Somerville officials warn slower tax growth, rising fixed costs will tighten FY26 budget; item placed on file

Mayor Katjana Ballantyne and Ed Bean, Somerville's finance director, told a joint meeting of the Somerville City Council and School Committee on April 16 that the city faces a tighter fiscal year 2026 budget because new property-tax growth is slowing, fixed costs are rising and several major revenue items remain uncertain.

"We increased school funding by 27% in the last 3 years," Mayor Katjana Ballantyne said, noting investments in reading and math interventionists, ESL specialists and more than 36 new permanent school positions added last year. "Because of that work, we are able to continue to prioritize our helps us fund school upgrades, road work and climate action."

The report required by ordinance 2-47, presented by Director Ed Bean, outlined the drivers behind a projected reduction in "new growth" property-tax revenue (the additional levy capacity created by new construction and renovations). Bean said new growth peaked at $17.6 million in fiscal 2024, fell to $14.1 million in fiscal 2025 and the administration currently projects $9 million for fiscal 2026, though staff are working to increase that estimate.

"Any of these numbers that you're gonna see here are purely estimates as of April 16 today," Bean said. He emphasized the budget remains unsettled pending four items the administration expects to resolve in the coming weeks: final state aid, commercial tax growth, health insurance costs and debt-service estimates.

Why it matters: Somerville relies heavily on property taxes (about 76% of the operating revenue base when combined with excise taxes, the presentation said). The city's recent revenue gains were tied to major development projects such as Assembly Row, Boynton Yards and Union Square; a slowdown in commercial and lab-office leasing would reduce that revenue engine and limit the room for discretionary investments.

Key numbers and pressures cited in the presentation: - General fund growth: Finance staff said the general fund budget has grown roughly 77% since fiscal 2014; Boston-area CPI rose about 34.7% over that span. - New growth: $17.6 million (FY24), $14.1 million (FY25), projected $9 million (FY26, administration target to increase). - Health insurance: the Group Insurance Commission plan increases average 11.4% for FY26; finance staff estimated the change would add about $3 million to the city's appropriation. - Pension: the Somerville Retirement System's unfunded liability was cited at $138.8 million; the pension appropriation will rise by roughly $1.36 million in FY26 under the actuarial update presented. - Debt service: staff used a 3.8% long-term borrowing rate for planning and estimated debt-service costs could rise by roughly $2.3 million under that assumption. - Federal funds: Bean said Somerville received $19.5 million in federal funds in FY24 and expressed concern about potential federal grant reductions.

Revenue detail and options: Bean described elastic and inelastic revenue categories and proposed conservative assumptions for FY26. Building-permit and other development-related revenues have fallen from earlier highs; the administration said it had budgeted $8.5 million for construction-related revenue in recent years but projected about $5.5 million for FY26 under current activity.

City officials reviewed other revenue sources and potential actions: motor-vehicle excise (staff projected about $7 million), a marijuana retail excise (budgeted at $294,108 in FY25 and forecast to grow), local meals and hotel/motel excises (subject to state collection and quarterly distributions), and a proposed 3% community-impact fee on short-term rentals that the presentation estimated could produce roughly $400,000 a year in some scenarios.

State and federal uncertainty: Bean said the Governor's Chapter 70 education aid proposal and House action were changing on the day of the meeting; the House Ways and Means proposal would raise per-pupil Chapter 70 aid more than the governor's budget, which could increase revenues if the legislature finalizes higher amounts. The presentation also flagged charter-school tuition assessments and MBTA assessments as variable items that affect net state aid.

Council and school committee questions focused on several clarifications. Councilor Strezzo asked about PILOT (voluntary payments in lieu of taxes) revenues; Bean said Tufts contributes an ongoing $25,000 from the Western Junior High sale plus smaller nonprofit and solar PILOTs and noted PILOTs are voluntary. Councilor Mah asked whether school lunches are state- or federally funded; Bean and others said some federal programs fund lunch now but legislators were discussing state pickup of universal school meals, and School Committee member Green reported the House'passed supplemental included universal free lunch and breakfast funding that must still clear the full legislative process.

Several councilors pressed for more granular numbers to track volatility in charter tuition assessments and other variable items. Bean said staff would compile year-to-date figures requested by councilors to support Beacon Hill advocacy and local planning.

Balancing tools and priorities: Bean and the mayor said the administration would pursue a conservative, level-service budget baseline while looking to use one-time reserves and stabilization funds for nonrecurring needs and to smooth debt-service costs if market rates allow. They also said the administration will continue cross-departmental reviews for non-personnel reductions and encourage employees to use the city's health-insurance opt-out incentives as one mitigation tool.

Formal action: After the presentation and questions, the City Council voted to place the finance director's officer communication (item 25-0777) on file. The roll-call vote was 9-0, with two councilors absent.

Ending: City leaders asked for continued engagement with the state and federal delegations and said final FY26 recommendations will be developed after the outstanding aid, insurance and debt numbers are resolved in the coming weeks.