Tough times financially are leading Cambridge to begin tilting its tax burden back toward homeowners from businesses, and to ask department heads to find more budget savings atop the 2.1 percent from last year. But things aren’t so bad that the city has to begin asking for early retirements, city managers said at a Monday roundtable with city councillors and School Committee members.
“We’re not at that point,” city manager Yi-An Huang said. “We are still working with our departments to look for ways we can save money. I don’t think we’ve ruled out ways of reorganizing, but I don’t think we’re going into the fiscal year 2028 budget saying we’re looking at a reduction target.”
On Wednesday, department heads will be asked to find at least $7 million in savings, city managers said, but that doesn’t include layoffs.
The goal is to avoid the point of being “forced into these choices” as fixed costs meet decreased revenue, but Huang acknowledged that the past few years of slowing income has led the city to feed on its free cash reserves – now at $188 million and 18 percent of Cambridge’s operating budget, down from around 28 percent five years ago. “We are really eating into that, and that’s why we’re working toward some of this moderation,” Huang said.
If that undesignated fund balance dips below 15 percent of operating revenue it “would be a red flag for rating agencies,” and their approval lets Cambridge borrow money for projects at extremely low interest rates, said assistant city manager for fiscal affairs Claire Brewer Spinner. “We do feel that we’re getting close to the minimum amount of undesignated free cash that is advisable.”
Explaining how the city got here was the first part of the roundtable, which served as budget process kickoff for for the fiscal year beginning July 1.
The city has been in similar straits for the past couple of years, with “significant economic headwinds” affecting the city’s commercial tax base of labs and offices even before “actions at the federal level added further pressure,” Spinner said. After at least a decade of robust expansion, in which the city’s operating budget began its 80 percent growth, things soured as the country emerged from Covid.
Commercial real estate property values have fallen by 23 percent from the 2025 fiscal year; annual new growth to the tax base has declined by more than 47 percent; and excess levy capacity, a financial stabilizer that allows the city to maintain budgets above its Proposition 2½ tax limit, has decreased by 15 percent, according to Spinner’s presentation.
Shift to residential
Less revenue means greater dependence on property taxes to pay for everything. “Slowly the percentage of our budget that is funded by property taxes are creeping up,” Spinner said, and protections for homeowners are eroding along with the commercial base.
In many of the past years, the commercial sector bore 66 percent of the tax levy and the residential, 34 percent. The coming year sees a 1 percentage point shift, to 65 percent for the commercial sector and 35 percent for the residential, Spinner said. “Our overall levy will still just be going up 5.5 percent,” she said, but homeowners will feel it more, with “potential that the residential levy will go up 10 percent.”
Projections for property taxes look particularly painful for the next three years.
“We can’t really control what’s happening in the macroeconomic environment, and we don’t have a crystal ball of knowing when this economic downturn is going to end,” Spinner said, though projections begin to even out in the 2031 fiscal year. Until then, “we’re being thoughtful about our levy increases in some ways to protect that excess levy capacity – but we probably have enough that we don’t need to be crazy about that at this moment.”
Not time to panic
School Committee member Elizabeth Hudson observed that most expenses, including in the $294 million education budget, were fixed costs such as salary and health benefits. (Because of that,“we might only have bad options on the table,” Hudson said.) A couple of city councillors pushed staff on whether it was really time to act with greater urgency – and if not now, when.
“We need to be aware that we’ve got this lever – that we can lower our spending,” Cathie Zusy said. “I know there will be pushback. I know our residents are accustomed to a certain level of programming. The city is extraordinary. But it just makes sense.”
Calling what she saw in the presentation “a very bleak picture,” E. Denise Simmons reminded staff of the possibility of incentivized early retirements to get more workers off the payrolls, and she wanted to strategize how to communicate the woes to the public.
Huang said it wasn’t time to panic, and that Cambridge was in a better position than every other city in the state – including Boston, where budget growth this year was constrained to 0.6 percent and the school system cut 400 positions.
“We don’t have [the same] amount of flexibility going forward. But what we’re recommending really is a moderated path,” Huang said. “You’re right, councillor Simmons, we’re in a position where we need to explain and continue to communicate to our community that we aren’t able to fund everything that we want to do. [But] we’re not recommending fiscal austerity in this picture, and we do have more flexibility than a lot of our neighbors.”
Looking for hope
Some hope was seen in negotiating payments in lieu of taxes from tax-exempt institutions such as Harvard and MIT, as there have been some “recent Pilot agreements that were pretty strong signed by the city of Boston,” Huang said.
Greater hope was placed by Huang in more complicated conversations about bolstering the innovation economy – “how we fill some of those vacant offices and labs.”
The co-chair of the council’s budgeting committee, Patty Nolan, felt there was a middle way: smart, longer-term reallocation of resources that the city should be doing even without feeling a budget crunch.
“We have to actually do that kind of planning,” Spinner said in response. “Last year it was finding 2 percent in savings, and a lot of that really came from things [department heads] could just tighten up on … we know that this year will be a little bit harder.”
