The document discusses Boston's reliance on property taxes for revenue and its fiscal challenges arising from a large portion of properties being tax exempt. It summarizes four initiatives to address this: 1) obtaining Payment in Lieu of Taxes (PILOT) from non-profits, 2) using an Infrastructure Investment Initiative (I Cubed) to fund development, 3) improving personal property tax audits, and 4) reducing tax abatements and appeals. It provides details and results for each initiative that has increased revenues without raising tax rates.

1. Meeting the Challenge: Examples of
Boston’s Fiscal and Economic
Development Initiatives
Ronald W. Rakow, Commissioner
City of Boston Assessing Department
Critical Issues for the Fiscal Health of New
England Cities and Towns
April 8, 2016

2. Property Tax Reliance
• Property taxes constitute over
two-thirds of City revenue.
• No other major source of tax
revenue (e.g., sales tax, income
tax, payroll tax, etc.).
City of Boston
FY16 Estimated Revenue
Property
Tax
67%
State Aid
15%
Excises
6%
Other
9%
Licenses &
Permits
2%
Interest
0%
Reserves
1%
Boston’s Fiscal Challenges
Source: City of Boston FY 2016 Proposed Budget

3. Boston is 52% Tax Exempt
• State Capitol
• 30 Colleges and Universities
• 25 Nonprofit Hospitals
• Over 20 Cultural Facilities
City of Boston
Exempt Properties
Boston’s Fiscal Challenges

4. Proposition 2 ½
• Limits levy to 2.5% of total assessed value
• Limits growth in levy to 2.5% per year, with an
allowance for growth to the tax base.
• As a result, Boston’s annual growth in property
tax revenue typically ranges between 4% to 5%.
Boston’s Fiscal Challenges

5. Boston needs to be creative in both growing
and preserving its property tax revenue
Highlight 4 Initiatives:
• Payment in Lieu of Tax (PILOT)
• Infrastructure Investment Initiative (I Cubed).
• Personal Property Audit Program
• Reduction in Tax Abatements and Appeals
Boston’s Fiscal Challenges

6. Disconnect between Benefits and Costs
• Benefits spread broadly:
o City
o State
o Region
o World
• Costs are concentrated on Boston taxpayers
o Reduction in revenue - $400M from “meds” and “eds” alone
o Costs of providing municipal services
PILOTs

7. PILOT Task Force Recommendations
PILOT Task Force
• Program to remain voluntary
• Nonprofits owning tax-exempt land valued in excess of $15
million are asked to participate in the program
• PILOT should be 25% of what institution’s tax-exempt property
would generate if fully taxed
• Nonprofits should receive up to a 50% PILOT deduction for
qualifying community programming to the unique benefit of
Boston residents
• Nonprofit should receive a credit for any real estate taxes paid on
institution-use property
• New PILOT formula to be phased in over a period of 5 years
starting in FY 2012

8. PILOT Program Results
$8.7

9. Economic Development Incentives
• Development incentives were all based on property tax
abatements
– TIFs, Chapter 121A, Pilots
• Downside
– Reduced critical property tax revenue
– State Government – which often received upwards of
80% of the new revenue generated by development
(e.g. income, sales, hotel tax), often did not participate
in incentive
Boston needed to change the paradigm

10. I Cubed Concept
■ Development generates new state income,
sales, meals, and hotel tax revenue that can
support infrastructure investment.
■ Community and developer determine a
project’s economic feasibility and guarantee
that state tax revenue growth will exceed debt
service for the infrastructure.
■ State, community, and developers share risk
and rewards.
Use public infrastructure investment to
stimulate large-scale economic development

11. I Cubed Results
• Stimulates development without sacrificing critical
property tax revenue
• Government role changes to building public
infrastructure vs. providing tax subsidies
• Program is producing results:
• Projects: Fan Pier, Boston Landing, Van Ness
• 2 million square feet of development
• Over 2,000 net new jobs
• Over $75 million in new infrastructure supports
further development
Fan Pier
Boston Landing
The Van Ness

12. Personal Property
• Personal property:
– the machinery and equipment used by
business
– ranges from the chairs in a barber shop
to the poles and wires owned by a
utility
• Self-reported by the owner on a tax return
• In Boston the personal property tax was
underutilized – the forgotten stepchild of
City revenue

13. Personal Property: Discovery
• Discovery process ensures a broader tax base and
more equitable tax structure.
• Sources
– New business filings with City clerk
– Mining various databases containing business listings
– Real estate tax returns (i.e., commercial property
tenants)
– Staff awareness
– Drone fleet*
• In the previous 2 years 295 non-reporting
accounts were discovered yielding over $19
million in assessed value.
*we don’t really have a drone fleet

14. Personal Property: Audits
• A companion to the discovery process, the audit
program was rolled out in 2009
• Audits compare personal property tax returns to
company books to ensure all property is reported
• Results:
– Over 1,200 audits complete
– Individual assessments increased and decreased –
but net gain of $437.6 million in value (14%) for
audited accounts
– Noticeable uptick in voluntary compliance
revealed in more recent audits
– Fewer than 10 open appeals on audit cases

15. Personal Property Tax Revenue
0
2
4
6
8
10
12
14
16
18
20
2009 2010 2011 2012 2013 2014 2015 2016
Millions
Growth in Personal Property Tax Revenue
• Over the past 5 years,
personal property
accounted for
approximately 8% of the
levy…
• …but generated over 37%
of the growth in tax
revenues.
• The once forgotten
stepchild is now punching
well over its weight

16. Impact of Abatement Appeals
“Tregor” Era – 1980’s
• Court ordered
abatements for large
commercial properties
• Significant deficits in
overlay accounts
• Bond rating teetering at
junk bond status
Today
• Appeal activity low
• Court decisions support
assessment methods
• Surplus in overlay
• AAA Bond Rating

17. Impact of Abatement Appeals
Elements of a Successful Appeal Process:
• Actively monitor and closely manage abatement appeals
• Recognize Errors1 Early - Avoid Multi-year Payouts
• When You’re Right, Fight
– Eliminate “abatement culture”
– A win in a precedent setting case can eliminate similar appeals
• Get it Right the First Time
– More Accurate, Responsive Assessments
– Better Access and Utilization of Market Data
1In those very, very rare instances when assessors make an error

18. Impact of Abatement Appeals
Reactive vs. Proactive
• Previously, assessors spent nearly two-thirds of their time working on
their– that’s like trying to drive your car using the rear view mirror
• The preferred scenario - focus on the current assessments and
getting them right the first time

19. Appeal Backlog has Disappeared
0
2
4
6
8
10
12
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Thousands
Outstanding Appeals
Virtuous Cycle
Vicious Cycle

20. Fiscal Impact of Reduced Appeals
• Since 2003 Boston has:
– reduced its annual abatement overlay
from 5% of levy, to 2%, resulting in an
additional $60 million per year in
operating revenue.
– generated $378 million in overlay
surpluses that were applied to the general
fund