A communication transmitted from Yi-An Huang, City Manager, relative to submission of the FY2027 budget and appropriation orders for the General Fund, Water Fund, and Public Investment Fund.

CITY OF CAMBRIDGE FY27 Budget Submission April 27, 2026 Update to the City Council

CITY OF CAMBRIDGE 2 Executive summary ▪ The City and the Council have been engaging on the FY27 budget since November, with six Council meetings and two Budget Walkthroughs leading up to the May budget hearings ̶ We shared how the City faces a multi-year economic downturn, falling commercial values, and adverse federal actions, and how these negative trends have serious implications for the City’s financial health ▪ We set FY27 budget growth and tax levy targets of less than 5% and 7%, respectively, to protect the City’s financial stability and taxpayers ▪ To meet these targets, the City identified citywide financial efficiencies and revenue actions, followed by departmental efforts to find 2.1% in savings ▪ Through the combined efforts, we project FY27 budget growth of 4.1% and tax levy increase of 6.9% ▪ The FY27 operating budget is projected to be a little over $1B, with growth driven primarily by increases in fixed costs ▪ The FY27 property tax levy is projected at $725.6M. Property taxes fund almost 70% of the operating budget ▪ The City continues to invest significantly in Council priority areas, with FY27 projected at $290M ▪ Beginning in FY27, the City is implementing a new cloud-based budget system with enhanced capabilities: Euna Budget ▪ The FY27 budget book will feature layout and organizational updates for a more user-friendly experience

CITY OF CAMBRIDGE 3 Annual Budget Cycle (12-Month Process) Budget analysis and planning Operating and capital budgets preparation and submission Jan Apr Jul Oct Nov Dec Feb Mar May Jun Aug Sep Council budget hearings & adoption Property value certification by the State This step includes: ▪The City Council and School Committee Joint Roundtable ▪Finance Committee meetings Tax rate setting This step includes: ▪Budget kick-off with City staff ▪Budget priorities setting by the City Council FY27 begins We are here The City and the Council have been engaging on the FY27 budget since November November roundtable Council action

CITY OF CAMBRIDGE 4 Since Fall 2025, there have been six public meetings with the City Council and two City Budget Walkthrough with communities 2 3 4 6 7 1 8 5 Topic FY27 Budget Planning Amid Economic Headwinds City Budget Walkthrough (1st session) Capital Budget & Public Investment Planning Future Budget Priorities (FY28 and beyond) & Federal Funding Update (including ARPA) Police Budget Macroeconomic Outlook and City Budget Future Budget Priorities (FY28 and beyond) City Budget Walkthrough (2nd session) Timing February 3, 2026 February 7, 2026 February 11, 2026 February 25, 2026 March 10, 2026 November 10, 2025 April 9, 2026 February 11, 2026

CITY OF CAMBRIDGE Back in November, we shared how the City faces a multi-year economic downturn, falling commercial values, and adverse federal actions … 5

CITY OF CAMBRIDGE … and how these negative trends have serious implications for the City’s financial health 6 Stagnating or declining non-property tax revenue, resulting in a greater dependence on property taxes to fund our budget An erosion of our excess property tax levy capacity, which will impact the City’s overall financial flexibility. 1 2 3 An increasing likelihood that there will be a shift of tax burden from commercial properties to residential properties

CITY OF CAMBRIDGE 7 We set FY27 budget growth and tax levy targets of less than 5% and 7%, respectively, to protect the City’s financial stability and taxpayers ▪ Amid the situation, the most critical action we can take to protect the City’s financial stability and limit the impact on taxpayers is moderating budget growth ▪ FY27 will be the 2nd year of moderated budget growth, following a 3.8% increase in FY26 Preliminary FY28-FY30 Targets* FY27 Budget Property Tax Levy Growth Targets Less than 7% increase Less than 7% increase Operating Budget Targets Less than 5% increase Less than 5% increase *We will continually reassess future year targets based on projected residential taxpayer impacts for FY28–FY30

