Two Important Articles on Competitiveness

[Anthony D'Isidoro]

Can Boston still compete? State Street CEO O’Hanley says yes, but change is needed. (Jon Chesto, Boston Globe: July 6, 2024)

Ron O’Hanley brought a global perspective to local issues for his two years leading the Greater Boston Chamber of Commerce

State Street CEO sees challenges for Boston's economy (bostonglobe.com)

When Ron O’Hanley became chairman of the Greater Boston Chamber of Commerce’s board two years ago, he didn’t fit the typical profile: The State Street Corp. chief executive runs a $20 billion company that employs nearly 50,000 people in offices spanning the globe, while his predecessors’ jobs tended to be more Boston-focused.

But O’Hanley cares deeply about his hometown, and became heavily involved in local issues during his term as chamber chair, including a meeting with Maura Healey shortly before she became governor to talk about tax reform. (The Legislature adopted some of the changes the following year.) Before taking over as chair, O’Hanley first began working closely with chamber CEO Jim Rooney through a program that O’Hanley helped launch, called Small Business Strong, to help small businesses statewide get professional services during the pandemic.

Rooney says O’Hanley was always reachable, even when overseas, and attended the vast majority of chamber board meetings in person. The chamber, Rooney added, benefited from O’Hanley’s travels because he brought a worldly perspective to the boardroom.

O’Hanley’s two-year term came to an end on Monday, when he officially handed the reins to Rapid7 CEO Corey Thomas. Before stepping down, O’Hanley held forth with the Globe about issues facing the region’s business community — from Healey’s transportation task force to the MCAS ballot question that teachers unions are pushing. The through line: Massachusetts faces competitive threats in a work-from-anywhere world, and our transportation system in particular needs major improvements to keep up.

Why is the competitiveness of Massachusetts such an important issue for you?

COVID shattered the idea that place is an important thing: Where one lives versus where one works no longer needs to be the same. It really changed the game in terms of how cities and more importantly states compete with each other.

What’s your take on Governor Maura Healey’s approach to economic competitiveness?

She put together a first-class Cabinet and right away she reached out to the business community. She has been hyper-committed to this idea of competitiveness in Massachusetts. She has recognized the game has changed post-COVID. ... She’s also focused on the reputation of Massachusetts, [which could be] really diminishing. There’s a danger we’re going to reclaim that Taxachusetts moniker. And we don’t want to do that. With the millionaires tax, the effective tax burden has changed.

What do you think is the biggest obstacle to Greater Boston’s competitiveness?

Housing is a big deal for the people we’re bringing in. [But] it’s not just that we’re high cost, it’s that businesses have now realized that, ‘Well, I’ve had my people out for a year, that seemed to work.’ So maybe it’s not such a big leap to say, ‘We’ll move this whole business unit down to Florida’ or ‘I’ll move this whole business out to Ohio.’ We are going to solve housing partially by solving transportation. ... Solving transportation quickly is the single most important thing the state needs to do.

The chamber leaned heavily on state policy leaders to focus on transportation. How did that work out?

Credit to the Healey administration for recognizing there is a burning platform. It’s frustrating for people because in some cases the train really was burning. There’s a lot of deferred maintenance. ... There was a recognition there needs to be a long-term plan of investment in transportation. {To] address housing, you have to open up access to some of the far-out suburbs. Copenhagen had a terrible housing problem. They invested heavily in transportation. Now people are taking 30-, 40-, 50-mile train rides, very rapid, in and out of Copenhagen.

You are open to revenue-raising ideas such as adding tolls to highways that don’t currently have them, or congestion pricing to charge more based on the time of day or location. Why is that?

To solve this problem, we need a source of revenues we can borrow against and get the work done quickly.

Will the governor’s transportation task force help with the situation, even though she downplayed any interest in new tolls?

What I would urge is, let’s put together a comprehensive plan [for additional transportation revenues]. Maybe we ought to put together multiple plans. Here’s the first class plan, here’s the platinum plan — this is what we’ll get out of it, this is what it means. ... We can’t do nothing. We’ve got to do something.

How are companies’ return to office plans, post-COVID, affecting downtown Boston?

I don’t think it’s settled yet. I think still, on average, more people will be brought back [to the office]. This will never be a ‘five days a week, everybody in the office’ [place]. Those days are kind of gone. For us, we’re at four. At least in Boston, it helped when we reconfigured our real estate [into a new tower at One Congress St.] so people were coming back to really nice places. We’ve got very attractive space to accommodate flexible work [plus one of the] largest gyms in Boston.

How do you think Mayor Michelle Wu is doing with addressing the business community?

She has made sure that job number one is maintaining public safety. Public safety has actually gone the other way in many other cities. This city has actually gotten safer. She did really hard work upfront in terms of getting those [police union] contracts done. ... Without public safety, nothing else matters. We could have the biggest gym on the planet and we’re not going to be able to attract people if they’re worried about this.

Why are you opposed to the mayor’s plan to shift more of the tax burden onto commercial properties to head off a spike for residents?

I understand why she’s doing it. Families are also hurting. In my view, this is the time we ought to be looking for a way to help stabilize the building owners and help them transition to a better spot. ... We need to collectively solve this problem of commercial values, of the fact that these buildings are no longer filled with their intended purpose and how do we help transition them [to other uses].

Are there any other big challenges facing the region?

Our two major health care systems — Mass General Brigham, Beth Israel Lahey — they went through hell during COVID and they have not recovered. They’re operating under a regulatory system that probably doesn’t make sense in 2024. There are regulatory burdens put on them that [have] prohibited them from expanding. ... We need to be rethinking that. These are systems we want to see prosper and thrive. We have to be careful of costs but right now it’s not like they’re making money hand over fist. These are barely break-even businesses.

