A new report from the Massachusetts Municipal Association says cities and towns across the state are facing a “perfect storm” of financial pressure.
The report, developed in collaboration with the Center for State Policy Analysis at Tufts University, looked at increasing operational costs, stagnant state aid, and limits on taxation and other revenue sources to determine that municipalities across Massachusetts are facing a “financial crisis.”
“Virtually all cities and towns in Massachusetts face budgetary challenges, but the challenges confronting rural towns can be quite different from what you find in Gateway Cities or Boston suburbs,” the report states.
State Sen. Jo Comerford, D-Northampton, said towns have been sharing their financial struggles for years, but the MMA report was an “alarm bell,” demanding immediate action from local and state officials.
“All levers need to be moved to make sure our towns are equitably funded,” Comerford said. “It’s going to take all of us. … We need to keep pushing harder than ever.”
The local data provided in this article was pulled from the state Department of Revenue’s Division of Local Services. The MMA report looked at data from the U.S. Census Bureau as well as the Division of Local Services.
Increasing costs
Erving Finance Committee member Daniel Hammock said one of the biggest financial challenges that his town is facing is the rising cost of services and benefits that the town is legally obligated to pay for, such as employee health insurance.
Erving is a member of the Hampshire County Group Insurance Trust, which had a 20% rate increase go into effect at the beginning of October, and is considering increasing rates by an additional 20% in January.
“I suspect the biggest financial challenge we face is the increasing costs of health insurance,” Hammock said. “To me, that is the biggest issue we have.”
In FY14, health insurance and other fixed costs made up 14.88% of Erving’s general fund expenditures. In FY24, those fixed costs equated to 16.31% of the town’s expenses.
In an email, Ashfield Town Administrator Paul McLatchy III said operational expenses have increased in Ashfield over the years, with the need for additional staff as volunteers step down and regulations for town management have become increasingly complicated, leading to increased fees or the need for paid staff.
“We’re having difficulty managing our town government as experienced volunteers are rare to find, and those that do step up often burn out quickly. This leads to needing more professional assistance, but that comes with a price tag,” McLatchy wrote. “If you look at the staffing levels of most small town halls 20-30 years ago, they are much higher now due to how professionalized local government has become, rather than being able to be run by volunteers. Most small towns probably had a part-time secretary to the Select Board 30 years ago, but now have a full-time town administrator because the workload has increased dramatically.”
He added that in addition to operational expenses, towns have also seen significant increases in capital costs, which will continue to be an issue as they need to replace aging infrastructure and equipment.
Limited state aid
According to the MMA, Massachusetts is 38th in the amount of aid it provides municipalities, followed by Utah, New Jersey and Texas. The state that provides the most aid to its communities is Vermont, where towns see more than 60% of their revenue come from state aid.
“Nationwide, cities and towns get about 31% of their revenue via state aid. Here in Massachusetts, it’s 26%,” the MMA report states.
Franklin County towns, on average, only get 11% of their revenue through state aid and are primarily funded through taxation.
The state provides cities and towns with financial support through a few different programs, including Chapter 90 for roadway infrastructure, Chapter 70 for education and Unrestricted General Government Aid.
According to the report, Unrestricted General Government Aid, when calculated for inflation, has dropped 25% since 2002.
McLatchy said the eastern part of the state gets significantly more state aid than western Massachusetts, and while there are more people and businesses in eastern Massachusetts, the western towns still have expenses, but they also have a smaller population to tax to cover it.
“Even though we have the same road mileage, we get hit with a double whammy as we get both less funding and have fewer people to cover the cost difference,” McLatchy said. “For example, Amesbury has an almost identical road mileage count (they have 0.12 more miles of road), but in FY25 they received an additional $147,438 above what Ashfield did, or nearly 51% more. If we went on a campaign to repave every road in each town at $500,000 per mile, it would cost the average person in Amesbury $2,064.09. If Ashfield tried that, it would cost the average person $21,112.09, or 10 times what it would cost Amesbury.”
Ashfield saw $363,542 in state aid in FY25. This made up 5.46% of the town’s revenue for the year, while 81.41% came from taxation and 13.12% came from local receipts and other revenues.
In Franklin County, only two towns received more than the average for state aid: Greenfield saw $21 million in state aid, making up 29.12% of its revenues for FY25. Orange received $9.2 million in state aid, 31.91% of its FY25 revenues.