CITY OF CAMBRIDGE To meet these targets, the City identified citywide financial efficiencies and revenue actions, followed by departmental efforts to find 2.1% in savings 8 All departments identified savings and revenue proposals Review Committee evaluated proposals based on a clear set of criteria The City Manager made final decisions, prioritizing options with the least impact on communities Depart- mental effort City- wide effort ▪City leadership identified and evaluated several central-level levers ▪There of the most impactful initiatives were: ̶ Pausing out-of-state travel ̶ Using resource-constrained capital planning to limit debt service growth ̶ Finding healthcare savings with support from the insurance broker

CITY OF CAMBRIDGE 9 Through the combined efforts, we project FY27 budget growth of 4.1% and tax levy increase of 6.9% Key Drivers ▪Departments submitted a wide range of proposals, including reductions in consultant contracts, temporary salaries, and other efficiency gains. 2.1% department savings ▪Through a resource-constrained capital planning approach and lower-than-projected interest rates, debt service costs in FY27 are increasing by only 4.3%, as compared to increases of 13.6% and 7.1% in FY25 and FY26 respectively. Lowering debt service growth ▪The budgeted 10% increase in health-benefits costs is lower than the initial projections, driven by savings identified by healthcare- insurance broker Healthcare savings ▪In addition to submitting savings proposals toward the 2.1% target, several departments also proposed ways to increase revenue Revenue increases

CITY OF CAMBRIDGE 10 FY26 adopted budget 13.3 School Budget Increase 19.4 Salaries & Wages (inc. benefits) 2.0 Other Ordinary Maintenance 0.4 Travel & Training 5.7 Extraordinary Expenditures FY27 Projected Budget 992.2 1,033 The FY27 operating budget is projected to be a little over $1B, with growth driven primarily by increases in fixed costs… Includes $4.6M increase in debt payments Operating budget growth: +4.1% ($40.8M) FY26 vs. FY27 Budget Increases In million $

CITY OF CAMBRIDGE 11 … with 28% of the budget allocated to Cambridge Public Schools and 72% to all other City Departments Cambridge Public Schools All other City departments FY27 operating budget by breakdown % (total: 1,033M) $294M (28%) $739M (72%)

CITY OF CAMBRIDGE 12 The FY27 budget period marks the second year of moderated growth for the City, following a period of higher budget expansion Adopted operating budget, FY18-FY27 In million $ 5.3 5.2 6.6 5.4 4.6 7.1 8.1 4.1 0 2 4 6 8 10 12 14 16 18 100 200 300 400 500 600 700 800 900 1,000 1,100 0 FY18 FY19 FY20 FY21 FY23 7.2* FY24 FY25 FY26 FY27 (proj.) 605 636 678 715 748 801 884* 956 992 1,033 FY22 Operating budget growth, FY18-FY27 In % 3.8 *FY24 budget growth figure excludes $24,645,750 for the Affordable Housing Trust. The fund allocation was shifted from the Capital Budget to the Operating Budget for the first time in FY24 ▪ Last 5 years: 6.7% ▪ Last 10 years: 6.1% Operating budget average growth

CITY OF CAMBRIDGE Property tax Non-property-tax revenue 13 The FY27 property tax levy is projected at $725.6M. Property taxes fund almost 70% of the operating budget FY26 actual & FY27 projected property tax levy In million $ FY27 projected revenue In million $ The actual tax levy amount will be finalized at the tax hearing in September 725.6 (70%) 315.5 (30%) FY26 8.2 717.5 FY27 For operating budget 678.8 +6.9% *Includes $3.7M pay-as-you go capital and $4.5M for overlay for abatements For capital & overlay* 725.6

