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FY2010 House 1 Budget Recommendation:
Deval L. Patrick, Governor
Timothy P. Murray, Lt. Governor
Local aid represents a substantial and important component of the Commonwealth’s annual budget. Cities and towns play a fundamental role as partners to the state, providing essential services to citizens of our Commonwealth in times of fiscal health as well as fiscal stress. In the current recession, the Administration continues to prioritize supporting municipalities’ ability to provide essential services by minimizing cuts to local aid and providing support for cost savings, efficiency measures and revenue diversity.
When revenues were revised sharply downward in October 2008, the Governor prioritized municipalities and property tax payers by sparing local aid completely from budgetary reductions. Only when a second significant revenue reduction was required in January 2009 did the Governor seek to share the cuts between state and local spending. Nonetheless, the Administration ensured the preservation of the $3.948 billion of fiscal year 2009 Chapter 70 aid, thus protecting municipalities from the disruption of mid-year school aid cuts, and limited unrestricted local aid cuts to $128 million, only 2.3% of fiscal year 2009 Section 3 local aid.
In formulating the fiscal year 2010 budget, minimizing cuts to local aid amid unprecedented fiscal challenges reaffirms the Administration’s continued commitment to cities and towns. The following pages highlight the major components of Local Aid in the House 1 (H.1) recommendations including the structure of Section 3 of the budget which delineates the distribution of certain aid to cities and towns, Chapter 70, Unrestricted General Government Aid, Other Cherry Sheet funding.
Section 3 of the Commonwealth’s budget, provides each of the 351 cities and towns with the amount of local aid they are expected to receive from state General Fund dollars and/or other dedicated revenue sources. Fiscal Year 2010 Section 3 provides a different presentation than has been seen in past years and addresses some of the fiscal challenges that our Commonwealth’s budget faces due to the recession.
Unrestricted General Government Aid is a new category this year, and will be a combination of what was previously known as Additional Assistance and Lottery Aid. These two sources of local aid are combined for a number of reasons, including:
- The original formula that Additional Assistance was based on has not been recalculated in many years.
- Only 159 out of 351 cities and towns received Additional Assistance since 1992.
- Additional Assistance appropriation has been level funded the past 6 fiscal years.
- Lottery Aid from the State Lottery Fund is a major source of revenue for all 351 cities and towns.
- Lottery revenues that support this aid distribution have not met revenue targets for the past 2 fiscal years and are expected to fall short again in fiscal year 2009.
- The combination of funds from the General Fund and Lottery revenues allows for the necessary reductions in unrestricted local aid to be done equally across all 351 cities and towns.
- Additional Assistance and Lottery are two major sources of unrestricted local aid, meaning that a municipality can spend these funds in whatever manner they are deemed necessary within the municipality’s budget.
The local aid reductions and subsequent distribution, as a result of this combination of accounts, ensures an equal reduction methodology and also allows for administrative savings. In addition to the combination of these sources of funds in fiscal year 2010, the accounts are transferred to the Department of Revenue’s (DOR) Division of Local Services which is the agency that administers all major local aid payments to municipalities. In fiscal year 2009, the Treasurer and Receiver-General and the Lottery Commission entered into Interagency Service Agreements (ISAs) with DOR to administer the payments. This process requires a substantial amount of paperwork and administration. In an effort to streamline these old practices, the transfer creates efficiencies.
One of the Governor’s most important priorities is investing in education. In a budget characterized by many deep cuts in important programs, this commitment to education is demonstrated by the decision to hold harmless Chapter 70 funding for school districts at the fiscal year 2009 General Appropriation Act level of $3,948,824,061. The fiscal year 2009 level was an unprecedented high-water mark for Chapter 70, representing a 6% increase over the prior year and second only to the Medicaid program in both dollar and percentage growth in the entire state budget. That investment provided more aid to all 328 school districts and ensured that the growth in each district’s foundation budget was supported by the state.
Municipal Contribution for Education Budgets
Minimum contributions are determined in this budget in a manner to preserve the most successful elements of the traditional Chapter 70 methodology, provide some relief from the full contribution increases otherwise faced under the formula, while still moving towards greater equity in defining contributions. Ultimately, aid will be distributed in a manner consistent with the efforts of recent years. As in all previous years since 1993, the municipal contribution calculation will begin by increasing or decreasing prior year contribution by the municipal revenue growth factor. This action provides contribution relief where most needed, and recognizes the differential impact local aid cuts have on municipalities with high dependence on state aid than in those where state aid is a small part of their overall budget.
The Patrick-Murray Administration also attempts to continue the equity reform that began several years ago. Since this effort identified for us the municipalities most in need of contribution relief, we continue to place our primary focus on providing them that help. While we are not able to afford the full reductions originally anticipated by the 5 year schedule for equity reform, we do not simply suspend the reform, but provide a 25% reduction of the required contribution towards their equity-based target. While this slows the schedule to full phase-in of the new, more equitable contributions, it does not stop it completely. The Administration remains committed to the equity goals established by recent budget action, and to the principle that municipalities of similar wealth and income should have comparable required contributions leading to equitable amounts of aid.
