As revenues drop, City Budget leaders prepare for losses

One of the bread and butter cash flow generators for cities and towns throughout Massachusetts – including the City of Boston – is local excise taxes on things like hotel rooms and meals, but with the crash of those industries due to COVID-19, City Budget team members are keeping a close eye on what money is coming in.
Boston by and large is the biggest benefactor for excise taxes in the state, bringing in many millions of dollars every quarter towards the City’s General Fund – making up about 5 percent of the total revenues annually.
This week, the state Department of Revenue (DOR) released third quarter numbers – which featured the most recent local taxes from January to March 31, capturing only a portion of the COVID-19 hit.
For Boston’s hotels, there was a drop of nearly $20 million between the second quarter and third quarter – going from $38.8 million to $19.68 million. Meals Taxes were down about $1 million between quarters.
However, City Budget Director Justin Skerritt said those numbers aren’t really off as revenues are cyclical and the third quarter is usually slow. So it is that this year’s third quarter is actually higher than the third quarter in 2019 by $3 million.
That said, it is the current months the City is worried about, and they can already see that with restaurants, hotels, airport flights and car purchases shuttered or slowed tremendously – they can expect a major hit come June 30 (when the fourth quarter ends).
“We’re clearly seeing a decrease in excise taxes,” said Skerritt this week. “Meals, motor vehicles, hotels and the biggest one is aircraft fuel. Fuel taxes on flights in and out of Logan Airport are way down. These areas are all hitting us hard right now. Losing tens of millions of dollars between March and June, that is something we are monitoring and it’s a significant decline in our revenue projections.”
For the Fiscal Year 2021 budget, he said they have already downgraded their revenue predictions in this area by $30 million. That said, he said Boston is fortunate in that they were in a very good financial position before COVID-19, allowing much more of a cushion than for cities and towns on less certain footing.
Going forward, there is significant revenue that will not be there. Already, they have lost usual tax revenues from surges of visitors for the Boston Marathon, NCAA sporting event, professional sports playoff games, and the numerous college graduations. Coming up after June, it will be uncertain as to whether tourists will vacation here as they normally do, and how restaurants and the airport will operate in a new normal.
“Two questions we’ll have is when do the public health restrictions lift, and what does business as usual mean now,” he said. “What will businesses and hotels and restaurants be able to do post COVID-19. It’s definitely one of the things on our minds.”
Those revenues for all excise taxes, he said, make up about $200 million per year and 5 percent of the budget – but it’s money that is predictable and that had been on the increase before mid-March.
“It’s a small, but important, piece,” he said.
Budget officials aren’t as concerned about Real Estate taxes as other communities in the Commonwealth have been, Skerritt said. Tax bills for the third quarter have already been extended to June 1. Property taxes, in general, are relatively low compared to other municipalities, and they have been predictable since the 1980s.
“We’re definitely watching it, but we’re not concerned,” he said. “We have a 99 percent collection rate on property taxes. We think it will continue. Property taxes in Boston are relatively low compared to Greater Boston.
One thing that will change is borrowing on the open markets.
Typically, the City goes out to the open market in the spring to sell General Obligation Bonds, with the proceeds of those sales paying for the Capital Budget. That includes park renovations, and infrastructure improvements and other amenities. This year, COVID-19 has rendered the long-term municipal bond market essentially closed.
Skerritt said they would likely be holding off on their usual spring bonding because of the instability of the markets.
“The long-term market is definitely in flux and liquid,” he said. “We have not moved forward with our next bond issuance, but we are going to look at it later on. We will go to market some time in calendar year 2020, but we’ll watch how things go and won’t go out until the market has rebounded.”

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