Fiscal Ponzi and economic displacement

On July 5, 2013, in Latest News, by The News Staff

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By William C. Shelton

 (The opinions and views expressed in the commentaries of The  Somerville News belong solely to the authors of those commentaries and  do not reflect the views or opinions of The Somerville News, its staff  or publishers.)

The city’s new fiscal year begins this week, and the budget has increased to $196 million.

Our reserves are about 6% of this sum. To many, this may seem like a prudent amount. I don’t think it is. In fact, I believe that our city’s fiscal circumstances are more precarious than most ‘Villens realize.

We are relying on what I believe is an unsustainable revenue source—net taxes on residential property growth—but we are spending it freely. Massachusetts law requires that annual property taxes increase by no more than 2.5% of a city’s total assessed value, plus the tax on newly created real property.

For years, a substantial portion of our growth in property taxes has come from new residential property. And much of this came not from new construction, but from converting multi-unit properties to condominiums. The condos sold for top dollar, producing a collective property value much higher than their buildings’ pre-condo value. The hot market also created opportunities for people to renovate residential properties, resell them, and make a bundle.

We seem to be reaching a limit on how many old homes can be converted or renovated. Now, growth is coming from high-priced housing projects like Assembly Row, Maxell’s Green, the Stop and Shop project, and many smaller ones.

But commercial property pays taxes at 166% the rate of residential property while costing the city only half as much to provide municipal services. Put another way, residential property does not generate tax revenue anywhere near what the city must spend to deliver residential services.

Each year, the value of new real property increases the limit that the city can collect in taxes. In Somerville, that new property is overwhelmingly residential. But each year, the city increases its spending right up to that new limit, even though the newly created residential property will eventually cost the city more than it pays in taxes.

Meanwhile, we rely heavily on state aid, as do distressed communities like Lawrence, Chelsea, and Springfield. It accounts for a quarter of our municipal revenues. When the state catches cold, Somerville gets pneumonia, as was the case in 2001 when the state cut our aid allocation and the city laid off employees and cut services.

Other revenue sources can be uncertain as well. We’ve learned that the federal government will no longer allow the city to use HUD funds to pay something like $500,000 in Strategic Office of Planning and Development salaries and $300,000 to retain technical and professional services.

Yet we are spending money as if are flush and have no worries for tomorrow. The expenditures that I believe to be unwise and unnecessary are the subject of another column. In this one, I’m concerned about Somerville’s failure to grow its commercial tax base.

This failure is not just burdening homeowners and putting our fiscal health at risk. It’s creating a pattern of development that makes a majority of ‘Villens uneasy.

Paying for our schools represents a substantial portion of residential municipal services, increasing their cost and thereby reducing net residential property tax income. Accordingly, city policy now appears to be one of encouraging the development of housing targeted to high-income consumers who don’t have children, thereby reducing a portion of the permanent costs that come with new residential development. I don’t know if this policy is one of commission or omission.

Unfortunately, those pesky new residents have a tendency, over time, to reproduce, and they don’t always move on when their kids reach school age. Of course they don’t always have kids either, and those who do, don’t all stay here. They also sell out, inflating housing prices.

Both outcomes are making our city unaffordable, and unfriendly to families. The bonds of community continue to dissolve. And ‘Villens who oppose developments that damage the character of their neighborhoods are systematically ignored.

It was not always thus. Over the lifetimes of people in my generation, Somerville went from being an industrial center to a bedroom suburb. As industrial properties became vacant, city authorities manipulated zoning decisions in behalf of well connected developers who converted those properties to residential uses.

Over the same period, Boston and Cambridge made intense, focused, proactive, and successful efforts to increase their commercial property base through land transformations. The first graph shows the growth in the three cities’ residential property over the last 27 years. Accounting for economic cycles, Somerville’s has remained flat.

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The second graph shows the results of this pattern. Per resident, Cambridge is able to spend 181% of what Somerville spends and still remain fiscally sound; Boston, 148%.

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Boston and Cambridge have two jobs for every working resident. Somerville has two residents for every job. Office buildings and research-and-development facilities bring a broad range of permanent jobs, from entry level to highly skilled. In addition to strengthening Somerville’s finances, having those kind of jobs here could help reduce the number of ‘Villens who are economically displaced from their own city.

