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By Will Mbah
Candidate for Somerville City Councilor at Large

I tuned in last week to follow the discussion of the School Committee and City Council about the plans to replace or fully renovate the Winter Hill and Brown schools and about how we can finance and pay for this project.

The mayor and superintendent explained the two alternative methods of school construction finance that state law will allow:

 (i) Application by the city to the Massachusetts School Building Authority (MSBA) for reimbursement of school construction costs; or

(ii) Regular General Obligation bonding by the city.

The Mayor made clear that the city will be making preparations to pursue both procedures. First, it will apply for MSBA grant funding, which we have successfully used in the past to cover part of the High School costs. However, because these MSBA grants are competitive among all cities and towns of the Commonwealth and because the procedures run in yearly cycles, we cannot be certain that Somerville can get a grant next year.

Therefore, given our emergency situation with Winter Hill, the Finance Department and School Department will simultaneously prepare for the city itself to borrow and fund school construction. (It can gain reimbursement from the state in later year grant cycles.)

The solution of preparing for both possible methods will be prudent. However, using the alternative of city borrowing may give rise to another problem of debt and spending limitations under the state law, known as Proposition 2.5.

We might need to put on the ballot in November 2024 a Property Tax Limit Override. This would ask the voters to allow an increase of property taxes in FY 25 more than 2.5% of its FY24 tax levy. Everyone hopes this will not be necessary, but to be prudent and be prepared, planning for this action will be done in the coming months.

How does Proposition 2.5 work?

The state law, known as Proposition 2.5, was adopted twenty years ago as a way to protect taxpayers from facing large tax increases year-to-year. The law imposes two limitations on city borrowing and spending. Understanding how these two limits might apply to a new school project can give us insight into the city’s overall financial situation. I am thinking about these questions in the following ways.

First, under the law, the city’s total outstanding debt cannot go above 2.5% of its total tax base value.

Broadly, Somerville will have no problem staying within this limit because our current tax base (called the “equalization value”) is over $22 billion. It has growing every year as new research, commercial and residential buildings are finished. Today our outstanding debt is $394 million (1.7% of the $22 billion). So we could easily add a great deal more debt for a school and other capital needs without hitting the ceiling.

Second, the city cannot increase its annual spending and taxing beyond 2.5% of the previous year’s property levy and new growth.

This is the problem that the city might have to face if we need a new school in the range of $100 million. The problem would arise because interest rates will be high. If we issue school bonds for $100 million, the cost of interest and principal (the “debt service”) will be over $8 million each year for 25 or 30 years afterwards. This would be added to the $21 million per year that we are now paying on our city debt. We will also have more capital projects to pay for – such as the remaining work on sewers and streets and other school and city building repairs.

The numbers could add up to amounts of new debt service that will push beyond the 2.5% ceiling of the property tax. The City Finance Department (overseen by the state) will do all the detailed calculations, but roughly it will look like the following:

In FY2023 our property tax levy has been $221.9 million; therefore the permitted 2.5% increase would by $5.5 million plus the new taxes on any buildings that finish during the year. In FY2023 this new growth amount has been $12 million.

If we anticipate a similar amount of growth next year, then we can calculate a range of $15 to $17 million capacity. Our spending and new debt in the FY25 and FY26 budgets will have to will have to stay within that amount each year, or else we will need to have the Override Referendum.

We will not know the detailed numbers until early 2024, when the schools planning and budget analyses are complete. But, as a matter of policy, we clearly want to insure that our children have high quality facilities for their safety and learning. If it becomes necessary to ask the taxpayers to pay more for this purpose, we should be ready to carefully consider an override. In preparation, it rests on our elected officers and city staff to fully explain the needs and how their plans and financing will work.

If you want to learn more or support my campaign, please visit my website at willmbah.com.