Boston City Council approves measure that would temporarily increase tax rate on commercial properties

The City Council voted 12-1 today to ask the state legislature and the governor to let Boston increase the tax rate on commercial properties to higher levels than normally allowed over three years as a way to protect homeowners from potentially large property tax rates.

Only Councilor Ed Flynn (South Boston, South End, Chinatown, Downtown) voted against, arguing both that the council was trying to pull a fast one over residents and businesses and that the council knew the problem was coming months ago and should have taken action then.

Under the proposal, which Mayor Wu - who sponsored the latest iteration - has to sign before sending it to Beacon Hill, the city would be allowed to set a commercial tax rate at 181.5% of the residential tax rate next year starting with bills going out in December, compared to the normal 175%. The rate would then decrease back to 175% over the following two years - with $15 million set aside in each three years to help small businesses, with less than 50 employees and $5 million in revenue, along with an increase in their exemptions for "personal property" - such as tables and barber seats.

The problem the measure seeks to address, at least temporarily, is that while residential property continues to show strong increases in values, commercial property, in particular large office buildings downtown, continues to shrink in value, in part because more workers now work at home instead of going downtown to work.

Under the state's taxing regulations - enacted after the passage of Proposition 2 1/2 in 1980, this means that residential owners would have to pick up a larger share of the city's overall spending burden, unless the legislature lets the city increase the commercial rate. At today's meeting, councilors said that even with the increase, owners of many commercial properties may still see an overall tax decrease, just not as much as they would get if the legislature rejects the proposal. Earlier this year, the state House approved a similar request from the city, with a longer time for the rate to shrink, but the state Senate rejected it.

Councilors acknowledged the measure is only a temporary fix, one that could ultimately still see residential property owners see ever growing tax burdens, but said the measure could buy time for home owners to adjust - and for the city to begin looking at ways to decrease its general reliance on property taxes, which currently make up about 71% of the city's revenue, compared to 55% the last time the city got permission to adjust its commercial rates, under the Menino administration.

"It's so important to stress that the 28% increase is still coming, it's just spread out of three years," Councilor John FitzGerald (Dorchester) said. "After this vote, let's not act like we've cleared a major hurdle."

But Councilor Sharon Durkan (Beacon Hill, Back Bay, Fenway and Mission Hill) praised Mayor Wu for finding a way to "cut the Gordian Knot" with a proposal that reduces the potential bite on homeowners while not overburdening office-building owners.

FitzGerald and other councilors vowed to continue to look at ways to diversify the city's revenue stream and, like councilors have routinely done for a couple decades now, warned non-profits they'll be looking at them to pick up their current voluntary payments in lieu of taxes.

"Harvard, BU, Northeastern, all these institutions get a pass," Councilor Julia Mejia (at large) said. "At some point the city's going to have to say you're going to have to pay if you want to do business in the city of Boston."

That was the one point that Mejia - who accused some councilors she did not name of whipping up fear among the elderly and other, poorer residents who have the most to fear from large property-tax increases - and Flynn agreed on.

Flynn said half the property in the city now belongs to non-profits, who don't pay taxes and that something needs to give.

But first, he charged that the council was rushing the vote and that accountability and transparency were more important. "No matter how tight deadlines are, we cannot simply adhere to the value of transparency only when convenient," he said.

Yet at the same time he admonished everybody else on the council of rushing things,he said the council knew things were coming to a head months ago and yet did nothing then to look at tightening city belts. Flynn said councilors in the spring and summer should have been looking at hiring freezes and even cutting spending outright. In July, though, Flynn called for increasing police hiring.

He repeated his call for a blue-ribbon commission to study ways to increase city revenues.