With its location and $7 billion in transportation infrastructure, Assembly Square was our best hope to grow the commercial tax base. Developed as an office/R&D-based neighborhood, it could have produce $30 million per year in net new tax revenue and 30,000 new jobs.

When Joe Curtatone first ran for mayor, he promised that if Assembly Square zoning were weakened to allow Assembly Square Limited Partners to build whatever they wanted, the revenues generated by their creations would lower the tax on an average two-family home by $1,000 per year. Ten years is enough time to say that relying on residential and retail development isn’t going to get us there. Or anywhere near.

We need city leadership that will tell developers what we expect, rather than the reverse. A case in point is issuance of bonds that will cost Villens $50 million over 30 years to pay for infrastructure that Assembly Square developers were legally obligated to cover.

A similar example is the East Somerville Stop and Shop. Neighbors rose en masse to oppose its development in 2001. The city dismissed their concerns and approved a planned unit development on the promise that Stop and Shop would build an adjacent office building. A dozen years have passed and Stop and Shop now wants to build 200 housing units instead of an office building. City officials seem prepared to accommodate them.

I have been talking with aldermanic candidates who, in turn, have been talking with their constituents. They tell me that people under 40, even high earners, are concerned that they will be priced out of the city. People over 40—old or new Somerville—aren’t as concerned about being economically displaced. Rather, they are troubled by the changes they see in their city.

Both concerns result from the same trends. Wise politicians will act to change them.

 

22 Responses to “Fiscal Ponzi and economic displacement”

  1. Barry the Pig says:

    Bravo, Bill! You hit the nail on the head. All it will take is a sneeze for the entire house of cards to collapse.

  2. freedomforthepeople says:

    Bill he get the services to the people,how you say he will fire all the DPW. workers and replace them with out soured companies,he has all ready started in the schools ,people who do not care about your children and who may not be CORI. checked are cleaning the high school and winterhill school.I hope people watch out 30 computers were stolen out of the high school last year alone ,and this is some thing that was not reported to you the tax payer,swept under the rug what else is being hiden from you.The mayor does not care about the city he puts on a great show to fool the people,but when it comes down to finances he will have someone else do it costing the city more money, he was elected to manage the city do your job or get out, he has pulled off the ultimate ponzi move, with the help of the aldermen that are jumping ship,thank you Bill for bring this to light,maybe some of you progressives will do some thing about this.I know its time for change lets get it done before the city ends up in receivership.

  3. jong@msn.com says:

    It’s what happens when people will vote for someone because they say the right things, without doing due diligence. He wouldn’t still be mayor if people didn’t think that street festivals and fireworks trumped good fiscal management.

  4. A. Moore says:

    As much as I hate agreeing with Bill this is what the problem is. It has been a real easy to see problem with the powers tha be pushing the other way instead of what s needed here. I have been here getting close to 70 years and when we had lots of commercial property it ran very well. In fact it was great. It’s easy to se wha a problem Assmebly has been and will continue to be. Pushing more people into a tiny area is not answer. Commercial property with jobs is what we need.

  5. Villenous says:

    If they don’t build a significant amount of housing in Assembly Square, the area won’t be sustainable. There is office development going up in Assembly right now and no one wants it to become a new Burlington filled with office parks. The real question is whether locally-owned businesses will have the chance to locate there and thrive.

    Anyway Bill, this column is 10 years past being relevant. The city is zoned for major commercial development and it’s already under way. So you’re getting your wish.

  6. JPM says:

    What’s wrong with long time Somerville residents renovating houses and selling them as condos and making a lot of money?

  7. Kay says:

    I agree with Villenous.

    One could also argue that a big focus has been to make the green line extension a reality in part to attract more commercial residency in Somerville.

  8. ritepride says:

    One of the reasons Cambridge does well is because Harvard and MIT give $18 million in lieu of taxes to Cambridge. Tufts gives no $$$ in lieu of taxes but draws regularly from Somerville’s municipal services, DPW, Police, Fire, EMS.

