gregory Maynard, executive director of the Boston Policy Institute. “BPI’s report does not expect that the commercial real estate market will hit bottom until 2029.
“That means that this year’s decline in commercial property value and subsequent increase in residential property taxes is not a one-time event, but rather will continue happening for the next five years.”
Mayor Michelle Wu, who has dismissed BPI report’s budget shortfall assessment as “false” information and is pushing a plan to raise commercial tax rates that she says will stabilize the city’s budgetary tax structure over the next three years, sent a letter to the City Council Tuesday, outlining a more optimistic economic outlook.
In the letter, Wu states, “this is not a moment of economic crisis or recession, but a wider transition in the shared burden of property taxes across the residential and commercial sectors.”
Maynard — speaking at a hearing that was set to focus on two alternatives to the mayor’s tax plan put forward by Councilor Ed Flynn but instead veered into a broader discussion of future fiscal headwinds — pointed to new city assessment data that show residential values climbing by 4%, and commercial values declining by 7%,
That’s “close to half” of the 25% decline in commercial property values BPI expected over five years, when accounting for “real terms,” Maynard said. Citing real estate trends, he said “there is every reason to believe that commercial property values will continue to decline in the years to come.”
“That decline creates a perfect storm for Boston because the city budget can be wrecked even while Mayor Wu’s claim in the letter she sent to the City Council Tuesday that ‘this is not a moment of economic crisis or recession’ is true,” Maynard said.
Nicholas Ariniello, the city’s director of assessing, who released a statement upon the report’s release that noted his office had “not seen any indications from the real estate market” that would “lead to budgetary concerns,” continued to dismiss BPI’s projections as “fiction.”
“The whole budget crisis concept, and the revenue crisis concept, comes from people that fundamentally don’t know how our tax system works,” Ariniello said. “They created a budget crisis out of whole cloth that was fiction. The budget that we’ve passed is a balanced budget that the City Council had an active role in.”
The remark drew a sharp retort from Maynard.
“This seems like this administration is talking out of both sides of its mouth on this issue,” Maynard told the Herald. “I think there’s this double talk about my report, about BPI’s report, where when they talk about the report, there’s no problems, there’s not a crisis, but when they’re talking about their home rule petition, all of a sudden there is a crisis, and it needs to be solved right now.”
“The mayor clearly believes there’s a budget crisis,” Maynard said, later adding, Wu “thinks a 14% increase” in property taxes the new city data shows homeowners are facing next year without the legislation “is so bad that she’s currently burning a lot of political bridges trying to get something through the State House.”
The mayor’s bill, stalled in the Senate, seeks to combat post-pandemic changes in work patterns that have resulted in vacant office buildings, falling property values and a decline in commercial revenue that will shift more of the city’s tax burden onto residents. If passed, Boston would have the authority to shift more of the city’s tax burden onto the commercial sector, beyond what is allowed by state law.
The plan has encountered steady opposition from business leaders and fiscal watchdogs, who say the city should look to cut a budget that grew by 8% this fiscal year, which the mayor has said would be “fiscally irresponsible.”
While the mayor says her plan seeks to stabilize the city’s budgetary tax structure, she and her administration, when asked this week, have not directly responded to questions about what is being considered over the long term to address falling commercial values.
Wu, speaking at a Wednesday town hall in West Roxbury, pointed to a recent report that she said shows commercial vacancies are on the decline for the first time, and spoke to business recruitment strategies to fill empty office spaces.
Ashley Groffenberger, Boston’s chief financial officer, speaking at Thursday’s Council hearing, said the city’s home rule petition is “not intended to solve for what’s happening downtown” in terms of it being one of “many other proposals” that have been put forward to that end by the Wu administration.
Rather, she said, the plan is aimed at smoothing out over the next few years what would otherwise be an immediate “enormous shock” in higher residential taxes.
