The office and residential tower at 40 Thorndike in East Cambridge during construction Sept. 30, 2021. (Photo: Marc Levy)

Unlike the past 18 years, most Cambridge homeowners’ tax bills won’t be going down in 2023, the result of a changing local economy and growing city councillor discontent with the practice. The city already had – and looks to still have – the lowest tax rates in the area, and a rebellion grew over the past two years to see “free cash” directed elsewhere.

This year the “response to community needs and council goals” means some “astonishingly high figures” in some key priorities, said city councillor Patty Nolan on Monday, leading a tax rate hearing in her role as Finance Committee co-chair. Some include: more than $41 million in funding for affordable housing, $34.4 for million universal prekindergarten, $15.9 million for the unhoused and $18 million toward reducing building emission pollution, “along with all the other many things that the city is doing.”

A year ago at this time, as the city applied $19 million to homeowner relief, councillors Burhan Azeem and Dennis Carlone vowed to vote no alongside councillor Quinton Zondervan if the practice continued.

The end of the practice went without remark Monday.

Zondervan noted the next day his unhappiness with how it went down: as “a simple sleight of hand.”

The council did approve a $20 million free cash appropriation as part of a budget vote in June that affected the rate, Zondervan said. “All they did was move up the vote as part of the budget rather than during the rate-setting process. The net result remains the same: Property taxes would be slightly higher but for that free cash allocation. I argued against it vociferously,” he said, referring back to a June 5 vote that went 8-1, with him the vote in opposition.

“We would simply not use the $20 million to cover the current budget – so that $20 million would have to come from the taxpayers,” he argued at the time, drawing a response from City Manager Yi-An Huang that “we are already on the higher end of the levy increases that have been proposed in historic budgets … if you go from like a 9 percent increase in the levy to a 13 percent increase in the levy, it would feel like a pretty dramatic change in the direction as a city that we’ve taken on taxes.”

Still some help

Homeowners still aren’t facing market surges without protections: higher than projected investment earnings, hotel-motel taxes and building permit revenue – signs of recovery from a Covid pandemic that lingered into 2022 – helped lower the overall tax levy and ease the burden, coming in the form of $2 million from an “overlay surplus” (last year it was $2.5 million from a reserve fund).

There’s also an increase in a residential exemption, which helps taxpayers in owner-occupied homes: It’s $160 over last year, to $2,919, representing the maximum percentage allowed by the state.

Based on a revised property tax levy of $575.4 million (up from $531.6 million) the 2024 fiscal year residential tax rate will be $5.92 per thousand dollars of value, subject to Department of Revenue approval, up 1 percent. (The previous year was down 1 percent.) 

The commercial tax rate will be $10.46, up 0.7 percent. (The previous year saw a decrease of 7.6 percent.)

The next lowest residential percent in the area of tax levy paid is in Brookline, where it’s been $9.97 compared with Cambridge’s coming $5.92. On the commercial side, the next closest to Cambridge’s $10.46 has been Brookline again, at $16.70. (Neighboring Somerville’s rates have been $10.34 residential and $17.35 commercial.)

Still, last year a majority of residential taxpayers saw a reduction, no change or an increase of less than $250 in their tax bill, a claim that’s not being made this year – aside from for condo owners, for which the owners of a median-value home would see their bill shrink by $7. The rise is due mainly to a combination of budget, property values and how much burden is shifted to commercial properties, and Cambridge puts the maximum on its commercial base allowed by state law.

Commercial sees “some stagnation”

Labs are “especially key” to that shift, said Michele Kincaid, acting assistant city manager of fiscal affairs, but city staff such as assessor Gayle Willett were spotting warning signs on the commercial front: “some stagnation in the commercial market with few sales and even fewer new leases” resulting from hybrid and remote work.

“We are seeing a significant amount of capacity on the office space side and in terms of lab space. The presumption would be that that will be a boon to many businesses looking for space, but will probably mean that there are less new developments that start – though many projects are already in the pipeline,” Huang said.

How that will affect the city depends on the scale of change to be seen, and “I certainly wish we had a crystal ball,” Huang said. “We really haven’t seen too much change. Some of this may be an update as we get deeper into the fiscal year 2025 budget, because a lot of the ultimate values that drive these conversations are going to be based on calendar year 2023, which isn’t complete yet.”

Residential has its own rhythms

Councillors were gloomier than staff, a reminder that the past few years of tax-rate hearings have included ruminations on how Cambridge’s good times – its ability to build schools and fund far-reaching priorities – will eventually end.

“At some point, we would have to say ‘Well, we’re kind of done with this building boom in terms of commercial,’ right,” and that could destabilize residential growth, Zondervan asked staff.

A pause on commercial development would affect city financials over time, Huang said, but the effect on the residential is less clear. “You could very much see a dynamic where if people continue to want to live in the city and are competing to come here, rents could continue to rise regardless,” Huang said, cautioning “not to think about this as: If we have more commercial development, that necessarily rents are going up. I think there’s not no relationship, but I wouldn’t say that those are causal factors.”

Spending is pending

The conversation seemed off-base to Carlone, who pointed to lab space coming to the Volpe acreage in Kendall Square, to North Point and to the Alewife Quadrangle in a city that needs more housing desperately and has no plan shaping it. “In one of the last cycles, we didn’t see residential booming until commercial slowed down,” Carlone said. “I hope that we don’t just look at this as taxes, but about the quality of life. If you don’t own a house, you’re in trouble in Cambridge, financially.”

It’s not just about the balance between residential and commercial real estate, councillor Paul Toner said. “If we’re not going to see more developments, or if we’re going to see higher vacancy rates in our commercial real estate, we’re going to have to start really examining how we’re spending,” he said.

The city’s mountainous project-funding free cash began setting records at least back in 2010 and peaked at the end of fiscal year 2019 with $246.6 million. As Cambridge shut down for Covid, a year later that had receded to $209.9 million. Kincaid said a recently received certification put the city’s free cash at $192 million, down from last year’s $199.3 million.

Taxpayer assistance meetings are being set for Oct. 31, Nov. 1, Nov. 8, Nov. 14 and Nov. 20, Nolan said.