Overview
The City Council will have a Round Table discussion with city staff on how to maintain the city’s financial flexibility in changing macro-economic conditions.
Live public comment is not allowed during Round Tables, but comments can still be emailed to council@cambridgema.gov.
Source of info and images: Slide Deck
Economic Outlook
In the past, new construction has allowed the city to increase commercial tax and non-tax revenue. This allows the city to fund many services and projects without increasing residential taxes. The future is likely to have less new construction which means smaller increases in the tax base as well as less non-tax revenue from building permits and related fees. This trend could result in needing to increase property taxes, residential in particular, to maintain moderate growth in the city budget.
Real Estate Taxes
A municipality’s tax levy is the total amount in property taxes it takes in a given year. In Massachusetts the law known as Proposition 2 ½ caps a given municipality’s tax levy. Increases in the cap on the tax levy are limited to 2.5% each year. The cap can also be increased with new construction.
Cambridge’s tax levy cap in 2015 was $475 million. Since then, it has grown to $817 million, $188 mission of which came from new construction. The budget for FY 2025 is $995.6 million, of which $628 million will come from real estate taxes. This gives the city a $189 million buffer between what it currently gets from tax revenue and what it can get.
The city is allowed to tax residential and commercial property at different rates with a maximum ratio between the two. Currently, the city gets 66% of its tax revenue from commercial real estate, which is skirting the the limit. As residential property values go up and commercial property values stagnate or decrease, it’s likely that the city will max out the allowed percentage of taxes taken from commercial properties in the next several years. With moderate increases in the budget, increases in the residential tax rate are expected.
Going Forward
The city plans to take a multi-year approach to moderate both increases in the operating budget and resulting taxes. Ideally, this would keep budget increases to less than 5% and tax-levy increases to 7% annually. Even with moderate tax rate increases, Cambridge will continue to have the lowest residential tax rate of any city in the Commonwealth.
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