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Boston Mayor Wu says she won't compromise on plan to hike business taxes as City Council preps for hearing on alternatives

Gayla Cawley, Boston Herald on

Published in Business News

Boston Mayor Michelle Wu told the City Council that she won’t compromise on her plan to raise commercial tax rates to provide relief to homeowners as the body prepares to tee up a hearing on alternative proposals later in the week.

Wu sent a letter to city councilors Tuesday, outlining drastic reductions she says would have to be made to key public safety and other city services, including several championed by the Council — should her administration cut even 1% from the budget, as recommended by a financial watchdog group that has criticized the pending tax hike and the budget’s 8% growth.

“To avoid violating contractual and legal obligations and the disruption of layoffs, the city would have to cut approved personnel who have not yet been hired and planned programs that have not yet been implemented,” Wu wrote.

“To be clear, these are all critical investments necessary to enhance access and meet community needs, and I strongly reject the assertion that these budget cuts would be a responsible action to take for Boston’s residents, businesses, or our larger economy.”

Wu said that based on an analysis conducted by her office, a 1% cut to the $4.6 billion fiscal year 2025 budget — which she cited as an alternative suggestion put forward by the Boston Municipal Research Bureau — would result in a $46.4 million reduction in key city services.

The cut would cancel Boston Police, Fire and EMS Academy classes ($7 million); pause the largest city departments’ planned hiring, namely at Inspectional Services, Boston Center and Youth and Families and Boston Transportation ($4 million); pause job reclassification efforts that would “adjust key roles to market conditions for more competitive recruitment and retention” ($800,000); and delay the BPD promotional exam ($1.8 million).

It would further withdraw funding for the June 2024 City Council amendments added to the budget, for youth summer jobs, housing stability and more ($3 million); and cancel contracts and new technology procurements for upgrading permitting software to improve processes at ISD and for implementing reforms to BPD paid details as ratified in the police contract ($2 million), Wu states in her letter.

Wu said a 1% cut this fiscal year would also force her administration to eliminate grant programs for youth development, safety and activation ($1.5 million); and reduce the city’s contribution to fully funding long-term liabilities such as OPED or Boston’s Other Post Employee Benefits ($20 million).

“Furthermore,” the mayor wrote, “the proposed 1% budget cut would not solve the problem of a residential tax spike: a $46.4 million cut would be required by state law to be proportionally shared by both the commercial and residential sectors.”

“So, the average single-family home with a residential exemption would still see a 25% quarter-to-quarter spike, while generating an additional tax cut for commercial properties on top of the baseline increase,” Wu added. “Our legislative solution is designed to create stability, while this alternative would benefit the commercial sector over the residential sector 2-to-1, providing a corporate windfall on the back of vital city services.”

Marty Walz, interim president of the Boston Municipal Research Bureau, pushed back on the mayor’s analysis.

“The Research Bureau’s suggestion to reduce spending by a modest 1% or 2% would reduce the budget by approximately $34 million to $68 million,” Walz said in a statement. “Our analysis differs from that of the mayor in that we suggest reductions only in the portion of the budget within the mayor’s spending discretion.

 

“Modest reductions in spending are part of an overall approach and are not aimed at solving the entire problem.”

Wu’s letter comes about a week after her administration released the city’s first assessment estimates, showing a projected 27.8% quarterly spike the average single-family homeowner could face next year without her proposed legislation versus 9.9% with it, while putting pressure on the Senate to act on the stalled bill by late November.

The projected double-digit spike for homeowners is brought on by declining commercial property values driven by changing post-pandemic work patterns and vacant office buildings. That dynamic has eroded the city’s commercial tax base and is projected to shift more of the tax burden, by way of a city budgetary structure that derives more than 70% of annual revenue from property taxes, onto homeowners.

Wu says her bill seeks to resolve that scenario. If it passes, the city would be allowed to shift more of its tax burden onto businesses beyond what is allowed by state law.

Critics have pointed out, however, that the mayor’s plan would provide just a $495 annual tax savings for the average single-family homeowner with the legislation, or about $9.50 per week.

Two alternatives options, put forward by Councilor Ed Flynn, will be explored during a City Council Ways and Means Committee hearing on Thursday.

One option co-sponsored by Councilor Julia Mejia involves exploring the use of “surcharges to provide residential tax relief.” Another, that has caught the Wu administration’s attention was co-sponsored by Councilor Erin Murphy and involves providing $45 million in city funds over three years to residential taxpayers most in need of relief, or those with homes assessed at $1.5 million or less.

Such a “rebate” approach has been dismissed by the mayor as “illegal,” something Flynn pushed back on Tuesday.

“My proposal would seek a change in state law, just as the city is advocating for with their home rule petition to increase commercial tax rates,” Flynn said in a statement. “I’m open to adjusting the legislation so it goes to the general fund. In the final analysis, we have a spending problem. We need to cut city spending and manage our hiring practices.”

Murphy, in a statement, said she has “been asking for alternatives, a Plan B, since this was first sent to us on the Council back in the spring,” and will “continue to work on innovative solutions so our homeowners and our commercial and small business owners are not hit with large tax bills.”

“The mayor has made it clear that she isn’t open to any other options,” Murphy said, “and that worries me seeing as though it still hasn’t passed through the Senate, and looks as though it may never make it through.”


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