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.”
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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.
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As I’ve been saying for a long time, this city is about to face a real fiscal problem during the next ten years (see at the bottom).
But we still have this: “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.”
And if City Manager Huang would only take the time to delve into the footnotes of the annual financial report (not the city report Mr. Huang), he would see that the assumptions used in calculating pensions and post retirement health, are unrealistic. However, it is buried so one has to spend a little time to discover how unrealistic they are. And that will come home to roost in future years as the city will have to cover those “unanticipated” costs.
And finally this is coming out. Thank you Marc. That’s why my wife and I support Cambridge Day.
“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 and 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.”
At first glance these numbers are not adjusted for inflation.
Given year-over-year (March 2023) CPI of 5%, this is a 2% increase in the budget year-over-year in real dollars.
The budget is outpacing inflation and looking at it only through that lease ignores all of the issues the city is facing. The school system is a mess and it’s the most funded in the state. The vacancy rates for office in kendal will hit 20-25% by year end and abatements will be pouring in. We’ve also given Boston, Somerville, and surrounding communities a huge leg up to attract labs and other life sciences while creating a hostile environment here at home. Our linkage costs are considerably higher, inclusionary zoning is completely broken, and we have councilors actively trying to push the highest and best use out of the city through zoning or other regs. Then we have BEUDO, climate resiliency regs, carbon emission regs, green roof regs, net zero stretch code, and a litany of slow moving regulatory nonsense that tells people to take their business
elsewhere. On the smaller scale we’ve done serious damage to local businesses either through lapses in safety like in Central Sq and Harvard Sq or through over regulated nonsense that prevents small under capitalized entrepreneurs from getting started. There are too few adults in the room and too much cowardice to speak up. The current council has never had to face an economic down turn it’ll be interesting to see if they even recognize that Cambridge is heading for tougher times.
@Itamar Turner-Trauring.
54 new positions for 9 million. That’s what?
Gee, only 166,000 a position. Do we really need 54 new positions.
And, this new budget does include the underestimation of pension and retirement costs.
Look, it doesn’t matter if it is a real 2% or a real 5% or a real 10%. This budget, and budgets during the last ten plus years is too high for a city of 120,000. There is money being spent (look closely at the budget items and the various programs) that really is not necessary.
For schools, we spend substantially more than all but one city in the state, and half our third grade students can’t read and write. We have substantial cost overruns for building two schools, and substantial cost overruns for the Jefferson Park housing units. Over 900,000 per unit.
What is going on here? What is going on; fiscal irresponsibility.
I wrote before seeing PatrickWBarrett’s post, which hit the key points.
Itamar Turner-Trauring.
You said there was a CPI of 5%, so the real increase in the budget was 2%. That’s correct.
Why didn’t you point out that the budget increases in the last 30 years have averaged more than 4.5%, and yet the CPI has gone up about 2% on average.
“it’ll be interesting to see if they even recognize that Cambridge is heading for tougher times“.
School enrollment is still dropping – the roads are a mess – the red war paint is peeling up pavement with it – affordable housing – plastic pylons are broken off all over the place – empty storefronts – removed algebra from all middle schools.
If I didn’t know some of the c councilors I’d almost think all of this was intentional.
We aren’t headed for we have arrived!
how much did the recent fire and maintenance of the CHA Truman cost? Hell of a pity party.
“The $7 million drop in annual building permit revenues mentioned by Kale – to $38 million from $45 million – is just the start, Huang said.”
This is interesting. I’d like to see year over year for April. In Boston they are down a whopping 94% for housing permits and it’s cheaper to build in Boston than Cambridge. Maybe following Boston into BEUDO and increasing linkage, adopting the specialized stretch code, and all the other nonsense we do is having the effect we all said it would?
@concerned43 Didn’t have time to look up the data, but I was indeed curious, so thanks for checking.
Feels like 2-2.5% real growth in the budget is perfectly reasonable given growing economy. Apparently bond agencies agree.
@Itamar Turner-Trauring
Please don’t delude yourself with regard to the three (really just two) bond agencies. You haven’t forgotten their record in 2006-2008, have you?
Or the A rating that Moody’s gave Silicon Valley Bank not long before its collapse (an A rating is not the highest, but it is high).
The 10K of Silicon Valley came out around February 23rd. I look at bank 10ks (and 10qs) all the time. If I had looked at Silicon Valley on that date, it clearly showed that mark to market on the bond position almost wiped out capital and surplus. Where were the rating agencies?
Itamar, you and I have had this discussion before. Why don’t you spend a little bit of time looking at the footnotes to the financial report of the city. I think if you did, you wouldn’t be so enamored of the triple A rating by the agencies.
Cambridge is spending too much money relative to its ability to generate funds. This is going to get much worse in the future as the biotech boom slows in the city in part because it is moving to friendlier cities like Watertown. The bureaucracy in this city is stifling. Couple that with the continued middle class exodus and you have a confluence of factors that are going to severely impact the city from a financial standpoint.
Why is this so hard for the councilors to understand. Are they afraid of what they might see?
Money doesn’t grow on trees.
The office market has all but crashed. Labs are slowing and is there any attention to housing production. Outside of housing tied to Lab deals there is little acknowledgment that we continue to make housing more expensive to build. That is a real question. Maintaining excellent city services will be a challenge as revenues are down and the largest source of affordable housing is through inclusionary housing. Lastly , there is virtually no school accountability. The council bases its support for increases in spending as support for excellent public education. The school committee refuses to put real pressure on the administration. The new City manager is appropriately focused on accountability to spending. That must carry over to schools as well. Lastly, fiscal challenges are exactly why the Chief executive ( professional manager) must make difficult choices and see the future .