Framingham City Council Financial Strategy Threatens Our Future

By City Charter the City Council delegates prime responsibility for the annual review of the Mayor’s budget submission to its Finance Subcommittee. For six years that subcommittee has pursued a strategy of cutting the Mayor’s budget to achieve as low an annual property tax levy increase as possible. In what must be a unique approach in the Commonwealth, the subcommittee has never reviewed the Mayor’s goal and priorities. Nor has it analyzed the principal factors driving budget increases. Nor has it checked that sufficient investments have been made to ensure that city services are well run. Nor has it verified that city infrastructure is being well maintained. Nor has it concerned itself with ensuring that the school district budget properly addresses a rising student population, staff shortages, the effects of inflation on its expenses, or the rapidly changing student demographic profile.

Rather, in a process characterized by a line-by-line review of a spreadsheet which lists each city department staffing and expenses, the broad condition of city finances, assets and operations have remained undiscussed, as each year the Finance Subcommittee relentlessly scours the city budget for ways to cut expenses and lower the Mayor’s proposed annual property tax levy increase. For four years under Mayor Spicer, proposed 2.5% increases were whittled down to 0%. Under Mayor Sisitsky, last year’s 2.5% proposed increase was pruned to 2.0%. This year a proposed 1.9% increase has been cut to 1.0%.

The loss of annual tax revenue in each city financial year is as follows:

FY19 - $5.5 million/year

FY20 - $3.5 million/year

FY21 - $9.4 million/year

FY22 - $5.8 million/year

FY23 - $3.0 million/year

These losses accumulate, so that the net loss of annual property tax revenue since becoming a city is $27.2 million/year. The technical term for this lost annual tax revenue is ‘excess capacity’.

But the loss of city property tax revenue has been of no concern to the City Council Finance Subcommittee.

No other city or town in the Commonwealth has throttled back its tax revenue, or generated excess capacity on such an immense scale. In FY12, Framingham ranked 335th in the Commonwealth, with excess capacity at a miniscule $1,179. Now it ranks 6th, with excess capacity at $40,081,471, in the company of Cambridge (#1) with its booming tech sector, and Everett (#2) with its casino.

Further, city reserves have plummeted as city operating income has dropped. Certified Free Cash dropped from $15.7 million in FY20 to $6.1 million in FY23. The Enterprise Fund, which governs finances for water & sewer operations, saw its retained earnings drop from $2.3 million in FY19 to -$3.3 million in FY22. Notably, Mayor Spicer was harshly and unfairly criticized for setting water & sewer rate annual increases at an affordable rate of a few percent, and blamed for the earnings shortfall in the Enterprise Fund. The real source of the problem was the lack of city property tax revenue to support increased water & sewer project expenditures, aimed at reducing the $200 million water & sewer maintenance backlog, identified in a comprehensive 2017 review by Stantec Consulting Services.

So, although the City Council Finance Subcommittee showed concern for the Enterprise Fund problems, it failed to acknowledge that it was the primary cause of the problem and has consistently attempted to shift the blame to Mayor Spicer.

The water & sewer maintenance backlog is not unique. It is accompanied by backlogs of $100 million in road maintenance and $100 million in school roof replacements, all caused by the huge loss in property tax revenue.

The school district has also suffered major impacts of the property tax throttling practice, and these have been elaborated before:

https://patch.com/massachusetts/framingham/framingham-cuts-education-10-million-year-fix-infrastructure

Again, the City Council Finance Subcommittee hides its role in causing late school buses, shortages of classroom aids and a severe lack of pre-K capacity, which is permanently damaging the educational prospects of hundreds of 4-year-olds each year in the city.

It has been a struggle to find out what drives the City Council Finance Subcommittee to act as it does, but it has finally become clear.

Its leadership of George King and Mike Cannon, supported by John Stefanini, views substantially increased Chapter 70 state aid as a source of funds to help lower property taxes, not as the state intends, to boost support for low-income students, special needs students and students whose native language is not English,

There is absolutely no confusion about this. George King has a very simple rule For city finances:

‘When state Chapter 70 funding for schools increases, city property taxes must be decreased.’

