THE CITY OF BOSTON’S fiscal management policies, backed by an economy buoyed by government, higher education, and health care sectors, put the municipality in a “healthy” position to weather expected declines in its commercial property tax base driven by the rise of remote and hybrid work, according to an new analysis from Moody’s Ratings.
The Moody’s analysis affirms the triple-A bond rating for the city, the top credit rating available. S&P Global Ratings also recently made the same determination in an April analysis that looked at multiple cities. The high credit rating means the city gets better rates on borrowing funds for its capital projects.
But Moody’s also warned the effects of remote work are starting to hit some office property types. Property taxes make up 70 percent of Boston’s revenue, and 60 percent of that comes from commercial taxpayers. “It is likely that January 2025 assessed values will reflect further declines in values in commercial subsectors to an extent that total commercial value could decline for the first time since 2010,” the analysis said.
Ashley Groffenberger, Mayor Michelle Wu’s chief financial officer, said the analysis bolsters City Hall’s argument that the municipality can withstand the potential hit. “They note we’re in a good position to manage through it,” she said. “They don’t reference any concern about loss of revenue.”
The Moody’s analysis pointed to – but didn’t endorse or pan – the Wu administration’s proposal to prevent a spike in residential property taxes if a big decline in commercial values occurs.
The proposal, which needs approval from the City Council and Beacon Hill leaders before it can be implemented, would allow the city to shift for a short period of time even more of the tax burden on to the commercial sector. The Wu administration is pushing to get the proposal passed this summer, before the Legislature wraps up its work, and ahead of 2025, which is a municipal election year.
The business-backed Boston Municipal Research Bureau earlier this month said the city should weigh other proposals instead, including tapping the city’s rainy day fund and slowing spending. Jim Rooney, the CEO of the Greater Boston Chamber of Commerce, also noted the reserve fund, and suggested limiting budget growth.
If Boston takes less than the full property tax levy, forgoing future revenue, that could have an effect on the credit rating, Groffenberger said. Tapping the reserves could lead to a similar situation, as a decline in the rainy day fund could lead to a credit downgrade, on top of “creating a big fiscal cliff for yourself at some point down the road.”
As for the Moody’s analysis, it’s turning out to be something of a Rorscharch test in the debate over the tax shift proposal. For example, the analysis includes the line that separate from the city’s tax revenues, “tighter control over expenditures and use of reserves could be needed to balance operations depending on the severity of the challenges during this economic cycle.”
Groffenberger’s interpretation of the line is that “of course the city would need to be mindful of spending” if a recession or economic downturn is on the horizon, which City Hall doesn’t see as happening. “To me that’s just a general caution that is not unique to Boston and would be the case for any city facing an economic downturn,” she said.
Marty Walz, the Boston Municipal Research Bureau’s interim president, said the analysis bolsters what her group has argued. “That is, the increase in commercial property taxes is one option but it’s not the only option,” she said.
“And like the Boston Municipal Research Bureau, Moody’s identifies tighter control over expenses and use of reserves, and revenue diversification as options the city could consider,” she added, noting the analysis mentions Gov. Maura Healey’s proposals to allow cities and towns to increase local option excise taxes on meals and hotel rooms, as well as a surcharge on motor vehicles, and a real estate transfer fee.