CITY OF CAMBRIDGE 14 0 200 400 600 800 1,000 1,200 FY22 FY23 FY24 FY25 FY26 FY27 (Proj.) 64% 36% 65% 35% 65% 35% 65% 35% 68% 32% 70% 30% 769 823 891 966 1,002 1,041 Property Tax Levy Non-property tax revenues Budget at Recap* In million $ (share of revenue sources in %) Property tax levy supporting the City’s operating budget has risen from 64% in FY22 to a projected 70% in FY27, driven by rising costs and flat non-property-tax revenues The increasing reliance on property taxes has been driven by the stagnating/declining non-property-tax revenue *Includes tax-supported pay-as-you go capital and overlay for abatements

CITY OF CAMBRIDGE 15 The City continues to invest significantly in Council priority areas, with FY27 projected at $290M Climate Net Zero 38.8 Climate Resilience 24.5 Open Space 27.9 Homelessness & Housing Stability 15.9 Universal Pre-K 34.5 Vision Zero Programs & Planning 11.2 Vision Zero Infrastructure Projects 38.5 Economic Equity and Opportunity 21.9 Zero Waste 8.5 Urban Forestry 4.7 Affordable Housing 51.4 Early Childh ood 5.2 AEI Training & Programs 7.0 FY27 Consolidated Spending (in $M) Represents expenditures across multiple departments. Does not represent the entire City Budget* *Figures show the total resources dedicated to each City priority, including City and grant funds, capital funds, Free Cash, and staff time as a percentage of salaries and benefits

CITY OF CAMBRIDGE 16 Beginning in FY27, the City is implementing a new cloud-based budget system with enhanced capabilities: Euna Budget Benefits Why we moved to Euna Budget ▪ Modernize the budget process with a cloud-based system offering stronger capabilities ▪ Replace a legacy platform with increasing sustainability and support risks ▪ Reduce manual workarounds and improve efficiency across the City and departments ▪ A reliable, well-supported cloud solution widely used in the public sector ▪ Better tools for forecasting, personnel budgeting, analytics, and producing both book and interactive online budget reports (in the long-term) ▪ Streamlined, easier-to-use workflows that enhance collaboration and transparency The Budget Team has been working since October 2024 on implementation

CITY OF CAMBRIDGE 17 Euna Budget enabled us to show a fuller picture of City workforce by showing Full Time Equivalents (FTEs) Before Beginning in FY27 ▪ Only permanent full-time positions (37.5 hours/week or more*) are shown in position count in the budget book ▪ Permanent part-time positions (<37.5 hours/week) are not shown What is the change? ▪ In FY27 budget book, permanent part-time positions will also be shown (accounting change) ▪ Example: A City staff who works 25 hours/week will now be shown as 0.67 FTE Illustration (Veterans Services) *Differ based on positions, but the minimum is 37.5 hours per week A Full-Time Equivalent (FTE) is a way to add up hours worked so they can be compared to the hours of one full-time employee, i.e., two half-time employees together equal 1.0 FTE No. of positions Hours/week In FY26 budget book 5 37.5 (full-time) 5 1 25 (part-time) 0 Total: 5 No. of positions Hours /week FTE calculation In FY27 budget book 5 37.5 1 5 1 25 0.67 0.67 Total: 5.67

CITY OF CAMBRIDGE 18 The FY27 budget book will reflect our shift from presenting a full-time position count to an FTE-based account, as illustrated below FY26 Budget Book FY27 Budget Book Example: Veterans Services

CITY OF CAMBRIDGE 19 Department details in the budget book are now grouped into nine programmatic areas aligned with the City’s organizational structure ▪Departments were organized by accounting structure into six areas: 1. General government 2. Public Safety 3. Community Maintenance 4. Human Resource 5. Education 6. Inter-governmental From … ▪Departments are organized into nine programmatic areas: 1. General government 2. Operations 3. Public Safety 4. Finance 5. Community Maintenance 6. Human Services 7. Equity & Inclusion 8. Education 9. Non-departmental … To

CITY OF CAMBRIDGE 20 The budget document now goes beyond the book/PDF format and includes an enhanced online version with interactive features From printed book/PDF format … … To book, PDF, and enhanced online formats

