Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
Municipal finances showed modest improvement in fiscal 2014, but are well shy of the pace of prior economic recoveries, according to the 44th annual Municipal Finance Data report released by the Massachusetts Taxpayers Foundation on Dec. 16.
Total municipal revenues and expenditures grew by 4.1 percent to $24.3 billion statewide in fiscal 2014, a slight improvement over the 3.7 percent growth in fiscal 2013 but less than the average annual growth of 4.7 percent during the Proposition 2½ era, according to the report.
Municipalities are confronting the reality that all three major sources of revenue – property taxes, local aid and local receipts – are experiencing only modest growth, which is not likely to change for the foreseeable future.
Property taxes, the largest source of revenue for municipalities, grew by 4 percent in fiscal 2014. While this is the strongest annual growth since fiscal 2010, it is still below the 5.3 percent average annual growth since Proposition 2½ was fully implemented in 1985.
Cherry sheet aid, which excludes school construction aid, totaled $4.8 billion, an increase of $150 million (3.2 percent) from fiscal 2013. Chapter 70 education aid accounted for $121 million (80 percent) of this increase.
Unrestricted General Government Aid rose for the first time after three years of level funding. This account grew by $21 million (2.4 percent) to $920 million, but remained below the fiscal 2008 level of $935 million.
In fiscal 2014, local receipts such as motor vehicle excise taxes, hotel and meals taxes, building permits, and charges for services, grew by $100 million (2.4 percent). Only in two other years since 2000 has the growth in local receipts been weaker (a 1.1 percent increase in fiscal 2012 and a 2.9 percent decrease in fiscal 2010).
The local-option hotel and meals taxes introduced in fiscal 2010 continue to be an important revenue source for municipalities. These taxes combined for $264 million, up $19 million (8 percent) from fiscal 2013. That amount includes $4.2 million in revenues from 21 communities that implemented one or both of the taxes for the first time in fiscal 2014. A total of 178 municipalities have adopted the local hotel tax and 182 have a local meals tax.
Local revenues from all other sources – mainly the use of free cash – showed the largest proportional gain this year, growing by $190 million (nearly 20 percent) to $1.1 billion. Free cash can vary widely from year to year, however, so it cannot be relied upon as a long-term solution to tightening budgets.
Beyond slower revenue growth, the costs for retiree benefits are consuming an ever-growing share of local budgets. The state’s 351 cities and towns have more than $44 billion in total unfunded liabilities for pensions and retiree health care, according to the Taxpayers Foundation report.
“Municipalities are already under pressure to fund pension obligations,” the report states, “and for all but a handful of communities funding retiree health care obligations would crush municipal budgets and taxpayers.”
In fiscal 2014, cities and towns increased their pension contributions by 7 percent, from $1.26 billion to $1.34 billion, nearly double the rate of revenue growth. Despite this increase, unfunded pension liabilities have continued to grow, reaching $14.2 billion by the beginning of fiscal 2014. With two-thirds of local systems planning to increase their annual payments by at least 4 percent per year, pension costs will add to the budget squeeze for years to come.
“While municipalities have been funding pensions for nearly three decades, they have set aside virtually nothing for the $30 billion in retiree health care liabilities,” the report states. “Unable to fund these enormous liabilities in advance, most municipalities pay only their share of health care premiums for that year’s retirees while pushing retiree health care obligations for current employees into the future and adding to existing liabilities.”
The report points out that pension and retiree health care costs “are rising and eroding the resources available for important services like education and public safety.”
• Link to Massachusetts Taxpayers Foundation website for full report