Boston Property Tax FAQ
I have been asked many questions about Boston’s property taxes and what happened recently with legislation at the Statehouse. I thought I would prepare FAQs to help people understand the process and where things stand. Throughout this process, I tried to help Boston secure state approvals that I thought were more reasonable for residential taxpayers while not shifting too much cost onto businesses. Unfortunately, legislative efforts to help Boston’s residential taxpayers have failed.
1. Why was the State legislature involved with Boston’s property taxes?
The City of Boston (through the Mayor and the City Council) sets Boston’s budget and property taxes annually and reassesses all properties every five years (this year was the reassessing year). All municipalities in Massachusetts have been limited with respect to these responsibilities by some state laws that have been passed by voters and the legislature. The City of Boston sought an exemption for Boston alone from a State law, so the legislature was involved.
2. What are the relevant state laws that apply to all municipal property taxes?
First, municipalities cannot raise property taxes from all types of property, in total, by more than 2.5% from one year to the next. There are some exceptions to this, like for new development. If a municipality does not increase its collections by the maximum 2.5% in one year, it cannot make up for that in a subsequent year. This was decided by a voter initiative petition that passed in 1980 that was called Proposition 2 ½.
Second, municipalities cannot charge different rates within the same types of properties, but they can charge different rates for residential properties and commercial properties. This means that Boston (and all other municipalities) cannot charge one rate for residential property in one neighborhood and another rate in another neighborhood. The rate has to be the same across all neighborhoods. Boston (and all other municipalities) can charge one rate on residential property and a different rate on commercial property though.
Third, municipalities cannot charge commercial properties a rate that is more than 175% of what the rate would be if all classes of properties were charged the same rate. This means that municipalities must figure out the rate they would need to charge all properties in order to meet their revenue goal. Then the municipalities can charge commercial properties 175% more. This calculation was set in state law long ago and has been modified over time. Boston sought to change this last law this year.
Finally, there are local options in state law that permit every municipality to adopt property tax exemptions. One local option allows municipalities to set a residential exemption of up to 35%. Another local option allows municipalities to create a property tax exemption. Boston fully takes advantage of both of these options. It has a residential exemption and senior exemption, among other exemptions.
3. Has any other municipality made a similar request to the one Boston made?
Yes, Watertown sought to change this exact state law earlier this year and the change was approved by the House and Senate and signed into law by Governor Healey. Mayor Menino also sought this change for Boston decades ago and the State approved it.
4. What is the issue that Boston was trying to address?
Boston has consistently used the full discretion that State law provides. I understand that every year since Proposition 2 ½ became law in 1980 that Boston has annually increased the total it collects from property taxes by 2.5%, plus more for new development. In addition, I understand that Boston has consistently charged the maximum additional it could charge for commercial property versus residential property. Apparently, bonding agencies have given Boston a AAA rating for years because of this predictability.
In the past year, residential values have increased overall and commercial values have declined overall. As a result, to raise the maximum 2.5% more than was raised from property taxes last year, residential taxes would have to increase significantly to make up for the decline in commercial values.
Initial estimates showed that residential property taxes, on average, would increase by 16.5% this year. Because property taxpayers have paid two bills already, the increase would appear only on the last two bills, increasing those bills by 33%.
5. What happened in the legislature?
The Boston City Council passed what is called a “home rule petition” to allow Boston to exempt itself to some degree from the state law setting the limit of how much more Boston could charge commercial buildings versus residential ones. It proposed the exact home rule petition that Mayor Menino proposed and secured decades ago.
The bill was filed in the House, which renegotiated the deal with the City. The home rule petition sent to the House was “unamenable”. As a result, the House agreed that the Mayor would issue an Executive Order to restrict her discretion under the bill to a lesser shift, she would create a new fund to help retail businesses that struggled because of the change, and the change would phase out over three years instead of the five years the City proposed. This was passed by the House at the end of July 2024. The Boston delegation in the House, including me, voted for it unanimously.
