City Budgets

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Today, we’re tackling the issue of city and town revenue in Massachusetts. We’ll break down how state laws limit local revenue-raising options compared to other states and the impact these restrictions have on our communities. From the constraints of Proposition 2½ to the role of the state legislature and the Speaker’s power, we’ll unpack why Massachusetts cities and towns face these challenges and what’s at stake for the future.

This is the audio version of the Incorruptible Mass podcast, season 5 episode 62. You can watch the video version on our YouTube channel.

You’re listening to Incorruptible Mass. Our goal is to help people transform state politics: we investigate why it’s so broken, imagine what we could have here in MA if we fixed it, and report on how you can get involved.

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Transcript

Hello and welcome to Incorruptible Mass. Our mission here is to help us all transform state politics. We know that we could have a state and a legislature that truly represents the needs of the vast majority of the residents who live here.
And on that note, we are today going to talk about city revenue. City and town revenue. We're going to compare what we are able to do in Massachusetts with what cities and towns can do in other states.
We are going to be talking about all the things that the state legislature, state laws in Massachusetts prevent us from doing in terms of raising money. We're going to talk about how it affects us. We'll talk a little bit about prop two and a half, and also at the end, we will talk a little bit about the state legislature, the power of the speaker, and why their reason for not allowing us to raise revenue in other ways is all about the power of the speaker.
We know our listeners love to hear it and we love to talk about it. But before we do, I am going to have my co hosts introduce themselves. I will start with Jordan.
Jordan Berg Powers. He him I am… Who am I?
I have many years working in Massachusetts politics and I am a resident of Worcester. And so we will talk a little bit about that and our city budgets. Fantastic.
And Jonathan, Jonathan Cohn. He him his. I've been, I've worked on different progressive electoral and issue campaigns in Massachusetts for a little over a decade. I'm from, I'm in Boston typically. I'm joining now Cambridge. Walking home.
Just quick joke, Jordan, when you were like, wait, who am I? I was like, we should do something where we each actually introduce another person on the show. 
I like it, at this point we know each other so well.
Fantastic. And I am Anna Callahan. She her coming at you from Medford. Been doing, you know, a lot of issue and electoral stuff for a while. Done a lot of local politics, sort of training folks around the country. I'm currently a city councilor in Medford, Massachusetts.
So I think a lot about our revenue streams as a city because, hey, we don't have enough money for anything. So I'm excited about this conversation and I think I'm going to talk a lot today. So, Jordan, do you want to just talk a little bit about this article from Mass live that introduces this topic? That's kind of a good kickoff point.
Yeah. So just, you know, I think the easiest thing to remember is that your town's budgets are not the same as your state budgets and they're not the same as your federal budgets. That's actually important.
I know it seems obvious, but a lot of people don't actually know that. And so the city budget comes from several places, right? It needs to get its money in. And so normal places get money from a variety of taxes, property taxes, other types of taxes.
And then they, and then they usually get a little bit of money from the federal government, maybe, and then the state government and find some other. And then some other sort of sideways to have revenue to pay for things like schools, other things that really matter in our towns. And so there was an article in mass live about property taxes making up 70% of Boston's budget.
That is a Bonkerstown amount of like a level of the budget for Boston. So that means that almost all of the revenue it's allowed to generate is from a regressive taxation system of taxing people for their land value, which then gets passed down to. To renters, to homeowners with rising regardless of other things.
And we do some things to try to make that a little bit better at the edges. But if you also want to know, like, why is the rent so high? This is also another big part, is just the lack of ability of our towns to set reasonable tax policies and revenue policies about to get a sort of fair mixture. So the article points out that Boston is not typical at all, that it's up at 71%, 70%.
New York property taxes make up 29%, nearly 30%. Washington, DC property taxes make up 21.7%. Los Angeles, 34.6%
of the, of the, of their, of their revenue. And across the United States, property taxes make up 18%, 18% on average. So that imbalance sort of sets a lot about, like, what is happening here in Massachusetts.
Yeah. And I'm going to dig a little bit. I was so fascinated by this article.
So I dug into the numbers behind some of the, you know, you dig into the links and they get to these pages that have national statistics. And this is for cities that are over 10,000 people. So this is not just the giant, you know, million person New Yorks and Los Angeles.
Right. This is for towns like Medford, right. 60,000.
