Property taxes: -- more certain than death....and far more complicated.

Time for city to update its PILOT program

Thu, 17 Dec 2009 00:00:00 -0500

Every so often, mainly when the property tax rates or the budget are being set, the City takes up the issue of tax-exempt non-profit institutions. It is, as they say, complicated.

Our wealth of colleges and universities defines Boston as a world-class intellectual center, contributing to the region’s vibrant cultural life and its high-tech, knowledge-based economy. We benefit from proximity to some of the world’s most renowned medical care facilities. Institutions are great employment centers, both creating jobs and producing the educated work force that attracts other businesses. And our institutions do contribute many charitable services, per their founding mission.

But they are not an unmixed blessing. These institutions are expanding rapidly, and while each is required to maintain an Institutional Master Plan, there is no overall city planning (at least, none shared with the public) that considers the balance between these powerful behemoths and the relatively fragile neighborhoods into which they encroach.

The unruly behavior of many college students living in neighborhood housing undermines residential quality of life, and the student consumer base tends to support pizza joints and futon stores rather than family-oriented stores. Serious social, educational and political impacts are evident as institutions destabilize and fragment long-standing neighborhoods. And they build as they please in their BRA-approved self-zoning districts, free from all size and use limitations intended to protect environmental and social values, and setting precedents later claimed by commercial developers.

As to the jobs: yes, they do employ many people; but 70% of them are from out of town, and they cost the city in terms of traffic and pollution and consumption of public services in the course of their workday. Most of the brainpower cultivated in their facilities moves away after graduation, unable to afford the housing. Notwithstanding enormous institutional growth, Boston, even with its islands of gentrification, is no wealthier as a whole community than it was decades ago: twenty percent of our residents live in poverty; the median income is about half the metropolitan area income.

Then there is the growing problem of their tax-exempt status, conferred long ago when institutions were small and their facilities were dedicated more closely to their core mission. Now, many have become huge real estate empires, replete with revenue-producing properties like shops (which are taxable but are often not recorded), dorms, entertainment/sports venues, and parking garages.

Non-profit institutions of health care and higher education own over $12 billion in assessed property value, for which they would pay, at normal commercial rates, about $360 million in property tax. Even at the City’s 75% "discount" (25% is presumed to cover the direct City services they get), these institutions should make Payments in Lieu of Taxes (PILOT) of $90 million. However, the City assessments of tax-exempt property are not accurate, and true assessments would yield much higher values. But we collect only about $10 million a year in PILOT from these institutions. PILOT amounts are negotiated with no apparent rationale, and often lie unchanged for decades, with many institutions paying little or nothing, despite sizeable endowment funds. Further, as tax-exempts buy up property, the assessed value of that property remains in the tax levy, to be made up by the taxpaying residents and businesses.

It rubs against the grain to tax charitable non-profits. But it is simply not viable for this body of taxpayers to continue to support these burgeoning tax-free mini-cities, which bode to one day meet and become one huge, tax-free zone, holding ever more powerful sway over city planning and policy, while the growing tax burden of running the city is shifted to beleaguered residents and businesses.

Institutions argue that they provide public benefits, meaning jobs and community services, such as contributions and volunteer work, and these should count toward their PILOT. But most commercial businesses also employ workers and support local charities (as do residents), and they can’t use their hirings and philanthropy to offset their property taxes. The city schools and streets and services - including services to the colleges and hospitals -- must be funded, the levy is increased every year, and what the institutions don’t pay in PILOT, the residents and businesses must pay in taxes.

There is always a threat, implied or expressed, that institutions may leave town if they are taxed. But residents and small businesses are already being taxed out; can we afford to lose them?

In recent years, they warn they may have to contract as demographics change, they may shift to foreign campuses, on-line classes, etc. But if other business models make more sense for them, our tax sacrifice won’t make the difference.

Institutions are important, but Boston shouldn’t forego taxes to become a modern-day company town, over-dependent on one economic generator. Specialization creates a branded identity and an attractive business magnet; but diversity, while less glamorous, is an essential hedge against the inevitable downturns of every sector. Diversity also creates opportunities for more residents with various kinds of abilities; employing our residents should be a major goal of our economic policy.

We have to find a rational way to allocate public subsidy to the institutions. We shouldn’t subsidize them beyond the original intent: supporting their charitable service to the community. This does not include "community benefits" and similar donations of the kind that any business might give, but only the cost of free or discounted services within their core mission.