The Franklin County town with state aid that makes up the smallest percentage of its revenue for FY25 was Heath, which got $303,998. This made up 3.89% of municipal revenues. Dollar-wise, the town that received the smallest quantity of state aid was Monroe, which received $233,070. However, this represented 15.84% of the town’s funding.
Hammock added that in western Massachusetts, towns were disproportionately paid by the state for their state-owned land. Massachusetts does not pay taxes for properties it owns, but instead makes a payment in lieu of taxes (PILOT) for the forests, parks and other land.
The state’s average reimbursement rate for FY24 was $127 per acre; however, in some regions of the state, this soared well above that number. Suffolk County received $5,504 per acre. In Franklin County, the reimbursement rate was $32 per acre.
In Erving, the state owns approximately 4,500 acres that make up the Erving State Forest. Hammock said that had this land been privately owned, the tax revenue would be greater than the reimbursement the town receives through the PILOT.
“It could be taxed, but it’s a state forest,” Hammock said.
Comerford agreed that the PILOT program needs to be looked at, as well as all other formulas for state funding. She said that the western Massachusetts delegation has been pushing for changes to Chapter 70 and Chapter 90 formulas to see if funds could be allocated based on the wealth of a community or its number of roadway miles.
“The delegation has been engaged in righting historic wrongs and changing formulas that don’t work in western Massachusetts. … Our communities need an equitable share,” Comerford said.
She said state legislators and the governor’s office have begun discussions about the Chapter 70, Chapter 90 and PILOT formulas, and what changes are needed, but they need to look at all funding blueprints, particularly Unrestricted General Government Aid.
More aid is given to communities with larger populations, but the formula should consider whether wealthier communities need the aid as much as small rural communities that don’t have a large commercial or residential tax base, Comerford said.
“That’s really important. We have always been shortchanged in western Massachusetts,” Comerford said. “We need to ask ourselves who needs it more.”
She said changes to these formulas would help towns and cities in western Massachusetts with operational costs, and added that changes to grant programs to ensure more funding is set aside for rural communities would aid towns in tackling capital projects.
Comerford said a public listening session on Chapter 70 will be held on Thursday, Nov. 6, at 4:30 p.m. at Greenfield High School. A second virtual forum will be held on Tuesday, Nov. 18, and can be reached via tinyurl.com/yc4shesn.
Taxation restrictions
McLatchy serves as the secretary and treasurer for the Small Town Administrators of Massachusetts’ Executive Committee, and said a common topic among small towns is the limits of Proposition 2½.
In 1980, Massachusetts passed a ballot initiative limiting how much towns can increase property taxes each year to 2.5% of the levy limit, not including a percentage of new growth. With operational and capital costs and relatively stagnant state aid, more and more towns are reaching their levy limits.
McLatchy said it’s important to have a cap on how much taxes can be raised because nationwide, many struggle to make ends meet. Without the ability to raise enough taxes to cover expenses, towns face cuts to vital public services and programs.
“When your annual budget can only increase by around 2.5% each year but most costs increase by 3-4% or more, it makes it difficult to create a level-services budget, let alone expand or add services,” McLatchy wrote. “Eventually this could lead to things like libraries having fewer hours, transfer stations only being open one or two days a week, longer wait times for roads to be cleared in the winter due to reduced staff, school programs cut, etc.”
According to the association’s report, nearly three out of every four communities in Massachusetts are at 95-99% of their levy limit.
In Orange, residents voted against an override of Proposition 2½ this summer, despite facing significant budget cuts due to being up against the levy limit. The town ultimately decided to tap into its free cash to avoid cuts to police, fire and other departments.
In June, voters had said the taxes in town were already too high and could not support raising them even higher. The tax bill for an average single-family home in Orange has doubled since 2014.
Future of municipal finances
Comerford said she and her colleagues will continue to press for legislative changes to support the fiscal sustainability of Franklin County. She added that state administration is willing to listen, and everyone needs to speak up to ensure their message is heard.
McLatchy said if costs continue to rise without changes to how towns and cities are funded, municipalities will need to get creative. He added that he would not be surprised if towns pursue regionalizing services or county governments.
“It’s difficult to see where the future will take us, but I guarantee one thing — it’s going to be more expensive,” McLatchy said.
The full MMA report is available at mma.org/new-report-from-mma-documents-a-fiscal-crisis-in-cities-towns.