Votes necessary to seek approval from the Massachusetts Department of Revenue of the tax rate for FY2022

To The Honorable, the City Council:

The establishment of the FY22 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 FY22 property tax levy, property values, and other supporting information.

COVID-19 IMPACTS

Since COVID-19 emerged in our community, the City’s priority has been to mitigate the spread of the virus, and to provide critical services to our most vulnerable residents. Over the past year we have demonstrated our ability to continue to provide city services while also supporting COVID-19 related services and programs. We also anticipated that COVID-19 related uncertainty and financial impacts would continue into FY22, and possibly into FY23.

Several key non-property tax revenues are projected to remain below historical levels for FY22, including Parking Fund revenues, Hotel/Motel taxes, Meals taxes, other departmental revenues, and water and sewer revenues. In addition, some of the one-time strategies used in FY21 to help offset revenue shortfalls are no longer available for FY22.

We anticipate that non-property tax revenues that are have been budgeted at lower levels based on actual receipts for FY22 can be increased in FY23, as we continue to closely monitor revenues and expenditures. Our financial flexibility allows us to strategically use reserves and minimize the tax burden on residential property owners, as fiscal circumstances continue to transition from, the most severe impacts of COVID-19, to a return to normal.

Hotel Motel Excise Tax revenue- will continue to be impacted throughout FY22, based on reduced occupancy levels, reduced room rates and continued limits on travel and event cancellations. This revenue is budgeted at $3.975 million in FY22 which is significantly lower than actual amounts collected pre-COVID-19 (approximately $16.3 million in FY19).

Meals Excise Tax revenue- is budgeted at $3 million in FY22, a slight increase from FY21, but significantly lower than actual amounts collected pre-COVID-19 (approximately $5.2 million in FY19). While most indoor capacity limits have been lifted, we anticipate that this revenue will continue to be impacted in the near future because of lower overall restaurant activity as well as fewer gatherings, such as weddings, conferences, and seminars.

Department of Human Service Programs (DHSP) revenue- FY22 revenues are projected to be significantly lower than Pre-COVID actual revenues collected and will continue to be impacted by COVID-19 related changes to programming and services, including in person preschools, afterschool childcare, community schools, and the King Open Extended Day. [Grab your reader’s attention with a great quote from the document or use this space to emphasize a key point. To place this text box anywhere th j t d it ]

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Interest earnings- Interest earnings are projected to be $475,000 lower than budgeted due to continued very low interest rates. Even with these challenges, the City remains uniquely positioned financially due to our adherence to prudent fiscal policies and practices over the past several years.

I am pleased to report that with the adoption of the recommendations contained in this communication: • The property tax levy increase to support the Budget for FY22 will be lower than what was estimated as part of the FY22 Budget. • The City will again be able to provide to a majority of the residential taxpayers (58.2%) a reduction, no increase, or an increase of less than $100 in their FY22 property tax bill. • A reduced commercial property tax rate, which directly benefits small retail and restaurants, some of our most intensely impacted property owners during the pandemic. • As we anticipated, and have been consistently able to do, we will use a limited amount of additional Free Cash and other reserves to offset projected non-property tax revenue shortfalls in FY22.

This allows for the current projected levy increase. • Ability to avoid employee layoffs and furloughs or a reduction in services to our residents in FY22. • The City will continue to fill vacancies, especially those related to City Council goals and priorities.

Free Cash

In large part because of our practice and ability to monitor and control expenditures during the past fiscal year, the City has a certified Free Cash amount of $214.4 million (which includes $6.7 million in unappropriated mitigation receipts), an increase of $4.5 million or 2.2% from the previous year’s certification. We typically provide the City Council a separate notification of our certified Free Cash amount once it is received.

However, the FY21 (as of June 30, 2021) certification was received this past week, therefore we are using this communication as the notification to City Council. Our Free Cash position demonstrates yet another benefit of our long- standing fiscal policies and management. It also provides critical flexibility to effectively address key community needs while managing fiscal uncertainties that face us during FY22 and beyond. In FY21, the City expended $76.4 million in Free Cash.

This amount supported key initiatives of the City administration and City Council including (but not limited to): Green Line Extension Payment ($5 million); Public Safety Record Management System ($921,000); Radio System Infrastructure ($1.25 million); Foundry Building Construction Support ($6 million); School Department COVID-19 Support ($9.3 million); Open Space Acquisition ($18.5 million); Standardized Trash Barrels ($1.5 million); Cambridgeport School Window Replacement ($2.2 million); School Buildings Assessment ($1 million); Danehy Park Evaluation and Testing ($850,000); War Memorial Facility and Pool Repairs ($1 million); Central Square Library Feasibility Study ($500,000); COVID Sewer Testing ($475,000); Patio Heater Reimbursement Program ($100,000).

I am recommending that a total of $22.5 million in Free Cash be used to reduce the FY22 property tax levy. This year’s Free Cash authorization also offsets $2.5 million in additional funding for affordable housing included in the FY22 Adopted Budget.

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This is an increase of $5.5 million from what was approved as part of the FY22 Adopted Budget, and represents: • $9 million in the Free Cash authorization which is typically requested from the City’s Free Cash balance in order to reduce the property tax levy increase and is consistent with our financial plan. • An additional $11 million in Free Cash as a net revenue offset to reduced estimated non- property tax revenue in FY22.