Boston Bound: Executive Summary
Central Findings
"The constraining legal structure that now governs Boston forces the city to rely on a narrow revenue base…and distorts the city’s efforts to plan."
Boston’s ability to shape its own future is limited in three important ways. The first is that Boston has a much more limited grant of home rule power than other major competitor cities. As a result, Boston’s ability to pursue bold initiatives on its own authority is severely restricted. The second problem is that the current legal structure is unusually constraining when it comes to local fiscal discretion. State law makes Boston exceptionally dependent on a limited number of revenue sources, most conspicuously the property tax. As a result, Boston’s efforts to plan for its future are artificially constrained by a need to ensure that its development maximizes a single, state-selected revenue source. This restriction distorts the kind of open and innovative planning process that the state should be encouraging Boston to pursue. The third problem is that the current legal structure places limitations on the city’s power to be creative in its approach to economic development. This is due to the fact that state law places important legal restrictions on innovative land use planning tools and fragments the city’s control over much of its infrastructure and territory. No other city in our study operates within a legal structure that has this combination of restraints. As a result, no other city seems as bound in facing its future as Boston does.
Boston Has Limited Home Rule Power
Home Rule Amendment
Because the Home Rule Amendment to the Massachusetts Constitution exempts taxing, borrowing, the regulation of private and civil affairs, and municipal elections from its scope, Boston has less authority than the six other major U.S. cities we examined in this report. For example, the Illinois constitution grants municipalities home rule powers that pertain to local matters and then expressly defines them in an expansive fashion. 1 As a result, Chicago has the power to tax, the power to borrow, and the power to “regulate for the protection of the public health, safety, morals, and welfare . ...” 2 Moreover, the Illinois constitution provides—as the Massachusetts Constitution does not—that the “[p]owers and functions of home rule units shall be construed liberally.” 3 Consistent with that instruction, the Illinois Supreme Court has construed the grant of home rule to include the power to regulate municipal elections, including the authority to require them to be nonpartisan. 4 None of the other cities operates under a grant of home rule that exempts taxing, borrowing, the regulation of private or civil affairs, and the regulation of municipal elections from its coverage.
Preemption
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| Denver International Airport (1995) sits on land Denver annexed from a neighboring county. |
The state’s power to preempt local lawmaking is also more extensive in Massachusetts than elsewhere. The Massachusetts Home Rule Amendment permits state statutes to preempt local laws even in the absence of a clear conflict as long as the state is thought to have decided the appropriate policy on the issue covered by the local law. Since the areas in which the state has legislated are diverse and comprehensive, this means that virtually any local regulation can be understood to trench on some state policy. Other cities enjoy substantially more protection from state laws. The Colorado constitution specifically identifies Denver as a home rule city and invests it with powers, including borrowing powers, that the state courts have held are beyond state control. 5 As a result, Denver has successfully challenged directly conflicting state statutes that attempted to regulate municipal employment practices 6 and to limit the city’s ability to impose sales taxes for local purposes. 7
The City Charter
Boston’s city charter is a patchwork of special laws enacted by the state legislature. Although the Home Rule Amendment gives the city the power to enact a “home rule charter,” it has chosen not do so and for good reason. The reason is that, under state law, the city can bring order on its own to the current jumble of statutes that constitute its charter only by placing the whole of its governmental structure in the hands of a separately elected charter commission. State law enables the charter commission to pursue an unlimited reform agenda once established and, then, to submit its proposal for an up-or-down vote by city residents. The city itself has no role in the process. In limited instances, twothirds of the city council can propose a change that voters can approve by referendum, but this too is unwieldy and restrictive. Other state constitutional home rule provisions are not nearly so rigid. Colorado permits Denver’s city council to initiate substantial charter reform efforts without establishing an independent charter commission, and California also permits its cities to propose charters without resorting to a commission. Under Washington’s state constitution, cities like Seattle may present voters with an alternative to the elected charter commission’s proposal. In Denver and San Francisco, the charter revision process has been a focal point of civic debate and discussion about the city’s organization and future.
