Source: City Economies
Author: Travis Barrington
Date published: 2025-09-24
[original article can be accessed via hyperlink at the end]
Across major U.S. cities, the long tail of the pandemic continues to reshape commercial property values and the budgets that depend on them. Nowhere is this more visible than in the offices that once served as the backbone of urban tax bases. The sharp decline in valuations has left municipal finance directors juggling budget forecasts, property owners challenging assessments, and homeowners increasingly shouldering the difference.
In New York, office buildings have lost roughly $29 billion in assessed value between 2021 and 2025, a plunge of around 16 percent when adjusted for inflation. That slide has translated into a $1.16 billion shortfall in property tax receipts, with more than 90 percent of the hit coming from office properties. Vacancy levels remain about twice what they were before the pandemic. Even so, the impact on the city’s $112 billion budget has been muted. Property taxes now make up a smaller share of revenue while personal and business income taxes, which have grown more quickly than inflation, fill the gap. The trade-off is volatility: those revenue streams rise and fall faster with market cycles than stable property taxes. Budget officials acknowledge the shift leaves the city more exposed to downturns, though rating agencies point to the city’s still-healthy reserves and the possibility of new levies under a future administration as cushions against deeper fiscal pain.
Washington, D.C. illustrates what happens when federal belt-tightening collides with a shaky office market. Local budget projections already anticipate office property tax receipts falling by nearly 10 percent in 2025 and another 12 percent in 2026. Officials warn that the rising tide of vacancies could weaken finances further as the city absorbs spending cuts triggered by federal tax reforms and other policy changes. To plug the gap, the Bowser administration is weighing sales tax hikes and new gambling levies. Economists at the city’s Office of the Chief Financial Officer are blunt: real estate taxes will no longer be the primary driver of local revenue, meaning more reliance on sales and income taxes and, with it, more volatility. Programs will have to compete more directly for scarce dollars as the revenue mix shifts.
Philadelphia, where office towers have sold at steep discounts, faces its own version of this strain. Property owners there have mounted waves of appeals against assessments, lowering official valuations and squeezing tax collections. The city’s longtime finance director has acknowledged that declining office assessments now cost Philadelphia about $6 million annually, but emphasized that the impact is cushioned by the city’s heavy reliance on wage taxes and a relatively small office sector. Even so, the public schools, which depend more directly on property levies, are absorbing losses of more than $10 million annually while already facing a projected $2 billion deficit within five years. Center City’s business improvement district, which relies on assessments, is also seeing its budget clipped. Legal experts expect more large-scale appeals in the years ahead, suggesting the problem has not yet run its course.
Boston, however, may be the most vulnerable of all. The city leans heavily on property taxes for more than 70 percent of its revenue, with commercial buildings providing just over half of that total. A recent joint report from Tufts University’s Center for State Policy Analysis and the Boston Policy Institute estimates that Boston’s office buildings could lose nearly half their value over five years, wiping out as much as $1.7 billion in cumulative tax revenue. That would mean a $550 million annual shortfall by 2029, equal to roughly 11 percent of the city’s current budget. Already, homeowners are paying a greater share of the levy as commercial assessments fall, with their burden growing at the fastest pace since 2007.
Mayor Michelle Wu has tried to shield residents from that shift by proposing temporary hikes in commercial property taxes, but the measures have stalled in the Massachusetts legislature. Landlords argue that raising rates on a sector already struggling with hybrid work and higher interest costs would hasten distress rather than resolve it. Business groups are pressing for spending restraint instead, warning that persistently higher residential taxes could ultimately erode home values and accelerate outmigration. Policy researchers have floated cost-cutting moves such as school closures as potential stopgaps, but the political will for such steps remains uncertain, particularly with a mayoral election looming.
Other cities offer cautionary tales. Memphis, which leaned into office-to-residential conversions as a way to shore up its downtown, has been left with a vacancy rate higher than before the pandemic after many of those projects failed to materialize. Its experience underscores the limits of relying on conversions to rescue tax bases. Cities like Boston and Philadelphia are experimenting with turning towers into apartments, but because residential property is generally taxed at lower rates, conversions can only soften the blow rather than fully offset lost commercial tax revenue.
The dynamics at play show how the health of office buildings extends beyond landlords and lenders. Falling values ripple outward into municipal finances, business improvement districts, and school budgets. The broader economic picture remains uneven: employment has recovered in many sectors, but hybrid work keeps demand for large office footprints suppressed. In some cases, steeply discounted sales are allowing new owners to reposition buildings and attract tenants with cheaper rents, offering glimmers of renewal. Yet the fiscal math for cities still points toward leaner budgets, tougher choices, and, in places like Boston, potentially bruising political fights over who pays.
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America’s Office Slump Is Gutting City Budgets and Taxpayers Are Paying the Price