IT’S ROUND 2 for Mayor Michelle Wu and the Boston Policy Institute. 

The think tank that repeatedly clashed with City Hall over taxes is out with a follow-up to their report last year that Boston is facing a stormy revenue picture in the years ahead, as remote work has led to a loss in the value of office buildings. 

Their takeaway, as put by Evan Horowitz, the Tufts University analyst and author of both last year’s report and the one out Thursday: The revenue picture now “looks worse than we expected.” 

The city’s $4.6 billion operating budget heavily relies on property taxes, which are calculated based on assessed values of a property and an applied tax rate. Commercial property taxes make up a third of the budget. 

The think tank’s latest report says property taxes are a “very stable” source of revenue, having helped Boston power through past economic downturns. But several notable buildings, such as 101 Arch Street and 400 Atlantic Avenue, are now trading hands at discounts ranging from 50 to 70 percent. With hybrid work, high mortgage rates, and federal tariffs leading to increased costs, “there’s no reason to expect a near-term turnaround in the value or profitability of office spaces,” the report said. 

The report added that “the total assessed value of all office properties in Boston fell 9 percent in FY 2025 (in real terms), a one-year decline comparable only to the [2008] financial crisis and the bursting of the [2001] dot-com bubble. And while those earlier, recession-induced drops were short-lived, today’s slump seems more durable.”

The Boston Policy Institute’s new report, like the one in 2024, doubled down on what it termed a city budget “shortfall” due to falling office building values, saying the new estimate totals $1.7 billion over the next five years, revising up from $1.2 billion to $1.5 billion. 

Wu administration officials have previously disputed the think tank’s use of the word “shortfall,” noting any revenue decrease from commercial property taxes would have to be made up by an increase in residential property taxes. 

The mayor, joined by House lawmakers, pushed for property tax shift legislation last year on Beacon Hill, only to see it die in the Senate. The legislation would have temporarily shifted more of the tax burden onto commercial businesses in order to avoid a spike in residential property taxes. 

The Boston Policy Institute, a nonprofit, has emerged as a rival to a longtime city watchdog, the Boston Municipal Research Bureau (BMRB). While BMRB gets money from the city’s top businesses, like Fidelity and State Street, the BPI does not reveal its donors. 

As with the February 2024 report, the think tank provided Thursday’s report under an embargo, meaning reporters could not share the findings with the Wu administration for comment. 

The latest report comes as Wu faces a challenger, Josh Kraft, the son of New England Patriots owner Robert Kraft. The younger Kraft, a longtime nonprofit executive, has criticized Wu for declining to cut the city’s budget. 

Wu, for her part, has said her administration is “preparing for worst case scenarios while refraining from preemptive disruption of city services,” and noted that cuts would lead to fewer police and firefighters. In her fiscal year 2026 budget proposal, she proposed slowing growth, with the operating budget coming in at $4.8 billion, a 4.4 percent increase from the previous year, down from a 7 percent increase the year before that. 

In May, Wu touted Moody’s Investor Service and S&P Global Ratings, two ratings agencies, both handing the city a AAA bond rating, the same week that Moody’s downgraded the United States. The city has held the top credit rating, an indication of fiscal health, since 2014. 

“Boston’s commercial and retail properties continue to rebound from elevated vacancy rates seen during the pandemic and these metrics now compare favorably to similar large metro areas in the US,” S&P wrote in its assessment, dated May 13. 

“It is working to address the effects of declining office building values, which are not expected to affect the city’s revenue collections due to the structure of its tax collections, but may result in a shift of the tax burden to residential taxpayers due to the city’s dual tax rate,” the rating agency added. 

S&P also noted the city’s effort to convert some downtown office space into residential properties in a bid to boost foot traffic, improve housing supply, and stabilize property values. “These office conversions face several challenges; the success of this program, however, will be felt over an extended time horizon,” the agency’s analysts wrote.