Anything above 10,000, the average amount of revenue, percentage of revenue that comes in for property tax, as Jordan said, is 18%. The largest revenue is actually from user fees. And this includes things like water and sewer, electric and gas, transit.
Like you have your own bus line, tuition, highway tolls. It's like if you own your own universities, parks and recreation programs that you charge for. So that's the largest percent, that's 29%, 18% is property taxes.
14% is what they call other. It's like special assessments, selling property, interest, earnings, rents, royalties, lottery. 13% comes from state funds and then 7, no 8% from income tax and 7% from sales tax.
So there's a lot of what they call diverse – It's a diverse revenue stream. And this is what, in this article they were talking about.
The Boston city councilors were like, hey, we got to diversify. This is bad because we're also looking at commercial real estate having something of a crash in a city like Boston, where it is becoming less and less valuable now that so many people, post Covid, are working from their homes. So that whole commercial property tax base might have a crash.
And then the revenue of Boston cities is going to be wildly affected since it's like 71% of the revenue of the city. And I'm just going to also, I ran the numbers for Medford. Medford is very much like Boston.
72% of our revenue is from property tax, 17% is from the state, and 9% is from local receipts. That's things like vehicle excise tax, hotels, meals, payment in lieu of taxes, that kind of stuff. Jonathan, I know you are fascinated by this topic, and I just want to tag you in.
Yes. And what's particularly enraging in Massachusetts, in Massachusetts, with this example, which you kind of teed up before, is how cities and towns in Massachusetts are also more restricted than elsewhere about actually diversifying their revenue bases. That because in Massachusetts, because of the system of home rule that we have, that limits the ability of cities and towns to pass their own laws, they aren't technically allowed to pass new taxes.
They basically have to. If they want to pass a new tax, they have to find a way of basically dressing it up and calling it a fee. Right.
Because you can pass a fee, you can't pass a tax. So you have to come up with your way of saying that your tax is actually a fee, but then you still need the state to approve it. Yep.
And so if you don't want to deal with the hassle of doing all of the work of lobbying the state legislature to allow you to raise money to meet the needs of your city or town, you end up having to either fall within existing constraints and simply do less. Or in many cities and towns, you have to do what's called an override. Because of proposition two and a half passed during the anti tax years in the eighties.
That severely limits the ability of municipalities to even raise more from property taxes when, like property taxes are already too much of a share. But also citizenships are also fairly constrained in how they can increase their ability to raise money on, like, the largest foundation of their. Of their taxing power.
Absolutely. We're limited. We can't tax anything else, but we also can't raise that.
Jordan, I was gonna say, Anna, I know you're working on this right now. Oh, yeah. So Medford is one of the only, like a handful.
Handful, maybe. I don't remember 20 or something out of 351 cities and towns in Massachusetts that has never even put a prop two and a half or debt exclusion on the ballot ever. We've never allowed the voters to make this decision for themselves.
And to me, that is crazy. Right? Because really, what is democracy about, except for, is the most democratic thing you could do would be to put it on the ballot and let people decide. We also are a wildly underfunded city.
We just, compared to other cities. Like, we rank 300 and 320? Sorry, 320th out of 351 cities and towns in Massachusetts in terms of our spending per capita.
And all those other 31 are way smaller than we are. So there are no cities that spend as little as we do per capita. So we are in desperate need.
And I do want to mention about this prop two and a half thing. I want to stop us and have us have a little bit of a conversation about prop two and a half. Even the proponents of prop two and a half, at the time, they weren't saying, we're passing prop two and a half so that no city will ever do this.
Right. They hoped that cities would put it on the ballot and allow their residents to make this decision. This was not something, you know, that you weren't supposed to do.
We have people in our town who are like, let's make sure we never have to do this again. I mean, That's not the point.
And it's also very striking across when you look at other cities, as you noted, where city, like a number of other cities, have income taxes, and income taxes are always far more progressive than property taxes are given just how unequal on an income basis we are kind of as a country, and the ability to raise money for like, from countless different sources. And it's always fascinating, fascinating. Whenever you see some debate over a new tax that a city is considering, you're like, huh? That debate itself wouldn't even be possible here in Massachusetts because of how much work it would take to get the legislature to even, even allow that.
Yeah, one thing is, Jordan, go. And then I'll go with another point. No, you go with another point.
I was going to. No, because I want to look up something that I have. I have something to look up to, back to complete my story.
