2026 04 14 CC SC FY27 Financial Presentation — File 26-0624

FY27 Budget Outlook City of Somerville, MA Jake Wilson, Mayor Presented to Somerville City Council & School Committee April 14, 2026 Ed Bean, Finance Director & City Auditor

Section 1 Trends across the Commonwealth

Mounting Fiscal Pressures Leading to Service Cutbacks • Boston – Eliminating 262 teacher positions and 145 aide positions • Winchester – Weighing staff reductions in Police, Fire, reduced library hours, and up to 56 school employees • Lexington – Cutting the equivalent FTE of 65 teaching , classroom aide, and staff positions. • Malden – Cutting 60 service positions in schools, public works, and local government. • Brookline – Could eliminate more than 240 FTE positions if $23.25 million tax hike fails • Athol – Reducing workforce by 20% over 2 years

Proposition 2 ½ Overrides Surge Across Massachusetts • Arlington – $14.8 million – Approved • Malden – $ 8.2 million – Rejected • Winchester – $11.5 million – Rejected • Brookline – $23.5 million – Upcoming • Athol – $2.5 million – Rejected • Marblehead – $15 million over 3 years – In discussion • Stoneham – $9.3 million – Approved • Melrose – $13.5 million – Approved • Milton – $8.8 million – Approved

A Perfect Storm: Cities and Towns Face Historic Fiscal Pressures 1. State aid in Massachusetts in less generous than the U.S. average. 2. Flexible state aid has fallen for all cities and towns. 3. Given the 2.5 percent cap on local tax increases, the best tool for … towns is often an expensive and temporary override. Key Findings:

Local Aid in Massachusetts Primary Sources of Local Aid: • Unrestricted General Government Aid (UGGA) • Chapter 70 Educational Aid

Unrestricted General Government Aid

State Aid to Somerville remains below FY02 levels (in real dollars) 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27

Historic Changes To Revenue Base FY2002 FY2009 FY2026 Taxes 42.68% 56.27% 77.10% State Aid 38.20% 30.96% 14.60% Local Receipts 5.03% 9.44% 7.13%

Proposition 2½ Impact Significant limits to real spending growth by municipalities with little capacity for residents across the Commonwealth’s communities to bear the burden of Prop 2½ overrides.

MMA Recommendations Restore Adequate and reliable state aid o Provide $351 million in new UGGA funding – an increase of 26.5% above FY2026 Levels. Provide property taxation flexibility o Allow an Adjustable Levy Cap to adjust the 2.5% Levy Limit upward to a specific economic indicator (e.g. the CPI) o Permit Multi-Year Overrides allowing voters to authorize an override that phases in over multiple years.

MMA Recommendations Prioritize key accounts o Support continued investment in Chapter 70 School Aid and reforms to minimum new aid levels for districts o Fully fund the special education circuit breaker, charter mitigation funding, and all school transportation accounts Expand local revenue options o Raise the meals tax ceiling to generate more dining and retail revenue o Increase the lodging (hotel) tax o Introduce a local-option surcharge on motor vehicle excise bills o Authorize a real estate transfer fee (or deed excise) dedicated to local affordable housing trusts, linking property market activity to housing affordability investments

Despite the trend statewide, the City’s General Fund budget has grown by 80% since FY16 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 Year-over-year increase (%) CPI % Change CPI change in Massachusetts over the same period amounts to 36.5%. This means the City budget has grown at more than twice the rate of CPI in the last decade Source: US BLS: https://www.bls.gov/cpi/regional- resources.htm

Fixed Costs Fixed Costs Insurance Pension Information Technology HR & Accounting Debt Service Water & Sewer Service Building Maintenance HVAC in schools Playground & School Yards Dilboy & Ginny Smithers Pool WHCIS Interim Projects Programming Programming Health & Human Services Food Access SomerPromise Mayor’s Jobs Program Youth Services Culture & Creativity Opportunities Out-of-School-Time Facilities & Assets Facilities & Assets Somerville’s growth has supported investments in families, youth, schools, and new services found throughout the budget. These programs and facilities are essential to our work and to the community.

