A fiscal “perfect storm,” powered by rising costs, stunted state aid and property tax restraints, has pummeled municipalities and tightened budgets across the Commonwealth, according to a recent Massachusetts Municipal Association report.
“There’s nothing inaccurate about it,” said Len Diggins, former member of the Arlington Select Board.
The report, released last month, claims that a lag in state aid and Proposition 2½, a law capping property tax hikes, are upping the fiscal pressure on towns and cities, where various costs continue to skyrocket.
Between 2010 and 2022, inflation-adjusted spending in Massachusetts municipalities grew by 0.6 percent per year, while the average local spending growth in the United States has been 2.8 percent per year.
While state aid has risen each year, the hikes do not reflect the fiscal realities towns and cities are facing, said Adam Chapdelaine, MMA executive director and former Arlington town manager. As costs of services continue to outpace revenue growth, municipalities are grappling with how to ease burdens on their budgets and taxpayers.
“Those increases haven’t kept up with the pace of inflation,” said Chapdelaine. “That’s a result of the state having a lot of priorities to balance. Cities and towns of different shapes and sizes have been slowly eroding the services they can provide because of this convergence of factors,” he said.
Amid a spate of federal funding cuts, budgetary conversations surrounding renewed commitments to local aid are expected to be difficult.
“The state is doing as much as it can, given the demands from various areas on its resources,” said Diggins. “Two things can be true at the same time, that being the state is giving Arlington lots of aid and support, but it’s not enough.”
An incoming override
The report claims Proposition 2½, a state law restricting the fiscal amount a town can raise through property taxes, has shackled revenue across municipalities in past years.
In Arlington, a heavily built-out town reliant on its property tax base, voters have paved temporary paths around these fiscal obstacles.
Residents have voted for five tax overrides since the measure was passed in 1982, which have allowed the town to permanently hike property taxes beyond the state-imposed levy limit. The most recent override of $7 million, approved by voters in November 2023, will help keep municipal finances afloat until 2027.
However, with a structural deficit of as much as $13.53 million projected for 2027, another override is slated to appear on the ballot next year.
Chapdelaine said an unsuccessful override could catapult the town into a “budgetary crisis.”
“That’s the problem with an override, it’s always fleeting,” said Chapdelaine. “Even though it does increase the tax base permanently, it doesn’t increase the rate of growth permanently, so you are always eventually going to be at a point where you need to pursue one again.”
Plans to diversify revenue streams in Arlington may present significant challenges, as property taxes feed three-quarters of the town’s budget, while the commercial and industrial sector accounts for just 6 percent.
To achieve new growth, the town has pressed for the early adoption of an MBTA Communities Overlay District to allow for the development of multi-family housing in certain areas. However, a host of “economic and market factors” stand to influence private development, according to the town’s 2026 fiscal budget.
“We do not have a large business base that other cities and towns can count on,” said state Rep. Sean Garballey, a Democrat. “That is another part of the conversation that I know town leaders have often.”
While concerns surrounding a growing tax burden on homeowners swirl, Diggins warned Arlington’s high bond credit rating is partly tied to the town’s reliance on property taxes and a limited commercial sector.
As businesses are more “susceptible to economic cycles,” an influx could shake up the town’s stable tax base, he said.
“The value of houses tends to change much less than the value of businesses, even during economic downturns,” said Diggins. “Be careful what you ask for, because it may help in the short run, but be challenging in the long run.”
Not in a ‘position to make promises’
The MMA will release formal policy recommendations for the state later this fall, which are expected to center around increased flexibility surrounding Proposition 2½ and a reinvestment in local aid, said Chapdelaine.
However, as funding cuts to critical state programs persist, Massachusetts may not have the fiscal power to ensure funds funneled into municipalities are in line with the current inflationary environment.
The Legislature is not in a “position to make promises” surrounding local aid, said Garballey.
“We’re going to be in a position to have to make very difficult choices when it comes to health care and other areas, but we are going to make those decisions based on making sure that we don’t cut safety nets for millions of people across the commonwealth,” he said.
The second largest chunk of Arlington’s revenue base comes from state aid.
In the 2026 state budget, Arlington received just under $9.5 million in Unrestricted General Government Aid, flexible funding distributed to municipalities for non-school-related expenses. This represents a 35 percent increase since 2016.
The Legislature also approved $1.2 billion in infrastructure funding earlier this year, resulting in a 50 percent increase in Chapter 90 funding. Arlington is projected to receive “record levels of investment,” over $1 million in funds, to repair roads and bridges, according to a statement from state Rep. Dave Rogers, a Democrat.
“I appreciate the enormous investments that the Legislature has recently made in the 24th Middlesex District,” wrote Rogers. “I think they demonstrate that Arlington has received steady growth over time.”
When adjusted to account for inflation, the report claims UGGA has dropped by 25 percent since 2010. While cities and towns across the country receive an average of 31 percent of their revenue through state aid, Massachusetts municipalities feed just 26 percent of their budget with state funds.
Arlington is expecting a “modest” total increase of 0.99 percent in state aid, according to the town’s budget for the 2026 fiscal year.
“We’re acknowledging the uncertainty of the times and the stress that the state budget is under,” said Chapdelaine. “At the same time, we’re trying to say loud and clear that the local government is the foundation of the whole thing.”
“If we don’t invest in the foundation, there is a risk of everything crumbling,” he said.