Overall property taxes in Cambridge will rise by 9.2 percent in 2025, the highest increase in recent years; the increase in 2024 was 8.3 percent. The new tax rates, presented by City Manager Yi-An Huang to the City Council on Monday, amounts to a 7.3 percent increase in the residential tax rate and a 10.1 percent increase in the commercial tax rate.
The city has long leaned on its commercial base to keep rates lower for residents, but a weakening in the market – and its effect on taxation – was a theme at the council hearing, as it has been at all recent talks about finances.
The new rates will provide $628.4 million to support a $995.6 million budget approved in June for the fiscal year. The budget funds various planned initiatives in education, sustainability, housing and transportation, such as a long-awaited universal preschool program, fire station renovations and the work of the Affordable Housing Trust in building and preserving homes for the city’s less wealthy.
Despite a higher-than-usual increase, Cambridge rates remain lower than neighboring communities such as Somerville, Watertown and Boston.
“A homeowner in Cambridge with a $750,000 home is paying about half the amount of taxes compared to a homeowner in Somerville and Boston,” councillor Jivan Sobrinho-Wheeler said. “That is a testament to the financial position of Cambridge.”
Cautions against overspending
Still, councillors Paul Toner and Cathie Zusy cautioned against increased borrowing and spending.
“I know we all want to do many wonderful things for all of our residents, but going forward, we’re going to have to tighten our belts, because even though we have a very envious tax regime in the city, I don’t think people really love seeing 7 percent or 8 percent every year going up in taxes,” Toner said.
Because the city borrows money for big projects – albeit at low interest rates – significant amounts annually are set aside for paying back those loans.
“What keeps me up at night is that 10 percent of our budget is for debt service,” Zusy said. “As councillors, we need to be aware that we have borrowed about as much money as we spend in a year. I think we really need to be careful going forward and borrowing additional funds for projects, because we can’t be borrowing money forever.”
Claire Spinner, assistant city manager for fiscal affairs, clarified that the 10 percent spending on debt service is a ratio “looked very favorably on by rating agencies”; their ratings power the city’s low interest rates.
Moderating budget growth
Budgets in recent years were supported by federal Covid stimulus money as well as “a strong macroeconomic environment where building permit revenues grew substantially,” Huang said.
The Covid funding is over and building permits are down. Huang predicts more difficulty going forward.
“We are planning discussions with the City Council regarding the more difficult macroeconomic environment that we see ahead,” Huang said. “We are not in any sort of a fiscal crisis, but it will be very important for us to moderate our budget growth and ensure that we can sustainably fund all of the programs that are making a difference in our community.”
Gayle Willett, the director of assessment, raised lab and office space vacancies as an example of a market force that will affect budgeting. These vacancies come from multiple forces, including tech layoffs and postpandemic remote-work culture colliding with increased investment into life sciences that resulted in a wave of lab construction. “Buildings that are being built are being held and construction is stopping before they’re completed,” Willett said. “What we are looking at is kind of a standstill. I think there’s a lack of demand on the office side, and there is excessive supply on the lab side.”
“Considering the impact”
The result: Property values and taxes from office and lab buildings are going down.
“It’s important for us to be considering the impact of greater office and lab vacancies on commercial values, on growth, and how that should help us understand what kind of a budget growth target we should be responsibly setting,” Huang said.
Willett emphasized that these market dynamics are not permanent.
“We will continue to watch the market and see what happens,” Willet said. “It’s difficult for us to predict the future.”
A stronger
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If companies pull out of Cambridge the way they did Route 128, Cambridge is in a heap of shite. Maybe rents will finally go down. 🤣
Can someone explain why Proposition 2.5 doesn’t kick in. Did the city council vote an override? We keep on seeing our taxes rising and as prior commenter duly noted this might bring down property price which would induce more tax levy … the beginning of an unwanted spiral … If that is the best the City manager can do to maintain our city finance healthy, we are indeed in deep trouble.
@Ilan it’s explained under Table V of the presentation from the City Manager:
For FY25, the City’s levy limit increased by approximately $43.53 million, to $817.49 million. Approximately $24.19 million of this increase was due to new construction and amended FY24 new growth. State law allows the City to increase its tax levy limit by an amount equal to the total FY25 value of newly constructed or renovated property, multiplied by the FY24 tax rate. It should be noted that industrial property (lab space) values had a new growth value of $1.3 billion, which translated into a levy limit increase of $13.84 million. Aside from new growth, the remaining $19.34 million is the 2.5% increase over the FY24 levy allowed by Proposition 2½.
