Friday, June 14, 2024

Cambridge City Hall. (Photo: Marc Levy)

The operating budget of Cambridge is proposed at $881.8 million for the upcoming 2024 fiscal year that starts July 1, which appears to have an increase of $80.3 million, or 10 percent, from the current budget, but is inflated with $23 million in money for the Affordable Housing Trust that has been moved over from the city’s capital budget.

“This does not increase our expenses and is only an accounting change,” City Manager Yi-An Huang told city councillors at their Monday meeting. It is the first budget for Huang, still in his first year as manager.

Without that accounting change, the increase is $57.3 million, or 7.1 percent over the current adopted budget – more in line with the previous annual budget hike of 6.5 percent, considering the pickup in city revenues that has accompanied the fading of the Covid pandemic.

During Covid, the hotel-motel tax revenue was down by 75 percent and the meals tax by 50 percent, but “a rebound in those two significant revenues is happening,” assistant city manager for finance David Kale said. “The same is true for the parking fund revenues, now that folks are parking and using the garages. And we have seen an increase in the water and sewer revenue and increases in interest-rate earnings based upon the current environment. We have been able to weather the storm.”

The past year was also strong for growth in lab space and residential permitting. But with warning signs from high interest rates and an expected increase in the property tax levy, which in Cambridge leans heavily on commercial property rather than homeowners, “we’ve continued to be balanced in our approach so that we don’t find ourselves in a bad position if revenues do take a huge decline in the future,” Kale said. “We budget conservatively, but prudently.”

Continued growth

Still, that leaves room for $12.6 million in increased tax support for schools – for an education budget of $245 million – and 54 new full time positions totaling $9 million, as well as $11.8 million in increased salaries and wages and $8 million for increases in health and pension costs. New staff are coming to human services, the library, traffic, economic opportunities, zoning inspectional services and the housing liaison office.

“The city and the council have significantly expanded the number of programs and services within our communities while central staffing has not kept up with increased workload,” Huang said. “We also recognize that a number of departments require greater resourcing to successfully advance priority work in the city. This has included [Huang’s own] executive department, creating a new Capital Building Projects Department, enhancing the equity and inclusion team and adding staff to Human Resources.”

Huang highlighted spending of $279 million across five major areas: affordable housing and homelessness; early childhood education; sustainability; Vision Zero and traffic safety; and antiracism, equity and inclusion programs. They’re up from $220 million in the current fiscal year, in large part due to $50 million in roadway changes coming to Massachusetts Avenue and universal prekindergarten, which is getting $34.4 million (and expects operating costs of $20 million a year), with $1.2 million worth of new, full-time positions in the Office of Early Childhood and $5.1 million in capital investment to build out prekindergarten classrooms.

Affordable Housing Trust

The Affordable Housing Trust is being allocated some $44 million, up just $800,000 from the current fiscal year but dramatically from a few years ago. In addition, Kale noted that though budget planners were trying to be prudent in reducing building permit revenue projections, that hadn’t affected an allocation that was supposed to be 25 percent of those revenues. “We held the amount of money [coming] to affordable housing even though the revenue source has been decreased by $7 million,” Kale said. “It should have taken a reduction based upon the practice and policy.”

“We have a lot more work to do to address high housing costs. But we continue to make unprecedented contributions to this work, with a total commitment annually more than tripling over the last decade,” Huang said.

It couldn’t be denied. Councillor Dennis Carlone mused that when he first got on the council “at this point I would embarrass the existing city managers by saying how can affordable housing be such a high priority and we only had $10 million to $12 million in the budget? I will not be saying that tonight.”

“Very uncertain” environment

There were signs of rougher times ahead – as previous city manager Louis A. DePasquale had also warned. The property tax levies that arrive in the fall have been softened in past years with injections of money that lets owners pay less than the official amount. That doesn’t appear to be the case this coming fall, according to the budget book: “The city does not anticipate using additional non-property tax revenues or free cash when determining the actual tax levy.”

Councillor Paul Toner, noting municipal layoffs in other communities, asked the manager to look forward for either a “gentle sloping-down in revenues” or “fiscal cliffs.”

“The macro-economic environment is very uncertain,” Huang said.

The $7 million drop in annual building permit revenues mentioned by Kale – to $38 million from $45 million – is just the start, Huang said.

Spread of biotech

While Cambridge maintained its AAA bond rating from all three major rating agencies this year, “there are risks and warning signs on the horizon – rising interest rates, concerns about banking instability and low office space occupancy are all negative trends we are facing. Further, local and national growth in lab space will likely slow the growth that we’ve experienced in the city over the last decade, which has been the primary source of new funding for the ambitious programs that we have just highlighted.” Those included affordable housing, support for the unhoused, universal prekindergarten, human service programs, “the most well-funded school district in the state, and the list goes on.”

The immense concentration of innovation industries in Cambridge and Boston has contributed to challenges around the high cost of living but “’has also funded a lot of programs,” Huang said. Increasingly, Somerville, Watertown and more far-flung cities “are trying to build out similar spaces.”

“Those are trends that will draw a little bit away from from our community,” Huang said. “These are things for us to navigate and just watch and monitor over time.”

The budget vote will be on June 5. Before then come hearings for which councillors are selecting topics of interest. They begin at 9 a.m. Tuesday for general government and public safety. The 6 p.m. Wednesday meeting is for the education budget.

Hearings begin again at 10 a.m. May 16 for departments in the categories of human resources, community maintenance and the capital budget. A hearing may be called for 9 a.m. May 18 to complete discussions.