Framingham Financial Chaos Threatens Basic Government Functions

Accounting staff vacancies and City Council dysfunction disrupted the annual procedure for setting the tax rate to fund the city budget.

In its regular meeting on December 5, 2023, the City Council voted to set the tax rate which determines property taxes for residential, commercial, and industrial properties. That vote finalized the amount of city revenue necessary to support the current FY24 fiscal year budget, which was approved by the City Council on June 20, 2023. That vote marks the final decision made before the budget package is submitted to the state Division of Local Services (DLS) for approval.

The state process is detailed here:

https://www.mass.gov/info-details/tax-rate-setting

The state process conveniently provides an opportunity for each city and town to check for accounting errors prior to final submission to DLS. It’s analogous to the process where when doing your state and local income taxes each year, your software program, such as Turbotax, checks your return for errors before electronic filing.

City accounting staff take care of that submission check and make sure all is in order prior to the City Council finalizing its tax rate setting.

Usually, the rate setting process runs like clockwork, but this year’s process was unusually rocky due to the city Finance Division having no staff accountants to run the standard checks on the budget in good time for the December 5 City Council meeting.

See this video clip from the November 9, 2023, City Council meeting where the Chief Financial Officer explains that the city recently lost its City Accountant and Assistant City Accountant, that hiring to fill those positions is difficult, and that the city is not competitive in salary compensation for those positions:

Especially ironic in this exchange between Louise Miller, the CFO, and Phil Ottiavani, the City Council Chair, is the fact that Phil is giving Louise a hard time for a problem he and the rest of the City Council created. With city annual property tax revenue being systematically throttled back by the City Council’s years of forcing property tax increases to well below inflation, the inevitable hits on staff compensation finally impacted Finance Division staff retention and hiring to such a degree that vital financial reports could not be run.

Vital city staff are leaving, and those vacancies are hard to fill.

It has been apparent for a while that this city money shortage and staffing problem is affecting the Department of Public Works, which is one of the reasons the roads are on a path to oblivion. But now the staffing problem has expanded to the Finance Division and also, as it turns out, the Assessor’s Department, which is just as important in determining property values, which are a vital input to setting the tax rate.

The Finance Division and the Assessors Department are beleaguered departments operating under financial duress.

With the last-minute hire of a part-time accountant, those budget reports were finally run hours before the December 4, 2023, City Council meeting, and major errors in the city FY24 budget were revealed. DLS has strict rules on how the city estimates revenue from new growth, local receipts and on the size of the reserve maintained for handling property tax abatement claims.

In all cases, the city revenue estimates were shown by the DLS submission tools to be too optimistic and disallowed by state rules. For example, the city had an FY24 budget number of $3.5 million for new growth, when the Assessors Department recently lowered that to $2.2 million. DLS disallowed the $3.5 million number and required the $2.2 million number to be used. Similar corrections were made for local receipts and the tax abatement reserve.

The upshot of this was that the city budget suddenly had a $1.7 million revenue shortfall. That meant that instead of the property tax levy increase being set at 1%, which the King/Cannon/Stefanini low taxes troika had relentlessly pushed for at budget time, corresponding to about a $2 million annual budget increase, the property tax levy increase had to be pushed up to around 1.8%.

There was a lot of hand wringing from the King/Cannon/Stefanini quarter, but the gap had to be filled. Just as well this was not known at budget time, or the troika would have hacked another $1.7 million off city expenses to get to their golden 1% property tax levy increase.

These three still maintain that the city has a spending problem and that aligns with their ‘Republicanesque’ view of city budgets: property taxes must be relentlessly trimmed with the benefits going mostly to owners of higher value properties, infrastructure must be neglected, local education funding must be cut (by $10 million/year!) and as a result young immigrant children must be denied support essential for their transition into an English-speaking world.

The real problem is that city property tax increases have been too low for years, systematically coming in at much less than inflation increases, so that while market costs for staffing and other expenses rose with inflation, city revenue did not keep pace.

That is the structural imbalance which lead to Moody’s Investor Service downgrading the city’s bond rating in mid-2022. Moody’s looks at the city’s financial picture and it is weakening, but along with that comes staffing erosion and a staggering mountain of deferred infrastructure maintenance: $100 million for school roofs, $100 million for roads and at least $200 million for the water & sewer system.

The CFO knows this grim financial picture as well as anyone and, in the December 4, 2023, meeting, drew the City Council’s attention to the rapid growth of the city Excess Capacity, which now equates to more than $40 million/year in lost city tax revenue due to the King/Cannon/Stefanini troika choking off the city tax revenue stream. Her comments immediately drew heavy fire from the troika. I wonder how long the CFO will last in a city where the City Council is a such a financial millstone around her neck?

So, while the city’s revenue shortage has blocked school bus driver pay increases sufficient to solve the late school bus problem, delayed the Bethany purchase for a new southside school, blocked an urgent pre-K expansion, exacerbated the shortage of special needs and English language classroom aides, proliferated potholes on city roads and multiplied the number of leaking school roofs, now the most basic cityside function of finalizing a city budget has fallen into disarray.

The City Council did finally vote to approve the requisite tax rates, to ensure the city annual budget submission could be made by the state deadline.

But what a mess.