A communication transmitted from Louis A. DePasquale, City Manager, relative to Awaiting Report Item Number 21-3, regarding a report on the parameters on eligible expenses from Free Cash

Assistant City Solicitors Nancy E. Glowa Paul S. Kawai City Solicitor Keplin K. U. Allwaters SATANTONS NOT Sean M. Mckendry Arthur J. Goldberg Brian A. Schwartz Deputy City Solicitor Diane O. Pires Charun 5720-23 Megan B. Bayer Public Records Access Officer First Assistant City Solicitor Seah Levy CITY OF CAMBRIDGE Office of the City Solicitor 795 Massachusetts Avenue Cambridge, Massachusetts 02139 May 17, 2021 Louis A. DePasquale City Manager Cambridge City Hall 795 Massachusetts Avenue Cambridge, MA 02139 Re: Response to Awaiting Report No. 21-3 Re: Report on Parameters on Eligible Expenses from Free Cash. Dear Mr. DePasquale: We have prepared this opinion in response to the above-referenced Awaiting Report No. 21-3, Order No. O-4 of 1/11/21 ("Council Order"). The Council Order requests the City Manager to: (1) "provide any advisory from the State of Massachusetts Department of Revenue (DOR) that outlines restrictions which prohibit the City of Cambridge from allocating direct financial assistance to residents, non-profit agencies or small businesses"; (2) "provide the City of Cambridge's existing Free Cash policy for City Council Review and discussion"; and (3) "li]f such a City policy does not exist... request the State of Massachusetts Department of Revenue (DOR) to issue an Informational Guideline Release (IGR) that allows for more robust parameters on eligible expenses from free cash to directly assist residents, small business, non-profit organizations." The Supreme Judicial Court has stated: "It is a fundamental principle of constitutional law frequently declared that money raised by taxation can be used only for public purposes and not for the advantage of private individuals." Opinion of the Justices, 368 Mass. 880, 885 (1975) (quoting Opinion of the Justices, 337 Mass. 777, 781 (1958)). Additionally, Art. 18, Sec. 2 of the Amendments to the Massachusetts Constitution (the "Anti-Aid Amendment") states, in pertinent part: No grant, appropriation or use of public money or property or loan of credit shall be made or authorized by the commonwealth or any political subdivision thereof for the purpose of founding, maintaining or aiding any infirmary, hospital, institution, primary or secondary school, or charitable or religious undertaking TTY/TTD [phone removed] Facsimile [phone removed] Telephone [phone removed]

which is not publicly owned and under the exclusive control, order and supervision of public officers or public agents authorized by the commonwealth or federal authority or both .... As requested by the Council, we spoke with Patricia Hunt ("Hunt"), Chief of the Bureau of Municipal Finance Law, Division of Local Services, Massachusetts Department of Revenue In response, Hunt provided ("DOR") regarding the requests posed in the Council Order. information regarding DOR's position concerning a municipality's use of public funds (i.e., monies raised from taxation), and also directed us to a presentation that she made to a Massachusetts Municipal Lawyers Association ('MMLA") conference on April 29, 2020 regarding this issue. Hunt explained that it is DOR's position that public funds cannot be used to support private individuals or entities, and that this principle applies regardless of how funds are classified. Thus, under DOR's position, the rule prohibiting the use of public funds to support private uses and the those Aid are dasio leap ply ma yes caf Cay fund raised by take dis spectral or hoy. As it relates to using public funds to support private businesses, Hunt provided us with an opinion that DOR issued to the Town of Ipswich on August 15, 1994 ("Ipswich Op.").' In addition to noting the rule prohibiting the use of public funds for private uses and the Anti-Aid Amendment, the Ipswich Opinion refers to Article 88 of the Articles of Amendment to the Massachusetts Constitution ("Article 88"). (Ipswich Op., pp. 2-3.) Article 88 states: "The industrial development of cities and towns is a public function and the commonwealth and the cities and towns therein may provide for the same in such manner as the general court may determine." DOR's Ipswich Opinion describes Article 88 as being an exception to the prohibition on using public funds to aid private businesses. (Ipswich Op., p. 2.) Page 2 of the Ipswich Opinion also cites Opinion of the Justices, 373 Mass. 873, 875 (1977), and notes that the Court in that case recognized that the term "industrial development" in Article 88 should be broadly construed to include businesses other than just manufacturing companies. The Ipswich Opinion goes on to note that a statutory authorization is generally required in order for municipalities to provide grants to businesses pursuant to Article 88, and that there was no such statutory authorization for the proposed grant of funds discussed therein (a feasibility study). (Ipswich Op., pp. 2-3.) In speaking with Hunt, she indicated that DOR has taken the position that based on the language of Article 88, a municipality generally may only provide grants of public funds to private businesses if there is a statute that authorizes such grants. As an example, Hunt referred to a special act that specifically allows the Town of Ashland to create "an economic development funding program from which individuals or businesses may apply to borrow funds or receive grants for use on private property ... to encourage and facilitate economic growth and development." Mass. Acts. of 2018, c. 420, §§ 1-2. Additionally, in her MMLA conference presentation last April, Hunt specifically indicated that DOR believes it would likely be inappropriate for municipalities to provide public funds to private businesses in order to assist them in light of the Covid-19 pandemic. ' A copy of DOR's Ipswich Opinion is attached hereto. 2

Rather, Hunt said that such an expenditure would likely need to be authorized by a general law or a special act like the aforementioned one that was enacted for the Town of Ashland. It should be noted that even if there is a statute permitting a municipality to provide public funds to a private entity, that expenditure would still need to comply with the requirement that public funds be used for public purposes and not for the advantage of private individuals. The Supreme Judicial Court ("SJC") has recognized a non-exhaustive list of factors that courts are to consider when determining whether an expenditure of public funds is properly used to support public purposes instead of improperly benefitting private individuals. Allydonn Realty Corpo v. Holyoke Hous. Auth., 304 Mass. 288, 292 (1939). Some of those factors include: (1) whether the benefit is available on equal terms to the entire public in the locality affected; (2) whether the service or commodity supplied is one needed by all or by a large number of the public; (3) whether the enterprise bears directly and immediately, or only remotely and circumstantially, upon the public welfare; (4) whether the need to be met in its nature requires united effort under unified control, or can be served as well by separate individual competition; (5) whether private enterprise has in the past failed or succeeded in supplying the want or in eradicating the evil; and (6) whether, in so far as benefits accrue to individuals, the whole of society has an interest in having those individuals benefited. Id. at 293. Additionally, the SJC has noted that the aforementioned considerations are in no sense to be regarded as exclusive of others, and great or little or no weight may be attached to some of them according to the presence or absence of others, or of still other conditions not specifically identified by the SJC. La. The information we received from DOR regarding the prohibition on using public funds for private uses is generally consistent with previous opinions we have provided concerning the City's expenditure of public funds. Very truly yours, Nancy E. Glowa City Solicitor Enclosure