.Rising costs and sluggish growth in state aid are leaving municipal budgets in Massachusetts in a tightening bind and increasingly unable to adequately respond to demands for better local services, according to a new report that could set the stage for future tax debates in the Legislature.
The Massachusetts Municipal Association, the trade group representing cities and towns, highlighted the issue in its report while also objecting to restrictions on local property tax increases and a ban on local income and sales taxes that they say prevents municipalities from raising revenue to meet community needs.
Between 2010 and 2022, inflation-adjusted spending on operations in Massachusetts municipalities grew by 0.6% per year. That's slower than the U.S. average for local spending growth and the growth in the Massachusetts state budget, which the report pegs at about 2.8% per year.
Proposition 2 1/2, the 1980 voter law that has helped limit property tax increases for more than four decades, was designed to limit local spending growth and property tax burdens, "but real spending growth of 0.6 percent per year suggests the constraints may be too restrictive," the report said.
The cap on annual property tax increases "doesn’t include any kind of adjustment for inflation," the report said, and is more manageable in low-inflation periods but forces municipalities to "cut real spending every year" that inflation exceeds 3% as it has since the COVID-19 pandemic.
The report said three of four municipalities in Massachusetts are at between 95% and 99% of their levy limit, or the amount of property tax revenue they can generate before needing to launch a tax override campaign. Overrides are "not a viable solution" to local spending challenges in most cities and towns, the report says.
Nearly 200 out of 351 cities and towns in Massachusetts have not pursued any overrides in the last 15 years and the tax overrides that have passed have been "overwhelmingly" in suburban towns as "rural towns and gateway cities lack the local income and wealth to respond at all" to the need for more local revenue.
Attaching the "perfect storm" label to its report, the association said the convergence of factors are "creating a fiscal crisis in cities and towns." The report did not come with specific recommendations -- the association said municipal leaders plan to discuss the report in the coming weeks and later this fall the association will release policy recommendations "to put cities and towns back on the path toward long-term financial sustainability."
"The cost of health care, energy, paving, construction and schools are contributing to cost increases that are outpacing revenue growth," Newton Mayor Ruthanne Fuller said. "We have to change tracks and find new paths to invest sufficiently in the places we love and call home."
Municipal budgets are largely built on local property tax revenue and aid from the state. While the Legislature often highlights its annual increases in local aid, the report says that "state aid has been a lifeline for cities and towns" but "compared to other states, state aid in Massachusetts doesn’t stand out as particularly generous."
Nationwide, cities and towns get about 31% of their revenue via state aid, compared to 26% in Massachusetts.
The biggest buckets of local aid are Unrestricted General Government Aid and Chapter 70 school aid. In the current state budget, unrestricted aid totaled more than $1.3 billion and Chapter 70 aid about $6.8 billion.
Since 2010, when adjusted for inflation, unrestricted local aid has fallen 25%, the report said.
The analysis was developed in partnership with the Center for State Policy Analysis at Tufts University. The center's executive director, Evan Horowitz, said unrestricted local aid stands $66 million short of the level needed to keep up with inflation since 2010.
Horowitz said Chapter 70 funding increases have exceeded inflation but the financial benefits have flowed mainly to urban districts. "By contrast, the average municipality has seen basically no change over this same timeframe, and rural towns have lost education support," the report said.
The Democrat-controlled Legislature over the years has resisted calls for more local option taxes and the state needs to balance scores of public service needs in making decisions about local aid levels. Recommendations for policy changes that emanate from the report could again stir debate over tax burdens and local aid levels.
"When you talk about what makes a city or town a ‘community,’ it’s libraries and senior centers and the staff you can rely on to respond to a 911 call or fix a pothole," Adams Select Board Member Christine Hoyt said. "The big things and the little things all matter. We need to rally in support of the investments our residents deserve."
Amherst Town Manager Paul Bockelman said, "We clearly need to have serious conversations about how we can adequately support municipal services."