Section 2 Where we stand now in FY26

FY26 Performance: General Fund Through 77.7% of the fiscal year, 74.58% of the General Fund appropriation has been expended and encumbered. Appropriation Year-To-Date Expended Encumbered Available Exp/Encum City 276,666,242 193,562,175 15,657,507 67,446,560 75.62% School 113,981,703 76,131,293 6,007,467 31,842,943 72.06% Total 390,647,945 269,693,468 21,664,974 99,289,503 74.58% Data presented through April 9, 2026

FY26 Budgetary Review: Snow & Ice Deficit $3,551,048.21 Category Snow Removal Vendors $2,941,482.90 Vehicle Rentals $293,421.60 Equipment and Supplies $874,348.10 Payroll $793,165.91 Public Safety Details $75,600.51 Requisitions $147,725 Encumbrances $162,388 Appropriation $1,737,083 Total Possible expenses $5,288,131.21 (Based on current projections) We will close this deficit with free cash.

FY26 Budgetary Review: Unemployment Compensation Increased turnover due to a change in Administration has cause a spike in unemployment claims. We believe this to be a one-time issue. This deficit will be remediated before year end. $288,000 Category Amount Initial Budget $175,000 Projected Spend through June $463,000 Expected Deficit $288,000

Section 3 Looking ahead to FY27 - Revenue

Revenue Category FY26 Revised FY27 Projected Change Property Taxes 279,376,680 291,342,293 11,965,613 Excise Taxes 13,503,283 14,081,931 578,648 Penalties & Interest on Taxes 849,225 849,225 0 Payments in Lieu of Taxes 1,717,564 1,717,564 0 Sanitation Fees 76,861 276,861 200,000 Fees 1,996,564 2,037,879 41,315 Rentals 88,715 88,715 0 Other Department Revenue 60,000 60,000 0 Licenses & Permits 9,744,526 10,945,751 1,201,225 Fines & Forfeits 7,745,452 7,370,199 -375,253 Investment Income 4,200,794 2,700,000 -1,500,794 Miscellaneous Recurring 746,398 746,398 0 State Revenue 55,641,890 56,375,838 733,948 Other Financing Sources 4,101,961 3,912,406 -189,555 Electricity Usage 76,195 160,000 83,805 Total Revenue & OFS 379,926,108 392,665,060 12,738,952 FY27 Revenue Projection As of April 14, 2026. Estimates will change

FY27 Revenue by Type – how we fund the budget The City continues to lean on property tax as a primary funding source in the face of middling State Aid and limited revenue generation opportunities.

FY27 Levy Calculation – How we project tax revenue $ 272,660,166 FY2026 Property Tax Levy – Below the Levy Limit $ 198,806 PLUS FY2026 Unused Levy $ 272,858,972 EQUALS FY2026 Levy Limit $ 272,858,972 FY2026 Levy Limit + 6,821,474 PLUS 2 ½% + 5,000,000 PLUS Estimated new growth $284,680,446 EQUALS FY2027 Levy Limit + 6,661,847 FY 2027 Debt Exclusion $291,342,293 FY 2027 Projected Levy A potential $11,965,613 in new property tax revenue could be raised in FY2027. *This projection assumes $5M in new growth.

The City has benefitted from record new growth since FY20, but projections show a slow down **Based on current projections** 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000 New Growth Applied to the Levy Limit: FY02-FY26 Residential Growth Commercial Growth

Life Science New Growth Forecast Location 6/30/2025 % Complete 6/30/2026 Potential Growth Tenant Status Rentable Area 222 Jacobs St 100% - Stabilized 426,869 101 South St 100% - Stabilized 287,959 250 Water St 100% - Stabilized 479,004 100 Chestnut St 83% - Stabilized 208,616 Life Science Properties Capped at 60% - No Tenants 10 Prospect St 60% 0% Vacant 196,495 808 Windsor St 60% 0% Vacant 370,000 188 Assembly Prk Dr 60% 0% Vacant 495,000 74 Middlesex Ave 57% 0% Vacant 467,952 599 Somerville Ave 50% 0% Vacant 42,780 495 Columbia St 57% 0% Vacant 338,603 Rentable Area 3,313,278 Vacant 1,910,830 Points of Interest • 15 Million SF Vacant in Greater Boston Area • 2 Million SF is the annual demand • Life Science FY 2026 market depreciated 20% from FY 2025 to FY 2026 • FY26 New growth with exception of 250 Water St, and 188 Assembly Prk Dr will not be captured. • The Life Science market depreciation will absorb the new growth captured as our building values fall. • The FY 2027 new growth estimate will fall on the percent complete as of 6/30/26 for 100 Chestnut & 188 Assembly.