If they keep starving our tax base, hollowing out neighborhoods, bidding up land costs, and reducing the quality of life around them, they will become islands of prosperity in a sea of squalor. That’s a lose-lose scenario. Institutions must remember that Boston’s infrastructure, public services and quality of life depend on all paying their fair share.

Disclosure: The author’s family is affiliated with two Boston educational and health care institutions.

Shirley Kressel
Published in South End News

A Tax on Both Your Houses: A Play in one Act and an Act in one Play

Sat, 10 Nov 2007 00:00:00 -0500

Or, how you were moved from the frying pan to the fire by Tom Menino, superhero. Watch carefully: the crisis is about to come around again, as commercial rents crash....

Mayor Tom Menino has just filed a bill, House 3119, to “rescue” homeowners from soaring property tax increases. The bill is avidly supported by the big business interests. Why are the big commercial property owners and our Mayor teaming up to” save” residents from the taxman? Well, let’s imagine….

Scene 1 City Hall, Mayor’s office. A day late in 2003, after three years of commercial recession.

Mayor Tom, on the phone with his Assessing Director:
But, Chief, what are you saying? The homeowners are gonna get hit with a 40% tax increase next year because the businesses’ rent incomes are way down and their taxes have sunk? Whoa! I’m gonna get a lot of flak for that, ya know; the usual suspects will be after me with pitchforks. But, yeah, I know, the residents have to pay up to fill that levy. What? Oh, ok, so we’ll get that “deal” passed in the state house -- we’ll lift up the business tax rate from 175% of the basic rate to 200% for a while and let it roll back down over four years, and the big boys in the office towers will have a little less of their tax reduction for a few years so we can wring it out of the residents slowly, right? Sounds good. Yeah, we really should jack up that business tax rate for good, and really give those owners and renters a break, considering how this system bleeds ‘em, but --- whatever our business buddies want, that’s fine. I mean, anyone who can’t pay hefty home taxes, we don’t want ‘em livin’ here anyway, right?

Scene 2. A smoke-filled back room in the State House, soon afterward. Business leaders meet with legislators.

Business leaders:
Listen, we wanna do our civic duty and rescue the poor homeowners from this tax jump, cause, look, we get all the breaks, right? Like, if our incomes go down, we pay less property tax, but no one was askin’ those folks how they’re doin’ in this recession. And anyway, if we don’t, they’re gonna get mad as hornets and start lookin’ into how this all works, and how we soak ‘em year after year. And then we’re really in trouble. So, ok, we accept the “deal.” We’ll pay a little more – or really, get a little less of a break, for four years.

But, we have a little idea. Let’s stick in a couple of things. Like, at the end, after our tax rate gets back down to the normal 175%, we push it down a little lower to 170% – permanently! And one more thing. You know that the residents’ part of the tax burden can’t go lower than 30%, right? But it can go higher, and in the next few years, it’s gonna go way up. So, let’s put in that it can’t ever come back down! Yeah, that’s what they’ll have to pay for these 3 years of relief! With those two little items, we’ll make out great, and it’s forever! And they won’t even know what hit ‘em, because they don’t know how this whole thing works anyway. We’ll just keep tellin’ ‘em it’s because their houses are so valuable, they should be happy! That’s what the City does! Yeah, we’ve heard ‘em!

Legislators:
But, but, won’t the Mayor be upset? And all the other cities’ officials? How will they feel about this?

Business leaders:
Nah, you know how Menino always wants to do right by us! He won’t mind. They all won’t mind. Business is much more important than residents. We can always threaten to leave town! When residents leave cause it’s too expensive for ‘em to live here, Tom’s happy! We’ve been trying to get rid of those kinds of people for fifty years! Richer folks, ya know, better ones, will come in to take their place!

Legislators:
Sounds good, and leave your campaign contributions at the desk on your way out.
……………………………………

Four years go by. Residential taxes go up by 78%. Commercial tax rate drops to lowest level in 17 years. The commercial rate is slated to go back to normal next year, and then to go below that the following year, as the law ended up saying.

Governor Deval Patrick steps in:
I promised residents property tax relief, and I’m filing a bill to keep the commercial tax from going back down for two years. That’s going to save them about $90 million. That’s getting to be real money!

