How We Got Here
Beverly has a structural deficit: a gap created by state law, not wasteful spending. Under Proposition 2½, the property tax levy can only grow 2.5% per year, while mandated costs like health insurance, pensions, and special education grow at 5–6%. The Financial Forecasting Committee has documented this widening gap for nearly a decade.
Every year since 2016, Beverly's Financial Forecasting Committee has produced a report warning that city expenditures are growing faster than revenues, and that the math only works if something gives. For years, the city managed through a combination of conservative budgeting, one-time fixes, and zeroing out road maintenance funds. Those options are running out.
The core problem has never changed: under Proposition 2½, Beverly's property tax levy is capped at 2.5% annual growth.[5] But the costs the city can't easily control (health insurance, pension contributions, special education, debt service, and union contracts) have consistently grown at 5–6%. The gap between those two numbers, compounded over a decade, is how Beverly arrived at a $3,921,385 structural deficit for FY2027, the current fiscal year. The FFC's five-year forecast projects that gap growing to $7,107,323 in FY2028 if no action is taken.
What is a structural deficit? Key concept
A structural deficit means that a city's costs grow faster than its revenues, not because of reckless spending, but because of how the numbers are built into law. Beverly faces this because of a specific mathematical reality created by Proposition 2½: the state law that caps how much a city can raise property taxes each year.
Here's the core math: Beverly's property tax revenue can grow by roughly 2.5% per year under Prop 2½.[1] But the costs the city must pay, including health insurance, pension contributions, special education placements, debt service, and union contracts, have been growing at 5–6% per year.[2] That gap compounds over time and widens every year on its own.
Beverly is not spending recklessly. Health insurance costs are rising because medical costs rise for every employer in America. Pension contributions are fixed by state law and the funded-status schedule. Special education costs are driven by students' legally mandated needs, which Beverly cannot refuse to meet. Debt service is locked in by bonds already sold to build the middle school and police station. These are not discretionary choices; they are obligations.
It is also worth noting how Beverly has managed to show balanced budgets while a structural gap persists. The city intentionally forecasts revenues conservatively, projecting less than it expects to actually collect in categories like local receipts, motor vehicle excise, and state aid. When actual revenues come in higher than projected, the unspent surplus becomes free cash, which the state certifies each year. Beverly uses this free cash for one-time capital needs and reserve transfers. The FFC describes this as prudent financial management that protects the city's bond rating. But it also means that even in years when revenues have exceeded projections, the city has still faced a structural gap: the underlying cost growth outpaces the revenue cap regardless of how conservatively revenues are estimated.[5]
Beverly is also not alone. Dozens of Massachusetts cities and towns are navigating the same structural math. Newton, Lexington, Northampton, Gloucester, and Marblehead have all put overrides on the ballot in recent years for the same underlying reason: Proposition 2½ was designed to limit tax growth, and it does.[3] The Massachusetts Municipal Association documents this pattern annually as one of the most persistent challenges in local government across the state.[4] The specific numbers differ by city; the structural problem is the same.
A Decade of Warnings
The Financial Forecasting Committee's earliest available minutes document a recurring problem: Beverly Public Schools projected budget needs of approximately $1 million per year more than either the prior or current mayor could actually appropriate. The committee noted this gap would persist unless the city made major policy changes, like cutting roads and sidewalks funding entirely.
"For several years the school forecast is about $1 million more each year than the prior mayor and current mayor could actually fund." — FFC Minutes, April 2016
With Beverly's new Middle School and Police Station coming online, Finance Director Bryant Ayles explicitly warned the committee of a coming "debt bubble." Free cash had reached $9 million, but $6 million in one-time expenditures were already committed. The committee established a structural principle that would recur every year after: any budget increase above 3% on the expenditure side creates stress, because that's the ceiling Proposition 2½ effectively sets on revenue growth.
"There would be a 'debt bubble' coming with the Beverly Middle School and other capital projects." — Finance Director Bryant Ayles, FFC Minutes, May 2018
The school superintendent confirmed the pattern: FY19 needed a 4.5% budget increase, and FY20 would too. "The 4.5% increase in the school budget for FY19 is just one jump," he said. "FY20 will also likely need 4.5% with the rising cost of services, including those mandated."
By 2019, the structural gap had a specific dollar figure attached. A $2.1 million shortfall emerged in the draft forecast and dominated multiple committee meetings. The committee reviewed every option (cuts to services, fee increases, recaptured departmental turn-backs) and found no clear path to closing the gap through ordinary means.
"The expenditures are a driving reason for these deficits, as the traditional revenue increase remains fairly constant at 3%. These increases include salaries, pensions, health care, debt, and school expenditures." — Finance Director Bryant Ayles, FFC Minutes, March 2019
Budget Analyst Gerard Perry put it plainly: "Any budget increase over 3% causes stress to the process." He added a warning about the Undesignated Fund Balance (the city's financial cushion), cautioning that budget "creep" erodes it year by year.
