Reflections on “Belmont’s Fiscal Cliff”

By Vincent Stanton, Jr.

Although “Belmont’s Looming Fiscal Cliff” makes several important points about Belmont’s tax base, some of the details should be clarified for BCF readers. 

Lexington and Watertown have both recently raised taxes, largely driven by the construction of new schools. Lexington’s most recent tax increase was in June 2022, when voters approved a debt exclusion to fund a $35.2 million new police station. The average tax bill is expected to increase by $258/year in the first year. Previously, in December 2017, Lexington voters approved debt exclusions for two new schools and a new fire station with an aggregate price tag of $85.78 million resulting in a 2018 tax increase. 

In terms of future tax increases, Lexington is currently in the planning stages for a new high school, estimated to cost as much as $400 million. In spring 2022, the Massachusetts School Building Authority voted to accept the Lexington High School project into the MSBA reimbursement program. This spring, Lexington Town Meeting appropriated $1.85 million for a high school feasibility study, the first step of the MSBA process. Thus, Lexington is where Belmont was about five or six years ago, with a very large tax hike on the horizon, assuming residents pass a debt exclusion for the new school. As a stop-gap measure, Lexington appropriated $4.9 million in 2015 to build 16,000 square feet of modular classrooms at the high school. 

Watertown also increased residential tax rates in 2022. As the Watertown assessor explained to the City Council in November 2021, while new life science developments in Watertown will bring in millions of dollars of new tax revenue, due to state law limits on shifting the tax burden away from residential properties, the average residential tax bill will rise by $287 or 4.3%, and further increases are expected. Watertown is also engaged with the MSBA on construction of a new high school estimated to cost at least $200 million. The MSBA is to cover $50 million of that amount, and the rest will be funded by Watertown taxpayers through the regular operating budget, not via a debt exclusion, as the town manager announced in April 2021. Watertown also recently completed building two new elementary schools and thoroughly renovating a third for a total cost of $220 million, also without a debt exclusion. Thus Watertown, despite the 2022 tax increase, is a better example of the authors’ thesis. The city’s 34% commercial tax base (vs. 4% in Belmont) really does provide flexibility.

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Belmont and surrounding cities and towns demographic and economic profile
	Population, July 1, 2021; US census bureau	School population 2021-2021; per Mass DOE	School population / total population	% of <18 population in public schools	Median household income in 2020 $	Residential property tax rate (per $1000)	Commercial property tax rate (per $1000)	Tax rate ratio: commercial: residential
Cambridge	117,090	6,678	5.70%	45.99%	$107,490	5.92	11.23	1.90
Medford	62,098	3,943	6.35%	48.47%	$101,168	9.01	17.23	1.91
Watertown	35,149	2,526	7.19%	49.91%	$100,434	13.25	21.28	1.61
Waltham	64,015	5,507	8.60%	62.79%	$95,851	11.14	22.88	2.05
Dedham	25,240	2,556	10.13%	54.74%	$101,780	13.35	27.93	2.09
Woburn	41,056	4,279	10.42%	54.00%	$92,084	9.34	22.77	2.44
Brookline	62,726	6,891	10.99%	57.82%	$113,642	10.19	16.56	1.63
Arlington	45,617	5,755	12.62%	59.23%	$114,576	11.42	11.42	1
Burlington	25,989	3,388	13.04%	69.71%	$121,433	9.95	26.64	2.68
MASSACHUSETTS	6,984,723	911,529	13.05%	66.92%	$84,385
Newton	87,453	12,024	13.75%	64.55%	$154,398	10.52	19.95	1.90
Wellesley	30,191	4,432	14.68%	58.02%	$213,684	11.68	11.68	1
Lincoln	6,890	1,048	15.21%	54.32%	$140,888	14.93	20.77	1.39
Milton	28,388	4,355	15.34%	62.11%	$141,050	12.47	19.12	1.53
Belmont	26,838	4,356	16.23%	63.65%	$140,500	11.56	11.56	1
Weston	11,666	1,906	16.34%	63.08%	$206,250	12.81	12.81	1
Needham	32,048	5,483	17.11%	62.67%	$174,707	13.37	26.43	1.98
Bedford	14,155	2,602	18.38%	77.89%	$133,824	17.66	17.66	1
Wayland	13,724	2,700	19.67%	74.80%	$192,632	18.35	18.35	1
Winchester	22,662	4,496	19.84%	71.11%	$173,058	12.51	11.89	0.95
Lexington	34,071	6,901	20.25%	75.02%	$185,686	13.8	27.18	1.97

