City’s $142 million in free cash sets record, will smooth tax rates during big projects
The city has an astonishing free cash fund of $142 million, setting a record for at least the third year in a row.
In 2011, the reported $100.2 million was the “highest free cash balance in the history of the city” and represented a $12.9 million increase over the previous year. Last year, the balance leaped to $115.8 million, and now the city has seen a $26.4 million jump over that, as reported Monday to the City Council by City Manager Richard C. Rossi and Louis Depasquale, the city’s assistant city manager for fiscal affairs.
Since free cash is used to keep city tax rates down, this year to the tune of $11 million, this results in the city having all sorts of bragging rights, including:
The lowest residential tax rate in the state. The property tax levy was expected to rise by 4.32 percent, but the final rise is only 3.66 percent, one of the lowest tax levies in a decade, Finance Committee chairwoman Marjorie Decker said. For the ninth year in a row, some three-quarters of residents can expect a tax increase of less than $100.
Less than 1 percent of residents ask for tax abatements. “We don’t have an abundance of taxpayers who are charging into the assessors office,” Rossi said. The defining figure came from Depasquale, who reported talking with a finance official from another city where about 30 percent of residential taxpayers asked for abatements, while Cambridge had a rate of less than 1 percent, “so I think that kind of tells you how people feel about their assessments and their taxes.”
Of the 82 cities and towns in Massachusetts that have reported their free cash, no community comes close to Cambridge’s figure – to the point that Cambridge’s free cash makes up 46 percent of all the free cash reported so far in the current state budget cycle.
The third record year was greeted with the usual thanks and admiration of city councillors for the team bringing them the good news.
“As I’ve said many times before, my colleagues from the State House are so envious of the city and the services it provides, and they cannot believe the low tax rate – and now the new figure of $142 million in free cash,” said Tim Toomey, a state representative as well as city councillor. “I’ve heard not legislators, but some people, say we should be funding the green line extension too with all this free cash that we have.”
But although the city manager gets general credit for a a sound financial approach, Rossi gave credit to others. “The city manager’s got the easy job. All he does is transmit this. It’s the assessors who set the tax rate,” Rossi said. In addition, “Mr. Depasquale is very modest about his role in managing the finances of the city. He does get great cooperation and hard work from departments, but I would have to say after all these years, he is the architect of this plan. We’ve wisely followed his plan, and it’s put the city in great shape. He deserves the lion’s share of the credit here.”
“Another very strong year”
By Depasquale’s accounting, much of the savings came from simply monitoring expenses, including overtime pay, and ensuring revenue actually made its way into the city’s coffers. There was some luck involved, including in the general good health of municipal workers who didn’t need to make large claims on city health insurance, and there were some big earners among the city’s roughly 175 revenue accounts, with building permits leading the 150 or more revenue accounts that exceeded revenue expectations. “We had another very strong year,” Depasquale said.
Building permits gave the city about $17 million in the past year, including $1.7 million that came in just under the wire on June 28 as the fiscal year was ending.
Finally, Cambridge got lucky with a $4.5 million bond premium – the results of buyers paying more than the face value of the bonds the city was selling.
“This is the highest in the city’s history, it’s the best year we’ve ever had,” Depasquale said of the free cash and other positive accounting factors. “Do I think we can we continue at this level? No. Do I think we will continue to replenish our free cash … yes.”
Don’t call it “free cash”
Officials again reminded residents that the term “free cash” can be misleading, saying it’s not money that’s free to spend on any project that catches the attention or sympathy of residents or politicians. The preferred term is “undesignated fund balance,” and officials said it was best to think of it as money that gets socked away to help get through bad times or as an insurance policy against disaster.
In this case, Rossi asked the officials to think back to the recent wave of big construction that included the Cambridge Main Library, police station, youth centers, high school and War Memorial Recreation Center. Property tax rates stayed low despite the $274 million in debt resulting from bonds sold to pay for six projects because “in the years prior to that, the city was able to build up the debt reserve fund by making appropriations from free cash,” he said. “We’re going to try to build up that debt reserve again.”
The city has already begun a school-rebuilding plan that may get no reimbursement from the state. “We plan for these financially as if we are not going to get reimbursement,” Rossi said. “If we get reimbursed, that’s going to be a great bonus.”
He is preparing a presentation on big-debt items to be heard by the council this fall. Recommendations on spending from free cash to be heard within the next months include information technology improvements, fixing a heating problem at the City Hall Annex, LED street lighting and audio-visual improvements to Sullivan Chamber, where the council meets in City Hall.
The suggestions of the resident who started the meeting’s public comment period were not addressed.
“Maybe the end-all and be-all of our moral and civic responsibilities is not the lowest possible tax rate, but how we meet the human needs of our residents,” Gerald Bergman said. “We have a tremendous gap between the rich and the poor, the haves and have-nots.”
The lower tax rate will benefit the city’s richest institutions and corporations most, he said, suggesting that instead the money be diverted to fulfill a 22-year-old nonbinding referendum on helping the poor and be used to feed children suffering food insecurity or to get property of poorer people and small businesses retrofitted to fight climate change.
When he ran past his allotted three minutes of speaking time and Mayor Henrietta Davis tried to cut him off, he kept speaking, noting that the councillors had kept him waiting by starting their meeting 15 minutes late. Davis called a recess, and she and councillor Ken Reeves walked out of the chamber while Bergman went on talking about their “moral conscience.”
Soon afterward Bergman left and the meeting resumed.