Thursday, December 18, 2008

More stuff about taxes, from Universal Hub, etc.

Adam over at Universal Hub ( who is doing a great service for Boston residents (not to mention occasionally helping me with technical blog issues--THANKS ADAM!) recently crossposted my blog about taxes which started an interesting discussion.

In spending some time last week poring over the numbers one BIG thing became clear. The reason Tom Menino is pushing big developments so much is that he has created a sort of Ponzi scheme with our taxes and city contracts. He has signed contracts with our City employees and unions that assume about a 5 percent increase a year in revenue, despite proposition 2.5 that should limit the growth of our income taxes. So, he needs new revenue, hence pushing big developments as fast as he can, since new developments just add to the tax base. The problem is that since the city is not growing and remains stable at about 600,000 people, those of us who live here are on the hook for those contracts. If commercial values drop, as they likely will in the near future, the residents taxes have to make up the difference to pay those contracts that Menino didn't negotiate very well.

Some of of my friend Steve's answers to some of the questions at the Universal Hub site ( are below:

All - I am Kevin's anonymous financial person - here are my answers to your postings:

Gareth - yes residential taxes will go down in 2009 - but not for the reason you cite. The tax rate will be about 3% lower - but the residential exemption will also fall to probably about $1350 (it's based on median house price which I believe is down about 10% - maybe a little more). These roughly wash each other out for most homeowners. Net, net, most homeowners will see their taxes go down purely because their home is worth less and because commercial properties had a good 2007 (assessments are based on prior year's values).

Brigid - you are correct - the rate is basically a function of dividing the total amount of taxes collected by the assessed values (with all kinds of adjustments to account for classification, exemptions etc. etc. etc.). Currently 60% of our city's revenue comes from property taxes - I believe this is the highest of any major city in the country. This is extremely dangerous for many reasons - one in my explanation to Gareth below.

Gareth - 2nd blog - you are incorrect on this statement. Residential taxes for an individual or even the whole city can easily increase by greater than 10%. Keep in mind that 2010 taxes are based on values of properties as of Jan 1, 2009 and 2011 on values as of Jan 1, 2010. Commercial properties will pay about $900 million in property tax in 2009 and residential about $500 million. This gets a little complex, but basically a small reduction in commercial valuations can shift a huge amount of taxes to the residential properties (that's why our taxes went up so much from 2004-2008 - mine increased about 50%). If one makes the reasonable assumption that commercial values decrease 10% in each of the next two years and residential values decrease 5% in each year we will see increases of 10% or greater in both years, although this will not be evenly distributed to all owners - some may see 30-40% increases, others only 10-15% increases.

Notwhitey - only if there is a prop 2 1/2 override - otherwise the city will have to cut staff


Michael Pahre said...

Thanks Kevin and Kevin's public wallet-watcher for educating us.

I don't understand how the two things you wrote above are both true: (1) "Currently 60% of our city's revenue comes from property taxes"; and (2) "Commercial properties will pay about $900 million in property tax in 2009 and residential about $500 million."

Could you please clarify?

Kevin said...

The total budget is about 2.5 million. If you ad 900 million for commercial and 500 million for residential, that 1.4 million is about 60% of the total budget.