Interesting… so we have more commercial space vacancies, and yet we have a push to increase commercial housing in the city rather than utilizing current commercial space into housing.
And we have a push for these greater height buildings for replace existing housing stock, which cause a harmful loss to the current occupation rates, dropping the city income from existing housing stock while these new developments are uninhabitable. Which will again HURT the short term cash flow and cause a RISE in taxes on the remaining residents and residential property owners who also are owner occupants.
Solving long term fiscal issues by allowing more and more construction sounds like a bad idea. Growth, as I have said before, cannot be continued forever. Each new bigger building means a greater capacity for water, sewage, trash programs, electricity, gas, heavier wear on the streets that already cannot be kept up on in regards to repairs etc. You kick the can down the road a few years with inevitable problems on infrastructure.
Is this what we the voters/residents want the council to be approving, or are there members of the council are purely thinking about their own desires and property (how many of them will still be residents in 2 or 4 years? How many of them will be paying increased taxes on where they live? How many of them, like some of the members that are pushing for such, are doing so just before they head out the door to ‘greener pastures’ after getting us in to this situation over the past 2,4 or 6 years of council decisions? Would we ever know?
I have a suspicious mind when it comes to taxes, development, real estate zoning and politicians of any type in this state for good reasons and personal observations in various other locations in the state.
@cwec, thanks. I missed this year’s tax explainer from the City.
Now I understand the subtle way in which our City government abuses the ‘new growth’ concept of proposition 2.5 to increase our property taxes beyond 2.5% a year. By pushing through contract zoning (the exchange of more density for benefits) new commercial development, independent of whether we need it or not, we increase our ‘new growth’. Hence, we can increase property taxes far beyond the limit set by Proposition 2.5.
I also understand the rush of the City Council to pass the new zoning that would do away with zoning. It will ensure enough growth from smaller residential developers to sustain property tax increases far beyond the 2.5% limit while our commercial growth sinks. Sneaky.
I live in East Cambridge, which has seen tremendous commercial development over the last 20 years, i.e., Kendall Square. During the planning phase of this development, elected (including current Councilors) and unelected city officials promised that these developments would be the tools necessary to keep our property taxes in check. What should have been included is that this ‘new growth’ would allow the City government to escape the Proposition 2.5 tax limit, as demonstrated by the sharp increases of the last few years. Hmm, that’s very shady.
It doesn’t matter if we have the infrastructure to support said development, i.e., Kendall Square substation saga. The important part is that we have ‘new growth’, the proposition 2.5 loophole enabling the city government to increase property taxes far beyond the 2.5% limit.
To all those who blindly support unbridled development, beware of the tax consequences on the existing residents. The current yearly increases are unsustainable for most of them—the increases in residential property tax compromise affordability. The proposed new zoning will not make the City more affordable because the increase in density will generate higher residential property tax, as concretely demonstrated by reality, i.e., current tax increases.
Looks like my tenants are gonna get a 10% increase next year….
Seems at least slightly concerning.
New growth has allowed Cambridge to provide Residential taxpayers with enormous tax relief. By having such a heavy percentage of commercial taxpayer the levy percentage on residential stays low. Obviously, capital investment, salaries, schools and new spending are key factors in the budget. My point is simple you can not love projects like the courthouse( riddle me why) but there is no debate on what benefits new growth and long term tax increases had for residential tax payers. Volpe was non taxable before It was purchased by MIT. The office crash and more so cooling of Labs will have immediate impacts on the ability to shift burdens away from residents and spend liberally.
As far as I know, vacant lab space and other commercial space is still taxed at the same rate as occupied commercial space. Why should it being empty specifically require a need to increase residential rates?
Yes the city kept taxes down in previous years, but that has not continued during the past few years. Instead we see an effort to go around the 2 1/2 law thru ‘loopholes’ but those loopholes have consequences, as has been mentioned above.
Ian Levy’s statements do seem to hit the nail on the head of what has been done over the years.
It is important to understand that the 2 ½% increase limitation applies only to the Levy Limit, and not to your property tax bill. It is a common misconception that Proposition 2 ½ restricts the amount your property tax bill can increase to 2 ½%. Increases in New Growth will also impact your property tax bill.
Under Proposition 2 ½, a community’s levy limit increases automatically by two factors: 1) an incremental increase of 2.5% of the prior year’s levy limit (hence the law’s nickname); and 2) a dollar amount derived from the value of new construction and other growth in the local tax base since the previous year. This second factor is called New Growth. The 2 ½% increase and new growth number are both added to the prior year’s levy limit to reach the current year’s levy limit.
