Over the last decade, local aid grew by an average of 7.5 percent per year and aid to municipalities and school districts more than doubled between 1993 and 2003, from $2.5 billion to $5.1 billion.

Growth in State Aid

As state revenues fell during the past two years, local revenues continued to grow. In 2002, local property taxes grew 6.4 percent, primarily due to new real estate developments, while state revenues fell 14.6 percent.

Local Property Tax versus State Tax Revenue Trends

The Commonwealth cannot continue to maintain the same level of aid to municipalities that it has provided in the past. Cities and towns must share in the sacrifice during these difficult times. But even in the midst of a fiscal crisis, cuts to local aid will only be about 4 percent on average. Based on recent growth in property tax and other local revenues the overwhelming majority of Massachusetts municipalities will see total revenues increase in 2004. See local aid language in outside section.

Focus on education

The Romney budget concentrates almost 80 percent of local aid in Chapter 70 distributions earmarked for public education. Overall, Chapter 70 funding increases by about 2 percent over projected 2003 levels for a total distribution of more than $3.3 billion in state aid. Changes to the distribution formula will enhance fairness and ensure that all schools are sufficiently funded. The formula provides additional funding to address challenges associated with educating low-income students and those with limited English proficiency. Special education funding will also increase, easing the financial pressures associated with educating severely disabled students.

The new formula also corrects previous inequities. Previously, municipalities that devoted a larger portion of their budget to education were often penalized and others required to maintain a level of education spending that squeezed out other spending. The Romney budget proposes a simplified formula that will treat municipalities with similar wealth and income comparably.

Fairness

Some localities support substantial state government operations, but cannot collect property taxes on state-owned real estate. Since municipalities rely almost exclusively on local real estate taxes, this places an unfair burden on a few cities and towns. To offset losses from state property, the Romney budget increases Payments in Lieu of Taxes (PILOT) from $10 million to $172 million.

New incentives

To help address the Commonwealth's housing shortage, the Romney administration will award additional local aid to municipalities in 2005 based on the number of building permits they issue in 2004. This revised formula will help offset infrastructure and education expenses for new residents. In addition, a temporary mitigation account will ease the transition for towns that face the largest declines in aid under the new formulas.