Boston has a revenue problem. And it’s not getting any better. Regardless of the recent back and forth on Beacon Hill, Mayor Michelle Wu’s now-failed compromise with the business community on property taxes just kicked the can down the road. Beyond the finger-pointing and debate over valuations and tax estimates, Boston residential and commercial property owners will soon receive property tax bills with higher rates. Nor are Boston renters immune, as property owners will likely pass on the increases to tenants.
What’s at stake? A recent Boston Policy Institute report, The Fiscal Fallout of Boston’s Empty Offices, estimates that Boston could, by 2030, face a $500 million revenue shortfall due to a projected decline in commercial property values.
That projected decline has already begun to hit, which is why there were all those shenanigans at the State House. Boston relies heavily on property taxes, which fund 71% of its $4.6 billion FY 2025 budget. Twenty-five years ago, only 50% of city revenue came from property taxes.
The current trend of ever-increasing reliance on property tax is clearly not sustainable. Boston’s commercial property owners presently pay one-third of Boston’s total property tax bill, higher proportionately than most cities. This fiscal year, commercial property values in Boston fell 7%, reflecting high office vacancy rates amid the persistence of remote and hybrid work policies.
Nor are service cuts — the other “solution” casually tossed about— much of an answer. Here it is worth recalling that despite our many problems, as a whole Bostonians live well. This year, the Institute for Quality of Life, based in London, ranked Boston second among all U.S. cities examined. Cutting city services will harm our quality of life every bit as much as higher taxes.
What can city leaders do? Boston must address its long-term reliance on property tax. Threatened cuts in federal funding from the new administration in D.C. could make the challenge even worse.
Are there options? One option that is staring city leaders in the face is the need to tap into two of the city’s leading industries —nonprofit hospitals and universities. Yes, these institutions welcome people from around the world, but Boston taxpayers bear the burden. As these institutions continue to expand their footprint, Boston taxpayers are forced to provide the necessary revenue to meet growing city service needs.
Of course, nonprofit institutions are exempt from property taxes. Since 2011, however, in Boston, large nonprofits with more than $15 million in commercial property have been expected to make “voluntary” contributions in lieu of property tax. This goes under the very wonky name of “Payments in Lieu of Taxes” or PILOT.
According to a formula developed through a task force convened by Mayor Thomas Menino, with participation from area hospitals and universities, institutions committed to make annual cash payments equal to one-eighth of full commercial property tax rates (matched by “community benefits” of a like amount). Payment is voluntary, but institutions were expected to act in good faith.
Initially many did. But this commitment has waned over time. In Fiscal Year 2023, if institutions had made their current requested PILOT payments, the city would have received $61 million; instead, it only got $35 million. Even this, however, understates the shortfall, because that $61 million figure is based on out-of-date Fiscal Year 2009 property assessment values.
The City Auditor conducted a new assessment in Fiscal Year 2022. The more up-to-date figures, if implemented, would mean that full PILOT payments could contribute well over $86 million a year to city coffers — in other words, about $50 million more than currently collected. All that is required to achieve this is for eds and meds to chip in cash at merely one-eighth the rate that their for-profit counterparts pay.
To be clear, we are aware that $50 million is only 10% of what is anticipated to be as much as a $500 million gap by 2030. On the other hand, that’s a 10% cut in the current projected fiscal shortfall without raising either business or residential tax rates. We take that to be a good thing. It is also one tool to create an additional reliable and predictable revenue stream.
Leaders at our city’s “eds and meds” like to tell us from time to time that they are anchor institutions. Many of our city’s institutions proudly tout their community contributions.
Yet while they benefit from the services the city provides, when it comes to honoring their commitments to the city, too many of them have consistently fallen short. Now, as the city faces a growing and continuing structural funding challenge, it is time for Mayor Wu to call upon these institutions — universities and hospitals — to show leadership, step up, and bear their fair share. Anything less would be unfair to Boston residents and taxpayers.
Steve Dubb is a volunteer for the Boston UJIMA Project, which bills itself as a democratically governed investment fund, and co-author of “The Road Half Traveled: University Engagement at a Crossroads.” Enid Eckstein is a co-chair of the PILOT Action Group, a community coalition advocating for PILOT reform.