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Boston’s Property Tax Crisis

Boston’s Property Tax Crisis. EXEMPTIONS ABATEMENTS DIF’s TIF’s and WHAT IF’s. BOSTON’S Property Tax Crisis – EXEMPTIONS – or How the Other Half Lives. More than half of Boston property is exempt from the payment of real and personal property taxes (53%). In 2002 the mix was:

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Boston’s Property Tax Crisis

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  1. Boston’s Property Tax Crisis • EXEMPTIONS • ABATEMENTS • DIF’s TIF’s and WHAT IF’s

  2. BOSTON’S Property Tax Crisis – EXEMPTIONS – or How the Other Half Lives. • More than half of Boston property is exempt from the payment of real and personal property taxes (53%). • In 2002 the mix was: • Residential Land: 10, 228 Acres 35% • Commercial Land: 4,269 Acres 15% • Tax Exempt 14,688 Acres 50%

  3. ASSESSMENTS: MAJOR CATEGORIESFY 2004 PROPERTY TYPETOTALVALUE RESIDENTIAL $ 44,313,799,040 COMMERCIAL $ 17,761,725,236 INDUSTRIAL $ 642,200,851 PERSONAL PROPERTY $3,424,004,600

  4. Assessments: Major Categories • Property Type Total Value • Residential $44,313,799,040 • Commercial $17,761,725,236 • Industrial $ 642,200,851 • Personal Property $ 3,424,004,600 • EXEMPT $18,903,847,924 • EXEMPT IS MORE THAN COMMERCIAL AND INDUSTRIAL COMBINED

  5. EXEMPTIONS “A privilege allowed by the General Court of the Commonwealth.” Over 50 exemption provisions are permitted. Releases an owner from the obligation to pay all or a portion of the taxes assessed on a parcel of property. Recognized only where property use or individual status clearly falls within the terms of the exemption.

  6. Types of Exemptions • .Personal Exemptions: • 1.Elderly 17D or 41C $ 175 - $ 500 • 2.Veteran/Surviving Spouse 22 A-E $ 175 - $875 - Full • 3. Blind 37A $ 500 • 4. Surviving Spouse(Police/Fire) 42 Full • 5. Surviving Spouse/Minor Child 17D $ 175 • 6. Hardship 18 Partial to Full

  7. Types of Exemptions • Miscellaneous: • Cemeteries • Solar&Wind Powered Energy Systems – 20YRS • Pollution Control Structures • See Mass G.L 59, Chapter 5 for a complete list.

  8. Types of Exemptions • Government Property • Federal property • State Property • Government Authorities: Port Authority; MBTA; Turnpike Authority • Charitable; Religious Organizations • Chapter 121A Exemptions

  9. Boston’s Property Tax Crisis: Exemptions • Tax Exempt Property Ownership • Commonwealth of Mass: 7,519 Acres 26% • City of Boston: 4,212 Acres 14% • Includes 331 acres – Property Tax Foreclosures • Medical & Educational: 661 Acres 2% • Other Charitable 2,296 Acres 8%

  10. Commonwealth of Mass: Massport 2,580 A MDC 1,652 A MBTA 702 A Turnpike 207 A Other MA 2,377 A Total: 7,519 Acres 25.8% of Total City Land 51.2% of Total Tax Exempt City of Boston Parks and Playgrounds 2,023 A BRA/EDIC 406 A 1.4% of Total City Land BHA 375 A 1.3% of Total City Land Other City uses: 1,407 A 14.4% of Total City Land 28.7% of Total Tax Exempt Exempt Property Owners

  11. Exempt Property Owners • Colleges & Universities • 445 Acres; 1.5% of Total City Land;3% of Tax Exempt • Medical & Scientific • 216 Acres; .7% of Total City Land; 1.5% of Tax Exempt • Cultural, Museums, Private Elementary • 410 Acres; 1.4% of Total City Land; 2.8% of Tax Exempt

  12. Exempt Property Owners • Cemeteries • 768 Acres; 2.6% of Total City Land; 5.2% of Tax Exempt • Religious • 285 Acres; 1% of Total City Land; 1.9% of Tax Exempt • Benevolent • 86 acres; .3% of Total City Land; .6% of tax exempt • Other: 121 A Contracts • 747 Acres; 2.6% of Total City Land; 5.1% of tax exempt

  13. Personal Exemptions Reduce the tax bill if we meet certain qualifications. Must apply annually All Other Exemptions Increase the tax burden by reducing the tax base PILOT and 121A payments do not approach tax assessments. How Do Exemptions Affect Our Tax Bills?

