Boston Foundation report identifies outdated constraints on city planning, finance as threats to innovation, growth

Boston – The City of Boston today is so severely restrained by rules imposed by state government in earlier generations that it lacks the flexibility and authority it needs to compete effectively in the new global knowledge economy, and is not able to fully capitalize on the innovation that it is known for, according to a report released today by the Boston Foundation.

The report,  Boston Bound: A Comparison of Boston’s Legal Powers with Those of Six Other Major American Cities , documents how the city has been subordinated in the course of the past century by its relationship to state government. Many of the circumstances documented have been recognized and decried by Boston leaders over the years, but the current report makes a singularly compelling argument for reform by reframing the home rule question in light of new competitiveness challenges and demands that Boston faces in the dynamic and rapidly changing economy of the 21st century.

At a time when urban centers around the world are in heightened competition for talent and investment, the report demonstrates in compelling terms that Boston lacks the mobility and civic authority to compare and compete with American cities—let alone other centers of growth and change from Shanghai to Bangalore.
 
The report was written by two distinguished Law School professors and noted home rule experts, Gerald E. Frug and David J. Barron, working with a network of legal scholars across the country. It contrasts in stark terms the limits of the powers held in Boston with the greater authority and flexibility of New York City, Chicago, San Francisco, Atlanta, Seattle, and Denver in over 200 pages of comparative analysis.

 “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,” according to co-author Gerald Frug.

Following the release of the report, the Foundation will announce the formation of a cross sector Home Rule Task Force made up of experts from academic think tanks, business and civic leaders, many of whom also have done recent research that highlights different aspects of the state’s relationship with its cities and towns. This Task Force will be charged with the responsibility of making specific recommendations to address the report’ findings and seek ways to allow Boston to compete more effectively.

Highlights of the report include the following:

    • Boston is a city bound. The rules that control Boston today force the city to rely on a narrow revenue base that undermines the city’s efforts to plan for the future. These rules place the city at a competitive disadvantage at a time when many cities are actively looking for creative strategies to nurture and secure their economic futures.

    • Boston has an imbalanced revenue structure. Compared with the other cities surveyed, Boston is twice as dependent upon the property tax as a percent of total revenues.

        o For example the property tax in Seattle accounts for only a quarter of the city’s general fund revenues, while retail sales tax, business and occupation taxes and utility taxes each provide between 15 and 20 percent of the city’s general fund.

    • Boston is uniquely restricted in its ability to control its expenditures. For example, 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.

        o A total of 87 percent of Boston’s expenditures are committed to schools, police, fire, debt service, state assessments, retirement and health care expenses. These costs are frequently mandated by the state. The result: Boston has very little discretionary income and is unable to take on the broad planning and development projects that have catalyzed growth and renewal in other cities across the country.

    • Competitor cities like Chicago are aggressively pursuing innovative development strategies. Chicago is presumed by the state to have the broadest possible authority, unless expressly stipulated otherwise. In Massachusetts, the state’s power to preempt local lawmaking is more extensive and Boston is barred from innovations that have proved effective elsewhere.

        o New York City transformed 42nd street, creating a vibrant destination neighborhood for residents and tourists using a Business Improvement District strategy that is far more flexible than the BID option has under Massachusetts law.

    • Boston is unusually reliant on state aid. For the past decade, state aid has been the city’s second largest source of revenue, providing as much as 30 percent of the city’s funding. Only New York City receives more among the cities surveyed.

        o In sharp contrast to Boston, Denver is identified by the state as a home rule city and invested with powers—including borrowing powers— that Boston does not have. The result has been a 21st century infrastructure including a new regional airport designed to fully integrate with Denver’s transportation grid and meet the needs of a burgeoning city in the 21st century.

    • Boston lacks the proper incentives to promote useful development. Most competitor cities surveyed have more flexibility in enacting tax increment financing, business improvement districts and other now standard, innovative economic development strategies.

        o Frug and Barron cite the jumble of special laws and restrictions hobbling Boston as a powerful impediment to developing the necessary consensus to create new institutions, development strategies and political networks—even as the population grows more diverse, and the economic realities of the new knowledge economy require more nimble and targeted strategies.

“A thriving, innovative Boston is the engine for growth and prosperity for the region,” said Paul S. Grogan, President and CEO of the Boston Foundation. “This powerful report and the analysis by David Barron and Gerald Frug and their colleagues make an urgent case that the time has come to update the relationship between city and state to release the full economic potential of a city that has become a global player. We all live by new rules in this global, competitive economy and the city’s playbook must be revised accordingly.”

Co-author David Baron added, “Boston should not be subject to a legal structure that was designed in a past era for a very different kind of urban center. It is no longer a city in decline, as it was in the 1950s, when it surrendered a great deal of its power to the state.  Instead, it is a vibrant and sophisticated city that should have the option of operating within a structure that strengthens its ability to compete with other cities in the United States and abroad.”
 
Grogan added: “Cities and towns can be trusted to make responsible and thoughtful taxation decisions. The mixed results of Proposition 2 ½ overrides demonstrate that giving cities and towns the authority to raise taxes does not lead to a taxing spree.”
 
The state-imposed limits on Boston’s powers were the result of two major legislative waves. The first wave spanned the first part of the 20th century. During this period, the state twice revised the city’s charter and greatly restricted the powers of the city to raise revenues, borrow, and spend. The second wave took place in the 1950s and 1960s when the city elected to transfer important assets to the state in return for funding designed to address the severe fiscal crises of that time.
 
The last time home rule was seriously examined in the Commonwealth was the 1960s. At the time, one of the intended purposes of reform was to free the State Legislature from some of the minutiae of local affairs to enable it to concentrate on more strategic policy matters. But because the Home Rule Amendment is so restrictive, the Legislature is still required to spend an inordinate amount of time on local matters.
 
“The rules that constrain Boston today were drawn up at a time when Massachusetts politics was defined by a hostile competition among groups reluctant to share power,” said Grogan. “Today the culture has changed dramatically. In recent decades, the ability to collaborate has become a regional trademark and a new standard. We need a new relationship between Boston and the state that better reflects this extraordinary achievement.”

The Rappaport Institute for Greater Boston also was a key participant in the research.
 
Visit www.bostonhomerule.org.

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The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of over $830 million.  In 2006, the Foundation and its donors made more than $70 million in grants to nonprofit organizations and received gifts of $71 million.  The Foundation is made up of some 850 separate charitable funds established by donors either for the general benefit of the community or for special purposes.  The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges.  For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700.