The Impact on Civic Engagement
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| Chicago’s award-winning Millennium Park (2004), a 24.5 acre public-private partnership in the heart of the city. |
Because Boston operates under one of the nation’s more restrictive home rule amendments, it is less able than other cities to develop the kind of popular participation and energy necessary to promote active civic engagement in local government. The absence of this kind of civic involvement is more troubling than simply its diminishing the possibility of making a particular governmental reform. Given the fast pace of economic and demographic change and the competition among cities nationally and worldwide, efforts to promote any possible future for the city are likely to depend on an engaged civic sentiment. No doubt, there is room now for significant innovation within the city’s current legal structure. And it is equally clear that city officials have been quite creative in making the most of the authority that they currently have. Nevertheless, the limited nature of the legal structure exerts a drag on local action that is both problematic and unusual.
Boston’s Constrained Fiscal Structure
Distorts the Planning Process
"Boston’s reliance on the property tax far exceeds that of the other six cities."
Revenue Restraints
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| The Pike Place Market in Seattle, where retail sales tax provides up to one-fifth of the city’s general fund revenues. |
From taxing to borrowing to imposing fees, Massachusetts state law gives Boston comparatively little authority to raise local revenue. As a result, Boston is exceptionally dependent on a limited number of revenue sources, most notably the property tax. The property tax provides more than half the city’s total revenue and about three-quarters of its ownsource revenue, significantly more than any other city in our study. Every other city in our study receives a portion of its revenue from sales taxes. And every city, other than Boston and Atlanta, receives a portion of its revenue from an income or an occupation tax. Because of these differences, the property
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| Boston’s reliance on the property tax far exceeds that of the other six cities. |
tax in Seattle accounts for only about a quarter of city’s general fund revenues, while the retail sales tax, business and occupation taxes, and utility taxes each provide between 15 and 20 percent of the city’s general fund revenues. Similarly, San Francisco raises more revenue from a combination of other local taxes than from the property tax while Atlanta and Chicago both receive, in total, twice the revenue from a combination of other local taxes than they get from the property tax. Like Boston, Chicago has limits on the amount of property taxes it can raise. But Chicago’s limits are self-imposed, not imposed by the state. Chicago’s ability to exercise this kind of self-restraint is important in itself, in that it signals to everyone that the city has the ability to handle its own finances.
"Boston is unusually reliant on state aid."
State Aid
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| Excluding state aid and property tax receipts, Boston’s own-source revenues covered a smaller portion of its non-school budget than the other six cities. |
In addition to its dependence on property taxes, Boston is unusually reliant on state aid. For the past decade, state aid has been the city’s second largest source of revenue, providing about 20 to 30 percent of the city’s funding. Boston is by no means unique in terms of its reliance on state aid. New York City receives about 30 percent of its revenue in the form of state grants. Other cities, however, are far less dependent, particularly on state aid that is not earmarked for education. The structure of state aid also differs in significant ways. Boston receives non-education state aid from programs that can be—and have been—altered by the legislature and the Governor. In recent years, for example, the legislature capped the amount of aid cities and towns could get from the state lottery, even though it was established to give localities an additional source of funds. Chicago, by contrast, receives much of its state money as of right, not as a consequence of the state legislature’s annual judgment about what the city ”needs” and what the legislature can afford to transfer to it. Under a strict formula established by state law, Chicago (along with other Illinois municipalities) receives ten percent of the income taxes collected by the state on a per capita basis. If a sale occurs in Chicago, the city also receives one percent of the state sales tax, in addition to the revenue from its own sales tax.
Targeted Taxes
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Boston is empowered to levy a smaller number of different taxes than other cities in the study.
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The state has authorized Boston to impose excise taxes on motor vehicles, hotels and motels, and jet fuel. Its efforts to obtain legislative authorization for other targeted taxes have been unsuccessful. Other cities can impose these kinds of taxes themselves because they have home rule authority to tax. Denver has a lodger’s tax, a telecommunications tax, a franchise tax, a car rental tax, a food and beverage and liquor stores tax, a facilities development admissions tax, and an aviation fuel tax, among others. San Francisco levies a business license tax, a real property transfer tax, a utility users tax, a parking tax, and a transient occupancy tax. Chicago has more than a dozen taxes. Even Atlanta, which lacks home rule taxing power, imposes a hotel/motel tax, an alcohol tax, a public utility tax, a car tax, and an insurance premium tax, and it has the statutory authority to impose a host of additional taxes—not just an income tax and an occupation tax—that it has not exercised. Boston thus has four types of taxes (including the property tax) while other cities have from three to seven times that number. Like the sales and income taxes, these targeted taxes present another way that cities diversify their source of revenue.