    In addition every time Tuft’s or Harvard Health (group homes, etc.) purchase residential property in the city, that tax based property now is Tax exempt.

    The loss of tax based land for the GLX and any other sweetheart deals the Curtatone Corp has come along with…this city will soon comprise of 60% of the land being tax exempt. Poor, poor management ‘buy’ the elected officials in this city. Years of political corruption and white envelopes, the MVTF, Progressives, etc. have deeply hurt the citizens of Somerville.

  9. Really Bill says:

    if you dont think 6% of $196,000,000 is enough of a reserve, then what is? what do other surrounding cities have? id guess not as much.
    Who are these majority of villens that are uneasy with this pattern of development of new residential units and condo conversions? How many people did you personally interview to come to the conclusion that you speak for the masses.
    yes Bill it is a hot real estate market. Multi units are being converted and being sold. Whats the problem? We are gaining new residents who love this city, they are frequenting our local establishments, enjoying all we have to offer. Housing inventory is very low in somerville, that is a good thing.
    Many commercial building that were located in residential neighborhoods have been converted to housing. It helped preserve the safety and tranquility of our streets. i wasnt the happiest when a 53′ tractor trailer pulled up next to my house at 6AM to make a delivery to a machine shop. The noise and smoke pollution and blocked street didnt make for a good start to my day. We dont all live in a strictly residential neighborhood as you do.
    Why do you compare us to cambridge and boston? They are larger and more populated. everett is 4 sq. miles. compare us to them.
    When you hear the words Assembly sq. you should run away. You and your buddies have cost us citizens somewhere in the neighborhood of $400-600 million dolllars in tax revenue over the past 20 years. Now we have to compete with a private investor who want to build a casino 500′ away on the other side of the river that could potentially hurt all we have strived for at assembly.
    One last statement. You write as if its possible to have everything in a neat package as if we live in Pleasentville. Its so easy to point out the bad. You say we need leadership that will tell developers what we expect.Run for public office Bill Shelton. Maybe then you will have a better grasp of how your ideas will work in the real world.

  10. freedomforthepeople says:

    Villenous you talk like a pol. and for the green line its great but ,lets make sure we have all the money in place.They only have enough to bring the green line to union square, what happens if the economy goes south were are we then my friends.

  11. freedomforthepeople says:

    A similar example is the East Somerville Stop and Shop. Neighbors rose en masse to oppose its development in 2001. The city dismissed their concerns and approved a planned unit development on the promise that Stop and Shop would build an adjacent office building. A dozen years have passed and Stop and Shop now wants to build 200 housing units instead of an office building. City officials seem prepared to accommodate them.

    I have been talking with aldermanic candidates who, in turn, have been talking with their constituents. They tell me that people under 40, even high earners, are concerned that they will be priced out of the city. People over 40—old or new Somerville—aren’t as concerned about being economically displaced. Rather, they are troubled by the changes they see in their city.

    Both concerns result from the same trends. Wise politicians will act to change them.
    Bill the problem is we do not have wise politicians,just ones that take care of themselves ,family and big business.The mayor along with the aldermen do not care about what the people of somerville think do or want,and have never and will never meet the peoples needs as long as there is money to be made,just like your article states.The mayor sees the people over forty as not a big enough voting block ,thats why he is attacking his own work force, he has forced a lot of hard working people out of there jobs because of age or political difference thats the state of our city.

  12. freedomforthepeople says:

    Really Bill YOU SOUND LIKE AN ANGRY PERSON THAT SHOULD SEEK ANGER MANAGEMENT CLASSES, JUST BECAUSE BILL IS RIGHT ON THE NOSE .YOU MY FRIEND ARE MOST LIKELY A GOOD FRIEND OF THE MAYOR LET HIM SPEAK FOR HIMSELF, PROPAGANDA I SAY A LEPORD DOES NOT CHANGE ITS SPOTS.

  13. Larry says:

    Amazing how Bill can write an article declaring that we need more commercial development (no kidding!) when he and his pals at MVTF have cost us millions in commercial development over the last 2 decades. It’s unbelievable the gall these progressives have.

