Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
Municipal revenues and expenditures grew by just 2.7 percent in fiscal 2012, leaving Massachusetts cities and towns in the midst of a three-year slowdown that is unprecedented since the implementation of Proposition 2 1⁄2 30 years ago, according to the Massachusetts Taxpayers Foundation’s 42nd annual “Municipal Financial Data” report.
The growth in fiscal 2012 represented an improvement over the negligible 0.1 percent growth in fiscal 2010 and 1.1 percent increase in fiscal 2011. But the total growth of just 3.8 percent over the past three fiscal years (2009-2012) is less than the one-year growth in 20 of the last 30 years and substantially lower than during the previous two recessions, according to the MTF report, released on Dec. 13.
“The recession and its anemic recovery have squeezed all three major municipal revenue sources: property taxes, local aid and local receipts,” the foundation said in a statement.
Property taxes grew by only 3.9 percent to $12.98 billion in fiscal 2012, virtually the same as the historically slow rates of growth in 2010 and 2011, due in part to limited new construction and fewer overrides.
New construction – the main source of property tax growth above the annual 2.5 percent levy increase – totaled $188 million and added just 1.5 percent to the prior year’s property tax levy for the third consecutive year. By comparison, over the 10 years preceding the recession, new construction added an average of 2.5 percent to the prior year’s property tax levy.
At the same time, voters approved just $15 million in overrides fiscal 2012.
Local aid was cut for the fourth consecutive year, dropping by $104 million (2.2 percent) to $4.68 billion in 2012. Since the original fiscal 2009 budget, local aid has been slashed by $368 million (7.3 percent), according to the MTF report. Only during one other period – the recession in the early 1990s, before the overhaul of the Chapter 70 education aid program – has there been a greater reduction in local aid to municipalities.
Unrestricted local aid has been hit the hardest, with the $899 million in funding for fiscal 2012, which the foundation points out is “a staggering” $425 million (32 percent) less than the $1.3 billion in the original fiscal 2009 budget.
Local receipts (e.g., meals and hotel taxes, investment income, motor vehicle excise taxes, building permits, and charges for water, sewer and trash services) totaled $4 billion in fiscal 2012, a mere $38 million (less than 1 percent) increase over the pre-recession year of fiscal 2009.
“Local receipts would have fared even worse if the Legislature had not allowed municipalities the option of adopting a meals tax or increasing the hotel tax,” the MTF states.
A total of 151 communities have adopted the local meals tax, generating $82.6 million in fiscal 2012; 100 communities increased their hotel tax rates, producing $139.4 million in total hotel taxes in fiscal 2012 compared to $87.5 million in fiscal 2009.
Total municipal revenues and expenditures for fiscal 2012 were $22.6 billion statewide, according to the report.
Despite the slowdown in property tax revenues, they are playing an ever-larger role in local budgets because of cuts in local aid and stagnant local receipts, according to the MTF report. Property taxes now account for 57.5 percent of all municipal revenues, up from 49.4 percent in fiscal 2002 and the largest share ever in the Proposition 2 1⁄2 era.
On the expenditure side, while the municipal health reform law has provided budget relief for scores of cities and towns, the “unaffordable costs” of employee and retiree benefits continue to burden local governments, according to the MTF report.
More than 125 municipalities and regional school districts have adopted changes as a result of the 2011 municipal health insurance reform law, and these changes are expected to save nearly $200 million during their first year of implementation.
“Despite this progress, municipalities are contending with enormous unfunded liabilities for pensions and retiree health care,” the MTF states.
Contributions to pension funds from cities and towns increased by 7.6 percent in fiscal 2012, almost three times their 2.7 percent total revenue growth. Municipalities faced these large increases even though 41 of 99 local pension systems have extended their funding dates beyond 2030 in order to limit the growth in annual contributions in the near term – “a move that also will end up costing taxpayers hundreds of millions over the long term,” according to the foundation.
“Communities have not begun to address their enormous outstanding liabilities for retiree health care,” the MTF states, “which, at approximately $30 billion, dwarf the unfunded pension liabilities facing many cities and towns. Retiree health care liabilities have reached such a critical point that they require major reforms to become affordable.”
For a copy of the report, visit www.masstaxpayers.org.