Business leaders:
Hey, what’s this? We can’t have our tax rate frozen this high for two more years! We have to get back down to normal. A deal is a deal! No, not the deal that became law, the deal before that one!

Menino talking to Business Leaders:
Uh oh. Waltham and Burlington just called. Said you snuck in this thing into the law, and they can’t lower their homeowners’ taxes even though their commercial properties are able to pay more! Is that right?

Business Leaders:
Um…um, yes, but what’s the surprise, there it is in black and white for four years, and you didn’t know? We thought you just didn’t mind! (Winking and smiling)

Menino:
Well, the cat’s out of the bag, and I can’t let you do it; sorry guys, you know I would if I could. And that drop to 170% in 2009, yeah, of course I saw that way back in 2004, but look, good try but these little dirty tricks, they both gotta go.

Business Leaders:
You’re right, Tom, we can’t get away with our two little tricks at this point. Here’s an idea! How about a new “deal” -- we graciously offer to let you take these ploys away from us, and in return, you get us by that Patrick freeze. We end up even. We can always come back another time to see what we can do…but right now, we gotta keep up the public trust, if ya know what I mean, or we’ll get people too riled and then, ya never know what they’ll do. And they won’t even understand the whole 183% thing, we can make it sound like that’s higher taxes for them!

Menino:
This is easy. If we just repeal the whole darn law, we go back to square one. You pay down at your normal 175% -- that would have happened either way, if Patrick didn’t start meddling. We tell people we saved ‘em from some bad things that somehow got into the law. We both look like heroes. I mean, 175% is very good for you anyway, we shoulda forced you to stay at 200%. But what the heck, those people out there are just payin’ up, I hardly hear a squawk. We just tell ‘em it’s their own darn fault for payin’ so much for their houses – like they had a choice, ha ha. And when you guys have your next crash, we’ll pull the same trick, just lift up your rate for a while, and let it down slow, and cook those suckers gradually, like frogs. Which reminds me, I didn’t have dinner yet. Wanna celebrate with a nice chianti?

Menino and business leaders go off, arm in arm, to the North End for dinner.

Shirley Kressel

Tax protection for homeowners and tenants

Thu, 11 Oct 2007 00:00:00 -0400

Residential property taxes are about to rise again — but for a change, there’s something you can do about it.

You may have noticed a spate of Boston Municipal Research Bureau (MRB) reports and recommendations to “save” homeowners from property tax increases. The MRB is a corporate lobby, not, as popularly assumed, an “independent government watchdog.” Why the sudden concern for us tax-burdened residents?

First, a simplified history:

• Boston taxed all properties at the same rate until 1978, when “classification” allowed a higher tax rate on commercial than residential property. The intent was to help residents, but as it was structured, it helped businesses instead.

• The commercial tax rate was capped, but the residential rate was not.

• The residential float was exploited for business advantage: The commercial class, although its rate was higher, was protected by a ceiling of 70 percent on the share of the total levy it had to pay. But the residential share was not limited; on the contrary, our 30 percent share became a floor, no matter how much commercial value is added to the city.

• As a result, commercial owners are protected from fluctuations, and residents are forced to make up the difference. In economic downturns, any shortfalls — from lower commercial assessments and/or falling residential prices — are made up by raising the residential rate. And when commercial values soar, their tax rate is actually cut so that the residential share won’t go below its 30 percent floor. Residents absorb the risks of real estate busts — without reciprocal benefit during booms. This tax cushion encourages commercial overbuilding, aggravating the problem.

• A court decision upheld the net-income assessment method for commercial properties, while residential assessments are based on comparable sales. Assessments of office towers, luxury hotels, and lucrative garages average about 50 percent of their selling prices, while homeowners’ assessments are almost 95 percent of selling prices. This method obviously doesn’t reflect the true commercial “market value.” The MRB states that businesses own 31.5 percent of the property value but pay 57.6 percent of the levy, while residents own 68.5 percent of the property value and pay 42.4 percent of the levy. But on the real estate market, commercial “full and fair cash value” is almost double — and in truth the commercial owners contribute less than their basic fair share, much less a classification subsidy.

