Cambridge’s fiscal policy: a reflexive surrender to the Trump regime

As the Trump regime destroys the Federal government, the funding cuts are going to be felt here in Cambridge as well. How should the City respond?

Officials’ first response is to say there’s nothing they can do. Here’s the Cambridge Day reporting about a meeting in early March:

Vice mayor Marc McGovern recommended that the city hold neighborhood meetings to “talk to people and help them to really follow and understand what we’re facing. Because, you know, when those cuts inevitably happen, people are going to then start to turn to us and say, ‘You’ve got to make up this money, right?’”

“In previous years we’ve been able to pretty much say, ‘Yeah, we can do that,’ in most cases. We’re not going to be able to say that certainly as often,” he said. Even without the federal cuts, the city expects to be operating under budgetary constraints in the next fiscal year.

…

Councillor Catherine Zusy said she hopes the city adopts a “lean budget” for the next fiscal year starting July 1. “When financial times look shaky, I spend less, and I want to have more cash reserves. So I’m hoping that we’ll be spending less going forward and as we plan for this coming year, because we don’t know what we’re going to be hit with,” Zusy said.

It’s not just Vice Mayor McGovern or Councillor Zusy: the general response from most of the Council, as well as city staff, is to indicate that we simply don’t have the money, tough choices will need to be made, etc. etc..

This is not true. Cambridge could spend far more to protect our most vulnerable residents. But the way things are going, we’re going to choose not to, because it would mean raising property taxes.

And not by thousands of dollars, either. Replacing Federal cuts would only raise residential taxes by $200 to $600 per year on average. That’s $17-$50 a month, the equivalent 1.5 to 4 burritos at Tenoch, in addition to however much taxes would rise outside of mitigating Trump’s cuts.

That’s not a lot of money, but so far there’s no sign it’s going to happen. Why? Due to a combination of institutional inertia, voting patterns, a failure of political imagination, and in large part due to people not realizing that this is even possible. My goal here is to start solving the last problem, a necessary preliminary to addressing the other problems.

But first, let’s start by talking about why this matters.

War requires sacrifices

The Trump regime has declared economic war on our society, and to some extent on the whole planet. Just the USAID funding cuts alone are estimated to result in the deaths of 103 people per hour; at the time of writing 160,000 deaths are baked in.

The impacts from funding cuts in the US will be slower and not as fatal, since we are richer, but many people will suffer, and some people will die: from disease as public health is cut, from homelessness as housing support is cut, from hunger as food banks are cut, from natural disasters as FEMA is cut. And the impacts from accelerated climate change will be longer term, but still massively harmful.

Fighting back means, in part, undoing those harms. And since this is a war, we need to be willing to make some sacrifices—including paying higher taxes.

Unfortunately, that is not going to happen on its own.

Cambridge’s top fiscal priority: low taxes for homeowners

In a meeting in 2021, City Manager DePasquale (the city’s chief executive at the time) explained the history of the city’s tax policy:

20 years ago, that’s a long time ago, we had a major increase in the property tax bills. We had a lot of residents up here talking about their bills, and assessing department and the finance department, they went out to work with the property tax owners to explain what happened. During that year, the city manager and the city manager for finance, which was myself, committed to make sure moving forward our tax bills will be stable. Moderate increases and predictable. And the taxes would be predictable, not at the expense of the residents, because we still provide high quality services and maintaining the strongest financial position in the state.

One thing to notice is the use of the word “residents” as a synonym for “homeowners.” In fact, the majority of Cambridge residents are renters, not homeowners, and I doubt renters were complaining about taxes. But this does express the way the city’s policy is structured.

For the past 25 years the City’s top fiscal priority has been low property taxes for homeowners. In general, this has been done by:

• Shifting taxation as much as possible to non-residential real estate, within the limits set by the state. The city has benefited significantly from the rise of property values in Kendall Square, which have allowed the City to raise huge amounts of revenue from non-residential property, currently 2/3rds of city property tax revenue.

• A large “homeowner’s deduction.” Essentially, if you live in a condo or house you pay $3000 less in property taxes than if you rented the same property to someone else. This shifts the burden of taxation from homeowners to landlords; the landlords presumably then shift the burden to renters.

  To put this more bluntly, this shifts the burden of taxation from the richest residents of the city (homeowners) to the second-poorest group of residents of the city (market-rate renters, who don’t qualify for subsidized housing).

In the very recent past, we’ve started to hit the limit of the first strategy; we’ll explain why in the next section. In response, the City added a third technique to ensure homeowners keep their taxes low: austerity, or at least limiting spending increases. And as the above article mentioned, this happened before Trump was elected.

