Local Aid Cuts to Hurt Chelsea

December 13, 2012
By

If the Commonwealth of Massachusetts had a checkbook, it would be woefully overdrawn.

And they’re once-again turning to cities like Chelsea to help balance their red ink in the form of mid-year local aid cuts – the second time in three years Gov. Deval Patrick has proposed such a previously unprecedented move.

Local aid is traditionally awarded to cities and towns as part of the State Budget in July – and municipalities in many cases have already spent the money or planned to spend it.

Making cuts mid-year forces local leaders to find other ways to pay bills that were already thought to be covered.

The governor’s announcement came as spending exceeded revenues yet again in November, with figures released last week showing state revenues some $235 million below where they need to be to support the current spending program. That prompted a very early announcement from Patrick about mid-year cuts to local aid for cities and towns.

The overall budget shortfall is estimated at more than $500 million right now, part of which will be remedied by withdrawing $200 million from the state’s Rainy Day Fund.

The announcement by Patrick sent already-weary municipal leaders in places like Chelsea City Hall back to the financial drawing board…again. Officially, Patrick announced he would cut unrestricted local aid by $9 million (1 percent) – which isn’t devastating compared with much deeper cuts in past.

In 2009, Patrick made mid-year cuts in late January that totaled 10 percent. In February 2003, then-Gov. Mitt Romney made mid-year cuts to local aid at about 8 percent.

City Manager Jay Ash indicated this year’s proposed mid-year cut would mean about an $70,000 to $75,000 loss to Chelsea.

However, when paired with cuts to other areas of local aid for things such as special education and school transportation, that cut comes out to a whopping $37.7 million – a portion of which will be missing from Chelsea’s chunk of this year’s State Budget.

“Mind you, more revenue is always better than having it cut after you’ve already planned on how to spend it,” said Ash. “However, because of the erratic nature of the State’s budget revenues, we’ve known that something like this could happen and we have a contingency plan if it does. I remain concerned about the State’s inability to get us back to even when it comes to non-school local aid, but I continue to direct our financial and development plans accordingly, and I continue to look for other ways to balance our budgets and not allow vital services to be impacted.”

Ash added that while the proposed mid-year cut is just 1 percent, the cuts to unrestricted local aid over the past decade for Chelsea sit at about 40 percent – or $3 million per year.

“Our non-school local aid is down nearly 40 percent from its highs about a decade ago,” he said. “We have incurred swings in that aid, and mid-year cuts before. Partially because of that, and partially because we won’t to protect ourselves from swings in other revenues or in unanticipated expenditures, we maintain a reserve fund that can assure that we don’t need to react drastically when something bad happens.”

Typically, the governor crafts his new budget in late January and announces any mid-year cuts in February as the old budget winds down (it comes to an end on June 30th).

This year, revenues were down so much so early that the governor believed an announcement had to be made immediately.

The weak link in the state’s coffers seems to be coming from a bad economy – with low retail sales during the key November “Black Friday” shopping season and continued low corporate tax collections.

The Department of Revenue (DOR) reported that, in November, sales tax collections were $15 million below the benchmark, yet up 2 percent from last year. At the same time, corporate/business tax collection were $50 million less than last year and $12 million below the current year’s benchmark.

The only positive news was that income tax collections were up, yet that number was buoyed by a one-time settlement payment of $10 million.

“Even though November is another small net tax collection month, withholding revenues came in better than expected possibly because there were some time shifting in payments,” said DOR Commissioner Amy Pitter. “November collections also reflect lower than anticipated income and corporate and business refunds as well as a one-time settlement payment in excess of $10 million. However, the slowdown in the growth of sales tax collections and relatively weak corporate and business tax collections continue to leave us with a year-to-date shortfall.”

Already, Republicans in the state House of Representatives have criticized the governor for making an early announcement and only including the 1 percent cut to unrestricted local aid in that announcement. They stress that he conveniently left out the $28.7 million in other local aid cuts.

“Governor Patrick and his Administration are not being honest and upfront with the taxpayers of Massachusetts when announcing their reduction to unrestricted local aid, for a supposed total savings of $9 million,” said House Minority Leader Brad Jones Jr. (R-North Reading). “The fact of the matter is that Governor Patrick’s 9C plan removes nearly $38.5 million from municipal budgets…The Patrick Administration has accumulated an impressive record of cherry-picking numbers to suit their political purpose. At the very least, the Governor should be more forthright when making decisions that impact our local governments.”

Ash concluded, “A 1 percent cut on a $120 million budget, that is certainly manageable. We’d tighten our belt once again and if all else failed we would go to our reserves to make it up. The 40 percent loss over the last decade is a more troubling trend.”

 


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