CITY OF CAMBRIDGE Key takeaways 21 ▪ The FY27 budget reflects a robust, responsive, and responsible budget developed through a prudent, multi-year approach that proactively addresses external uncertainty and emerging challenges ▪ City staff implemented a comprehensive, data-driven, and financially disciplined process guided by clear targets and strong fiscal policies, and in collaboration with City Council, departments, and the community ▪ The FY27 budget book features layout and organizational updates for a more user-friendly experience, while the online version will offer a richer, more interactive interface

CITY OF CAMBRIDGE Next steps 22 ▪ Budget hearings: ̶ May 5 ̶ May 6 (school) ̶ May 12 ̶ May 14 (backup date) ▪ Coordination with Finance Co-Chairs on: ̶ Councilor questions ̶ Department pulls ▪ Anticipated budget adoption – Monday, June 1

CITY OF CAMBRIDGE 23 Appendix ▪FY27 budget hearing schedule ▪Glossary of terms related to tax levy ̶ Explanation of Proposition 2½ ̶ Explanation of excess levy capacity ̶ Explanation of tax classification ▪Glossary of other terms

CITY OF CAMBRIDGE 24 Cambridge City Council – Finance Committee FY27 budget hearing schedule TUESDAY, MAY 5, 2026 - commencing at 9:00 A.M. Arts Council Community Development Housing Human Services Finance Admin Assessing Auditing Budget Purchasing Information Technology Treasury/Revenue Cable TV City Clerk City Council Comms and Comm. Engagement Election Commission Executive Human Resources Employee Benefits Law Mayor’s Office Tourism Equity and Inclusion TUESDAY, MAY 12, 2026 - commencing at 9:00 A.M. Cambridge Health Alliance Capital Building Projects Historical Commission Inspectional Services License Commission Public Works Transportation Veterans Services Water Office of Sustainability Animal Commission Community Safety Fire Department Police Department Emergency Communications Community Events & Celebrations Library Cherry Sheet Debt Service Reserve MWRA Financial Summaries Section Revenue Section Appendices Public Investment Section WEDNESDAY, MAY 6, 2026- commencing at 6:00 P.M. School Department Backup date: THURSDAY, MAY 14, 2026 at 9:00 A.M.

CITY OF CAMBRIDGE 25 Glossary of terms related to tax levy The maximum amount of tax a community can levy in a given year under Proposition 2½. This limit can increase each year by 2.5% of the prior year’s levy limit, plus new growth and any overrides. Levy limit The difference between the levy limit and actual taxes levied. Excess levy capacity Additions to community’s tax base in the prior year (does NOT include higher market values; must result from a change in physical condition, taxable status, or taxable unit of a property). New growth helps support community improvements and infrastructure. New tax base growth (“new growth)” A MA law that limits how much cities and towns can raise property taxes each year. It does two main things: (1) Caps the total amount a community can collect from property taxes at 2.5% of the community’s total property value. (2) Limits how much the total tax levy can increase each year to no more than 2.5% + new growth (such as new construction). Proposition 2½ (“Prop 2½”) The value of land and buildings based on what the property would likely sell for on the open market. In MA, it is set each January 1 for property tax calculation Real property values A community vote that allows a city or town to raise property taxes above the normal annual limit set by Proposition 2½. If approved by voters, the new amount becomes part of the tax base going forward. Budget override (“override”) Revenue raised through real and personal property taxes; is the largest source of revenue for City of Cambridge budget (68% of the City’s total revenue in FY26) Tax levy

CITY OF CAMBRIDGE 26 MA Proposition 2.5 sets a tax levy limit and an annual levy limit increase for each city, to prevent large annual property tax rate increases ▪ The most important Prop 2.5 metric is the Levy Limit, which is the maximum allowable tax levy each year (without an override), originally set as % of a municipality's total assessed value ▪ Prop 2.5 restricts the annual increase to the Levy Limit to include two factors: an automatic 2.5% increase from the prior year levy limit AND new growth. What is MA Prop 2.5? Enacted in 1980 by state-wide voter initiative, Prop 2.5 is a piece of MA state legislation that restricts a municipality’s maximum potential tax levy, without needing an override. The legislation had two main measures, targeted at protecting tax-payers from significant tax increases from year- to-year: 1. Established an annual Levy Ceiling of 2.5% of the municipality’s total taxable assessed value. 2. Established an annual levy limit.