In the recent recession, as commercial lease income plummeted but residential home prices were inflated by the cheap-credit bubble, residents faced a 40 percent jump in 2004 taxes. Politicians facing angry voters negotiated a “deal” with the business interests, legislated as Chapter 3 of the Acts of 2004: a temporary commercial rate increase from 175 percent to 200 percent, set to ratchet back by 2008, spreading the pain over a longer, politically safer, period.

But the “deal” was sabotaged. As the MRB delicately puts it in an Oct. 2 Special Report, “Due to language inserted in the 2004 legislation as it was enacted” (i.e., slipped in when no one was looking), the law was subverted by business leaders. They tucked in two time bombs that would force residents to pay dearly, and forever, for our moment of “relief.”

First: The commercial cap would fall lower, to 170 percent, in 2009, giving them a permanent tax cut at our expense.

Second: The residential floor on the levy share could never go back down from its highest level. In 2007, our share is over 42 percent, and by 2009, it’s likely to be 50 percent, forcing residents to bear at least half the city’s property tax burden permanently, regardless of rising commercial incomes and slumping housing values. This provision was camouflaged in such obfuscatory language that many municipal and State officials, didn’t realize what it meant. Some cities recently found out — when they tried to lower residential taxes and couldn’t.

Our Ch. 3 “relief” so far: Residential taxes are up 78 percent over the past five years, while the business tax rate is the lowest since 1991.

This summer, Gov. Deval Patrick proposed a genuine residential relief bill keeping the commercial cap, now at 183 percent, from ratcheting down to 175 percent for two extra years. But the MRB protests that this would hurt businesses, insisting that “a deal is a deal” and demanding to “keep the deal in place.” Anxious to thwart Patrick’s residential relief, these businesses are now offering to give up their exposed extortionate maneuver, and to “save” residents with yet another “rescue” bill, House 3119, filed by Mayor Menino, eliminating their two time bombs and settling for the pre-“deal” status quo, which merely exploits us as before: “Changes in the existing property classification law are needed to restore the maximum tax share borne by business to its traditional level, and to delete a significant flaw in the language that may result in homeowners paying additional property taxes this year, even when residential housing prices are stagnant.” Suddenly, “A deal is a deal, and this commitment should be executed as planned to give confidence that future agreements between state officials and business leaders can be trusted and will be carried out as negotiated.”

We should not accept this. This moment of revelation, exposing the manipulation of our taxes by big corporations, should be used for genuine, permanent reform.

When Mayor Menino testified for the 2004 bill, he acknowledged that it was just a “band-aid” and called for a “system overhaul.” Yet, even after seeing such a merciless corporate attack on residents, he joins the MRB in depriving us of the Governor’s proposed two-year relief and protecting the commercial advantage.

The City will be setting FY 2008 tax rates before the end of the year. Tell your legislators and Mayor Menino that we won’t settle for the old deal. Homeowners and tenants have subsidized billion-dollar office towers for too long. We need legislation now to:

• Eliminate any residential floor and commercial ceiling. They effectively over-ride City assessments, possibly violating the constitutional requirement for “proportionate and reasonable” taxes. Shifts in class property values should simply result in commensurate shifts in shares of the tax burden. Neither class should take the risks for the other.

• Float the commercial rate, using it to make up for the difference in the commercial and residential "market-value" capture and, beyond that, to achieve classification’s intended cross-subsidy to residents.

Separate tax reforms are needed to force “free riders” — the BRA, tax-subsidized developers, and institutions — to contribute their fair share to the levy, reducing taxes for all.

But the unfair imbalance of commercial/residential levy share is the core problem — and it’s finally on the table. Some bill is going to be enacted. Don’t wait for the business lobby — or Mayor Tom Menino — to “save” you again. Get on the phone, and save yourself!

Shirley Kressel
Published in South End News

I-Cubed puts the City on the hook for development infrastructure loans

Tue, 10 Oct 2006 00:00:00 -0400

Five weeks after the legislature recessed, Mayor Thomas Menino’s tax-increment financing initiative (Infrastructure Investment Incentive or “I-Cubed”), was quietly enacted during what’s called informal session (i.e., no one is paying attention). Chapter 293 of the Acts of 2006 is yet another state “jobs-creation” incentive, speeding up big commercial development projects which are, supposedly, held up by the costs of site infrastructure (streets, utilities, parks, etc.).

