The Boston City Council approved by a vote of 8-4 Mayor Michelle Wu’s controversial property tax proposal on Wednesday, granting Wu a win more than two months after she first announced the policy push.
Councilors John FitzGerald, Ed Flynn, Erin Murphy, and Brian Worrell voted against the measure, with Councilor Julia Mejia voting present.
While a necessary step, the council vote is not the end of the debate; the proposal requires sign-off by the state Legislature, which historically has let most so-called home rule petitions from Boston and other municipalities quietly die.
Wu’s tax policy, which has faced vocal opposition from the business community, would give the city the power to temporarily increase the commercial property tax rate beyond what is allowed by state law. Wu argues the measure is necessary to shield residential property owners — and renters, who would likely face higher rents passed down by apartment building owners — from a steep increase in their property tax bills next year should commercial property values plunge, as some forecasters expect. Wu has admitted that residential property taxes will likely still increase, even with the measure in place, but it would create a “softer landing” for homeowners.
In the wake of the pandemic and the shift to remote work, fiscal watchdogs and business groups have raised the alarm about declining commercial property values in Boston as office vacancy rates climb. In recent months, several commercial buildings were sold for a fraction of their purchase price.
Property taxes fund about three-quarters of the city’s annual budget, and because Massachusetts communities are legally required to have a balanced budget, a significant decrease in commercial property values could mean a corresponding tax hike for residential properties to make up the difference.
Boston already uses a split tax rate to reduce the tax burden on homeowners and taxes commercial property at a rate about two-and-a-half times higher than residential, the maximum allowed by law. Wu’s proposal would allow the city to temporarily increase that ceiling on commercial real estate.
Wu has said in an ideal scenario, commercial property values remain stable and she would not need to deploy the measure. The proposal would give her the option to raise commercial property tax rates for three years.
If she does implement it, the policy would phase out over five years, which she said will help ease the transition to higher residential property taxes should commercial property values continue to decline.
“I foresee the main beneficiaries of this proposal are individuals who own property who are house rich but cash poor, like many of our seniors and tenants within small properties in Boston,” said Councilor Gabriela “Gigi” Coletta Zapata, who chairs the council’s government operations committee that oversaw the debate over the proposal, and urged her colleagues to approve the measure. “The longer we wait, the longer the delay, the less time there is for our colleagues at the Statehouse to take this up before their formal session ends on July 31.”
Councilor Sharon Durkan also passionately advocated for the proposal, and read an email she received from a constituent in January who told her their latest property tax bill increased more than 13 percent over the previous year, threatening their ability to stay in Boston.
“This is a tool in our toolbox to protect residents, preserving optionality for our city and preserving optionality for our body. To take part in tax conversations and decisions is our job,” Durkan said. “This is incredibly important [to pass]. ... Because if we don’t, we are going to get a lot more emails like that and we’re gonna have a lot more people that cannot afford to live in the city, cannot afford to stay in their homes.”
But real estate and development groups have mounted a fierce campaign to fight the policy, saying it would further harm an already struggling industry as well as small businesses, and accelerate a downward economic spiral in the downtown area.
“Increasing taxes on commercial properties, an industry that has long fueled Boston’s budget, and an industry facing existential challenges, is incredibly misguided, fiscally short-sighted, and ultimately will be proven to be economically problematic,” said Greg Vasil, CEO of the Greater Boston Real Estate Board, in a statement following the council vote. “Instead of increasing the commercial property tax rate, city and state leaders must focus on boosting the region’s competitiveness and attracting businesses. We urge officials on Beacon Hill to reject this deeply flawed policy and focus on reforms that do not punish any one industry.”
Before voting against the measure, Flynn said he worried about the proposal’s potential consequences.
“I’m alarmed about [exacerbating] current issues in the already struggling development and real estate industry, with the potential to lead to an urban doom loop, with cuts to city services that would make Boston less desirable and even further drive down property values,” Flynn said.
FitzGerald, who also voted against the policy, said he doesn’t believe anyone on the council wants to see a dramatic increase in residential property taxes, but worries the proposal will disincentivize companies from doing business in or being located in Boston. He also said it’s important for residents to know the proposal will not necessarily prevent their property taxes from increasing.
“It’s important for residents to know that this isn’t a solution for them,” FitzGerald said. “This is going to soften the blow over four years of what you would take on in one year, which is important. However, that does not make the issue go away year over year for residents, the increase will still occur.”
In a statement to the Globe, Wu expressed gratitude to the council for passing the measure.
“Our regional housing crisis is the biggest threat to the Commonwealth’s economy, and we need every possible solution at hand to make a difference,” Wu said in the statement. “For seniors on fixed incomes, for families with children, for frontline workers and all our community members, we must have the tools to keep community members in their homes while delivering excellent city services to support residents and businesses.”
Coletta Zapata told the council Wednesday she will continue looking into ways to increase tax exemptions for small businesses who would be impacted by the proposal.
Niki Griswold can be reached at niki.griswold@globe.com. Follow her @nikigriswold.