As she pitched her FY25 budget plans for Boston at a breakfast Wednesday, Mayor Michelle Wu pushed back hard at the idea that declining commercial real estate values could lead to a fiscal crisis for the city.
“I just want to address some of the information that’s been floating out there about, ‘Are we about to have an economic collapse? Is everything doomed? Are we on the edge of a cliff, and therefore are we making decisions that are sustainable?’” Wu said.
In February, a report from the Boston Policy Institute predicted that declining commercial-real estate values would lead to a reduction in property tax revenue and a revenue shortfall of more than $1 billion over the next five years, leading to a decline in the quality of city services and prospective residents choosing not to live in the city. The report warned of a “doom loop” in which this sequence then begins again and repeats indefinitely, with its effects continuing to worsen.
In her presentation to members of the Boston City Council, though, Wu said that, at present, diminished tax revenues from commercial properties would simply be offset by an increased tax on residential properties, with the city’s total property-tax intake remaining stable. She added that Boston’s economic indicators remain promising, with unemployment low, home values rising, and foot traffic downtown increasing.
“To point to some false information that the city might be experiencing a billion-dollar shortfall — that is just simply not true,” Wu said. “The way that our tax laws are structured … what happens when one sector might have their valuations fall is that it simply shifts onto another sector. There is no choice.”
The Wu administration has, however, signaled that it believes commercial property tax valuations may decline. In late March, Wu announced that she was filing a home rule petition seeking permission from the state Legislature to temporarily increase the tax rate on commercial real estate to prevent diminished commercial valuations from creating an undue burden on residential property owners.
At present, the city derives three-quarters of its revenues from property taxes, with two-thirds of that amount coming from businesses and one-third coming from residents.
As soon as Wu’s presentation concluded, the Boston Policy Institute emailed a statement calling its report “the ghost of Christmas future” and urging the mayor to “tak[e] the issues [it] identified seriously and prepar[e] for every scenario.”
The $4.6 billion operating budget Wu presented to councilors Wednesday is 8% larger than last year’s, but Wu said that number is misleading. It includes costs generated by the creation of a new city planning department staffed by former employees of the autonomous Boston Planning and Development Agency. However, Wu said, said revenues from the BPDA will simply be transferred to City Hall to cover those staffing costs, meaning that the change will actually be revenue neutral.
Without that shift, Wu said, the FY25 operating budget is about 5% larger than its FY24 counterpart.
The mayor is also proposing an FY25-FY29 capital plan totaling $4.7 billion.
Wu’s operating budget and capital plan requests include $6.8 million for programs aimed at helping Boston residents enter the workforce; $2 million for a new Housing Acquisition Opportunity Fund that would remove properties from the speculative market; a funding increase of $1 million for low-threshold housing for individuals living with homelessness and addiction; and $1.3 million for 12 new Emergency Medical Technicians.
The mayor is also proposing spending $31 million for a new library in Fields Corner; $54.5 million to repair and renovate city pools; $65 million for a new community center in Grove Hall; $155 million on road and sidewalk reconstruction aimed at increasing mobility and safety on city streets; and $1.3 billion for improvements to facilities in the Boston Public Schools.