This table shows the five cities and towns that border Belmont and all of the cities and towns that border those five communities, plus two other comparable communities, and state-wide data. Note that Belmont is the second smallest community of the 20. The communities are sorted by the fraction of the population that attends public school, a major driver of municipal costs. 

In Belmont a relatively high fraction of residents attend public school. Of the six towns with a higher percentage of residents attending public school all but one (Bedford) also have higher median household income, which means they can pay higher taxes. Of the 13 communities with a lower percent of residents attending public school than Belmont, all but two (Newton, Wellesley) also have lower median household income. The fraction of the under-18 population attending public school is related to schools’ performance. 

Four communities have commercial tax rates comparable to Belmont: Arlington, Cambridge, Wellesley and Winchester. Every other city and town has higher rates. Cambridge can offer low rates because of its surfeit of commercial property. 

Sources: US Census, Massachusetts Department of Education

For an extended version of this table, please see the Supplemental Material

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Construction in Commercial Areas

Surrounding communities—including some towns no more populous than Belmont (e.g., Bedford, population 14,155, albeit 13.9 square miles)—have attracted tenants who can afford to pay high real estate taxes. Prominent among those tenants are biotech, pharmaceutical, and other research and development companies, whose main criteria in looking for space are top-quality laboratory facilities, an attractive location, and access to a qualified workforce.

In the late 1990s, Belmont had the idea that it could create a biotech campus adjacent to MGH-owned McLean Hospital. The town negotiated with McLean initially for a 200,000 sq. ft. biotech R&D building with 800 parking spots, later reduced to 150,000 sq. ft. with 525 adjacent parking spaces. That plan was approved by Town Meeting in 2000. 

A developer (Belmont ValueRealty) bought the right to develop the project but could never find tenants or financing. At the end of the lease period, the rights reverted to McLean, which has not found a new developer. It turns out biotech companies like to be next to other biotech companies. We see that pattern in Kendall Square, and even in Lexington, Watertown, and Waltham, where biotech companies are clustered in one or a few locations. For example, Pfizer, which inherited R&D space on Cambridge Park Drive when it bought Wyeth Pharmaceuticals in 2009, decided in 2014 that it wasn’t close enough to the Kendall Square entrepreneurial ecosystem. Pfizer moved its Alewife R&D group to two new buildings on Main Street in Cambridge which house about 1,000 employees in 280,000 square feet of office and laboratory space.

Projected Development Economics – 1999 McLean Task Force Report

Development	Scale	Assessed Value	Annual Gross Tax Revenue	Annual Net Tax Revenue	Net to Gross (%)	2022 Status
Townhouses	122 Units	$76,250,000	$1,078,000	$433,840	40.24%	built
R&D facility	200,000 sq ft	$25,000,000	$353,500	$193,500	54.74%	not built
Senior Living	456 beds	$113,500,000	$1,601,485	$1,191,085	74.37%	not built
Senior Living –  affordable units	30 beds	___	___	___		not built
TOTAL		$214,750,000	$3,032,985	$1,818,425

Promised economic benefits of the McLean development circa 1999. 

This table is from the Fiscal Impacts chapter (page 75) of the February 1999 report of the “Belmont McLean Hospital Land Use Task Force.” The analysis was performed by the town’s economic development consultant John Connery, and was based on “worst case” assumptions regarding municipal service costs (schools, public safety). 

The consultant noted that the projected $1.8 million net annual revenue “represents approximately 4% of the Town’s current annual budget.” The Belmont Warrant Committee’s recommended FY2023 budget is $146.9 million; 4% would amount to $5.88 million.