A community cannot exceed its levy limit without voter approval. Proposition 2½ provides local options for increasing the Levy Limit by passing, by majority vote in an election, an override, capital outlay exclusion, or debt exclusion. The Levy Limit can be increased only by popular vote in a referendum, not by Town Meeting.
We have had no referendum votes by the city to override.
For MA government document on this subject:
https://www.mass.gov/doc/levy-limits-a-primer-on-proposition-2-12-0/download
MA Gov Site on 2 1/2 Overrides & Exclusions:
https://www.mass.gov/info-details/proposition-2-12-overrides-exclusions
The cambridge annual budget roughly doubled in the 8 years I have lived here. Grow the costs 10pct a year, and it is expected the revenue (property tax) should grow to match.
Property values have doubled, so it’s laughable that so-called progressive homeowners are whining about paying half the amount of property taxes as Somerville while making hundreds of thousands of dollars. Meanwhile, rents have also doubled, and there’s no residential exemption for renters like there is for homeowners to lower the amount they pay.
The biggest budget increases are for universal preschool and expanded afterschool, which probably had unanimous support from City Council. But the birth rate is down 25%, so spending should slow accordingly.
Qwerty homeowners don’t see any of that “Value” assessed in a property unless they sell, and there are plenty of us who own and live in what we own and have no rental property that we make any money off of etc. All we see is an increased tax bill that comes out of our pockets each year. Unrealized value means nothing if we continue to be residents and owners here and I assure we (my wife and I) don’t make hundreds of thousands of dollars from our residence nor from employment in the area. If we were to sell we’d have to go elsewhere and the real estate price market is inflated all over thanks to foreign investment groups and real estate speculators and developers.
The way this works is the city established a levy amount that meets the budget needs. ( policy). The levy is limited by pro 2 1-2. State law. Value is multiplied by the tax rate. The rate is established to collect the amount you need. Residential and commercial have different rates. As your seeing play out in Boston the state sets max percentage you disproportionately collect from commercial tax payers. I assume that is for two reasons 1) not to tax business out 2) business dont vote so you can imagine what vote dependent politicians might do. The previous writer is completely incorrect. Values dont cause high taxes. If we had low values our residential tax rate would go from 10 to 20 or 25 dollars in order to meet the levy. Now the actual benefit to “ value” is you can borrow against your equity which is precious. I am also quite sure the writer did not buy here in Cambridge without considering the “ value” and the increased equity over time. The point is that in every way commercial taxes and growth are what has kept residential taxes down. Values are not the relevant factor. If you dont like development thats cool. If you like the old courthouse cool. However, high residential values are not the cause of residential taxes. In fact the fact that Cambridge can satisfy 2-3 of its levy by collecting commercial taxes and use new growth tax dollars ( not counted towards the prop 2 1-2 levy limit is what allows the city to build new infrastructure every where you look.
Anthony D. Galluccio thank you for your clarifications.
Borrowing against the equity we have in our property is NOT something we do, leveraging your home to speculate on it is also not in our best interest in the long term, as that is how you can easily end up under water in regards to debt.
The only time we took out additional credit against our property via a home equity loan was to deal with massive building repairs that needed to be done.
Redeveloping the old court house was fine and needed and not something to complain about, the same is any property that is unoccupied as far as I am concerned. BUT that’s not where the majority of the money speculation is occurring in our city or what the developers are targeting.
Higher property values eventually lead to reassessments of the value on the city rolls and that is what leads to higher taxes for the existing property owners. If the market value of land and buildings goes up as the rest of an area increases then it WILL affect us.
As a personal note, no we didn’t research deeply when buying our property back in the 90s. We had a situation where we had to move (The street and buildings in another city we lived in and rented on was leveled for new construction and doesn’t even exist any more). We had to find housing, the market was tight for rental space because of the only thing being available in that city was drastically beyond our earning capacity from our jobs.
A friend owned in Cambridge and her job was moving out of state and she had to sell in a rush so we took advantage of such opportunity and bought from her. We didn’t do a ton of research on future equity potential, we went with what we could afford at the time, and with a significant down payment got a mortgage that was significantly less monthly payment than what we would have had to pay for rental space anyplace inside of the range needed to reach our employers locations etc. by public transit for commute needs.
We are the sort of people that fell into the “affordable housing need” that folks keep talking about that would not be able to afford such a place in today’s market that any new construction would be building as they will not be affordable for the people living here now.