Fees
Although the Home Rule Amendment denies Boston the power to levy taxes without state authorization, the city can assess and collect fees on its own authority. But the definition of a fee is unusually constrained in Massachusetts, thereby leaving Boston with less power than would otherwise appear. For example, the Supreme Judicial Court construed a stateauthorized additional charge for fire services to highcost buildings as a tax rather than a fee. California courts have taken the opposite stance, broadly construing cities’ ability to impose fees. San Francisco’s transit fee, imposed on new downtown developments to provide revenue for the Municipal Railway, was upheld as a fee, not a tax. In Massachusetts, the opposite result would be likely. Like San Francisco, Denver and Chicago have substantially relied on fees as a source of income, enabled in part by these cities’ ownership of assets, such as the airport, that Boston no longer controls.
Expenditure Control
The revenue constraints Boston faces are particularly significant because Boston lacks control over its expenditures as well. Eighty-percent of the city’s expenditures are devoted to schools, police, fire, debt service, state assessments, retirement expenses, and health insurance. Many of these are mandated by the state, and others cannot be signifi- cantly reduced without making Boston less attractive to residents, businesses, and visitors. As a result, Boston has very little discretionary income—and thus can do little to target its expenditures to pursue any of its possible futures. Other cities also are constrained in their ability to control their expenditures. But they are less restricted than Boston. For example, Boston has little ability to negotiate with municipal employees about changes in benefits while Denver has significant ability to do so. Boston is also more subject than other cities to state decisions reversing local spending allocations. The Supreme Judicial Court determined that Boston’s decision to extend group health insurance to domestic partners was preempted by state law, while every other state court decided the same issue the opposite way. It is ironic that Boston is the only city without the power to spend city funds to provide health insurance benefits to domestic partners of city workers. After all, it is also the only city that must confer marriage licenses as a matter of state constitutional law to same-sex couples.
Impact on Planning
Boston’s fiscal structure distorts local planning not only by restricting the absolute amount of money the city can raise but also by limiting the kinds of revenue that that the city can generate. It’s no coincidence that Boston is in the midst of a hotel boom. Attracting hotel guests is more in the city’s direct financial interest than it previously was because the city recently received the power to impose a hotel tax. On the other hand, as a Boston Foundation report has noted, Boston has no dedicated tax for culture and the arts, even though arts funding can be an important means of enhancing tourism as well as have beneficial impact on the urban experience for residents. 8 Cities that do have a dedicated funding mechanism for culture and the arts rely on either a sales tax or a hotel tax. The fact that the hotel tax is one of the few nonproperty tax revenue sources that Boston can tap for this purpose makes it less likely that the city will be willing to do so rather than use it to support the general budget. San Francisco uses part of its hotel tax to fund the arts, but it also has a wide variety of other non-property tax levies on which it can rely.
Revenue and Policy
There is no mechanical link between revenue source and policy outcomes. But revenue structure generates incentives, whether or not the decisions the city makes in response to these incentives turn out to be mistaken. The current fiscal structure is problematic because it makes the city unduly focused on a single tax in thinking about how to plan for its future. The city thus lacks the proper incentives to undertake a range of actions that would promote useful development. For example, many people contend that the future of the city’s economic health depends on the willingness of universities and hospitals to maintain a strong presence in Boston. But without the power to tap revenue streams other than the property tax, it is harder for Boston than it is for cities like Chicago to see beyond the loss of property tax revenue generated by these kinds of tax exempt institutions and focus instead on the value they provide the city. Yet Boston is powerless to alter its current incentives, because they have been imposed by the state. We suspect that the state had no intention of using its fiscal oversight as a covert means of shaping local planning decisions. Still, decisions about the city’s future should be made on the merits of the alternatives, not because of state-created revenue rules. This kind of distortion would be reduced if Boston, like other cities, had a diverse array of income sources on which to rely and more flexibility as to the expenditures it must make. That would be true even if the state expanded Boston’s discretion without increasing the overall amount of revenue the city can raise.