"It boils down to protecting the Undesignated Fund Balance, and how it can be damaged by 'creep' in budgets." — Gerard Perry, FFC Minutes, March 2019
Committee member Karen Fogarty added historical context: Beverly had already lived through three years of structural deficits before a five-year period of relative stability. The city had survived those years, she noted, partly because it had already made cuts before the 2008 recession hit.
In January and February 2020, Finance Director Ayles and Budget Analyst Perry, speaking in both their official and personal capacities, made a joint recommendation that the city increase the property tax levy by the full 2.5% each year for the next two to four years.
"Increasing the property tax 2.5% over the next 2–4 years is prudent to meet the needs of the community over the next few years. Otherwise, expenditures will require significant cuts." — Gerard Perry and Bryant Ayles, FFC Minutes, January 2020
This was not a dramatic warning. It was an acknowledgment that the ordinary tool available to the city under Proposition 2½ needed to be used consistently, every year, just to keep pace. The committee also flagged early COVID-19 uncertainty, which would make the FY21 forecast unusually difficult to produce.
The pandemic made the FY22 forecast the hardest in committee history. "It's hard to find an area where variables are not affected," one committee member noted. But even amid the uncertainty, the committee identified a structural pattern: Beverly had been systematically underforecasting excise tax revenues by approximately $1.7 million per year, creating the appearance of tighter budgets than actuals, but also meaning the city's structural gap was not improving as much as official forecasts suggested.
"Financial forecasts are generally conservative because aggressive projections may snowball quickly, and policymakers' current decisions based on forecast could put the City in a precarious position if revenues came up short." — Finance Director Bryant Ayles, FFC Minutes, April 2021
The committee approved the FY2024–FY2028 financial forecast in December 2023. The five-year window made clear what the annual forecasts had shown individually: the gap between expenditure growth and revenue growth wasn't a one-time event. It was a compounding problem that would get larger every year without intervention.
The November and December 2024 meetings produced the most alarming numbers yet. Finance Director Ayles projected a $4.39 million deficit for FY26. Chair Kathleen Feldman stated the committee needed to address it immediately, "rather than postpone this."
"There may be a $4.4M deficit, and the committee needs to address this now rather than postpone this." — Chair Kathleen Feldman, FFC Minutes, November 2024
Budget Analyst Perry identified the only available lever: zero out the roads and sidewalks appropriation ($1.25 million). That still wouldn't close the gap. "There will be no way to balance next year's budget without zeroing [the roads and sidewalks fund] out. This will not resolve the projected $4.39M shortfall," he said.
An override was formally discussed for the first time in these minutes. The committee's assessment was sobering: a prior override attempt had failed even when a school closure was threatened. Councilor Houseman noted: "Last time around, even with the potential loss of a school, an override was not approved." The committee agreed to include override planning as a long-term discussion item going forward.
The full scope of cost pressures was laid out: health insurance now costs the city $30 million annually, with possible annual increases of 14–15%. The Essex North Shore Technical School assessment was rising 9.4%. Special education out-of-district tuitions were "a challenge and not easy to predict"; a single unexpected placement can cost $400,000–$500,000 per year. The Briscoe School sale proceeds, used to fill previous gaps, would be exhausted by the end of FY28.
The December 2025 Financial Forecast Report confirmed the structural deficit for FY27 (now the current fiscal year) at $3,921,385, with total expenditures projected at $182.8 million against revenues of $178.9 million. More alarming, the five-year forecast projects the gap nearly doubling to $7,107,323 in FY2028 as cost growth continues to outpace the Prop 2½ revenue cap. Finance Director Ayles described the dynamic precisely: expenses are growing at 6% annually while revenues grow at 4% (including new growth from new construction and state aid, on top of the 2.5% Prop 2½ base). Compounded over time, that gap widens every year. The two options on the table, cutting services (potentially eliminating up to 45 full-time positions) or raising revenues, were both deeply painful. The committee's general sentiment was opposition to service cuts and a preference for exploring revenue options first.
"The structural $3.66 million deficit continues to grow annually due to expenses increasing at a higher rate than the revenues, at 6% and 4% respectively." — Finance Director Bryant Ayles, FFC Minutes, December 2025
Revenue concepts the committee agreed to explore included raising the trash fee to $325 per household (currently covering only 32% of sanitation costs, which would generate $2.7M annually), adjusting school fees, and increasing parking revenue. Override planning was explicitly added as a long-term revenue topic for the December 9, 2025 meeting.
