Property tax gap is just bad business

by Thomas Keane Jr.
Friday, November 21, 2003

For every reason except one, House Speaker Thomas Finneran has been right to resist Boston's panicked efforts to stop residential property taxes from jumping 50 percent this year.

The exception? I can't afford to pay the increase.

Self-interest trumps principle. And perhaps in this case, it should.

For most of us, this is a matter of far greater personal importance than whether Adam marries Steve. Pocketbook issues always are.

Here's the problem. The value of residential property has been skyrocketing over the last few years. Meanwhile, beaten up by the recession and joblessness, the value of commercial property has been falling.

It's an anomalous - and probably temporary - situation. As the recession ends and businesses start to do better, demand for commercial space should heat up, which in turn will drive up the value of commercial properties. Meanwhile, as new supply comes on line and residential mortgage rates inch up, residential values likely will soften as well.

But none of this will occur for at least several years, and the crisis is now.

And that crisis, quite simply, is that next year the average homeowner will face a tax bill of $800 more than this year. It's a stunningly high increase, one that could exact significant harm on families.

And it's a political crisis as well. As Boston's mayor knows well, voters blame the guy who sends the tax bill. And that tax bill clearly will say: Thomas M. Menino, Mayor, City of Boston.

That's why Menino - who faces re-election in 2005 - has been pushing for a new state law that would help him as well as other cities and towns in the same boat.

Menino's solution: Shift the burden to businesses. Ah, that's always the solution, isn't it?

And that's why Finneran, as well as Rep. Paul Casey, the Winchester Democrat who chairs the Joint Committee on Taxation, resist.

The recession has hit Massachusetts harder than most places, and it's exacted a real cost: an estimated 160,000 jobs have been lost over the last two years. Nationally, it looks like the recovery has begun. In Massachusetts, however, it's especially fragile.

Burdening businesses with more taxes would be just the thing, they figure, to kill a statewide recovery. And while they're not unsympathetic to the plight of homeowners who are hit with higher property taxes, they believe that's not as bad as having people unemployed.

There's more to it than that, however: To a large degree, Boston has brought this problem on itself.

State law allows cities and towns to tax property differently depending on whether it's residential or commercial. There are limits to this, but over the last few years Boston's pols have taken an almost gleeful delight in pushing those limits as far as they can, cutting property taxes on residents (which gives them great bragging rights at election time) while boosting them on businesses.

How far have they gone? Here's a real world example, provided by the Boston Municipal Research Bureau. A homeowner in Boston with a house valued at $400,000 pays property tax of $3,528.

How much do you think a hardware store in retail space with that same $400,000 value would pay? $5,000? $6,000?

Try $12,596.

Almost four times more.

Can you now understand why Finneran hesitates? The balance between business and residential property is out of whack and the speaker justifiably is hard pressed to rationalize tilting it even further.

Yet hitting homeowners with a 50 percent increase is hard to justify as well.

Is there a way out of the box? As the legislative session wound down, Menino proposed a compromise that would temporarily shift the burden onto business properties but, after a couple years, would ratchet back down to the current level. He lobbied for it fiercely, arm-twisting many in Boston's real estate community to go along with him. That they did, although their support was ``not enthusiastic,'' says developer Robert Beal. Menino got the Senate president to sign off (which was easy) and even persuaded the governor (which was a surprise and should be giving Republicans around the state conniptions).

Midnight on Wednesday, Finneran finally gave Menino some of what he wanted: ``Half a loaf and a question mark,'' in the words of one Taxation Committee staffer. He allowed cities to shift taxes to businesses somewhat (although less than Menino wanted) and then tossed the problem to a study commission now charged with coming up with a proposal by Jan. 12.

It was the right move. It plainly would be a mistake to hammer residents with a sudden tax increase. Yet the city's policy of saddling business with most of the property tax burden is also mistaken. There are two sides to this issue. This crisis provides an opportunity for Finneran and the study commission to address both.

Talk back to Tom Keane at tomkeane@tomkeane.com.