Home 
Local Aid and Finance Report cites greater fiscal challenges ahead
A variety of factors at both the state and local level is placing ever greater pressure on the finances of most cities and towns, with little relief in sight, according to the Massachusetts Taxpayers Foundation’s 37th annual analysis of local revenues and spending.
Citing the state’s fiscal problems, the report, released on Jan. 10, concludes that cities and towns are likely to see only small increases in local aid for the next several years. State aid, meanwhile, has not yet returned to 2001 levels, when adjusted for inflation.
Fiscal 2007 saw a brief reprieve, when local aid to municipalities grew by 8.1 percent, largely because of a $159 million increase in Lottery aid with the removal of a cap on Lottery distributions that was in place during the last state fiscal crisis. The increase in Lottery aid helped limit the growth in property taxes to 5.1 percent in 2007, a slight decline from 5.3 percent in 2006 and significantly less than the 2001-2004 average of 6.1 percent.
“Nevertheless, there is growing evidence that the Lottery has matured to the point that it can no longer provide dependable increases in state aid to municipalities, a critical problem since the Lottery is the principal source of non-education aid for cities and towns,” the report states.
Limited increases in local aid will put more pressure on the property tax, the report says, yet local leaders are seriously constrained in several areas tied to property taxes, namely new growth, excess capacity and Proposition 2 ½ overrides.
Growth from new construction rose only 1.6 percent a year on average between fiscal 2002 and 2007, compared to 15.4 percent annually from 1998 to 2001. Given the uncertain national economic picture and the problems confronting the housing sector, at best there will be only modest increases in new growth over the next several years, according to the report.
At the same time, more and more communities have used up their excess capacity, which allows them to raise property taxes more than 2.5 percent without an override. In fiscal 2007, two-thirds of the state’s 351 cities and towns had excess capacity of less than 1 percent, up from 55 percent in 2002.
In fiscal 2007, there was also a notable decline in the approval rate of override proposals placed on local ballots. Just 34.9 percent of the 152 attempted overrides were approved, compared to a success rate of approximately 50 percent in the prior three years.
The Taxpayers Foundation has proposed that the state dedicate 40 percent of annual revenues from income, corporate and sales taxes to local aid, in order to help address the squeeze on municipal finances for the long-term. The MMA has also endorsed this view. [Learn more about this issue.]
For a copy of the Taxpayers Foundation report, visit www.masstaxpayers.org/major_reports.html.
Local Aid and Finance Report cites greater fiscal challenges ahead
Report cites greater fiscal challenges ahead
A variety of factors at both the state and local level is placing ever greater pressure on the finances of most cities and towns, with little relief in sight, according to the Massachusetts Taxpayers Foundation’s 37th annual analysis of local revenues and spending.
Citing the state’s fiscal problems, the report, released on Jan. 10, concludes that cities and towns are likely to see only small increases in local aid for the next several years. State aid, meanwhile, has not yet returned to 2001 levels, when adjusted for inflation.
Fiscal 2007 saw a brief reprieve, when local aid to municipalities grew by 8.1 percent, largely because of a $159 million increase in Lottery aid with the removal of a cap on Lottery distributions that was in place during the last state fiscal crisis. The increase in Lottery aid helped limit the growth in property taxes to 5.1 percent in 2007, a slight decline from 5.3 percent in 2006 and significantly less than the 2001-2004 average of 6.1 percent.
“Nevertheless, there is growing evidence that the Lottery has matured to the point that it can no longer provide dependable increases in state aid to municipalities, a critical problem since the Lottery is the principal source of non-education aid for cities and towns,” the report states.
Limited increases in local aid will put more pressure on the property tax, the report says, yet local leaders are seriously constrained in several areas tied to property taxes, namely new growth, excess capacity and Proposition 2 ½ overrides.
Growth from new construction rose only 1.6 percent a year on average between fiscal 2002 and 2007, compared to 15.4 percent annually from 1998 to 2001. Given the uncertain national economic picture and the problems confronting the housing sector, at best there will be only modest increases in new growth over the next several years, according to the report.
At the same time, more and more communities have used up their excess capacity, which allows them to raise property taxes more than 2.5 percent without an override. In fiscal 2007, two-thirds of the state’s 351 cities and towns had excess capacity of less than 1 percent, up from 55 percent in 2002.
In fiscal 2007, there was also a notable decline in the approval rate of override proposals placed on local ballots. Just 34.9 percent of the 152 attempted overrides were approved, compared to a success rate of approximately 50 percent in the prior three years.
The Taxpayers Foundation has proposed that the state dedicate 40 percent of annual revenues from income, corporate and sales taxes to local aid, in order to help address the squeeze on municipal finances for the long-term. The MMA has also endorsed this view. [Learn more about this issue.]
For a copy of the Taxpayers Foundation report, visit www.masstaxpayers.org/major_reports.html.
Written by John Ouellette
