OP ED: We Don’t Have a Revenue Problem, We Have a Spending Problem


Town Budget season is here, and these last several weeks have been filled with talk of “the 40s” (40B, 40R) as if they have impact on the town’s budget.  One of them, 40R or the development of the Limited Commercial District, promises to boost tax revenue.  Town Administrator, Greg Federspiel, wrote recently in Cricket that, “part of the rationale for looking into expanded development in this part of town is to grow the town’s commercial tax base and thus add to town revenues.”  He projected $1 to $2 million in added revenue to the town’s coffers depending on the scope of development.

The quest for additional sources of revenue seems to derive from the constraint placed on Massachusetts municipalities from Proposition 2½.  In the January 8, 2021 Cricket Federspeil wrote, “…voters may prefer to continue with our trend of annual tax increases in the 2.5 percent range with occasional overrides and debt exclusions rather than seek new commercial development.”  In other words if we don’t find new revenues, we’re constrained by Prop 2½ and occasional exclusions to pay for town goods and services.  It’s one or the other.

Seven years ago I wrote an article in Cricket showing that of the 351 cities and towns in the Commonwealth, Manchester’s 2012 per capita spending ranked 26th.  According to the Massachusetts DOR we now are ranked 31st.  Our position has improved slightly, but we still spend 45 percent more per capita than the average of all other 350 cities and towns; $5,135 versus $3,552.  When compared to north-shore towns, it’s even worse.  We spend 52 percent more.  The high spending is not restricted to a few departments, it’s across most all of them.

The referenced departments are the large expenditures for most towns.  Notice that all departments except “Other Public Safety” spend significantly more in percentage terms than all other towns.  In the aggregate—that is, including all departments analyzed by the DOR—our per capita spending in 2019 was 52 percent greater than the average of the above towns.

Manchester’s preliminary proposed budget for fiscal year 2022 is $37.5 million.  If we were to reduce our per capita spending to the level of the above towns—a 34 percent decrease—the FY 2022 savings would be $12.8 million.  Although that entire saving may be unrealistic, if we were to learn from the leadership of other towns, we could achieve a substantial saving, and not need additional revenues.  In fact, if any of our spending is wasteful, we could reduce spending while not jeopardizing services.

This thought of reducing spending or taxes is silent in the 2022 proposed budget.  Indeed, the stated assumption is that taxes will increase.  On page 4 the proposed budget assumes:  “Voters will approve a 2.5% tax increase… .” 

On page 4 it also states: “In addition, there are Proposition 2½ exempt projects whereby voters determine that a particular project is worthy of an increase in taxation.”  These are the “occasional” exclusions referenced above.   In the 24 years from 1998 to 2021 there have been 32 overrides or exclusions.  That’s more than one per year.  By no stretch of credulity was this occasional, it was normal.

Instead of analyzing the efficacy of budgets, town leaders just assume that the voters will approve a 2½ percent increase in taxes, and then add even more taxes to that base through overrides and exclusions as we have in the past. 

From 2003 through 2021 Manchester’s annual tax levy increased not at 2½ percent, but rather at 4.82 percent.  At that rate taxes double every 15 years.  At a 2½ percent rate they double in 29 years. There is no indication that our town leaders are planning to reduce the historical annual increase in taxes to 2½ percent.  

The reasons why Manchester’s spending is so high are curious.  Three were offered several years ago that seemed intuitive: 1) our relatively small population, 2) our high income, and 3) our high real estate values.  As it turns out, none of these three variables is related to per capita spending when analyzed across all towns in the commonwealth.  In statistics terminology, they are insignificant.

There are other possibilities.  One is that town leaders were unaware that our spending was so high.  Therefore, nothing was done to curtail it. 

Another is that town leaders were fully aware that spending was high, but were not interested in curtailing it.  This could be for several reasons.

A)  Cutting spending is more painful and disruptive than increasing taxes.  This is so because the cost of a dollar’s spending is shared by so many that the per capita burden is low relative to the perceived benefit of the spending.  Therefore, it is rational to raise taxes rather than cut spending.  Another way of stating this is that the political cost of raising taxes is less than the political cost of cutting spending.   

B)  We view Manchester as a special place.  Our relatively high spending and taxes are the price we willingly pay to live here. 

C)  Most residents are subsidized by a few homeowners.  In fact, only about 15 percent of homeowners pay 50 percent of all real estate taxes.  For the other 85 percent this isn’t a free lunch, but it certainly is a subsidized lunch. 

Whatever the reason, Manchester is one of the most expensive towns in Massachusetts, and little is in the works at Town Hall to do much about it.

But, before we raise taxes further, we should consider two action items that could address these problems immediately.  The first is to level fund.  That is, no new taxes or spending starting 2022.  If this seems onerous, consider the following.  If the North-Shore towns referenced above were to increase their annual per capita spending by 2½ per year, and we did not increase our spending at all, it would take 17 years for the other towns to catch up to Manchester’s current per capita spending.

The second is to retain an independent firm to rigorously analyze every town department, and determine the cause of our high spending.  The analysis would include the business model efficacy of each department, as well as identify wasteful spending, if any.  The outside firm would be retained by, and would report to, an elected board independent of the Board of Selectmen. 

We have a choice.  The first, which we have followed for decades, is to continuously vote in favor of the spending articles recommended by the Board of Selectmen and the Finance Committee.  The second is to demand that town leaders provide appropriate services at a cost that is in line with what other towns are able to achieve.  If we continue to choose the former, our taxes will double every 15 years, and excessive spending, some of it wasteful, will continue.  If we do the latter, we’ll not need additional revenues from continuous overrides and exclusions or other sources such as developing the Limited Commercial District.  We don’t have a revenue problem, we have a spending problem. 

William G. Shipman has been a resident of Manchester for 48 years, and served on the Finance Committee.  wgs@carriageoaks.org

massachusetts, manchester, finance committee, town hall, william g. shipman, board of selectmen