Why is the chamber opposed to the ballot question to remove MCAS passage as a graduation requirement?

It’s a crazy idea. Why would you not want to have some kind of standard for children? If the MCAS is broken, then fix it.

What’s it been like passing the baton to Corey Thomas?

You’ve got a very high quality individual who gets things done. He’s got a pattern of public commitment and public leadership. He won’t miss a beat. ... It has been a great experience for me. It’s another way for me to give to this community.

Not just big Boston property owners: Small businesses could be hurt by Wu’s tax plan (Shirley Leung, Boston Globe: July 2, 2024)

The controversial proposal to hike commercial real estate taxes now before the Legislature, could hurt the restaurants, barbershops, and other stores that are tenants in buildings.

Wu’s commercial real estate tax plan could hurt small businesses (bostonglobe.com)

It’s not just the big building owners worried about Mayor Michelle Wu’s plan to increase commercial real estate taxes. So are the restaurants, barbershops, stores, and other small businesses that are their tenants.

That’s because many leases require tenants to pay their share of the property taxes. If past is prologue, expect to pay more for meals, haircuts, and other goods and services as businesses pass their higher tax costs onto consumers.

“We don’t need any more expenses,” said Stephen DeAngelis, owner of the Golden Goose Market in the North End. “You are going to drive business out of the city.”

In the standoff between the business community and City Hall over taxes, Wu won Round 1 when the City Council in June passed a home-rule petition to give the city the power to temporarily increase the commercial property tax rate beyond what is allowed by state law. The proposal is now before the Legislature — which just rejected Governor Maura Healey’s plan for a transfer tax on high-end real estate sales.

Property taxes are based on property values, so as commercial values fall and residential values rise, homeowners could end up shouldering a bigger share of the burden. Without a fix, Boston residents might have to pay an additional $223 million in taxes to offset a projected decline in commercial real estate values — driven by work-from-home policies that emptied office buildings and boosted vacancy rates.

Average single-family tax bills could increase next year by 16.5 percent, or $910, according to analysis from the Boston Municipal Research Bureau.

In a mayoral election year? Not on Wu’s watch. Residents vote, business owners not so much.

Wu’s proposal feels like a nuclear option. She has the tools to create a softer landing for everybody without pushing the button. Her political allies in the Legislature recognize that, too, and are looking at how they can tinker with the home-rule petition.

“We are exploring if there are options available to us that could lead to a more positive solution,” said Representative Aaron Michlewitz, the Boston Democrat who chairs the powerful House Ways and Means Committee.

Consider the alternatives at Wu’s disposal:

- Rein in city spending. Despite an expected shortfall in revenues from commercial properties, Wu and the City Council inconceivably grew the budget by 8 percent, or $344 million. The fiscal year started on Monday, but they can still revisit the budget and adjust spending to better reflect revenues.

- Dip into the city’s surplus fund. What’s that? Apparently a well-kept secret. The city has close to $1.19 billion sloshing around in its rainy day fund. That represents more than 25 percent of the city budget, double what’s considered a healthy reserve. Even credit rating agency Moody’s has blessed the idea of using some reserves “to help manage short-term fiscal challenges.”

- Set up a tax relief fund for homeowners. Keep the tax ratio as is, then create a fund with surplus money so residents can receive rebates or bigger exemptions to save on taxes.

Yes, the Wu administration has reviewed these ideas, and they’re a no-go. In a Globe op-ed, Ashley Groffenberger, the city’s chief financial officer, urged for a temporary commercial tax hike for five years and explained that alternative proposals “are framed as calls for ‘fiscal discipline’ when true fiscal discipline is making tough decisions to protect Boston’s bond rating in our high-interest-rate environment.”

Temporarily shifting the tax burden onto commercial real estate owners is not new. Mayor Thomas M. Menino successfully pushed for this in 2003, outflanking many of the same business groups squawking today.

When his proposal stalled on Beacon Hill, Menino pulled his own nuclear option, sending out estimated tax bills that reflected a 40 percent increase for homeowners. He urged residents to contact their state legislators. Two weeks later, House Speaker Tom Finneran, a Mattapan Democrat, signaled support for a version of Menino’s plan, and the rest is history.

Wu deployed her own scare tactics last week. Appearing on WBUR’s “Radio Boston,” she predicted a 33 percent tax increase for homeowners at the beginning of next year if the Legislature does not approve her plan. That’s because the city sends estimated bills for the first two quarters of the fiscal year (July through December), so the increase would be concentrated in the last two quarters, instead of spread across the entire year.

How exactly Wu’s plan would play out for commercial property owners is a moving target. In neighborhoods such as the Seaport and Back Bay, where buildings would likely hold their values, commercial property owners would get hit with big tax increases. In places like the Financial District, where values are falling, owners’ tax bills would shrink, but not as much as they otherwise should.

It’s worth noting that commercial real estate is already taxed at more than double the rate of residential property. And it’s not just downtown that would be affected by even higher rates. Commercial property owners and small businesses in Mattapan, Allston-Brighton, or Fenway could also take a hit, undermining the postpandemic recovery of “main streets” that keep neighborhoods vital.

Daniel Handalian — who once owned Daniel’s Bakery in Brighton but now just owns the small building housing the bakery — remembers how Menino’s tax hike forced him to raise prices on cakes and cookies. Handalian said if his property tax bill gets bigger this time, that increase will also hit the current bakery owner.

“She’s working on a thin margin now,” said Handalian who sold the bakery nearly two decades ago. “It’s not the business it used to be.”

His advice to City Hall on dealing with a potential revenue shortfall: “Spend less.”

Wu can avoid this tax fight. She has other options, fairer options. Beating up on businesses is the political easy way out.