Boston Sails Against the Wind With Few Options

Originally printed in The Boston Globe

April 8, 2009

James D. Rooney (The Boston Foundation) and Elaine D. Beattie (Boston Municipal Research Bureau)

The news that a city would blockade an economic stimulus event like Sail Boston would be an April Fools' Day joke in the rest of the country. In Massachusetts, however, it is no laughing matter. What would be a windfall to cities elsewhere is a liability here, since Boston derives limited tax benefit from the economic activity even as it incurs the costs of being the host city. The state needs to update its anachronistic relationship with cities and towns to enable them to compete better in the 21st century economy.

All cities and towns in the United States derive their powers from the states, and Massachusetts is no different. But the popular notion that we are a "home rule" state belies the fact that our cities and towns - and Boston in particular - operate in an outdated legal structure. Largely the by-product of ethnic political rivalries from the first half of the last century, the Commonwealth continues to hold disproportionate sway in municipal-state power sharing.

It is no wonder that Mayor Thomas M. Menino is reluctant to provide city services for the Sail Boston event. While Sail Boston may be an economic boon to the Commonwealth, the City of Boston can ill afford to host another losing proposition in this precarious economic climate with limited local options at its disposal. Sail Boston is but the latest illustration of the liabilities the city assumes in hosting special events without the ability to raise countervailing revenue through local options.

In 2007, the Boston Foundation and the Rappaport Institute for Greater Boston commissioned Harvard Law School to compare home rule in Boston with six peer cites: New York, Chicago, San Francisco, Atlanta, Denver, and Seattle. The study, "Boston Bound," contrasts the limits of Boston's powers to manage its own affairs with the greater authority and flexibility accorded to peer cities.

The study found that Boston is severely limited in the number of revenue sources available to it and overly dependent upon the property tax - more than twice as much as any peer city. Boston is also unusually reliant on state aid. All other cities have more revenue sources, including a sales tax or portion thereof. The study also found that cities like San Francisco and Chicago are stoking development through creative uses of tax increment financing and other tools less available in Massachusetts where the state presumes control unless stipulated otherwise.

The study underscores the fact that the city's excessive reliance on the property tax results in a higher property tax burden on homeowners and commercial property owners. This can lead cities like Boston to counterproductive efforts to gain concessions from institutions and organizations seeking to stimulate the economy (e.g. extracting additional payments from expanding hospitals and universities or seeking to halt special events like Sail Boston).

The Boston Foundation, in conjunction with the Boston Municipal Research Bureau, recently conducted a follow-up report, "Home Field Disadvantage," that showed how the city's limited revenue options made it the loser of the 2007 Major League Baseball World Series and playoffs from a fiscal standpoint. While the total meals, hotel, and sales taxes collected in Boston and Denver during those games were similar, the Denver received 63 percent of the revenues, while the City of Boston received only 12 percent. After calculating tax receipts, reimbursements, and expenses, Denver gained $940,000 from hosting those games, while Boston lost $650,000. Simply put, the Red Sox won the World Series, but the Boston lost the economic contest.

As a world-class city, Boston should pride itself on being host to special events from the World Series to an international sailing regatta that benefit the state economy. But the Commonwealth's outmoded tax structure needs to change so that host communities from the Berkshires to the Cape are able to gain more of the benefits from hosting such events to compensate for costs incurred as is common in other parts of the country.

Proposals to expand local tax options are before the Legislature and have taken on heightened importance given the specter of local aid cuts. Perhaps the Sail Boston story will bring some winds of change to our outdated tax structure.

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