Limited Tools to Spur Development and
Build Affordable Housing Tax Increment Financing
"[Boston] lacks the proper incentives to undertake a range of actions that would promote useful development."
Tax Increment Financing
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| New York City’s 42nd Street district was rejuvenated in the 1990s in part through Business Improvement Districts (BIDs). |
In addition to the problems engendered by the city’s imbalanced reliance on the property tax, the city lacks tools it can use to promote economic development. Until 2003, state law did not allow Boston (or other Massachusetts communities) to use tax increment financing to help fund redevelopment efforts. Even the current law only allows this financing tool under comparatively constricted circumstances. Chicago used tax increment financing throughout the 1980’s and 1990’s to develop more than 1.5 million square feet of industrial space. And San Francisco made extensive use of tax increment financing as part of its efforts to redevelop the China Basin area as a major new locus for biomedical research.
Business Improvement Districts
State law has also made it difficult for Boston to establish Business Improvement Districts (BIDs). BIDs allow an entity created by the city and run by local business owners to collect additional taxes from commercial establishments and use the additional money for improvements that will make the area more attractive to shoppers and commercial tenants. New York City has made extensive use of BIDs to improve many commercial areas, particularly in Manhattan, and virtually every other city in our study has experimented with BIDs as well. Massachusetts’s law in effect permits a district to be formed only with the unanimous approval of affected properties because it permits each property holder to opt out of the fee requirement if they wish. This requirement, which is not contained in the enabling legislation that applies to other cities, has proven to a serious obstacle to efforts to create a BID in Boston’s Downtown Crossing.
Inclusionary Zoning and Impact Fees
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| Tax-exempt institutions like San Francisco’s Museum of Modern Art (1995) increasingly help to drive urban economies. |
Boston’s efforts to fund affordable housing programs by imposing impact fees on new commercial development and establishing an inclusionary zoning program for new residential projects have been limited by the state court’s concern that these programs were illegal taxes or were otherwise not allowed by state law. San Francisco has had more leeway to shape (and reshape) its impact-fee program, and Denver’s inclusionary zoning program has not even been challenged in court because Colorado’s home rule provisions give cities so much more discretionary power than Boston has.
State Authorities
State authorities have considerable power in Boston. Massport owns an unusually large amount of land in the city, including Logan Airport. Thus, unlike Chicago, Atlanta, Denver, and San Francisco (but like New York City and Seattle), a state authority, not the city, owns and operates its airport. Yet control of the airport can be critical because airports have positive effects on the local economy and negative impacts on nearby neighborhoods. The state could give Boston a much greater say in airport policy than it has now even if Massport continued to own it. Massport is but one of many state authorities that make policy for parts of the city. The Massachusetts Turnpike Authority has a major impact on the city’s development, above all through its control of the Big Dig.
Providing Affordable Housing
Boston is engaged in a number of efforts to maintain and increase its supply of affordable housing. But state limitations on housing policy and revenue constraints limit what it can do. These constraints are more severe than those in other cities. San Francisco, like Boston, has an affordability problem. But San Francisco has tools to respond to this problem that Boston lacks. Unlike Boston, the city strictly controls condominium conversions. Chicago too is an expensive city, but it uses tax increment financing funds to help subsidize affordable housing construction. And Cook County, of which Chicago is a part, decreases property taxes when multifamily buildings are rehabilitated and at least 35% of the apartments are leased to low and moderate income households. Other innovative strategies, such as the promotion of limited equity ownership, are not within Boston’s power to implement.
Education
Development is not simply a matter of land use policy. The future of Boston depends as well on the quality of the city’s schools. Unlike other matters, the Mayor now has an unusual amount of control over the public schools. But there remain significant limits to that control. Class size in Boston’s schools is affected by the substantial number of classes devoted to special education—significantly more than in other cities. Provision of special education is a state mandate, and state funding has fallen short of the needed expenditures. State mandates also require English-language immersion for the education of students with limited English proficiency.
Central Findings endnotes. NEXT->
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