The state will issue bonds financing infrastructure for developers who can convince the Secretary of Administration and Finance (A&F) and Commissioner of the Department of Revenue (DOR) that their projects will generate enough commercial state tax revenues to pay the bond debt. The infrastructure could be built by the developer as part of the project, and then become public property.

The Mayor and his legislative allies say that this is simply a smart financing strategy for public infrastructure, targeting areas where private development is being planned and will over time generate taxes to pay for it -- and attracting developers away from municipalities demanding private funding of infrastructure.

True, public infrastructure should be publicly funded; but shouldn’t our investment in public services be targeted by comprehensive city planning for high-priority needs, rather than by the investment plans of big developers? Roads for a particular site may give less over-all economic – and social -- benefit than a mass transit project or a bridge repair elsewhere, or services like police and schools. Development on other sites may be “smarter growth,” or more environmentally sound. Land may be better used to support uses that wouldn’t qualify, such as housing. In short, I-Cubed will divert public money from more urgent needs to highly profitable private projects spinning the usual jobs-and-taxes promises.

The Mayor is proud of getting tax-increment financing using state rather than city taxes to pay the bonds. But state taxes are still public money belonging to all taxpayers, and if used for these projects won’t be available for other needs. And the state pays only as long as the project succeeds; it’s the City that is exposed to the risk of project failure. Until the state collects all the revenues needed to pay off the bonds, the City – already living on reserves -- must maintain a separate reserve fund equal to two years of bond payments. If the City fails to pay, the State will withhold local aid.

The most alarming problems with I-Cubed are the public funding for privately promised community benefits, and the exemption of these public infrastructure works from public bidding and quality-control laws.

I-Cube doesn’t exclude from bonding the “community benefits” –roads, parks, transit, etc. – that developers agree to provide in exchange for relief from city zoning (e.g., PDAs (Planned Development Areas)) and state requirements (e.g., Chapter 91 waterfront regulations). If these “community benefits” are publicly bonded, developers will “double-dip”: they’ll agree to public benefits in return for bigger, more profitable buildings, but won’t actually pay for those benefits – we will. And the state and city will be eager to approve whatever over-sized projects developers say is needed to generate taxes sufficient to cover the bonds -- regardless of zoning violations and environmental impacts. Of course, if the projects don’t give up their extra height/density, they will violate PDA and Chapter 91 laws and will be subject to lawsuit – although the burden of enforcement, a government responsibility, will fall on the citizens.

Private developers will build public infrastructure; yet Mayor Menino insisted on exempting Boston infrastructure work from state engineer-selection and competitive-bidding laws that protect taxpayers from unfair pricing and public safety hazards. How could such an exemption be passed as the Big Dig scandal rages? And why only Boston? The city’s perverse reasoning: “Because that’s where the biggest infrastructure will be” --exactly where, I would think, the most protection is needed. This is bad public policy: It allows the price of public works to be obfuscated by rolling it into a "private" development, and allows accountability for quality control and oversight to be blurred by a "public/private partnership" structure where both parties have incentives to cut costs. Neither city nor state spokesmen could say who is liable for injury in case of infrastructure failure. Some agreement, the city says, will be worked out with each developer after the I-Cubed deal is awarded; but by that point, the government’s leverage is gone.

Developers can also, per the law, be given no-bid contracts for maintenance of the public infrastructure after it’s built and conveyed to governmental agencies. Aside from the same accountability and financial issues, this provision is an invitation to the property owners to privatize, gradually and quietly, the character and access of those public streets and parks.

At the last minute, fortunately, I-Cubed excluded private parking garages, which would have provided a gigantic subsidy to developers, as well as projects receiving certain other kinds of tax relief and institutions of higher education. The law is also limited to two new (i.e., not previously approved) projects per municipality within the next five years, with a total cap of $200 million in bonds, so at least the risk of this untried and hastily enacted program is contained – for now.

Public hearings are required, so Boston taxpayers can protest unlawful or ill-advised I-Cubed awards before City Council. But protest loudly: the Councilors I called were apparently not informed before the legislation was introduced, and despite my suggestion to the Chair of Ways and Means, no City Council hearing was held before passage.

The DOR and A&F are required to create regulations or guidelines by December 31. We should contact them and demand that:

• Public benefits promised in trade for building excesses must not be eligible for bonds paid by public revenues. If they are publicly funded, the project must give up all extra height and density.

