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Municipal budgets most stressed since ’80, report says

State aid cuts, lack of growth are cited

By Brian MacQuarrie
Globe Staff / December 7, 2011
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Cash-strapped cities and towns across Massachusetts are struggling with the worst stress on their budgets since passage of Proposition 2 1/2 in 1980, according to a new report from the Massachusetts Taxpayers Foundation.

The drumbeat of worrisome economic news has come from several fronts in the past two years: Municipal budget growth has been anemic, state aid has been slashed, and property taxes have risen to a three-decade high as a share of municipal revenue, according to the report.

“The numbers demonstrate just how difficult this recession and fiscal crisis have been for cities and towns,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. “Their revenues have been virtually flat, while their costs have grown, which has meant cuts in schools, public safety, and other basic services for most cities and towns.’’

Property taxes accounted for 56.5 percent of municipal revenue in fiscal 2011, which ended June 30, and have risen steadily from 49 percent in fiscal 2001. Although a 3.8 percent increase in property-taxes receipts represented the smallest annual rise under Proposition 2 1/2, cuts in state aid and a drop in other receipts helped drive the property tax to its higher perch atop the revenue stream.

In addition, municipal budgets have registered negligible growth. In the past two fiscal years, the budgets grew a total of only 1.2 percent.

“These are challenging times,’’ said Michael V. O’Brien, the Worcester city manager. “The global economy, the national economy, and the regional economy have all suffered in the downturn, so the revenues aren’t there for the state to distribute.’’

Worcester has cut about 450 municipal jobs, including approximately 60 police officers, 60 firefighters, and 100 public works employees, since the recession began, O’Brien said. Unrestricted state aid to the city has been cut about 35 percent, from $58 million in fiscal 2008 to $38 million in the current fiscal year, the city manager added.

“We’re continuing to strap in,’’ O’Brien said. “For city government, we’ve got to prioritize. We’ve got to live within our means.’’

The pain has been widespread. According to the Massachusetts Taxpayers Foundation:

■Unrestricted state aid to cities and towns, which does not include school aid, fell 32 percent to $899 million in fiscal 2011, from $1.3 billion in the original budget for fiscal 2009.

■Investment income for municipalities dropped 72 percent in that period, to $33.4 million from $118.9 million.

■Property taxes from new construction rose just $8 million in fiscal 2011, after a $42 million drop the previous year.

■Overall, local pension systems are only 59 percent funded and have an unfunded liability of almost $13 billion.

■Only a few communities have begun planning to pay for municipal health care for retirees, whose unfunded liabilities are estimated between $25 billion and $30 billion.

The report noted positive signs of revenue growth. A local option to levy meals and hotel taxes, approved by the Legislature in 2009, produced $187 million in fiscal 2011. In addition, municipal health insurance legislation passed in July is expected to produce more than $100 million in savings in its first year, according to the foundation.

In Needham, Town Manager Kate Fitzpatrick said that the town has been able to weather much of the economic storm, despite relying on property taxes for more than 80 percent of its budget. Resilient property values and wage and benefit concessions by town employees have helped, she said.

“There certainly has been pain and some difficult choices, but the town hasn’t had to resort to more drastic cuts,’’ she said. “We haven’t been in expansion mode, we haven’t added services, and we’re trying to get through ’11, ’12, and ’13 and hoping that the economy will start to turn around.’’

In Rockland, Town Administrator Allan R. Chiocca said the economic climate has led to serious self-assessment of municipal management and of important services. “Luckily, the people stepped up,’’ he said. In 2009, a Proposition 2 1/2 override saved the Parks Department, Youth Commission, Council on Aging, and library, which had all been zero-funded.

MacQuarrie can be reached at macquarrie@globe.com.

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