Votes necessary to seek approval from the Massachusetts Department of Revenue of the tax rate for FY2021

To The Honorable, the City Council:

The establishment of the FY21 property tax rate by the Board of Assessors, subject to the approval of the Massachusetts Department of Revenue, is the final step in the fiscal process that begins in the spring with the submission of the annual budget to the City Council. With this memo, I am transmitting to you my recommendations for the required votes necessary to minimize taxes on residential properties. In addition, you will find analyses of the FY21 property tax levy, property values, and other supporting information.

COVID-19 IMPACTS

COVID-19 emerged in our community after work began on the FY21 annual budget. While this led to some uncertainty during the budget development process, it became clear that there were likely going to be significant fiscal impacts to the City in FY21 and beyond. As a result, the budget was reduced so that the 33 new full-time positions were only funded for 3 months of the fiscal year.

However, this item was revised during a subsequent City Council meeting to allow some positions related to Housing, Library Social Worker, Early Childhood, Outreach Worker and Early Childhood Program Quality Manager positions to be filled sooner as a result of delaying the start of the Police Academy for new officers.

Since the time of budget adoption, the City has also closely monitored non-property tax revenues, which are key to supporting the expansion of important programs and new initiatives, and implementing City Council priorities, while minimizing the tax burden placed on residential properties.

During the FY21 Budget hearings, we informed the City Council that some of the major sources of non-property tax revenue would be impacted both in FY20 and FY21 due to COVID-19. In addition, we informed the City Council during the FY21 Budget hearings that adjustments to our projected revenues would be required as part of the FY21 tax rate classification process. We also noted that we would monitor and control our expenditures and adjust, as needed.

Currently, the City has approximately 125 vacant positions as a result of monitoring expenditures and adhering to COVID-19 capacity restrictions that will support a recommendation to the City Council to reduce the Adopted FY21 General Fund Budget.

I am pleased to report the following with the adoption of the recommendations contained in this communication: • The City will again be able to provide to a majority of the residential taxpayers (59%) a reduction, no increase or an increase of less than $100 in their FY21 property tax bill. • The percentage of residential taxpayers receiving an increase of $500 or more will decrease this year to 10% from 13% last year. • A reduced commercial property tax rate.

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• As a result of our financial position we will be able to use a limited amount of additional Free Cash and other reserves to offset projected non-property tax revenue shortfalls in FY21. This allows for the current projected levy increase. • Avoid employee layoffs and furloughs or a reduction in services to our residents in FY21. • Ability to fill vacancies in FY21 as needed, and based on City Council goals and priorities.

Free Cash

Our Free Cash certification amount of $209,862,872 demonstrates the important value of our long- standing fiscal policies and management, which will allow us to effectively manage the fiscal uncertainties that face us during FY21 and beyond.

It is important to note that the City was having a strong year fiscally in FY20 before the COVID- 19 crisis hit and because of our conservative revenue projection practices, the financial impact was not as dramatic as it could have been on our non-property tax revenues. This, coupled with our ability to control expenditures in the last quarter of the fiscal year, allowed us to have a certified Free Cash amount of $210 million. In FY20, the City expended $100 million in Free Cash.

This amount included major key initiatives of the City administration and City Council including (but not limited to): Preserving Affordability of Fresh Pond Apartments ($15 million) Support of Foundry Building Construction ($23 million); War Memorial Temporary Homeless Shelter ($2.2 million); COVID-19 related expenditures ($1.6 million); Complete Streets-Elm Street and Bicycle Network ($5 million); expanded Tree Planting ($1.2 million); Universal Playground Design and Construction ($5.3 million); Glacken Field Reconstruction ($7.3 million); Fire station and DPW facilities support ($1.7 million).

I am recommending that a total of $22 million in Free Cash be used to reduce the property tax levy as follows: • $14 million in the Free Cash authorization is requested at this time from the City’s Free Cash balance in order to reduce the property tax levy increase ($9 million). This year’s Free Cash authorization also offsets $5 million in additional funding for affordable housing included in the FY21 Adopted Budget. • An additional $8 million in Free Cash as a net revenue offset to reduced estimated non- property tax revenue in FY21.

Typically, the City in recent years has replenished the amount appropriated to the Debt Stabilization from Free Cash. This year the amount of replenishment would have been $7 million to the Debt Stabilization Fund but instead, this year we are using $8 million for revenue replenishment for non-property tax revenue that are projected to be less budgeted. The Debt Stabilization Fund had a balance of $56.5 million at the end of FY20, which allows us to redirect the Free Cash replenishment in FY21. It is anticipated that we will be able to resume our prior practice of replenishing the fund as has been done in prior years.

The Department of Revenue (DOR) does not allow formal authorizations of Free Cash by the City Council until the DOR has certified a Free Cash balance at the conclusion of the fiscal year.

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Non-property Tax Decreases

Hotel Motel excise tax revenue will continue to be impacted throughout FY21, based on reduced occupancy levels, reduced room rates and continued limits on travel and event cancellations. This revenue was budgeted at $15.9 million in FY21 and has been reduced by $11.925 million, or 75% to $3.975 million.

Meals excise tax revenue is projected to be $2.425 million lower than budgeted. While the City has assisted our restaurant community in providing and facilitating increased outdoor seating where possible, the ability to project the patron volume when outdoor seating is not possible will be a challenge. In addition, there will be a revenue impact as a result of reduced indoor seating capacity, reduced capacity for gatherings, such as weddings, conferences and seminars and business closures. This revenue was budgeted at $4.850 million in FY21 and has been reduced by $2.425 million, or 50% to $2.425 million.