The new normal: Mass. cities and towns are making do with less
As Massachusetts emerges from the depths of recession, local communities are struggling to find their financial footing, with most asking homeowners to pay the maximum increase allowed under Proposition 2 1/2, the state’s tax cap law.
A review of state Department of Revenue records found that 44 area communities are setting the highest property-tax levy that doesn’t require approval by voters. Meanwhile, 13 cities and towns - Amesbury, Boxford, Burlington, Everett, Hamilton, Lowell, Methuen, Middleton, Peabody, Rockport, Salem, Topsfield, and Woburn - that could have raised property taxes an additional 1 percent or more this fiscal year chose not to burden residents, many of whom are struggling to hold onto their homes.
Methuen and Woburn top the list, each falling 6.43 percent below their maximum levy. In Methuen, that translates into $4.44 million that could have been tacked on to taxpayers’ bills without an override of Proposition 2 1/2; in Woburn, it’s $5.92 million.
“We’re trying to shield property owners,’’ Salem Mayor Kimberley L. Driscoll said of her community, where taxes are 4.91 percent - or $3.7 million - below the levy limit.
“We realize that the economy has slowed and people are hurting within our community,’’ Driscoll said. “We’re not seeing big-ticket building permits, there aren’t as many additions being built, and folks aren’t buying new vehicles, so we’re not seeing an increase in our excise taxes.’’
According to Carolyn C. Ryan, a policy analyst for the Massachusetts Taxpayers Foundation, an independent watchdog group, Salem’s fiscal picture is emblematic of what she called “a new normal.’’
Statewide, 75 percent of the 351 communities in Massachusetts are collecting the maximum amount possible in property taxes, up from 67 percent in 2007, the start of the recession. Cuts to state aid and other forms of local revenue have forced cities and towns to rely more heavily on property taxes to make ends meet. Last fiscal year, property taxes rose to 56.5 percent of total local revenues, the highest level in three decades.
“It will be a long, slow slog’’ before municipalities can get back to prerecession funding levels, if they ever do, Ryan said. “There’s a new fiscal reality; a new normal. It’s a permanent squeeze. Communities have to do more with less.’’
In Chelmsford, local leaders had to scale back plans for a new fire station. Winchester and Revere are partnering to curb the cost of essential services. And several communities are implementing changes to their municipal health care plans to save taxpayers money.
Under Proposition 2 1/2, which went into effect in 1982, communities cannot increase the total amount of property tax revenue they collect by more than 2.5 percent each year, plus any tax revenue attributable to new growth or construction, without obtaining permission from voters.
In Hamilton, where voters passed 10 overrides between May 2001 and May 2008, homeowners are getting a break this year. It is the only community in the region where the tax bill for the average single-family home dropped for the 2012 fiscal year, to $7,988 from $8,165 last year.
Forced to pinch pennies during the recession, many cities and towns issued pink slips, instituted wage freezes, and embraced changes to their health insurance coverages. Some also adopted a new local meals tax or increased their hotel tax. With some lower base costs and a slight uptick in some local revenues, communities are finding they can afford to restore services, or take on new debt for renovations and repairs to local schools and municipal buildings as their revenues stabilize.
John Dunn, director of municipal finance for Beverly, is anticipating an estimated $1.2 million in savings as a result of the city’s reduced health care costs, money that will be used to repair local roads and sidewalks.
In Winchester, Town Manager Richard C. Howard said an anticipated $451,000 deficit for the 2013 fiscal year, which starts July 1, has been avoided, and municipal services will be maintained without an override. According to Howard, an anticipated $925,581 increase in state funding for education - the governor’s proposed budget would increase aid for schools by $146 million statewide - and an expected drop in health care costs mean that Winchester will not have to issue any pink slips.
In Chelmsford, Town Manager Paul E. Cohen has proposed hiring two new police officers and spending $7.5 million on a new fire station downtown. Voters had twice rejected a temporary tax increase, through a debt exclusion, to replace the crumbling Center Fire Station. Cohen said he believes the town will be able to move forward with the project by using savings resulting from changes to the municipal health insurance plan. Voters on Tuesday will decide whether the town should earmark money in next year’s operating budget to cover its debt payments on the project.
“The health care budget is going down by about $700,000,’’ said Cohen. “The debt service on the fire station in the first year, when the payments are the highest, would be $637,500.’’
New health-insurance bargaining rules, approved by Beacon Hill last year, allow municipalities to shift some of the burden of spiraling health care costs to their employees without having to go through the collective bargaining process. In the past, cities and towns could not alter the terms of the insurance plans they offered to public employees without union consent.
Statewide, the law is expected to save cities and towns more than $100 million in its first year. According to a recent report by the Mass. Taxpayers Foundation, 91 communities have either voted to adopt the measure or have votes scheduled.
The foundation noted that nine communities - including Beverly, Chelmsford, Somerville, and Wakefield - have adopted the law and implemented health plan changes that are expected to result in $30 million in first-year savings. Twelve other cities and towns - including Lowell, Lynnfield, Medford, Reading, and Revere - have been able to save a combined $30 million by negotiating changes through collective bargaining.
Still, most communities face difficult decisions in assembling their budgets for the upcoming fiscal year. Feeling the financial squeeze, communities have regionalized services or are considering proposals to do so. Winthrop and Revere, for example, are establishing a regional emergency dispatch center; the towns also are considering sharing a public library director.
“We’re still talking about it,’’ Winthrop Town Manager James M. McKenna said of the library proposal, which would likely save each community $20,000 to $25,000. “The spirit of willingness is there. It’s just a matter of getting the details understood, and considering how the operating side would work.’’
Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, a nonprofit group that advocates for the state’s cities and towns, is calling on the Legislature to earmark a portion of the approximately $1.2 billion in the state’s added tax revenue to guarantee local communities the same level of unrestricted aid as they received this fiscal year, rather than making level funding contingent on a state surplus.
Those and other proposals may be weighed by lawmakers as they study Governor Deval Patrick’s proposed $32.3 billion budget. The House and Senate will put forward their own spending plans over the next few months before working out a final proposal that will be sent to the governor for his signature.
Local leaders are well aware that it’s still early in the budget season, and are adopting a conservative approach to crafting their budgets, in case the final state numbers are less than what is in the governor’s spending proposal.
“We’re not using any of the surplus money in our budget figures,’’ said Cohen, Chelmsford’s town manager.
“We’re just using the base level of local aid. That’s why we’re confident we’re in a solid position. We’re not being overly aggressive in our estimates.’’
Brenda J. Buote may be reached at firstname.lastname@example.org.