The Numbers Behind the Story
Outstanding Debt ($ millions)
Bars shown in red indicate years where total debt exceeded $100M, the threshold at which Beverly's Finance Director flagged debt service as a growing budget pressure.
Stabilization Fund ($ millions)
Beverly's stabilization fund (a rainy day reserve) grew from near zero in FY2009 to $18.6M by FY2023, built primarily through annual free cash transfers. The FFC has noted this cushion as a finite resource: drawing it down to cover structural deficits buys time but doesn't solve the underlying gap. Once depleted, the city would face immediate hard choices with no buffer.
What's Driving the Gap
Health Insurance
Now costs the city $30M annually. Beverly is self-insured (Blue Cross / Harvard Pilgrim). Annual increases of 6% are budgeted, but 14–15% spikes are possible. This single line item can swing the entire budget.
Special Education
Out-of-district tuitions are Beverly's most unpredictable cost. A single residential placement runs $400K–$500K per year. Collaborative programs cost $50K–$120K. Every student who moves into Beverly before April 1 is the district's financial responsibility.
Debt Service
Beverly's debt load surged when the Middle School, Police Station, and High School projects were financed simultaneously. Debt service peaked at $123M in FY2021 and is now declining, though City Hall renovations and school roof projects are on the horizon.
Pension & OPEB
Beverly's pension system is 75.3% funded with an unfunded liability of $65.6M, targeted for full funding by 2032. Other Post-Employment Benefits (OPEB) present a larger long-term concern: only $3M in trust against a $200M liability.
Essex North Shore Tech
Beverly sends 223+ students to Essex North Shore Technical School. The FY26 assessment was $3.97M, with a 9.4% increase anticipated for FY27 (+$376K). If enrollment rises to 240 under a new lottery, costs rise further.
Roads & Sidewalks
The roads and sidewalks appropriation has been repeatedly reduced or zeroed out to balance budgets. The city estimates $8M per year is needed to adequately maintain infrastructure, a gap that accumulates as deferred maintenance every year the fund goes unspent.
The Deficit Trajectory
Beverly has balanced its budget every year, as required by state law. But "balanced" doesn't mean the underlying gap disappeared. It means the city found something to cover it: drawing on free cash reserves, shifting road and sidewalk spending out of the operating budget and paying for it from savings, drawing on excess levy capacity, restructuring the retiree prescription drug program, and reducing staffing through attrition. The Financial Forecasting Committee documented these strategies in December 2025 and noted that most are no longer available. The table below shows where the money came from each year.
| Fiscal Year | Projected Gap | How It Was Addressed |
|---|---|---|
| FY2017–19 | ~$1M/yr (schools) | School appropriations held below requested levels; deferred positions |
| FY2020 | ~$2.1M | Departmental turn-backs, conservative budgeting, fund transfers |
| FY2021–22 | Uncertain (COVID) | Federal relief funds, one-time revenues, conservative spending |
| FY2026 | $4.39M | Roads & sidewalks fund zeroed out; Briscoe sale proceeds; fee adjustments |
| FY2027 Current year | $3.92M | Under discussion: trash fee increase, school fees, parking, override |
| FY2028 | $7.1M (projected) | No action taken yet; FFC five-year forecast, December 2025 |
Notes
- Massachusetts General Laws Chapter 59, §21C (Proposition 2½). The annual levy increase is capped at 2.5% of the prior year's levy, plus new growth from new construction and improvements. ↩
- Finance Director Bryant Ayles, FFC Minutes, December 2025: "expenses increasing at a higher rate than the revenues, at 6% and 4% respectively." The 4% figure reflects total general fund revenue growth, which includes the 2.5% Prop 2½ levy increase plus new growth from new construction (typically ~0.5%) plus state aid and local receipts. The 5–6% expenditure range reflects figures cited across multiple FFC forecast cycles (2018–2025). ↩
- City of Beverly Financial Forecast FY2026–2030, Beverly Financial Forecasting Committee, December 2025. The FFC's revenue methodology section explains the rationale for conservative revenue forecasting and its relationship to free cash generation. The 2.5% figure used throughout this page is the statutory Prop 2½ levy cap. Beverly's actual levy typically grows closer to 3% once new growth is added, and total general fund revenues grow at approximately 4% when all sources are included. The 2.5% cap is the binding legal constraint on property tax revenue. ↩
- The cities listed here are cited from publicly reported news coverage; Open Beverly has not independently verified each city's override history against official election records. Readers can confirm via the Massachusetts Secretary of State, Elections Division (sec.state.ma.us), which maintains Proposition 2½ election results as public records. ↩
- Massachusetts Municipal Association (mma.org), Annual Budget Survey. The MMA's yearly surveys of city and town finance officers consistently identify Proposition 2½ revenue constraints as a leading fiscal pressure across the Commonwealth. ↩