MAYOR MATTERS: Steady start

City finances, economic development, and school reform are key as new mayor takes office

Fifth in a series

Boston’s next mayor will face a range of crucial issues when he assumes office in January. Three areas that should receive particular attention, however, are the city’s financial stability, economic development, and the public schools.

Financial Stability – On January 6, 2014, the next mayor will inherit from Mayor Menino a city in good financial shape after having weathered turbulent economic times, but one that will still face rough sailing in the years ahead. The new mayor will need to be a strong steward of the city’s fiscal health to ensure that basic services are provided, unfunded liabilities are properly budgeted, and room is available for new initiatives. Establishing a solid financial team must be a top priority. The city is on the right course, but it would only take a few bad decisions in 2014 to reverse direction.

Spending for employee salaries and benefits represents approximately 70 percent of the City of Boston’s operating budget, so managing employee levels is necessary. Over the past 11 years, the city has reduced its payroll by 6 percent in response to budget constraints. The city is on course to reach full funding of its unfunded pension liability by 2025, which would reduce its annual pension costs by three-quarters in 2026. The resulting savings should be allocated to the larger unfunded retiree health insurance liability (OPEB) in future years. Currently, the city has budgeted $40 million for the OPEB trust which, for now, should be increased to equal the new liability incurred each year.

Fiscal challenges continue as net state aid for operations, the city’s second largest revenue source, has been declining and now represents 8.1 percent of the city’s total budget, down from 16.5 percent in fiscal 2007. Also, federal grants for services are being reduced. Approved union contracts will expire in 2016, but the firefighters’ contract and one or more of the three police contracts not yet settled will carry over into 2014. These are all issues the mayor will need to address as he prepares to submit his first city budget to the City Council on April 9.

Economic Development – The next mayor’s approach to new development, along with disciplined financial management, will play a critical role in maintaining the city’s fiscal health. Important to development success in Boston are policies regarding the structure and operation of the Boston Redevelopment Authority (BRA) and refinements in the city’s zoning code. The new administration’s policies concerning real estate tax incentives, development exactions, mitigation review, density, and use of capital funds will also affect the growth of new development projects in Boston. Active management of the pubic review process is necessary to enable the whole city to enjoy the broader benefits of development.

Boston relied on the property tax for two-thirds of its operating revenue in fiscal 2013. Boston’s dependence on the property tax has grown over the past 20 years as state aid has declined as a share of total operating revenues. Under Proposition 2½, Boston depends on new growth to increase the property tax levy beyond 2.5 percent each year. The average annual increase in Boston’s property tax levy over the last six years was 4.8 percent due to new growth, almost twice the Proposition 2½ limit.

Commercial property downtown, in the Back Bay, and in the Seaport generates over half of the city’s total tax levy. Commercial developments in these areas are most advantageous to the city because they generally have higher absolute values and are taxed at nearly three times the residential rate. Large commercial projects also generate housing and jobs linkage payments and impose a much lower cost burden on city services.

The city’s application of classification shifts a considerable tax burden from residents to businesses, which gives all residents of the city a direct stake in growth, since it keeps their taxes low and pays for their city services. The mayor’s ability to maintain basic services and initiate new programs rests, in good part, on the success of the planning and development process he supports for Boston.

Public Education – The mayor is fully accountable for the performance of the Boston Public Schools (BPS), and 2014 will be an especially important year for him in that regard. On January 6, the terms of School Committee members Hardin Coleman, dean of the School of Education at Boston University, and Mary Tamer, BPS parent and member since 2010, will expire. Both have reapplied for another term. Mayor Menino and the mayor-elect will discuss the candidates who have applied so that the first official act of the mayor on January 6 could be to swear in two School Committee members. Having a full committee in January would allow the School Committee and the mayor to fully start their most important task together in 2014 of selecting a new superintendent in time to begin the 2014-2015 school year. Also important to the mayor will be the first year implementation of the new student assignment plan in September 2014.

Improving student performance by closing the achievement gap in the Boston Public Schools is a key objective of the mayor and one he has an opportunity to act on starting in January. The mayor can support initiatives underway within the BPS as well as speak out for school reform legislation now being prepared in the Legislature. Why the urgency now? Of Boston’s 127 public schools, nine, or seven percent, are Level 4 Turnaround schools and 60, or 47 percent, are Level 3 schools, which represent the lowest 20 percent in student performance statewide. Enrolled in these 60 schools are 29,258 students, or 53 percent of the total system enrollment.

The mayor should actively embrace education reform legislation that extends turnaround plan flexibilities to Level 3 schools, eliminates the limit on the number of Horace Mann in-district charter schools, and expands the cap on Commonwealth charter schools in Level 4 districts. Clearly, the mayor faces a full educational plate in 2014, but success should lead to improved student achievement going forward.

Meet the Author
The mayor’s attention to the city’s financial stability, economic development, and public schools will go a long way toward guiding how his administration will be able to proceed with other important services and initiatives.

Sam Tyler is president of the Boston Municipal Research Bureau.