I'll just say really quickly that the other piece that I think is a good reminder about this is that this is also reflects, again, like a lot of things in America, America's racism also feeds into a lot of this problem. The reason that our towns have such sort of have such big budgets and is education. And one of the ways that we pay for education is through property taxes.
And the decision to pay for education through property taxes was a decision to ensure that black children never get the same equal opportunity to education. It's hard. The heart of this system is a desire to ensure an unequal funding stream so that black children will never get the same education as white children.
And in fact, some radical Republicans, after the civil war, they had a pill to make the federal government Republicans, by the way, this is when Republicans were the ones who were fighting slavery. Right. And they wanted, well, you'll know that this is different because they wanted to tax people.
So they wanted to have a large scale tax and then collect that money for the federal government and disperse that equally across the country directly to schools. And there was similar efforts in Massachusetts to do for the state to collect all the money together and then have a formula to equally distribute the work that we did. The really important work that we did in Massachusetts to create a dedicated revenue stream that ensures larger funding for our school districts is, in fact, the best thing we've done on racial justice in a long time.
And I will reminder that the state legislature did it kicking and screaming, still has yet barely funded and needed us to pass a tax on millionaires to do it. But that being said, it did happen. And so I think, like, that's just a reminder that a lot of the heart of these problems are, in fact, the sort of the, like, the institutionalizing of racist systems into, into America as a practice. And then you add to that Massachusetts didn't just do that. It doubled down on this racist process by not allowing cities to do what other cities around the country do, which has, which have multiple ways to raise revenue. 
Yeah. And more progressive ways.
More progressive ways. Yeah. The thing that also builds off, well, what you were saying that I often think when talking about issues around home rule of one book that I had read a few years ago, looking up the author, Noam Magoranous, hopefully pronouncing that correctly, the book called Brahmin Capitalism.
And what it looks the book itself looks at the way in which the kind of Massachusetts business elite in the 18th, like in the latter part of the 19th century, that had previously been heavily invested in cotton, like in the south, moved their money into western expansion and building the railroads and all other things. But at the same time as they were the ones financing the expansion of the country out west, they were violently opposed to any growth of the city they lived in. So that anything that would expand the scope of Boston itself, that same kind of quote unquote, Boston Brahmin, were a hard no, because any growth in city infrastructure would mean more money in taxes that they have to pay.
And I always end up thinking about that as well, because speaks to as well. Jordan was noting about the ways in which historical inequities are baked in to these arrangements. The reason why cities and towns are so constrained in what they can do when taxing powers is because of the historical legacy of the rich people in Boston.
Like rich people in and around Boston who simply don't want to pay more in taxes were the ones who typically have outsized sway in the government and got them to make –
And don't send their kids to public school anyway. 
Exactly. Did they viewed any attempt to invest in the public realm as an imposition on their own private wealth? Yep.
I want us to talk a little bit about the cause. Jordan, I love something that you said earlier. You were talking about how the state has this excuse for why they don't let cities and towns have income tax or sales tax or any of those things that you were saying that it, you know, that they claim that they keep control of that, but then they dole it out.
They go ahead and give it to cities in state aid. 
Yeah, yeah, yeah. So just like, so, so one of the other things that you'll note when you go to, when you look at other states and how they function is that other states actually dedicate funds from federal taxes and also state income taxes directly to cities and towns.
So they'll say a certain percentage automatically goes through, and Massachusetts does not do that. Massachusetts has a state aid, you know, it has a local aid fund which has the milieu of being fair, but is, of course, totally controlled and arbitrary at the whims of the speaker and the Senate president. Right.
And so we could do something where we dedicate those money all the way down in such a way as to have a more dedicated stream, to set some floors, maybe to have some more progress, maybe to put in some more progressive ways that we do that sort of state aid. But instead, what we have as a system which acts as like the speaker gets to just throw it around. And there is, again, the state aid system does have some floor, it does have some rules baked in from the general fund, but not as much as we would think and certainly not as much as other states when you start to look at how we compare to other places, which again, contributes to this problem of us over relying on property taxes as way to fund our local municipalities.
But yeah, so of course, like, you know, the state, of course, it goes back to this thing where the speaker wants control and, you know, can dole out extra money for state aid or extra projects for the more compliant state reps and state senators. Right? Of course. Oh, yeah.
I mean, hopefully listeners to this particular podcast are going to others of our podcast if they're like, really? Oh, the speaker of the House wants control of things. What do you mean by, I was thinking of just like going off video for a second and saying it was because I fainted at learning from my shock of learning that we do not have a fair process for doling out local aid. And it's disproportionately influenced by those in power.