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A stroll down Brighton Street on the Cambridge border within walking distance to Alewife Station reveals a diverse assortment of small tenants, with multiple empty storefronts, just blocks from the biotech cluster along Cambridge Park Drive in Cambridge (occupying space vacated by Pfizer). To attract deep-pocketed companies to Belmont would require a major effort by the town, involving demolition of virtually every existing building in the commercial segment of Brighton Street followed by extensive new construction. At a minimum, this would require a full-time director of business development and significant effort from many other town employees and committees—and even then there are no guarantees.

Biotech, Pharm, and other Health Care Companies near Belmont

Community	Small/medium biotech companies	Top-20 global pharma companies	S&P 500 / company headquarters
Arlington	2	–	–
Belmont	0	–	–
Cambridge	215	Novartis (WW research HQ), Amgen, Bayer, Lilly, Moderna, Pfizer, Sanofi, Takeda	235. Biogen
Lexington	22	Takeda (US HQ)
Waltham	58	AstraZeneca, Sanofi	355. ThermoFisher Scientific,  (also PerkinElmer, #802)
Watertown	24		Athena Health (privately held, valued at $20 billion)

I share the authors’ enthusiasm for mixed-use development, but would note that the residential element cuts into the economic benefit. For example, the vast new development in Cushing Square (38,200 square feet of commercial space plus 112 residential units and 202 parking spaces) was estimated to net only $66,000 to $115,000 per year in property taxes. While positive, it shows how much development would be required to garner (maybe) another $1 million in tax revenues—at least 10 Bradfords, and $1 million is only a down payment on the structural deficit!

Parking

To the extent that eliminating parking minimums would push cars onto adjacent residential streets it is unlikely to be viewed favorably by the public. The Belmont Center Business Association and Belmont Center landlords have been relentless in their advocacy for more parking (even though a 2012 Nelson/Nygaard Study of Belmont Center Parking found that the main problem is misallocation of existing parking spots).    

Housing and the Belmont Country Club

The authors write, “In April 2020, the Belmont Country Club sold 13.2 acres on the Lexington side of Winter Street for $14,223,250 for the development of senior housing. They could also sell land in Belmont that is currently used as private recreational land but zoned for single-residence use. If they sell, a new owner could build a huge development of single-family homes by right.” 

Assuming that developers would build large expensive houses as they have elsewhere on Belmont Hill, “A huge development of single-family homes,” would almost certainly be tax-revenue-positive for Belmont as the owners would pay high taxes and many would send their children to private schools. What measures Belmont should take in anticipation of the possible sale of part or all of the Belmont Country Club is an important topic which deserves a full airing. In general, however, building a new commercial cluster on Belmont Hill is the opposite of smart development. Belmont Hill is car land, unlinked to transit.

Timing of New Development

The authors write, “Commercial development is not an immediate solution to Belmont’s financial problems but one that will play out over the next 5 to 20 years. However, taking steps now to increase Belmont’s commercial property tax base should create enough wealth to support Belmont’s infrastructure and services so that Belmont can thrive.”

If, as the authors posit, “Belmont is effectively insolvent,” with the excess free cash the town currently depends on used up by 2025, then don’t we need an urgent solution? Why don’t the authors explore an increase in the commercial tax rate? 

Most of the communities surrounding Belmont have a two-tier tax regime with commercial property tax rates often about double residential rates. In absolute terms, Belmont has among the lowest commercial tax rates inside Route 128. Doubling the rate would immediately increase the share of taxes paid by commercial property owners from 4% to 8%. 

Unfortunately, unlike Lexington and Watertown, which have large biotech, pharmaceutical and other relatively price-insensitive tenants, Belmont businesses are overwhelmingly small operations that could not take the increase. Landlords would surely pass on the costs; indeed, most tenants now sign triple-net leases where they are responsible for taxes.

Vincent Stanton, Jr. is a director of the Belmont Citizens Forum.