Boston

1
Bostons Property Tax Crisis

• EXEMPTIONS
• ABATEMENTS
• DIFs TIFs and WHAT IFs

2
BOSTONS 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 TYPE TOTALVALUE RESIDENTIAL
44,313,799,040 COMMERCIAL 17,761,725,236 INDUS
TRIAL 642,200,851 PERSONAL PROPERTY 3,424,00
4,600
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
• SolarWind 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
Bostons 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
Exempt Property Owners

• 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

11
Exempt Property Owners

• Colleges Universities
• 445 Acres 1.5 of Total City Land3 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
How Do Exemptions Affect Our Tax Bills?

• 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.

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, Bostons dependency on property tax
  has risen from 51.8 in 2002 to 59.9.

16
Bostons Property Tax Crisis

• 100 of the Property Tax Revenue comes from less
  than half of the citys 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
Bostons 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

FY 2003 TOTAL STATEWIDE
Charitable Educational Value 22,098,752,575.00
of Total Exempt Property 26.01
Projected Tax Payments 505,863,999.00
Actual PILOT 17,894,347.00
Percentage PILOT to Taxes 3.54

LOST TAX REVENUE 487,969,652.00
24
Payment in Lieu of Taxes

FY 98 FY00 FY 02 FY03
Boston Housing Authority 410,984 595,145 390,358 509,113
Boston Symphony Orchestra 0 30,199 35,557 36,306
EDIC 0 157,000 329,000 400,000
Harvard University 1,287,534 1,465,197 1,479,398 1,567,193
Marriott Custom House Twr Timeshare 90,705 242,656 250,806 253,286
Museum of Fine Arts 42,000 40,682 42,709 42,805
Northeastern University 580,350 140,107 136,021 136,020
Massport 10,253,847 10,501,526 7,306,186 10,903,054

25
PILOT in BOSTON
FY 2003 Boston
Charitable Educational Value 4,816,894,343.00
of Total Exempt Property 26.21
Projected Tax Payments 159,728,216.00
Actual PILOT from 904905 10,383,022.00
Percentage PILOT to Taxes 6.50

LOST TAX REVENUE 149,345,194.00
26
FY 2004 Boston City Budget

• Expenditures

Revenues
Library Health Ins. State Assessment Fire Police E
lection 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 reimburseme
nt
59.9 20.6 Remainder
27
Bostons Property Tax Crisis Other Exemptions

• Chapter 121 A
• Chapter 40 Q DIF
• Chapter 40 R Housing TIF

28
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.

29
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

30
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

31
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.

32
Chapter 121 A

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

33
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

34
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

35
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
• Macys Downtown Crossing 1999
• Combined retail and other commercial use

36
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

37
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

38
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.

39
CHAPTER 40Q District Improvement Financing

• Eminent Domain Tax Expenditure and Urban Renewal

40
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.

41
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!

42
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..

43
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.

44
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.

45
SOLUTIONS?

• Residential vs. Commercial Only half the story
• Residential Commercial Industrial vs. EXEMPT
  The real story.

46
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