Lower city taxes? Don't bet on it

22 December 2000

When is a tax cut not a tax cut?

When you pay property taxes to the city of Boston.

City officials trumpeted some seemingly good news this week. Tax rates for 2001 are dropping. Residential rates, for example, will fall to $10.58 for every $1,000 valuation, a drop of $2.57 from last year's rate of $13.15.

Time to break out the champagne? Ready to engage in a little counter-cyclical, economy-boosting spending?

Not quite.

Odds are that when tax bills arrive over the next few weeks, you'll find that your tax is going up, not down. And if you're unlucky enough to live in one of the city's trendier neighborhoods, you probably should open the envelope while sitting, not standing.

What gives?

Sure, the tax rate dropped by almost 20 percent. But the amount you pay is figured not just by the tax rate, but instead by the rate multiplied by your home's assessed value. In fact, if your property value climbed by more than 24 percent, you'll be paying more, not less.

And guess what? According to the folks at the city's Assessing Department, the value of single-family homes climbed by 28 percent from 1999 to 2000. Condos rose by 32 percent. And multifamily homes - those triple-deckers that line the streets of communities such as Dorchester and South Boston - rose by a staggering 38 percent.

In three neighborhoods - the South End, East Boston and downtown - values jumped by more than 40 percent.

So now we know how ordinary citizens fared. How about the city's political luminaries?

Mayor Thomas Menino saw his home appreciate by 41 percent. He'll be paying $242 more in the new year.

Sheesh. You'd think that being mayor would count for something.

The mayor's allies on the council also face stiff increases. Hyde Park Councilor Steve Murphy will be paying $120 more. Council President James Kelly pays another $112.

Meanwhile, mayoral antagonists are seeing their taxes drop. West Roxbury Councilor Maura Hennigan will be paying $197 less. Dorchester Councilor Charles Yancey will see his bill cut by a whopping $575.

Is there a lesson here?

It used to be that the tax one paid was determined more by whom you knew rather than what you owned. That's no longer true.

Some of that change has to do with state law, which requires that all properties be assessed at their fair market value. That requirement alone eliminated a lot of the shenanigans that once went on.

Moreover, Boston's assessing department is now scrupulously run. Ron Rakow, its head, is widely admired for the professionalism he has brought to the operation.

Nevertheless, while fairly administered, it's still a lousy tax.

Let's start with the obvious. Unlike the income tax, which adjusts based on your earnings, property taxes go up and down regardless of how much you make. So unless you sell your home, the principal effect of a booming real estate market is that your wallet is a lot lighter. If you're on a fixed income, the effect can be devastating.

The tax itself also distorts the local economy. Taxing companies based on the amount of property they use discourages capital- intensive businesses. Property taxes tend to drive out blue-collar jobs that use heavy equipment or require expensive physical plants, leaving behind white-collar, office jobs that don't use much property.

Cities and towns also inevitably compete against each other. Boston's commercial tax rate is $30.17, well above the average of surrounding towns.

At the same time, while Boston's higher taxes may drive out businesses, its lower residential rates encourage people to move into the city. The average single-family home in Boston pays $1,820 in taxes. Statewide, the figure is $2,569.

Finally, property tax collections go up and down slowly, since state law limits the total of any annual increase to 2.5 percent. That makes it hard to adjust to changing economic conditions. The only escape around this limitation is new growth, which isn't covered by the 2.5 percent cap. That's one of the reasons, by the way, why mayors are inevitably pro-development. They see new buildings as a new source of tax revenues.

In an ideal world, cities like Boston would not have to rely on the property tax. The problem, however, is that there is no good replacement.

Other cities have experimented with city sales taxes, commuter taxes or city income taxes. The results weren't good. City sales taxes made people stop shopping in cities. Commuter taxes encouraged companies to locate in the suburbs. And city income taxes drove residents out.

The cures ended up being worse than the disease.

So localities find themselves stuck with a tax they would just as soon not have. And homeowners and businesses are finding that, instead of a Christmas gift of lower taxes, all they're getting this year is a lump of coal.