Total Tax Levy Debt Exclusion Tax Levy w/o exclusions Increase from prior year FY20 167,812,263 167,812,263 FY21 184,014,988 1,335,839 182,679,149 14,866,886 FY22 200,839,916 6,033,610 194,806,306 12,127,157 FY23 221,093,410 6,674,013 214,419,397 19,613,091 FY24 244,828,530 6,705,968 238,122,562 23,703,165 FY25 264,969,748 6,625,681 258,344,067 20,221,505 FY26 279,376,680 6,716,514 272,660,166 14,316,099 FY27 291,342,293 6,661,847 284,680,446 12,020,280 Property Taxy Levy History

Building Permits remain a core revenue source - 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 2019 2020 2021 2022 2023 2024 2025 2026 (est) 2027 (proj) Building Permit Revenue: FY19-FY27 estimated

Excise Tax growth is moderating, but remains a valuable part of our revenue - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 2021 2022 2023 2024 2025 2026 est 2027 proj Annual Excise Revenue by Type: FY21-FY27 estimated Meals Hotel/Motel Motor Vehicle Recreational Marijuana

Category Program FY26 Cherry Sheet FY27 Governor’s Proposal Variance Education Chapter 70 22,553,482 22,934,482 381,000 Education Charter Tuition Reimbursement 1,304,541 793,811 -510,730 Gen. Govt. Unrestricted General Government Aid 31,366,085 32,148,394 782,309 Gen. Govt. Veterans Benefits 142,971 146,752 3,781 Gen. Govt. Exempt: VBS & Elderly 274,811 352,399 77,588 Offset Receipt Public Libraries 190,323 195,477 5,154 0 Total Estimated Receipts 55,832,213 56,571,315 739,102 State Aid – Governor’s FY27 Proposal

Category Assessment FY26 Cherry Sheet FY27 Governor’s Proposal Variance State Charges Air Pollution Districts 34,346 32,726 -1,620 State Charges MAPC 48,765 49,867 1,102 State Charges RMV Non-Renewal Surcharge 240,400 252,940 12,540 Transportation MBTA 6,170,510 6,287,154 116,644 Transportation Boston Metro Transit District - Annual Charges Special Education 41,196 50,680 9,484 Tuition School Choice Sending Tuition 125,969 206,714 80,745 Tuition Charter School Tuition 8,470,289 8,054,753 -415,536 Total Estimated Assessments 15,131,475 14,934,834 -196,641 FY27 Cherry Sheet – Preliminary Assessments

FY26 FY27 $ Increase % Increase Total Estimated Receipts 55,832,213 56,571,315 Total Estimated Assessments 15,131,475 14,934,834 Net State Aid 40,700,738 41,636,481 +935,743 2.30% FY27 Net State Aid Summary

Section 4 Looking ahead to FY27 - Expenses

Somerville Public Schools continues to be our #1 investment

FY27 Budget Composition Schools remain the largest component of the City budget, at 30% of all budgeted expenditures.

Fixed Costs Drive municipal budgets More than half of the City’s General Fund pays for employee wages. (53.0%) More than half of the City’s General Fund pays for employee wages. (53.0%) Almost one out of every ten dollars funds health insurance for employees. (9.7%) The City funds 80% of premiums. Almost one out of every ten dollars funds health insurance for employees. (9.7%) The City funds 80% of premiums. 4.8% of the City’s budget goes to the Somerville Retirement Board based on a full funding schedule complete in 2033. 4.8% of the City’s budget goes to the Somerville Retirement Board based on a full funding schedule complete in 2033. Salaries Health Insurance Health Insurance Pensions Pensions

Key components of a base budget While we grow our scope of services, fixed costs rise and may conflict with future planning. When we refer to a ‘base budget’, it means fixed costs as a proportion of the overall budget. • Essential Services: These are non-negotiables for a functioning city. • Operational Costs: The ongoing expenses for running the city. • Personnel: The cost of salaries and benefits for employees including health insurance and pension benefits. • Operating Expenses: Utilities and • Maintenance: Keeping our city's infrastructure, parks, and public spaces in top shape and investing in them to mitigate long term costs. While the base budget covers our essentials, it doesn't include new projects or expansions. Discretionary and new investments typically come second, ensuring we're always focusing on what's crucial while preparing for the future.

