Report: State aid still tight for cities, towns

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December 12, 2011

Wire and Staff Reports The Gloucester Daily Times Mon Dec 12, 2011, 12:19 AM EST

Rocked by the economic downturn of the last few years, Massachusetts cities and towns have seen their budgets gored by cuts to local aid — and may be forced to cope with revenue shortages for "the foreseeable future," according to a new report issued the Massachusetts Taxpayers Foundation.

Over the last two years, municipalities saw their toughest fiscal stretch since 1992, according to the report, the foundation's 41st annual assessment of municipal financial data.

Revenue grew by just 1.2 percent over the two years, with cuts in state aid and local receipts forcing cities and towns to depend more heavily than ever on property taxes, which, statewide, supported 56.5 percent of local budgets, the report said.

The report could carry ramifications as the Patrick administration prepares to unveil a fiscal 2013 budget in January.

After rising by nearly $2 billion in fiscal 2011, state government tax collections have continued to grow this fiscal year, leading to speculation about increases in local aid and services.

That increase in the state collections for fiscal 2011, which ended June 30, led to the state extending Gloucester an additional $244,500 in aid in November. City officials have not yet decided how to utilize the "unrestricted" money.

But municipal officials, including the mayor of the state's dominant city, have said that increases now hardly even the playing field from a succession of cuts to local aid and services in recent years.

Asked about whether positive economic signs warrant a local aid increase, Boston Mayor Thomas Menino swiped at lawmakers.

"Do I expect the state to give me (more) local aid?" Menino said. "Are they going to make up for the $100 million I lost over the last six years? Alright, next question."

Property taxes across the state rose by 3.8 percent in 2011, the report concluded, the smallest annual increase since the implementation of Proposition 2 1/2 — the 1982 voter-approved policy that limits property tax hikes to 2 1/2 percent per year, unless residents vote to override their local tax caps. Voters in Manchester last spring approved an override for schools, but twin override proposals both went down in Essex.

The report also found that local aid from Beacon Hill — the second largest source of revenue for cities and towns — has slid $534 million since fiscal 2009, with the bulk of cuts landing to unrestricted aid.

And local receipts, the third largest source of municipal revenue, fell for the second straight year, with declines in motor vehicle excise tax collections and investment income, which plummeted to $33.4 million in fiscal 2011 after reaching $118.9 million in 2009.

Local receipts, according to the report, would have fared worse were it not for local option meals and sales taxes backed by the Legislature in 2009. As a result of that legislation, according to the MTF report, more than 140 cities and towns have approved the local meals tax increase, generating $61 million, and 89 cities and towns have adopted the local hotel tax increase, generating $126 million.

Those communities include Gloucester, which boosted both its meals and inn taxes in 2010, and finished fiscal 2011 with surpluses in those accounts of $55,000 and $63,000, respectively. Voters at Rockport's Fall Town Meeting in September approved a hike in the inn tax for their town as well.

But lower property assessments in Gloucester have led to a 7 percent increase in the property tax rate just to support the city's budget, which is on the allowed 2 1/2 percent increase in the city's overall levy limit

In addition, municipal employee pensions and benefits across the state are poised to consume a greater share of local budgets in the coming years.

"The constraints on municipal revenues heighten the urgency of addressing the escalating costs of employee and retiree benefits," said Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation, in a statement that accompanied the report.

A $13 billion pension liability collectively facing cities and towns and a $25 billion liability for retiree health care could crush local budgets in the upcoming years, according to the report.

"Only a handful of communities have a plan to begin funding these liabilities, making it a near certainty that broad reforms and painful budget decisions will be necessary in the future," according to the report.

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