COVID-19 Effect on Mid-Year Budget Revisions

Impact Limited Due to New Growth

Boston reduced its FY21 budget by $17.0M (0.5%) from $3.612B to $3.595B, necessitated by the pandemic’s economic impact. This mid-year adjustment includes reductions in excise taxes due to less commercial activity in the city.  The revenue loss in excise taxes was offset in part by property tax revenues, bolstered by new growth (additional property tax revenue generated by new development or renovations).  The City did not make any significant adjustments in spending but lowered the state assessment for charter school tuition by $17M from what was initially budgeted. The limited spending impact reflects Boston’s financial stability from a strong property tax base during a challenging year for the local economy.

Select Revenue Accounts ($M)

Adopted Tax Rate Variance
Net Property Tax $2,622.5 $2,671.1 $48.6
State Aid $464.2 $455.7 ($8.5)
Excise $166.5 $122.5 ($44.0)
Other Recurring $319.2 $305.5 ($13.7)
Total Non-Recurring $40.0 $40.5 $0.5

Revenues   Boston’s largest revenue source, the property tax, is now projected to be $2.7B, which is $48.6M, or 1.9%, above what was initially budgeted for FY21. Historic new growth, projected to be $102.7M, drives the mid-year increase in budgeted revenue. The City also reduced the amount set aside for abatements and un-collected taxes, contributing to net property tax revenue higher than initially budgeted.

State aid revenue is now budgeted at $455.7M, a downward adjustment of $8.5M (1.8%) from the $464.2M originally budgeted for FY21. The majority of this decrease (93.0%) comes from an expected $2.5M reduction in school construction assistance and a $5.4M reduction in charter tuition reimbursement.

Other than the property tax and state aid, the City’s revenue adjustments were closely tied to reductions in economic activity. Most of this exposure is in excise taxes, down overall by $44M (26.4%) from what was initially budgeted. Lowered room occupancy tax projections make up most of the decline in excise revenue, dropping 48.6% from $72M to $37M. For comparison, in FY20 the City collected $99.3M in room occupancy excise revenues, further illustrating the significant adjustments the City made in response to COVID-19’s impact on tourism and local commerce.

Other recurring revenue adjustments include a $3.6M (5.9%) drop in projected parking fine collections attributable to less vehicle travel in the City due to COVID-19 and the $4.0M (50%) drop in revenue from interest on investments, as interest rates stayed close to zero.

Expenditures   Virtually all of the adjustment in expenditures were in state assessments—more specifically, the budgeted charter tuition assessment to the state was adjusted downwards by $17.1M (5.2%) to $313.8M, reflecting the first-year impact of the Student Opportunity Act in Governor Baker’s FY21 budget after a delay in implementation due to COVID-19. The City has not made significant adjustments to other fixed costs, such as pensions, health insurance and debt service, or department budgets. The City did not make any significant adjustments in personnel spending.

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