• All public infrastructure work should be subject to Chapters 30B, 149, 7, and other state laws requiring competitive bidding and engineer pre-qualification.

I-Cubed is promoted as a way to fund development-burdening public infrastructure. It should not become a subsidy to private developers, nor an escape hatch from laws that protect public safety and public money.

Shirley Kressel
Published in South End News

Residential property taxes will soar without reform

Thu, 26 May 2005 00:00:00 -0400

Whether you are a homeowner or a renter, you’ve been hit – or soon will be -- by a huge jump in property taxes. The problem is going to get worse: residential taxes are projected to almost double in the next few years. To protect residents, we’ll need some dramatic changes in the tax system – and so far, no one in the city or the state is paying attention.

In 2003, soaring home prices, combined with falling commercial valuations, precipitated a crisis. In the face of a 40% residential tax increase, Mayor Menino supported state legislation that would shift the burden slightly -- and temporarily -- from residential to commercial property – a band-aid, he called it, acknowledging the need for system overhaul. That shift is already swinging back, and by 2009, the residential burden will be greater than ever, if current property value trends continue as expected.

Several types of problems are involved and we should be studying a package of reforms.

First: The assessment method for “fair market value” of property differs for big commercial buildings and residents/small businesses. Residential assessment is based on comparable sales, while commercial is based on net income; that is, office tower owners are taxed by “ability to pay,” while homeowners and renters are taxed on real-estate market prices. So, while commercial owners have been protected as the economic downturn has lowered their lease rates, residents have had no such income-based consideration – indeed, they bear the tax burden of skyrocketing home prices as supply fails to meet demand, even as their own income may be cut by the same downturn. In fact, taxes on big office buildings are negotiated based on self-reported net income, and they pay on the average on only about half of the market prices at which they sell. Just one example: the enormous One Lincoln tower recently sold for $705 million; it’s taxed on a city assessment of $200 million. Unbuilt land is often wildly under-taxed as well; the Fan Pier owner pays on a $23 million valuation, while he’s asking $125 million for sale. Even business-friendly Mitt Romney is saying that the true value of office towers has to be captured.

Second: The property tax burden is unfairly distributed. Tax “classification” started in l983, allowing cities to shift some of residential tax burden to the commercial “class” of property by setting differential tax rates. But a complex formula set a floor for residential taxes, requiring residents to pay at least 30% of the total tax levy. For commercial property, on the other hand, a ceiling was provided, to keep them from rising above 175% (currently 190% per the new legislation) of what they’d pay without classification. So, in past years when commercial property value rose, residents ended up subsidizing commercial: without the ceiling, commercial properties would have been liable for as much as 74% of the property tax during this period, with a fall in the residential burden. But in the 2003 re-valuation, when residential prices soared and office-tower income fell, residents had to make up the difference. The 2004 legislation raised the commercial ceiling to 200%, but housing prices had gone so high that we still ended up with a 12% increase. The legislation lowers the cap gradually for five years to 170% -- so residents will end up being hit even harder, paying up to 50% of the total tax levy. Even if the bubble bursts on residential prices, our taxes won’t be reduced; the rates will just be raised to make up for the fall in assessments.

Third: Tax-exempt entities own over half of Boston’s land, and far more of its developed value. Much of it is government land, federal, state and city, and a good bit is owned by charitable organizations. But the fastest-growing tax-exempt sector is institutional: medical and educational institutions are expanding at astronomical speed, gobbling up taxable land and building huge projects that put heavy demand on public services. They are supposed to pay Payments in Lieu of Taxes (PILOT), but many don’t; and the PILOTs that are paid are loosely negotiated and amount to pennies on the dollars due by any measure of fair share. Institutions even contain many fully taxable uses, which they neglect to report. The Mayor and City Council know about this hole in our tax base, and simply refuse to insist, as other towns have done, on reasonable payments, because “institutions provide jobs” (although 75% of them go to suburbanites) or “they might leave town” (conjuring up fearful visions of Harvard decamping in a huff for Cleveland). Well, all businesses provide jobs; should they become tax-exempt too? All residents contribute to the vibrancy of the city; they pay ever-increasing taxes, and the City doesn’t seem to care that they are being priced out of town. The Authorities also have vast property holdings; Massport pays a trivial PILOT, while the MBTA and MTA pay nothing. (Note that bringing commercial uses within institutions and authorities like Massport into the tax base now will actually increase the residential burden, as the commercial ceiling falls and shifts more tax burden to residential property, unless they are added to the existing commercial aggregate value rather than counted as new growth.) The BRA owns hundreds of properties, some paying rent, all tax-exempt. By law BRA could be paying PILOT too, and tax on taxable uses – if the Mayor and City Council asked for it. They don’t. This is on of many free rides they give the BRA, which then tells us we can’t afford to create a Planning Department and we’re lucky that they do our planning work “for free.”