You can see the numbers for the latest tax year in the City Manager’s letter FY2025 property taxes letter.

A secondary impact: low taxes for commercial property owners

Two of Cambridge’s top taxpayers are Alexandria Real Estate, which has a stock market valuation of $18 billion, and BioMed Realty Trust at $5 billion. They can afford to pay more taxes, if we choose to raise them. But we’re not doing that as an alternative to austerity.

Why? Because low taxes on homeowners, and therefore on residential property, also force low taxes on non-residential property. State law sets certain limited ratios between residential and non-residential property taxes. There is only so much you can raise taxes on non-residential property without raising taxes on homeowners.

In previous years this was mitigated by quickly rising commercial real estate prices. But commercial property has been hit by the COVID shift to work from home, and biotech is going through one of its cyclical downturns.

The tax rates are still lower than neighboring cities. The problem (political, not fiscal) is that raising commercial non-residential property taxes would also require raising property taxes on homeowners.

Can we raise taxes to mitigate the impact’s of Trump’s Federal cuts?

The Trump regime is cutting funding for affordable housing, healthcare, food banks, transportation safety projects, and on and on and on. Many of these cuts will hit our most vulnerable residents. Can we raise taxes to mitigate these harms? Yes, we can.

As a result of the city’s policies, both residential and non-residential property tax rates in Cambridge are low compared to other cities, as we are reminded every year by the City. In neighboring cities, residential tax rates are 50% higher than Cambridge, and commercial tax rates are 50-100% higher.

We aren’t at the maximum limits set by the state, though there are limits to how much you can raise taxes each year. And even those limits could be waived if we asked the legislature.

Raising revenue while minimizing the impacts of higher taxes

Higher taxes have a literal cost, of course, and we should minimize its impact on people who can’t afford to pay it.

To begin with, it’s important to realize that for every extra $1 a homeowner (or indirectly, a renter) pays in property taxes, the city raises $3. At the current ratios between residential and non-residential property, the remaining 2/3rds come from commercial property, mostly from the many corporations based in Kendall.

Next, higher property taxes on landlords are likely to get passed on to renters. One way to reduce that impact is to start by reducing the homeowner’s deduction.

Finally, there is a group of homeowners who are “house rich, cash poor”: the result of the ballooning real estate prices in Cambridge over the past 3 decades. They are still vastly richer than renters, even if they don’t necessarily see themselves that way. But some will have cashflow issues paying higher taxes, so we need ways to mitigate this, for example by deferring taxation for low-income homeowners to the point where the owner either dies or the property changes hands.

Some of the above may benefit or require help from the state legislature. It will hopefully be easier to get legislation passed when the motivation is fighting back against the damage Trump and co are doing the Massachusetts economy.

Doing the numbers: how much will it cost?

Initial estimates are for $23 million per year in missing funding; there’s also funding that non-profits won’t be getting. Let’s round up to $30 million per year. Two thirds would end up being higher commercial property taxes, leaving $10 million in residential property taxes. Per the Census, there are 49,000 occupied housing units in Cambridge, of which 17,000 are occupied by homeowners.

• If taxes are raised on all units equally, that would be an extra $200 on average per year in property taxes for homeowners, and if passed through by landlords, $17/month higher rent ($200 / 12).
• If taxes are raised only on homeowners, by reducing the homeowner deduction, that would be an extra $600 on average in property taxes per year for homeowners.
• Or we could do something in between.

Given this is very little money, especially for homeowners, I would argue we can and should go further in replacing or even increasing funding for affordable housing construction in particular.

Next steps in mitigating the Trump cuts

The city’s whole fiscal policy has been oriented towards low taxes for 25 years, so there is a huge amount of inertia to current policies. The idea of publicly saying “we ought to make taxes higher” is unthinkable for most of the Council. Higher taxes (which would still be lower tax rates than neighboring cities’!) are always seen as at best a necessary evil. And of course, there’s already a vocal group of homeowners who are pushing for austerity.

But in the end city staff does respond to the City Council, who in turn do respond to residents. Changing things for the better is going to require an organized push, both on the current City Council and during the upcoming Council election. Therefore:

• If you’re interested in helping organize around this, please email me.
• In addition, I’d encourage you to share this with your Cambridge friends: we need to spread the word that, yes, we can make a difference in our city, and yes, it’s something we can afford to do.

A bit more

Song of the day: Your Light, by The Big Moon.