Wu floats $4.9 billion budget amid ‘challenging’ times, soaring health costs and less federal funding

Boston Mayor Michelle Wu is proposing a $4.9 billion budget for the next fiscal year, a 2% increase despite a big jump in health care costs and a drop in federal funding.

Wu called this a “difficult moment” for the city in a letter Monday to the Boston City Council outlining her fiscal 2027 budget. She indicated the limited growth of the budget required “tough choices, including targeted reductions.”

Perhaps the biggest pressure on the budget: a 20% health insurance rate hike, or a $97 million increase, for employees of the city, Boston Public Schools and the health commission.

City officials say GLP-1 weight loss drugs make up a disproportionately large chunk of the increase. The city has moved to limit those drugs to save money, as has the state.

Wu also said the city has been working to reduce police overtime expenses, but noted that “public safety overtime spending remains a long-term challenge.”

In a word, Wu described the state of the city’s economy in an interview with WBUR’s Morning Edition as “stressed.”  But she said her administration is approaching the fiscal headwinds “from a place of determination and strength. And we are in a far better place than many other communities are experiencing because we have had the benefit of many years of sound financial management.”

The 2% budget increase is the lowest since fiscal 2010, Wu said, and reflects a 1.3% decrease per department  except for Boston Public Schools, which will see a 5.4% increase.

Last month, the Boston School Committee unanimously approved a $1.7 billion budget Wu proposed for BPS. It calls for up to 400 staff cuts, but includes $88 million more than was appropriated in the FY26 budget. A 10-to-1 ratio of students to teachers will continue.

The mayor’s full operating budget will be released at a formal “budget breakfast” on Wednesday. City councilors will have until June to make changes.

No layoffs are planned across city departments in the next fiscal year, but a hiring freeze is already in place, and Wu said her administration is looking at whether current vacancies need to be filled.

“We’re hoping to avoid telling our workforce that everyone needs to prepare for letters coming out,” she told WBUR.

“Strategic financial management” will help the city avoid “deeper, more disruptive cuts to essential services and operations,” while continuing to meet debt obligations and fund pensions, Wu’s letter said.

Wu didn’t specify which grants in particular are on the chopping block, but said funds for “discretionary programs,” including those that support re-entry, block parties and food access will be affected, as will the city’s Age Strong Commission, which is focused on the city’s senior community.

“ What kills me is that we know what we’re missing out on,” Wu told WBUR. But, she added: “ What I hope our community sees is that cities aren’t in control of many of the things that we have to deal with. We are sometimes at the whim of federal climates and state and international trends.”

Steve Poftak, chief executive of the Boston Municipal Research Bureau, said he wondered  how the city could reach 1.3% decline in departmental budgets without any layoffs beyond those at BPS given that so much of the city’s funding goes toward salaries.

“I would like to have greater visibility on how many discretionary grant programs the city runs and how many are left, frankly, after this budget season,” he said.

Meanwhile the Streets Cabinet, which is responsible for trash pickup and cleanliness, will see what Wu called a “modest” budget increase. She said the city’s key priorities for the next budget cycle are housing, public health and safety, education, human services, quality of life and youth employment.

Repeatedly, the mayor described the funding challenges as being a consequence of the current political “moment.” But Wu’s critics lay the blame more squarely at her feet – and warn of long-term issues. They say her administration’s push for higher affordable housing development standards and her chilly relationship with developers, for example, have hindered the city, which relies primarily on new builds to increase tax revenue.

Some, like City Councilors Erin Murphy and Ed Flynn, have also questioned the Wu administration’s transparency.

Last week, the city announced it’s looking to close a $48 million budget shortfall by the end of this fiscal year, June 30, after this winter’s heavy snow clearing needs, on top of soaring health insurance rates and overtime costs.

Boston Public Schools is separately facing a $53 million shortfall. Councilors have asked why the city only initiated targeted spending cutbacks in March and have pushed for an independent audit.

“Boston’s deficit is over $100 million because we did not exercise fiscal responsibility when we were warned two years ago,” Flynn said. “The city is struggling economically, I think we all understand that.”

Councilor Ben Weber said the mayor’s budget proposal reflects that “the city’s costs are rising at a faster rate than the revenues we are permitted to collect.” The councilor, who chairs the Ways and Means Committee, said his goal is to “preserve gains in things like housing, education, and community safety as we start our oversight process this week.”

Residents saw a 13% property tax increase beginning in January. While the city’s ability to raise its total budget is capped, there is no limit on how much each household may be asked to pay in property taxes. As office building values have fallen downtown, tax income from the commercial real estate sector has fallen, leaving more weight on the shoulders of individual homeowners.

To address the declining revenue and continued budget pressures, Wu said she would not take the controversial step of asking voters to override the 2.5% annual limit on property tax increases.

“ It is meant to be a last resort, and that’s how I see it, that wherever we can — even if it means difficult decisions about tightening our belt even further than it has been — that we should try to do that before going out and asking our residents to do even more,” Wu told WBUR.

With additional reporting by WBUR’s Tiziana Dearing.