Fourth: the City gives big commercial and luxury-housing developers huge tax breaks, such as Chapter 121A and Tax Increment Financing – breaks intended for affordable housing, or for blighted, impoverished areas. These have been boondoggles for decades, as acknowledged in an internal BRA report back in l977; in today’s Boston, there is even less justification for these give-aways. I estimate we are losing $100 million a year from the very projects that should be enriching the city treasury. That’s actually the total amount of the residential tax increase in 2004.

Fifth: Boston taxes are increased by 2.5% every year, no matter how much money we get from other sources. This maximum allowed by Proposition 2 1/5 is used by politicians as a minimum. So increasing PILOT payments won’t reduce your taxes unless they are used to offset taxes, not simply to add to our bloated budget. Forcing 121A’s to pay real taxes as “new growth” will just lead to lowering the commercial tax rate for all commercial properties, to keep the commercial levy below the ceiling. New revenue sources, such as parking surcharges, meals taxes, lotteries, and other user fees will burden resident further rather than replacing taxes, unless we can stop the automatic 2.5% levy increase. Conversely – don’t be cowed by the Mayor’s threats that demanding the services you’re entitled to, like park maintenance and street cleaning, will raise your taxes: he already raises them as much as he can; you should insist on your services.

So the property tax system is quite complicated, and remedies have to target various problems. There is no magic bullet. Here are a few to consider.

The office-tower income-based assessment method has been upheld by the courts, so we have to capture the true market value by another kind of tax, e.g., a capital-gains tax on sales, to make it fairer relative to residential taxes.

The classification system has backfired in Boston, a city with enormous commercial development, protecting commercial owners and leaving residents at risk. The two could be de-linked, and each taxed per its actual value (perhaps with a cap on yearly increases), such that residents aren’t at unlimited risk to take up the fluctuation in office tower taxes. If residential values fell, taxes would fall. But if we don’t want to risk fluctuations like that in the tax revenue, we can require that the shortfall make-up work both ways, so commercial is at the same risk when residential values fall.

Institutions and state authorities should pay PILOT by a formula that relates to their drain on city services; current PILOTs are a fraction of the rule of thumb, 25% of full market value. They should pay full taxes on uses that would be taxable if owned by others, e.g., dorms, parking, restaurants, etc. and be fined for underreporting commercial uses within their properties. State and Federal property should also pay PILOT; these (like the institutions) serve the greater public, and can’t be supported solely by Boston property owners. Institutional expansion can also be discouraged by imposing zoning limits, or by taxing new institutional growth. Profits of property sales by tax-exempts, which are subsidized for decades and shouldn’t be profiteering in the speculative real-estate market, should be taxed away.

Obviously, the tax-break hemorrhage is overdue for halt; there’s no reason to be giving tax breaks to developers in Boston – especially for projects like the Landmark Center, the FleetCenter, the Post Office Square Garage, 10 St. James, Jurys Hotel, and the Manulife tower. A recent study shows Boston to be one of the lowest business-tax cities in the US. And taxes are a minor consideration in business location decisions. We’d do better to impose fair taxes on everyone and make sure our city has the best services and more housing—those are the location criteria for business, not tax breaks.

We all pay a hidden subsidy to office towers, institutions, and the BRA and other exempts; these hundreds of millions a year would radically reduce the residential (and the commercial) tax burden. We should collect revenues from those who aren’t paying their fair share, and we should raise taxes by the amount we really need, not by the percent the law allows.

Currently no one is looking into the fundamentals of the problem. Deferrals for seniors and low-income homeowners are floated as more band-aids but are just distractions, as are tough talk about new local taxes. Politicians won’t take this on – won’t even bother to understand it -- unless residents force them to. Campaign season is the time.

Shirley Kressel
Published in South End News