City limits

IMAGINE IF BOSTON had only one revenue source: a tax on shopping mall sales. You know what would happen. The city would do everything it could to attract shopping malls in order to pay for schools, police, fire services, and everything else. It wouldn't matter whether the city actually wanted more shopping malls. Shopping malls would have to be encouraged, and the mall tax would influence every facet of city policy. Zoning officials would be attentive to the concerns of mall developers. Transportation policy would focus on the needs of suburban consumers. Requests for security near Bloomingdale's would influence the allocation of police patrols. And residents seeking bonds for low-cost housing or protection against crime in city parks would have a hard time getting heard.

Of course, the notion that Boston can only tax shopping mall sales is fanciful. In reality, Boston cannot tax them at all. Instead, state law makes Boston overwhelmingly dependent on another single source of income -- the property tax. But this tax also distorts how Boston plans for the future.

If Boston were allowed to collect revenue from a wider array of sources -- whether through general sales or income taxes, or more targeted ones -- the city would not have to consider every policy decision through the narrow lens of its impact on real estate. It would be free, in other words, to use its powers to promote something other than skyrocketing property values.

"I get it," critics say. "You want to raise taxes." But the issue is not how much the city should tax but how the city should tax. Boston could raise the same amount of revenue from a variety of sources as it now does from a single source. Doing so, in fact, would enable the city to decrease the property tax by ensuring that others (such as tourists) would have to contribute to paying for the city services that benefit them.

Governor Deval Patrick's recently proposed Municipal Partnership Act indicates state leaders are beginning to understand this point. The bill would, among other things, enable local governments to tax meals, increase the hotel tax, and close property tax loopholes for telecom providers. It would also create a commission to rethink local powers in a larger context.

Such rethinking is badly needed. A study we recently completed for the Boston Foundation comparing Boston's legal powers to those of six other highly successful major American cities -- Atlanta, Chicago, Denver, New York, San Francisco, and Seattle -- finds that Massachusetts law gives Boston far less power than its competitors in other states enjoy.

More than any of these other cities, Boston is a city bound. Besides taxing authority, the restrictions range from the absurd (the state decides the city towing fee) to the surprising (the state Legislature might have to approve a plan to move City Hall) to the serious (the state lets the city create business improvement districts but on terms that, as a practical matter, ensure they won't be established). No other city is as comprehensively restricted as Boston, and some, like Chicago, enjoy freedom on an entirely different scale.

These differences matter. Current economic forces reward cities with the ability to respond creatively and flexibly to fast-changing conditions. Urban centers that can't pursue cutting-edge economic development strategies, or respond boldly to the special challenges urban success may bring, risk slipping slowly but surely behind their competitors. Boston's ability to compete in an increasingly globalized market for urban economic development is directly connected to the state's willingness to loosen the reigns of power.

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The limits on Boston mostly date to the 19th century, when Boston's economy was different and fear of Irish control was palpable. While other states were giving major cities home rule, Massachusetts was putting Boston into a kind of Brahmin receivership. The city even lost the power to appoint its own police commissioner, something it did not win back until the 1960s.

Thanks to private innovation, public sector investments, and a good deal of luck, Boston has managed to succeed despite its highly constrained legal structure. But there are troubling signs on the horizon. Again and again, our study found that other cities are using their legal powers to capitalize on their recent successes in ways that Boston cannot. Chicago completed its widely praised Millennium Park with a degree of independence that, as the interminable debates over control of the Rose Kennedy Greenway demonstrate, Boston can only marvel at. Denver has relied on its home rule powers to contain spiraling municipal employment costs in ways that Massachusetts precludes Boston from doing.

Consider the consequences of the city's limited taxing power. Many cities can adopt taxes on their own, without first getting permission from their state legislatures. Boston must seek special legislative permission each time it wants a new tax. Moreover, these other cities often get additional taxing powers when they ask, while Boston is usually denied them.

As a result, almost 60 percent of Boston's revenue comes from the property tax, with the rest of the city's income coming either from a few relatively small state-authorized taxes (on hotels and jet fuel), from some limited fees, or from state aid. No other city in our study relies on the property tax for even 40 percent of its revenue, and for some the property tax provides less than a quarter of what they raise themselves.

Instead, most of these other cities draw upon 10 -- and sometimes 20 -- tax sources to pay for city services. Many have an income or occupation tax. They all have a sales tax. And they all have more specialized taxes than simply a tax on hotels and jet fuel.

This diversity of revenue sources enables them to pursue their economic development in a more flexible way. They can encourage tourism, rather than property development, because they receive income from the sales tax. They need not view the continued expansion of property-tax-exempt institutions like museums, hospitals, and universities as a fiscal threat because these institutions generate economic vitality that simultaneously helps support city services.

Because of its unusual reliance on the property tax, Boston has to focus on the kind of real estate development that will directly add to the taxable property base. Indeed, the city must pursue a policy of increasing property values even if it is worried that doing so will undermine the ability of middle-class people to live in Boston. Increased property values, after all, help make housing unaffordable -- and unaffordable housing is perhaps the most significant impediment to a city's economic development.

Critics of greater home rule charge that if cities are authorized to decide for themselves what taxes to levy they will add new ones rather than merely reallocate the tax burden. But this hasn't been the case in Chicago, which has no state-imposed limit on the property tax, but has imposed a property-tax limit on itself. It was able to do so because it has other sources of income. Boston, like the rest of Massachusetts' cities and towns, doesn't have this option. Cutting costs is also not an adequate alternative to increasing tax diversity. As long as the state continues to delegate the obligation to run schools and provide police and fire services to the city, only a limited amount of cost saving is possible. And dependence on a single kind of tax can still distort city planning even if the overall budget shrinks.

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Taxes provide only the most prominent example of the excessive and detailed restrictions that state law now imposes on Boston. On issue after issue, the city has to go hat in hand to the Legislature to get permission to adopt city policies. Its recent battle to gain control over the granting of liquor licenses reflects a more general problem, and one that every city and town must cope with.

And it's not just the Legislature that affects how Boston operates. State agencies -- Massport, the Turnpike Authority, the Convention Center Authority -- have considerable control over important aspects of city policy because they control so many of the physical assets within the city limits. Other cities have a much greater say about their own future because the mayor appoints more of the members of these entities, or because the city owns the underlying properties. In fact, unlike San Francisco, Denver, and Chicago, Boston does not own its airport, even though it's located much closer to downtown.

Other states are recognizing that in order to compete in the global market, cities need to have some measure of self-determination. Indeed, decentralization is on the increase worldwide. Even very centralized countries -- from France to India -- are now decentralizing power in order to improve the welfare of their cities and that of the nation as a whole. These cities remain subject to state or national power, but they have more authority within those constraints than Boston to pursue their own urban policy.

Cynics say state leaders will never agree to let go of their detailed control over Boston. We are more optimistic. No one easily gives up power. But Boston is the economic engine for the metropolitan region, the state, and New England as a whole. Everyone would benefit from better enabling the state's largest city to prosper. Many of Boston's leading competitors are located in states that have already figured that out. It's time that ours did as well.

David J. Barron and Gerald E. Frug are professors at Harvard Law School. They are coauthors of the recently released Boston Foundation report, "Boston Bound."