CITY OF CAMBRIDGE 27 Levy limit Actual tax levy Excess levy capacity Levy limit Actual tax levy Excess levy capacity Levy limit Actual tax levy Ample excess levy capacity ▪ The gap between the levy limit and actual tax levy is called excess levy capacity; it acts as a financial cushion. ▪ It provides financial flexibility and signals fiscal restraint, helping maintain the City’s AAA bond rating. ▪ The City’s tax levy is closer to the legal limit, reducing budget flexibility. ▪ This situation leaves the City with fewer options to address unexpected costs or fund new initiatives, making it harder to meet community needs. ▪ The City is at its levy limit; future tax levy growth is capped at 2.5% annually, plus new growth. ▪ In FY26, this would mean $21M in unsupported budget, requiring either cuts or a voter-approved override. No excess levy capacity Excess levy capacity gives the City room to maneuver. When it shrinks, flexibility declines. When it’s gone, we face cuts or an override Excess levy capacity scenarios Limited excess levy capacity

CITY OF CAMBRIDGE 28 Tax classification lets cities allocate the tax levy between residential and commercial properties using different tax rates What is tax classification? State law allowed municipalities the option to allocate the tax levy between residential and commercial properties using different tax rates. However, there are limits: ▪ Max: Commercial properties may pay only up to 175% of their full, fair cash value share of the levy, known as the “maximum commercial factor.” This means that the tax rate for commercial cannot be more than 175% of what the single rate would be if the city did not choose to use a split rate ▪ Min: For Cambridge, residential properties must pay at least 34% of the levy, called the “Residential Percentage.” Once the maximum commercial factor of 175% is reached, no additional tax burden may be shifted to the commercial taxpayers. ▪ Under the formula today, Cambridge commercial taxpayers pay 66% and residential taxpayers pay 34% of the levy. ▪ In macroeconomic environments where commercial values are declining and residential values are increasing, this proportion may change and shift more of the tax burden to the residential properties. ▪ The City has not yet reached the maximum amount it may shift to commercial properties, but with current macroeconomic trends of softening commercial values and increasing residential values, there is an increasing likelihood that the City will reach the maximum commercial factor in the next several years

CITY OF CAMBRIDGE 29 Glossary of other terms (alphabetical order) A plan of financial operation embodying an estimate of proposed expenditures for a given period for regular activities and the proposed means of financing them. Operating Budget (“budget”) Additions to the City’s financial assets (such as taxes and grants) which do not in themselves increase the City’s liabilities or cancel out a previous expenditure. Revenue may also be created by cancelling liabilities, provided there is no corresponding decrease in assets or increase in other liabilities. Revenues The extent or scope of the City’s service to be provided in a given budget year. Whenever possible, service levels should be stated in precise units of measure Service level The amount of a community’s unrestricted funds that has been certified by the MA Department of Revenue’s Bureau of Accounts as available for appropriation. Certified free cash (“free cash”) All revenue coming from non-tax sources, including licenses and permits, intergovernmental revenue, charges for services, fines and forfeits, and various other miscellaneous revenue sources. Non-tax revenue The amount of tax-supported debt (principal and interest) repaid in a fiscal year, excluding debt supported by other revenue sources. Net debt service Estimated City spending and revenues for the next fiscal year, factoring in COLA, health benefits, inflation, and other expected cost changes. Projected expenditures and revenues The amount of money, cash, or checks actually paid or obligated for payment from the treasury. Expenditures are categorized in accordance with MA General Laws and the Uniform MA Accounting System. Categories are Salary and Wages, Other Ordinary Maintenance, Travel and Training, and Extraordinary Expenditures. Expenditures