When it comes to revenue projections for major American cities fighting the COVID-19 pandemic this fiscal year, you could do a lot worse than Boston, according to a new paper from a trio of researchers.
The paper, slated to be published in the September issue of the National Tax Journal, asserts that Boston, in large part because of its heavy reliance on property taxes for revenue, is projected to have a less severe annual revenue decline for this fiscal year than dozens of other major American cities, including New York City, Philadelphia, Baltimore, Chicago, New Orleans, San Francisco, Seattle, and Los Angeles.
In their analysis of 150 cities, the researchers combined data from municipal budgets with expenditures and revenues from all “overlying governments,” meaning entities that may not fall under an annual municipal budget such as housing authorities, and, where applicable, county governments that serve city residents.
The results showed a projected revenue shortfall in Boston of between $105 million and $203 million, or a percentage shortfall between 2.2 percent and 4.2 percent, according to Andrew Reschovsky, a Somerville resident and professor emeritus at the University of Wisconsin-Madison, who was among the three researchers for the paper.
“The average shortfalls across the 150 cities are [between] 5.5% and 9%,” he said in an e-mail.
City authorities have said that Boston’s annual budget depends on property taxes for more than 70 percent of its revenue, and Reschovsky also pointed out that the city does not raise any revenue from a local general sales tax nor an individual income tax, both revenue streams that are being hit hard by the recession. Additionally, he said that Boston has a “below average reliance on” user fees and charges, which also explains the projection of “below average revenue shortfalls for the city.”
“We also project that state aid to local governments in Massachusetts will be reduced by between 0.9% and 3%,” he said in the e-mail. “These reductions are smaller than projected state aid reductions in many states and reflect the fact that, given the employment mix in Massachusetts, the state’s economy will be less hard hit than many other states. "
Justin Sterritt, the city of Boston’s budget chief, said that the researchers included entities that do not actually contribute to the city’s budget in their findings but also acknowledged that the tenor of what they were saying “is generally correct.”
“We do rely heavily on property taxes, which for the city is a very stable and consistent revenue source,” said Sterritt.
Sterritt said Mayor Martin J. Walsh’s budgets over the last seven years have been fiscally responsible so “we don’t see the big ups and downs that other cities are seeing right now.”
While the researchers talk about a shortfall of between 2 percent and 4 percent, the city’s most recent operating budget accounted for a projected $65 million in revenue loss as a result of the coronavirus crisis — about 2 percent of the budget.
“We did already start to account for some of this revenue loss that they are projecting,” said Sterritt.
For some revenues, such as excise taxes and parking fines, the city is seeing “pretty significant impacts,” but Sterritt said city authorities already have made “the adjustments necessary we think are needed to balance the budget for fiscal 2021.” Sterritt did not anticipate there being a need for layoffs from the city’s workforce of 18,000-plus this year, and said the city believes it has enough resources to maintain the current level of services.
“If there is a long-term change in the broader residential or commercial real estate market in Boston, that could have an effect in future fiscal years, which is something we’re mindful of,” he said.
Reschovsky concurred, saying that the city’s heavy reliance on property taxes is a “two-edged sword.”
“One possible consequence of the pandemic is a reduction in the demand for residential and commercial real estate in the city,” he said in an e-mail. “The result of reduced demand will be falling market values, which will eventually be reflected in reduced assessed values, and likely reduced property tax revenues for Boston. Any significant reductions in property tax revenues are unlikely to occur for several years, but they raise the possibility that much like with the Great Recession, the fiscal consequences of the Covid-19 pandemic may be felt for many years.”
In a Thursday statement, Walsh said, “Because of the responsible budgets we have maintained for the past six years, Boston is in a position to maintain vital city services while still making bold investments.
He added, “At a time when other cities across the nation are scaling back their investments as a result of the economic impact of COVID-19, we will continue to provide the resources our residents need, and plan for an equitable future for all.”