Places constraints on the amount of property taxes a community can levy. Proposition 2 1/2 Adding new positions increases exposure to CBA changes, benefits costs, etc. Salaries & Benefits Inflation can put upward pressure on contract values and limit capacity in future years. Economic Factors Preserving future capacity is essential to meet these required costs that communities face. Long-Term Planning 01 02 03 04 A higher base exposes us to external pressures

FY27 Major Cost Drivers: Health Insurance Group Insurance Commission increased plan amounts on average of 8%. Last year's average increase was 11.4%.This is the highest increase we have experienced. At current caseload levels, we anticipate the health insurance appropriation to increase by approximately $2.8M in FY27. Current caseload is 2,987 (+17 from prior year). New positions added to the FY27 Budget will increase this amount. City contributes 80% of the premium. Health Insurance Plan Name Type FY27 Increase for Family Plan Harvard Pilgrim Explorer* POS 14.7% Harvard Pilgrim Quality HMO 10.3% Health New England HMO 5.2% MGB Complete HMO 13.6% Wellpoint Total Choice Indemnity 4.2% Wellpoint Community Choice PPO-type 8.4% Wellpoint Plan/PLUS PPO-type 6.6% Harvard Pilgrim Across America PPO 5.1% *Harvard Pilgrim Explorer is the City’s most common plan.

FY27 Personal Services: Labor By planning for these costs in advance, we ensure stability in services and workforce, avoiding last-minute budget adjustments or cuts to other essential items. This proactive approach demonstrates fiscal responsibility and supports the long-term sustainability of municipal operations, ultimately benefiting every department. Salaries must be sustainable in the long term, to avoid layoffs or service cuts. Salary Contingency & Reserves The following units settled collective bargaining agreements in FY26: • SMEU D • SPEA – Police Patrol • SPSOA – Police Superiors • SEU – Teachers Settlements reached in the next few months will be built into Departmental salaries. Capacity must be reserved for future negotiations. Collective Bargaining

FY27 Cost Drivers: Pension Appropriation The Somerville Retirement System conducted an updated actuarial study of our pension liability as required by law. The current unfunded pension liability is $114,615,283. Full funding of the liability will be achieved in 2033. The pension appropriation will increase by $451,030 in FY2027 from $ 18,342,078 to $18,793,108. Somerville Retirement Board

FY27 Cost Drivers: Debt Debt Service GENERAL FUND DEBT SERVICE FY2027 Amount Existing Amortized Debt $14,971,319 Existing Projects to be borrowed May 2026 $1,844,959 Total Non-Excluded Debt 16,816,278 High School Excluded Debt 6,661,847 Total General Fund Debt 23,478,125

Section 4 Looking ahead to FY27 - Mitigation

FY27 Revenue Projection: $392.8M FY27 Level Service Projection: $397.3M Gap to be mitigated: $4.5M At this time last year, we were working to mitigate a $3M deficit, primarily with reductions on the City side of the ledger.

Updating fees, fines, and permits through a cost recovery lens to charge appropriately. Enhancing Revenue City departments are developing 5% non- personnel reduction scenarios. We continue to work with SPS to identify areas of opportunity. Audit Expenditures Vacant positions are reviewed for long-term need based on service levels. Vacancy Control 01 02 03 04 Closing the FY27 Gap Draw down reserves for capital projects and one- time expenses Use of Reserves

Examining and updating fees- for-service. Negotiating with Tufts University on PILOT payments. Enhancing Revenue Prudent use of reserves can be a strategy to mitigate costs long-term. We expect to use stabilization funds to net down borrowing. Reserves Reduce discretionary spending such as travel and conferences. Evaluate indirect costs for Water & Sewer Enterprise Audit Expenditures Positions are being re- evaluated, moved, updated, or funded in a different department. Vacancy Control 01 02 03 04 What will this look line in the budget? City priorities throughout all these treatments are focused on preserving core services and avoiding layoffs. Small changes add up.

Several key budgets will change in the next few weeks Budget figures are currently based on the Governor’s FY27 proposal. State Aid The City borrows in May, and we will fine tune results as we get closer. Debt Service Open enrollment is underway. Health Insurance 01 02 03

What to expect in the FY27 General Fund Budget The FY27 budget will be predominantly level service, with a few targeted investments. The FY27 budget will be predominantly level service, with a few targeted investments. Departments may be re-named, moved, or incorporated into existing budgets. We’ll make sure that these changes are clear. Departments may be re-named, moved, or incorporated into existing budgets. We’ll make sure that these changes are clear. We will work to mitigate the level service deficit through revenue where appropriate. We will work to mitigate the level service deficit through revenue where appropriate. Level Service Organizational Reform Organizational Reform Revenue- Focused Revenue- Focused Long-term fiscal health is a major priority. We must focus on a sustainable base budget and use one-time resources cautiously. Long-term fiscal health is a major priority. We must focus on a sustainable base budget and use one-time resources cautiously. Thinking Long-Term