Results and recommendations from an analysis of municipal finances and local aid during the period 1981 to 2005.Municipal finance - Massachusetts

John Hamill

English

Research Papers in Economics

&Banking Communities 7
by John Hamill
Chairman, Sovereign Bank New England
A Report from the Municipal Finance Task Force
at Risk
Massachusetts Communities
For the past nine months, I have been privileged to be chairman of the Municipal
Finance Task Force, a group of Massachusetts leaders from the business sector, the
nonprofit community, unions, municipal government, state government, and 
academia. We were charged with analyzing municipal revenues, municipal 
expenditures, and local aid, focusing on the period from 1981 to 2005. Fall 2005 8
The study, facilitated by the
Metropolitan Area Planning Council,
came about because Massachusetts cities
and towns saw that local aid was increas-
ingly restricted and unpredictable and
were concerned about a long-term finan-
cial crunch for delivering core municipal
services (non-school services). 
Residents and taxpayers across the
state—regardless of whether they live in
cities, towns, or rural hamlets—have had
a common experience with local govern-
ment over the past five years. Their prop-
erty tax bill has increased dramatically,
and they are now paying fees for many
services that used to be covered by 
general revenue. 
All residents are affected, and per-
haps none more so than those with 
low and moderate incomes. Strikingly,
the largest cuts in municipal budgets 
have come in the “Health & Welfare” 
line item.
As a result of the long-term fiscal
trends, Somerville, for example, has 16
fewer police officers, 13 fewer firefighters,
and 34 fewer public works employees. In
western Massachusetts, after a failed over-
ride vote, Hampden shut down its 
senior center and recreation department,
and even turned off its streetlights to 
save money. 
The Municipal Finance Task Force
wanted, first, to understand long-term
trends in municipal finances and their
impact on local budgets and services; sec-
ond, to help municipalities develop
strategies and policies to better navigate
the trends; and, finally, to provide recom-
mendations for political leaders at the
local and state levels. This fall, we released
a comprehensive report distilling what 
we learned.
We are hopeful that our work will
shine a light on the current, imperfect
system for financing local government
and will prompt a public debate.
The Findings
The research findings cover budget
growth, health-insurance issues, core
services, property taxes, and more.
Despite stereotypes to the contrary,
municipal budgets have seen only modest
real increases over the past 25 years. Since
1981, per capita annual growth for
municipal budgets has averaged only 1.1
percent after adjustments for inflation.
The anecdotal stories about municipali-
ties’ profligacy with tax dollars might be
true in specific cases, but overall the facts
do not support the argument that munic-
ipal budgets are out of control.
Likewise, there is a misperception
about union contracts. The task force
found that municipal wages grew at only
0.7 percent in inflation-adjusted terms
Framingham Town Memorial and Municipal Offices, Framingham, Massachusetts. Photographs for this article by Julie Weinstein.
Municipal Budget Growth9
between 1994 and 2003, compared with
1.8 percent for the private sector and 1.0
percent for state employees.
Beyond that, municipal govern-
ments in Massachusetts have been shed-
ding employees more steeply than any
other state in the nation. The
Massachusetts Taxpayers Foundation
reported last year that Massachusetts
cities and towns cut 14,200 jobs, or 5.2
percent of municipal employees, between
February 2002 and August 2004.
Municipal Health Insurance Crisis
Like other employers, municipalities
are struggling with soaring health-care
costs. The Massachusetts Taxpayers
Foundation recently surveyed a represen-
tative sample of Massachusetts cities and
towns and found that local health-insur-
ance costs have skyrocketed more than 60
percent since 2001.
The foundation’s report also shows
that many municipalities are now spend-
ing more than 10 percent of their total
municipal budgets on health-insurance
premiums. In addition, 80 percent of the
2
1⁄2 percent annual growth in property tax
levies—allowed by the state ballot initia-
tive called Proposition 2
1⁄2—is absorbed
by that one line item. The rate of growth
in health-insurance premiums for munic-
ipalities is nearly double the pace of pre-
mium increases for state employees.
Support for Core Local
Government Services
Some people argue that cities and
towns benefited from enormous increases
in local aid from state government
through the 1990s. It is true that there
has been a significant increase in educa-
tion aid to cities and towns—although
the growth in that aid has varied greatly
by community. 
At the same time, non-school aid has
been stagnant or declining for more than
15 years. Most dramatically, non-school
aid known as “Additional Assistance,”
which formerly was distributed to all
Massachusetts cities and towns, now
serves fewer than half of our municipali-
ties and has diminished by more than
$430 million since 1988. 
Increasing Property Taxes
Massachusetts cities and towns have
long cherished their partnership with the
Commonwealth in delivering public 
services such as local and state police 
protection, roads, and a range of educa-
tional services. 
But despite the best intentions and
sustained efforts of state policymakers,
local aid, which was 20 percent of total
state expenditures in fiscal 1988, stood at
16.4 percent in 2004. That decline has
hurt the ability of the municipal side of
partnership to deliver services. 
The cuts to local aid, in combina-
tion with a lack of other local revenue
sources, have resulted in municipalities’
increased dependence on property taxes.
Whereas in 1988, property taxes
accounted for 46.1 percent of all munic-
ipal revenues, by 2004, that had
increased to 52.9 percent. In addition,
stagnant commercial property values
have increased the residential share of
property taxes. Residential property now
pays 72 percent of all property taxes, up
from 68 percent in 2000. Excluding 11
communities with residential tax exemp-
tions, the average single-family property
tax bill increased $910 from FY2000 to
FY2005.
Diminishing Core Municipal
Services
All of these trends combined has put
enormous pressure on core municipal
budgets. Possibly the most remarkable
statistic in the report is that since 1987,
per capita expenditures by cities and
towns for core municipal services
(excluding employee health insurance,
schools, and some fixed costs) have
declined by an average of 0.3 percent
annually in real terms. 
As an example of what that means,
the task force highlighted that spending
on public works declined from 15 per-
cent of municipal expenditures in fiscal
1987 to 9 percent in 2004. Ultimately,
these long-term trends mean that we have
fewer employees filling potholes, picking
up trash, or plowing snow—basic 
quality-of-life services that all citizens
expect their communities to provide. We
see the results of such trends in shortened
library hours, fewer health and human
services, closed fire stations, and fewer
police patrols in neighborhoods. In addi-
tion, soaring health-insurance costs make
it more expensive to deliver the services
that remain.
A Blueprint for Reform
The Municipal Finance Task Force
has proposed a comprehensive set of rec-
ommendations to stabilize municipal
finances and strengthen the partnership
between the Commonwealth and its
communities. There are no easy answers,
but the viability of local government
must be a central concern for all policy-
makers and will require sustained com-
mitment. Future policies should ensure
that state assistance is sufficient and pre-
dictable. In addition, communities
should be given both flexibility to utilize
revenues other than property taxes and
the tools to control long-term costs. 
We hope that the task force’s recom-
mendations will help shape the future
through positive actions and improve res-
idents’ experience with local government
in Massachusetts.
John Hamill is the chairman of Sovereign
Bank New England and served as chair-
man of the Municipal Finance Task Force.
A full copy of the report and its recommen-
dations is available at www.mapc.org.
&Banking Communities
Since 1987, per capita
expenditures by cities and
towns for core municipal
services (excluding
employee health 
insurance, schools, and
some fixed costs) have
declined by an average of
0.3 percent annually.

Massachusetts communities at risk: a report from the Municipal Finance Task Force

http://www.bostonfed.org/commdev/c&b/2005/fall/massrisk.pdf

Massachusetts communities at risk: a report from the Municipal Finance Task Force

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