The number of levers the speaker has for controlling the way that state reps vote is unbelievable, truly unbelievable. 
And it's also always stunning to me, just even particularly on that with local aid of is the whole system of earmarks here, beyond just the favoritism of it that gets played. And how it goes is that almost all of these things seem like they would make far more sense to be doled out by an actual grant process where you would actually see, have some needs based assessment and a determination of where the money should go, rather than all of the money just somehow ending up in Quincy, Weymouth or the north end. 
Quincy, I wonder why, right? 
Yeah, I think the short, so the, I think that the, I hope the listeners, what they take from this is, you know, I think it's important to remember that these systems don't have to be this way and we could change them. And, you know, these, and that fundamentally, it's undemocratic. It's undemocratic.
Like, you know, I'm noticing again, Jonathan, I read a article that master less wrote about your call for allowing more, more local decision making for our municipalities with again, as like, oh, people want these things and progressives want these things. I'm just like, but we don't know if people want them. What we want is for people to have a say.
We want, you know, again, the way the media frames it. They frame it the way autocrats and conservatives and sort of, sort of like the sort of rising fascism does it, which is democracy is something that's gifted to regular people from the people with power. Right.
The know it people, the smart people. Like, we give to you a little bit of say, right. And like, what we're saying is, no, fundamentally, our municipality should have more ability to set a, the ways in which they fund their government that works for them.
And one of them may be a transfer fee. One of them may be some sort of rental, control and rental, and some sort of like an oversight over their property in a way that makes sense and is tangible and reasonable based on the bounds of their cities. Right.
Like, just some more control for people to have over the things. And that's really what this is. What ultimately about is the property, the lack of ability of municipalities to do the things they need to do to pay for the things that the state should be paying for and has put down on this.
Municipalities is the reason that we need this flexibility. And again, it's just sort of like, it's really a democracy problem. I was going to underscore that, that, like, for democracy to have it have its true meaning, you need to know that when you vote that you're voting on things actually change.
Like, has an impact on what can be done and that the people that you choose to vote into office can actually use the tools available to them to make change, to make the changes that they're promising that they will. And for cases like that, Massachusetts basically tries to render municipal democracy weak and ineffective. And it's kind of always jarring with one of the latest examples of where Mayor Michelle Wu in Boston has a home world petition to try to shift the kind of property tax burden in the city to move it more onto commercial taxes away from residential property taxes.
And, like, I don't think I should have to care what Senate President Karen Spilka thinks about what Boston wants to do with it with its property tax assessment. She lives in Ashland. She should be, if it's about what Ashland is doing with its property tax assessments, I think she should have an opinion.
I don't think she should have to or should about Boston's. Absolutely. I also, I'll just say before we end that I love it when we compare the United States to other countries, and it's like, hey, like, we're not the only country in the whole world.
And I love it when we compare Massachusetts to other states. Like, people think that we're, you know, we're somehow either the same as or as good as or better than other states. And, and for sure, in the question of whether we, whether our cities are allowed to do progressive things or if the state prevents us from doing those, we talk a lot about republican state legislatures that prevent cities and towns from doing progressive things, and we get all upset.
But like here in Massachusetts, we are just as an absolute standard. Our cities and towns are prevented from doing a lot of progressive legislation, like entire swaths of legislation around employers and employees, like minimum wage laws around, you know, around tenants and landlords, you know, all sorts of things that we simply can't do anything. And taxation is another one.
So the ability for cities to raise their own revenue is really hampered by the state legislature. And that is not the case in other states. And other cities have other sources of revenue that they can lean on that we just do not have available to us.
All right, gang, is there anything else you want to chit chat about related to city revenue before we close off for today? 
The other thing I'll note, and it's something I've said in past episodes, is that whenever there's a case in another state where, like, a republican governor and state legislature passed legislation to try to hamstring their, like, liberal capital city's ability to pass its own laws, people in Massachusetts, liberals in Massachusetts are rightly appalled by what the Republicans in those other states are doing. And it's always important to remember that's already the law here in Massachusetts. And so when we're offended by the things that are happening in other states as being assaults on democracy and good policy making, we should be thinking about how do we change the existing laws that do the same here.
Absolutely wonderful. Thanks so much to you both. Thanks so much to our listeners.
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