Somerville_budget_cSPA_presentation^4 — File 213825

SLIDE TITLE HERE UNDERSTANDING THE SOMERVILLE BUDGET May 19, 2022

SLIDE TITLE HERE KEY TOPICS 1. The Big Picture: How to think about budgets 2. City and Town Budgets in Massachusetts 3. Somerville’s Budget 4. Looking ahead to 2023

SLIDE TITLE HERE 1. HOW TO THINK ABOUT BUDGETS

SLIDE TITLE HERE POWER OF BUDGETS The budget is generally the single most important, most impactful thing we do every year. It’s where the rubber meets the road for political commitments, and you get to: – Look across the entirety of local government activity – Assess the value and importance of different programs – Allocate money to make things better

SLIDE TITLE HERE CONSTRAINTS OF BUDGETING But budgets come with some real constraints. – We are bound by decisions from the past: including contracts already negotiated and debts already accrued. – This is why it’s rare for budget-writers to “start from scratch” with zero-based budgeting – Standard is to build off the decisions of recent years and adjust to reflect new priorities

SLIDE TITLE HERE BUDGETING VS GOALS Budgeting = Goals + Constraints. – Politics is often about goals and values: the things you believe in and want to fight for. – Budgets are about something else: trade-offs, choices, constraints. – With a limited amount of money, and a host of pre-existing obligations, you need to choose priorities and spot opportunities.

SLIDE TITLE HERE 2. CITY AND TOWN BUDGETS IN MASSACHUSETTS

SLIDE TITLE HERE COMMONALITIES All around the commonwealth, cities and town budgets tend to look pretty similar. And for good reason. – They are subject to the same state rules – They rely on the same kinds of state support – That leaves them with a similar mix of revenues and responsibilities

SLIDE TITLE HERE REVENUES The mix of revenues is fairly consistent across municipalities – Property taxes are (by far) the biggest revenue source for cities and towns, amounting to 2/3 of all revenues – Local aid (from the state) is the second biggest source, making up just under 1/4 of revenues – Local receipts: motor vehicle excise taxes; small levies on hotels, meals, marijuana; various fees and fines (e.g. parking) – Other unique elements, like special revenues , grants, draws on the stabilization fund, or ARPA – No municipalities in Massachusetts levy sales or income taxes; those are controlled by the state

SLIDE TITLE HERE REVENUE CONSTRAINTS Big constraint on municipal finances is prop 2½, a ballot initiative from the early 1980s that: – Limits property taxes to 2½% of total value of all property – Limits the growth of property tax revenue to 2½% per year (with the exception of new growth) – Note: these limits bite. Some towns have “excess capacity” but about half have little or none

SLIDE TITLE HERE REVENUE - BUSINESS One important difference among municipalities is the amount of commercial activity. – Businesses are often a net-positive for municipal budgets, because they pay property taxes but generally require less in terms of needed services (e.g. schools) – Towns with substantial commercial activity can place a higher property tax rate on businesses, which eases rates for residents. – New development and business expansion doesn’t count against the 2 1/2% limit on property tax growth--allowing cities to raise more money

SLIDE TITLE HERE SPENDING CONSTRAINTS As with revenues, there are some significant constraints on municipal spending decisions: – Existing contracts with unions set the wages, benefits, and rules for many municipal workers – Debts have to be paid according to existing terms, and the same logic applies to pension obligations – Generally, these pre-determined costs require a large percentage of available revenue, leaving less room for discretionary decision- making

SLIDE TITLE HERE TAKEAWAYS Bringing this together, here are some of the key things to think about when developing a municipal budget in Massachusetts – How much revenue can we expect? – How much will go to fixed and required costs (and how much is discretionary)? – How much new growth can we build on? – Do we have a healthy/appropriate amount of business activity?

SLIDE TITLE HERE 3. SOMERVILLE’S BUDGET

SLIDE TITLE HERE TOPICS IN THIS SECTION To get a richer sense of Somerville’s budget, let’s compare some key metrics with other cities and towns.

SLIDE TITLE HERE SPENDING City spending supports a range of services and personnel – The biggest share of the city budget goes to salaries and benefits. Running a city well requires a lot of highly-skilled people who need to be fairly compensated--lest they leave for private sector jobs – Another meaningful portion is devoted to necessary equipment and materials, such as technology or equipment for snow removal and elections – Finally, a substantial amount of city spending is devoted to upholding long- term obligations

SLIDE TITLE HERE SPENDING - BY AREA Combining these, you can compare spending across areas: CATEGORY AMOUNTS School Department 84,267,002 Public Safety 47,110,557 Pension & Fringe 44,476,553 General Government 33,695,189 Public Works 32,205,620 Debt Service 19,085,854 State & County Assessment 14,632,466 Culture & Recreation 5,151,380 Other 4,326,045 Overlay Reserve 1,700,000

SLIDE TITLE HERE SPENDING - OBLIGATIONS A substantial amount of city spending is devoted to upholding long- term obligations. This includes: – State assessments for the MBTA, MAPC, and Charter School attendance – Debt service costs for ongoing and completed capital projects – Pre-funding of future pension obligations – Note: these costs are substantial, generally amounting to 10-20% of all budgeted spending. Debt service alone amounts to roughly $20 million

SLIDE TITLE HERE FIXED COSTS DRIVE BUDGET FY22 Budget Share of Budget Personal Services 67.8% Ordinary Maintenance 24.2% Special Items 8.0% FY22 Budget Appropriation Share of Budget Health Insurance 25,902,052 9.01% Pensions 15,594,586 5.42% Debt Service 13,042,240 4.5% Debt Service (Excluded) 6,033,610 2.0%

SLIDE TITLE HERE 5. LOOKING AHEAD TO 2023

SLIDE TITLE HERE INFLATION One unique feature of the FY23 budget is inflation – Inflation means everything is more expensive – Just maintaining city services is going to get more expensive (hiring, building, etc.) – Inflation will also change the dynamics of union negotiation; and several major contracts need to be renegotiated this year – Important to have property appraisals that reflect current costs – One upside: pension and debt obligations are reduced

SLIDE TITLE HERE NEXT STEPS The City Council plays a vital role in this budget process, and hopefully this information will help as you deliberate. – Council members can approve or reduce the mayor’s proposed budget – They can also make resolutions that reflect their priorities. Done in a timely way, those proposals can be reflected in the mayor’s budget. – They can be thought-partners on difficult issues and trade-offs, helping ensure all constituent voices are heard.