George King’s Financial Rules: The Bogus Affordability Argument

This is the first in a series of articles examining the damage done to city finances, city infrastructure and city students by the application of George King’s budget ‘rules’ to a city which has what Moody’s Investor Service calls: ‘Above average resident income and wealth’ but is experiencing rapid demographic changes in its school age population as the Latino/Hispanic population expands.

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In a moment of exceptional clarity, during the May 30th, 2023, City Council meeting which considered the city FY24 budget proposal, George King laid out the fundamental finance ‘rules’ which are driving city budget outcomes.

These ‘rules’ have driven all of the City Council city budget cuts for 6 years and are the principal reason Framingham began taxing below the levy limit in 2013. They have throttled back town and city property tax revenue, causing a daunting infrastructure maintenance backlog, reductions in city funding for education, and a rising neglect of the Latino/Hispanic students in the school district.

George King’s Rules

1. Affordability Rule: A number of Framingham homeowners cannot afford 2.5% property tax increases, so property taxes have to be reduced for all residential property owners, including large scale residential apartment landlords and the vast majority of homeowners, who are perfectly capable of paying such small-scale property tax increases.
2. City Budget Growth Rule: The annual growth in a municipal budget must lie in the range between 2.5% and 4.5%.
3. School District Budget Growth Rule: Framingham Public School annual budget increases of the order of 7% are not sustainable.

See George defining the rules in a clip from the meeting video:

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

In this piece, we take a look at the Affordability Rule and find that it simply does not stand up to scrutiny. It is a terrible deal financially for taxpayers.

Framingham has what Moody’s Investor Service calls: ‘Above average resident income and wealth’, which is confirmed by the US Census reporting that for Framingham the median household income is $90,000. See:

https://www.census.gov/quickfacts/fact/table/framinghamcitymassachusetts,MA/INC110221

Given that $90,000 median figure, most of the 30,000 tax paying households in the city can afford an average annual property tax increase of $100-$200. There is no doubt a group of taxpayers who struggle with their budgets, but they can be targeted much more precisely than with a tax cut program which gives tax breaks to everyone independent of their means.

Seniors can defer all of their property taxes if their income is less than $60,000, with the deferred taxes costing 1% in annual interest and those deferred taxes coming due when their property is sold. Further, in the last two years Social Security increases have been 5.9% and 8.7% which provide a good chunk of extra money for retirees to use to pay tax bill increases of $100-$200/year.

In addition, there is the Residential Exemption which could be adopted by the City Council, which allows low-income homeowners to exempt up to 35% of their home’s assessed value from property taxes, providing them substantial tax relief, as is done in Boston, Brookline and Sommerville. See for example:

https://www.boston.gov/departments/assessing/residential-exemption

George King opposes the Residential Exemption for no good reason. It is such an obvious tool for making Framingham affordable to those who struggle. I am perplexed by his opposition.

Further, it is helpful to attempt to estimate the actual scale of the real affordability problem. One way is to look at the Fuller debt exclusion vote which was passed with an 86% YES vote. 700 residents voted NO. They are the folks who either oppose all tax increases on principle, or who simply cannot afford the tax increase. People struggling to make ends meet will always come out and vote NO.

Based on that information, let’s estimate that there are 1,000 taxpayers who cannot afford a $100-$200 tax increase each year. That totals up to $200,000/year accumulating, so in the 10 years since 2013 when Framingham started taxing under the levy limit, the cost to bring relief to the 1,000 would be $200,000 * (1+2+3+4+5+6+7+8+9+10) =$200,000 * 55 = $11 million. That’s a whole lot less than the current approach which is costing the city $40 million/year in lost property tax revenue and since 2013 has generated accumulated lost revenue of $192 million.

You can also see from this simple estimate that almost all of the tax relief has been wasted on people who don’t need it.

The scale of property tax revenue loss is so large that it has squeezed cityside budgets to the bone, making staff compensation non-competitive, and that has led to 74 positions remaining vacant in critical operations such as road maintenance and water & sewer maintenance. That in turn has helped generate a $400 million city infrastructure backlog, which is twice as big as the $192 million in savings passed on to taxpayers by lower property tax bills.

To put that revenue loss in perspective, if those lost tax dollars had been invested in our roads, buildings, and water & sewer system, we would have the best infrastructure in the Commonwealth and its maintenance cost would be the lowest in the Commonwealth, saving taxpayers a great deal of money by avoiding the huge cost of $400 million in deferred maintenance which we are now facing: $100 million for roads, $100 million for school roofs and $200 million for the water & sewer system.

For every $1 the taxpayer saved, the city now has to pay an additional $2 in deferred maintenance. Of course, taxpayers will have to foot the bill for all this, so it will eventually sum up to a huge loss for taxpayers. Deferring maintenance is never a winning proposition.

In summary:

Taxing under the levy limit based on an affordability argument is highly inefficient, as most of the relief misses its mark. It has also produced such a huge infrastructure backlog bill that taxpayers in the end will have lost a net $200 million. They have saved $192 million in lower tax bills but will have to foot the bill for the $400 million infrastructure backlog. That’s almost a net $7,000 loss for each household. Tax increases are inevitable just to clean up that mess. That will make Framingham much less affordable.

It would have been much more efficient and much more affordable to tax to the levy limit, deploy the Residential Exemption and properly maintain all of the city’s infrastructure using the robust property tax revenue stream.

In the next piece, state Chapter 70 aid for education will be examined, along its role in the infrastructure debacle and the city’s threat to our kids’ education. Student demographics will be front and center.