The bill then went to the Senate. The Senate President said that the Senate would not pass the bill unless certain business stakeholders agreed to the proposal. Mayor Wu did a great job securing the support of these stakeholders (Boston Chamber of Commerce, Boston Municipal Bureau, NAIOP, and Mass Taxpayers). The agreement reached on October 22, 2024 was as follows: the City would pass a new home rule petition that limited Boston to three years of change, that Boston could charge the commercial properties 182% more than residential properties this year, 180.5% next year, and 178.5% the year after that, and that Boston would still create the small business relief program that the House had insisted upon.
The parties based the negotiation on preliminary estimates that the City had prepared in early October 2024 while it finalized its numbers. Based on the estimates, the business stakeholders thought that residential property taxes would increase by 9% this year (or 18% on the next two bills). Nine percent is the average that all of Boston’s residential property taxes have increased each year over the last five years.
Once this agreement was reached, the City Council quickly passed another home rule petition that contained its updated terms, the Mayor signed it, and it was filed in the House again. The House passed it and sent it to the Senate. The Senate then refused to pass it and last week on December 9th declared it “dead”.
6. What happened in the Senate?
Senators objected to its passage and delayed it until final numbers from Boston were released. Boston had prepared and submitted final numbers to the Massachusetts Department of Revenue (DOR), which every municipality is required to do, two days before Thanksgiving on November 26, 2024. Once DOR approved the numbers, Boston released them on December 8th. (The prior weekend, the Mayor sent a letter to Senators with the new calculation based on the numbers Boston submitted for approval.) The values of less than 1% of the properties changed between the City’s initial estimate and final calculation. This was sufficient to move the numbers.
The final numbers reflected that residential property taxes would increase 10.5% for the year without the bill passing (instead of the 14% anticipated) and would instead increase 5% if the bill passed.
Because of the final numbers, the business stakeholders withdrew their support and support in the Senate collapsed at the same time.
7. What happened then?
Last week, the Boston City Council set the new property tax rates for the City and used its maximum discretion under state law. This means that residential property taxes on average will increase 10.5% for this year, which will be 21% increase on average on the next two bills. The City Council adopted the maximum exemptions that it could as well, including the residential and senior exemptions.
8. Will my next property tax bill be 21% larger than my last bill?
Maybe. A 21% increase will be the average increase for all residential property taxpayers in Boston for the next two property tax bills. Some taxpayers will pay a greater percentage increase and some will pay a lesser percentage increase. The more your property has increased in value in the last year, the greater the percentage increase you will face. Overall, this will be the largest residential tax increase in Boston since 2007.
9. Why didn’t Boston cut its budget instead of raising property taxes?
The argument that I saw from the City was publicly articulated by our former Boston CIty Councilor Kenzie Bok in this letter to editor of the Boston Globe. Notably, even if Boston cut its budget, that does not necessarily mean that residential property taxes would not increase by the same amount. For that to change, Boston would need to cut spending associated with property taxes specifically and collect less than the Proposition 2.5 mandate, which I understand Boston has never done. Indeed, when Mayor Menino made this change, he cut that budget and that did not impact the amount he raised from residential or commercial property owners.
Also, the legislature did not have the issue of Boston’s budget before us, the only decision pending before the legislature was whether or not to grant Boston more discretion when setting the share of property taxes paid between residential and commercial properties.
10. After this year, what will happen?
The biggest issues are whether residential values will continue to increase overall and commercial values continue to decrease overall and whether Boston will continue to raise 2.5% more each year in total property taxes.
Some believe that commercial values will continue to decline in Boston for the next five years and the decline could lead to a significant loss of revenue. If that occurs, Boston will either need additional revenue sources, to spend less, or a mix of both. Property taxes make up around 70% of Boston’s revenues, so that issue looms large. Traditionally, Boston has relied on new development as its source of new revenue.
I am evaluating the local options available for exemptions to municipalities and plan to file legislation in January 2025 for next term to provide municipalities more discretion to provide property tax relief to residents and seniors.