  14. ben says:

    Anyone take a break on this long weekend to open their most recent tax bill? What a pleasant surprise. A $35.91 surcharge for a CPA. Really, Joe?

  15. freedomforthepeople says:

    ritepride has it right its not just the progressives that caused the problem, these are the mayors people speaking when all they mention is the progessives,by the way the so called progressives that were elected in the state house work hand and hand with the mayor,so they realy are not progressives just out for themselves, no government goes on in this state any more ,just a bunch of pols. lining there pockets ,what a shame this state is not liberal.

  16. JPM says:

    It’s ironic that the people that Bill wants to minimize in Somerville – yuppies – (you know those people that have actually put a lot of time, effort and money into their careers) – are the very people that actually spend a lot of money in local businesses – bars, restaurants, bike shops, contractors etc.

    Areas change. Back Bay was not always a nice area either. Areas go up and they go down. Somerville is not going back to the way it was. You are not going to live on a street in Somerville and have the same neighbors for 60 years! But then that’s true for just about every area – not just Somerville. People used to live on the same streets forever…..now people jump about and move around more. That’s probably driven by affluence, culture and the huge increase in information available to the consumer via media and internet.

    And who is selling these condos to the “yuppies”? Well my condo was renovated by an old time Somerville resident whose family owned 2 houses on the street for decades. He was coming near retirement and put a lot of time and effort into renovating the property. He sold the house I live in (2 family home) for more than a million dollars – took the profit and moved down to Florida!

    That’s right folks these “old time ‘Villens” are the ones who are selling out and cashing out – and they have been doing it for 20 years! Apparently they don’t care too much about the “community ties” – I guess money talks. But I don’t blame the guy. People want to live in Somerville and it’s a free country. The market dictates the price.

    Furthermore, I would hazard a guess that most young professionals buying these condos either do not have kids, do not have school age kids or send their kids to private school. So in essence they are paying most of their residential taxes for services that they do not use – but that “old time ‘Villens” do use – so maybe they should just say “thank you.”

  17. Really Bill says:

    to freedomforthepeople……i seem to have hit a nerve, hence the comments in ALL CAPS….maybe you can point out what i wrote that is incorrect…

    To Larry…..mr. shelton just wants to be on the right side of an issue….we arent supposed to remember what he wrote 10-15 years ago when he was saying the opposite.

  18. sarah says:

    I wish people would stop referring to people selling their homes, to cash in and make a bundle. Speaking as a long-time homeowner, I can tell you that every time the taxes go up it makes it harder and harder for us to stay in our home. Rising property values have no benefit to a homeowner unless they are selling or refinancing. Friends who are retired are feeling it much more. I also have less and less ties to the city because I don’t like the direction it is going in. So, yes, I plan to sell my home, cash in, and hopefully actually be able to retire some day.

  19. Really Bill says:

    ok ben so if you own a home in somerville and the value went up maybe 10% in the past few years or in $$$$ maybe $50,000 are you whining about a $35.91 surcharge?
    i own property in everett,, one bill went from $5500 in 2007 to $10,250 in 2013………….be glad you dont live there
    from memory( id have to dig out some bills) my somerville bill went up maybe a few hundred dollars over the same period. if some one has some accurate numbers please help me out.

    to freedomforthepeople…..im still waiting for you to correct my inaccuracies

  20. The Point says:

    ‘Really Bill’: I believe that the point was, why are we paying a CPA at all? Do we not have a city treasurer? Assessor? Don’t forget that it is ‘only’ a $35.91 surcharge, but that would be x4 quarters, x every homeowner in the city. How much do you think that comes to? Looks like we can afford a few more street festivals…..

  21. Obvi says:

    “I have been talking with aldermanic candidates who, in turn, have been talking with their constituents…”

    lemme guess who??! does he have a sign in ward 6 right now??!

  22. Really Bill says:

    to the point…thats right “only” did you read my post….my taxes in everett went up double in 6 years with no apparent reason and no apparent benefits to homeowners…..thats an additional $35,000 out of my pocket,……i’ll pay $40.bucks anytime…be glad you live HERE.

    Good, more street festivals!!!! you have something about having a good time?

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