  14. Property Tax Revenue – Critical • Cities and towns in Massachusetts are primarily dependent on property tax revenues to fund the delivery of services. • FY 2002 Boston Budget Revenues: • State Aid 27.7% • Fees/Local Option Taxes 12.6% • Investments/Non-recurring 7.9% • PROPERTY TAXES 51.8%

  15. Property Tax Revenue - Critical • For FY 2004, Boston’s dependency on property tax has risen from 51.8% in 2002 to 59.9%.

  16. Boston’s Property Tax Crisis • 100% of the Property Tax Revenue comes from less than half of the city’s property. • The cost of providing services for all of the City falls primarily on the tax-paying owners of only half of it. • More than half of the Boston property that is exempt is dedicated to public uses for people throughout the region, i.e. property owned by the Commonwealth.

  17. Exemptions: Funding & Reimbursement • Massachusetts: Cities and Towns receive no financial reimbursement from the state for real property which is exempt. • Connecticut: Cities and towns are partially reimbursed by the state, depending on tax exempt use. Requires an annual appropriation. • Rhode Island: Similar provisions to Connecticut

  18. Boston’s Property Tax Crisis: Potential Revenue Sources PILOT – Payment In Lieu Of Taxes

  19. PILOT: Payment in Lieu of Taxes • Exempt Institutions Utilize City Services: • Police Public Works • Fire Public Health • PILOT encourages tax-exempt institutions to contribute to defraying the public expense associated with the institution. • PILOT is a moral obligation, not a statutory one.

  20. Municipal Demand for PILOT • Dependent upon: • The amount of tax involved • Level of existing municipal fiscal distress • Degree of purely local benefit from non-profit activities • The nature of the non-profit service • The lobbying power of those adversely affected.

  21. Non-Profit Resistance to PILOT • Factors affecting tax exempt owner resistance: • The dollar amount at issue • Potential for erosion of exemption • Public relations • Fear of future, worse treatment

  22. The Effects of Exemptions for Institutions • Rent vs. Own decision • No incentive to avoid high tax jurisdictions • Financial incentive to expand; acquire property

  23. PILOT IN MASSACHUSETTS

  24. PILOT in BOSTON

  25. FY 2004 Boston City Budget Revenues Expenditures Library Health Ins. State Assessment Fire Police Election Parks Public Works Public Health Debt Service Pension 23 M 125 M 67 M 131M 210 M 2.6 M 12 M 7.7 M 58 M 126 M 135 M Property tax State aid Licenses, fees, Fines, permits, 121A payments Excises Pension reimbursement 59.9% 20.6% Remainder

  26. Boston’s Property Tax Crisis: Other Exemptions Chapter 121 A Chapter 40 Q – “DIF” Chapter 40 R – Housing “TIF”

  27. Chapter 121 A • M.G.L. Ch 121A Provides for the creation of: • Single purpose, project specific, private URBAN RENEWAL CORPORATIONS. • Undertake residential, commercial, civic, recreational, historic or industrial projects in decadent, substandard or blighted open areas. • Exemption from real and personal property taxes, betterments and special assessments. • Allows private developers to exercise EMINENT DOMAIN in specified circumstances.

  28. Chapter 121 A • 121 A Agreements are used to encourage: • Development in places with high property tax rates • Development in areas that are minimally marketable as locations for private investment • Development of housing for low and moderate income families

  29. Chapter 121 A • Duration of 121 A Agreements: • Minimum of 15 years • Subsidized low-mod income housing – 40 years • May be extended up to an additional 25 years if developer offers “amenities” • Handicapped Facilities • Employment of minorities or neighborhood residents • Preservation of open space • Rehabilitation of historic building

  30. Chapter 121 A • SUBSTITUTE PAYMENTS IN LIEU OF TAXES: 3 TYPES REQUIRED • Minimum Statutory Payment – Paid to MASS DOR • Negotiated Payments – Paid to MUNICIPALITY (“Section 6A Agreements”) • Excess Income Payment – Excess profits, after payment of 8% ROI and all eligible expenses. Paid to MUNICIPALITY, up to property tax level.