This view is confirmed in the following video:

https://www.youtube.com/watch?v=Q02FW_x2Q4Y

and from conversations I had in the past with George when I was Chair of the School Committee Finance & Operations Subcommittee from 2018-2021. This King rule has been in effect for more than a decade. It is no coincidence that when the Chapter 70 formula for Framingham was corrected in 2013, and Chapter 70 funds for the city substantially increased, Framingham started taxing below the levy limit for the first time in the 30 years since Proposition 2 ½ became state law.

The King rule came to life that year.

It must further be observed that in order to ensure thorough application of the King rule, several myths have been repeatedly promoted over the years.

Myth 1: ‘The school district budget is unsustainable.’

This has been effectively rebutted before, by showing that the city ‘local contribution’ to the school district budget has risen at less than inflation for the past 10 years and is completely sustainable. But George has attempted to resurrect the myth, as shown in the video.

Again, rebuttal is straight forward, as the FY24 school district budget is built to handle a 4% student population increase, a 2% inflation increase and a 1% increase to cover increased special education out of district tuition costs. That totals 7%, so the budget is perfectly aligned with completely understandable cost drivers and is fully funded by rock solid, recurring Chapter 70 aid. Not a single city taxpayer dollar has been spent on the FY24 school district budget increase.

It is perfectly sustainable.

A second myth is also in circulation, vigorously promoted by George King.

Myth 2: ‘Tax increases are not affordable for Framingham homeowners.’

This is simply an attempt to justify low property taxes for everyone. A sound affordability strategy for property taxes would target those who genuinely cannot afford property tax increases, not the whole taxpayer base for the city, which Moody’s characterizes as having ‘Above-average resident income and wealth’. The correct affordability tool for that is the Residential Exemption, which if adopted by the city would allow homeowners to exclude up to 35% of their home’s assessed value, shifting more of the tax burden to homeowners whose assessed property value is $600,000 or more. But George opposes the city adopting the Residential Exemption. Go figure.

Finally, we must turn to what all of this means when Moody’s Investor Service take a critical look at the city’s finances and operations.

Although Moody’s Investor Service does not concern itself with roads, roofs, water & sewer systems, late school buses, shortages of classroom aides, or lack of pre-K capacity for 4-year-olds, it does concern itself with financial indicators and on July 11, 2022, issued an important update to its credit opinion for the City of Framingham, which downgraded the city’s bond rating to Aa2 negative:

https://www.framinghamma.gov/documentcenter/view/47447

Key features of that report include the following:

‘Rating Outlook

The negative outlook reflects the recent decline in the financial position due to a greater use of reserves and limited property tax increases that have resulted in as structural operating imbalance. … ‘

For the city FY24 operating budget, the advice Moody’s is giving the city is to stop using reserves to fund operations and use property tax increases to correct that structural operating imbalance, i.e., use property taxes to fund operations, not reserves.

In exact opposition to that advice, the City Council Finance Subcommittee under the leadership of George King and Mike Cannon, supported by John Stefanini, have consistently reduced the tax levy increase proposed by the Mayor by deploying reserves to fund the operating budget. Every recommendation from the Finance Subcommittee which uses reserves to support lowering the tax levy increase should be rejected as highly unsound financially.

It’s Finance 101.

A second very concerning approach used by King/Cannon/Stefanini to lower the Mayor’s proposed property tax increases is to apply a ‘vacancy factor’ to unfilled staff positions. This cuts full funding of vacant positions to lower the tax levy. That acts as a strong disincentive to ever fill those positions. There is totally no discussion about how staff shortages should be addressed to improve municipal operations. Instead, staff shortages are viewed as advantageous, as they can help lower the Mayor’s levy increase.

This has been a long analysis, and if you are still with me, I applaud your dedication to learning the facts, and hope you share my alarm at the perilous state of city finances and operations.

The best way I can characterize our situation is to make an analogy.

Framingham is like the Titanic and the Moody’s bond rating is like the tip of an approaching iceberg. On the bridge the captain, navigator and duty officer roles are filled by King, Cannon and Stefanini, who may be aware of possible iceberg warnings, but are committed to full speed, on the same bearing, with all the passengers happily asleep in their state rooms. What could go wrong?