  31. Chapter 121 A • PROPERTY THAT IS UNDER A 121A AGREEMENT DOES NOT HAVE ITS VALUE COUNTED IN ASSESSMENTS OF MUNICIPAL LAND.

  32. Chapter 121 A • CHANGES and TERMINATIONS • Material Changes require written amendments to agreements • Change in ownership: Permitted. Requires assumption agreement by new owner. Not automatic. • Terminations: • Foreclosure • In accordance with the terms of the 6A Agreement

  33. Chapter 121 A Developments • WORLD TRADE CENTER EXPANSION 1996 • SEAPORT HOTEL • Two Office Towers • SOUTH BOSTON WATERFRONT HOTEL 2002 • Marriott Hotel • FLEET CENTER 1992 • LANDMARK CENTER 1996 • Cinema, office, retail, parking

  34. Chapter 121 A Developments • Paine Furniture Building – Arlington St. 1998 • New office tower and redevelopment of Paine • Lafayette Mall – Downtown Crossing 1997 • Redevelopment for office and commercial • Macy’s – Downtown Crossing 1999 • Combined retail and other commercial use

  35. Chapter 121 A Developments • Allston Landing/Genzyme Corp. 1992 • One Beacon Street/Prudential 1969 • Egleston Center, J.P. 1995 • Brigham & Women's Parking garage, commercial and office space, materials handling center, pedestrian park 1979 • MATEP, Inc. – Longwood Medical Area energy plant and related offices. Harvard/Advanced Energy - 1977

  36. Chapter 121 A Developments • POST OFFICE SQUARE 1984 • Multi-level below grade parking facility • Surface park • NEW BOSTON FOOD MARKET 1967 • Relocation of meat and food vendors from Quincy Market

  37. Chapter 121 A HOUSING • 88 Properties in Boston • 11,297 Apartments • Many with Section 8 Project-based Assistance • Housing Developments assisted with 121A sometimes pay MORE than they would otherwise due to formula.

  38. CHAPTER 40Q – “District Improvement Financing” Eminent Domain; Tax Expenditure and Urban Renewal

  39. Chapter 40 Q - DIF • DISTRICT IMPROVEMENT FINANCE PROGRAM • Enables municipalities to finance public works and infrastructure by pledging future incremental taxes resulting from growth within a designated area. • The incremental growth (“TAX INCREMENT”) in taxes is set aside to pay the debt or bonds used to finance the new construction.

  40. Chapter 40 Q DIFKEY HIGHLIGHTS • DIF creates a district as small as one parcel, or AS LARGE AS 25% OF THE MUNICIPALITY. • DIF allows eminent domain to acquire private property for resale to a developer. • DIF is NOT exempt from Prop 2 ½ levy limits • The bonds issued to support construction in a DIF district may be secured by all of the city revenue!

  41. Chapter 40 Q DIFKEY HIGHLIGHTS • DIF does not increase taxes, but it freezes the assessment of the designated district for up to THIRTY YEARS. • Any increase in value is “captured” and utilized to pay off the district debt. DIF is a “Tax expenditure”. • If the costs to operate the city rise over 30 years, the DIF district will only contribute at the “frozen” level – the original assessment..

  42. Chapter 40Q - DIF • The Pittsburgh Experience: $138 MN tax increment financing project to renovate a department store and create office space. The resulting increase in value: Only $38MN. TAX PAYERS HAD TO PAY THE $100MN DIFFERENCE FROM GENERAL REVENUES.

  43. Chapter 40R – Urban Ctr Housing Zones – Tax Increment Financing • Regulations are currently being drafted. • As with District Improvement Financing – the district tax base will be frozen and the revenue resulting from increases in value will be diverted to pay bonds. • Another form of tax expenditure.

  44. SOLUTIONS? • Residential vs. Commercial – Only half the story • Residential + Commercial + Industrial vs. EXEMPT – The real story.

  45. SOLUTIONS? • Issue of Fairness in Payments from the Commonwealth • Issue of Fairness in Payments from Users of Services • Increased scrutiny of tax exempt holdings and their relation to the mission of the exempt owner. • Repeal of DIF, TIF

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