Unrestricted General Government Aid
For those districts with required contributions under the equity-based targets, we propose a one year re-calibration that advances the movement toward equity while still providing flexibility for these municipalities to reduce their contributions in light of the larger fiscal challenges and fiscal year 2010 local aid reductions. The re-calibration will set their contributions at the lesser of their fiscal year 2010 targets, or 95% of their fiscal year 2008 actual contribution. This re-calibration will make contributions across the state significantly more equitable, while affording even these “under target contribution” communities the flexibility to reduce their actual contributions by at least 5% under their fiscal year 2008 spending level, and, in most cases, by a good deal more than that.
It is a priority of the Patrick-Murray Administration to protect the level of funds dedicated to education during these times of economic uncertainty, especially to protect Chapter 70 aid for schools. In fiscal year 2009, Chapter 70 aid reached an all time high level of funding at $3.948 billion, and despite the downturn of revenues for the Commonwealth, this Administration is not implementing any mid year emergency reduction and protects every dollar of that aid in fiscal year 2010. However, to achieve budgetary balance in fiscal year 2010, House 1 reduced $375 million from unrestricted local aid, which is a 7.1% reduction to fiscal year 2009 total Section 3 aid. The analysis of the initial results of the reduction from municipal budgets, while maintaining the school aid for budgets, was unsettling, with some communities losing over 20% of their Section 3 aid. This loss would devastate communities that rely heavily on state aid. Therefore, our methodology is directed at mitigating the impact of the reduction to Section 3 education and unrestricted local aid to no greater than a 10% loss for any municipality.
Additional Revenue Sources for All Municipalities
The Governor’s House 1 budget also includes two enhanced revenue sources for municipalities that serve to mitigate the reductions that are necessary for fiscal year 2010 budget. These revenues will be generated from an increase of 1% on the statewide meals and hotel/motel room occupancy excises. In the event that these revenues do not materialize to the amounts listed in Section 3 of the budget, the General Fund will cover the amounts listed. Likewise, if revenues exceed these amounts, the Commonwealth can work to distribute funds on a fair and predictable basis to municipalities.
Fiscal Year 2010 Aid DistributionsThe following is a summary of Section 3 totals as compared to fiscal year 2009 and a breakout of the methodology utilized to reduce the fiscal year 2010 budget:
|Program||FY09GAA||FY2009 9C Reductions||FY2010 H.1||FY2010 - FY2009
|Meals Tax Revenue||125,000,000||125,000,000||100.00%|
|Rooms Tax Revenue||24,247,706||24,247,706||100.00%|
* Consolidated into new account FY2010: Unrestricted General Government Local Aid
The Administration recognizes that cities and towns rely heavily on State Aid to support all areas of local Government from schools to critical public safety and other spending as well as to manage the local property tax burden. Reductions in local aid are unavoidable in the current economic climate, however, the Administration worked to mitigate these reductions (see above) and implemented them so that each community reduction is no more than a 10 percent loss in fiscal year 2010 total Section 3 local aid.
The following chart displays all operating accounts that appear on cherry sheets which serve as the official notification by the Commissioner of Revenue to municipalities and regional school districts of estimated state aid to be paid and charges to be assessed over the next fiscal year.
Other Cherry Sheet Aid to Cities and Towns
|FY2010 H.1||FY2010 - FY2009
|Room Occupancy (Hotel) Excise||24,247,706||24,247,706||100.00%|
|Vet. Surv. Blind Expempt**||17,241,130||-||25,181,475||(1,950,000)||-7.19%|
|State Owned Land||30,300,000||-||30,300,000||-||0.00%|
|Charter School Reimbursements||79,751,579||-||79,751,579||-||0.00%|
|Reg. School Transprotation||61,300,000||-||53,300,000||(8,000,000)||-13.05%|
|Reg Public Library||17,166,071||-||14,705,068||(2,461,003)||-14.34%|
|Police Career Incentive||50,202,122||-||42,202,122||(8,000,000)||-15.94%|
|Local Share Racing Tax||1,592,000||-||1,179,000||(413,000)||-25.94%|
Payment in Lieu of Taxes on State Owned Land (PILOT): Many cities and towns that house state property, such as facilities or office buildings, do not benefit from the property tax revenue associated with these properties. To ease this burden, the PILOT program was established to partially reimburse cities and towns for this revenue loss. Over the past two fiscal years, the Patrick-Murray Administration increased the PILOT program by $5 million and maintains that increase confirming the Administration’s commitment to ease the local property tax burden.
Full Funding for Veterans’ Benefits: The budget increases Veterans’ benefits by $6.9 million to $27.8 million, reflecting anticipated caseload increases in this needs-based program for fiscal year 2010 and our obligations to cities and towns for veterans who are entitled to benefit payments.
Library Funding Waivers: The Governor’s budget removes the cap on the number of waivers that the Board of Library Commissioners can grant in fiscal year 2010 to libraries not meeting certain funding requirements, enabling libraries to maintain certification and access popular regional library lending networks at a time when more local residents are turning towards libraries as a resource.
School Lunch Program: The budget maintains fiscal year 2009 funding of $5.4 million for the school lunch program, which plays a critical role in ensuring that all children are ready to learn by supporting nutritionally balanced, low-cost or free lunches to eligible children each school day. At $5.4 million, this account leverages over $150 million in federal funds in fiscal 2009 and will continue to leverage important federal dollars in fiscal year 2010.
Other Programs at Reduced Levels: In some cases, including property tax abatement accounts for qualifying residents, these reductions reflect expected spending at the local level. In others (Police Career Incentive, public libraries, regional school transportation), cuts have been made to help achieve budgetary balance.
Prepared by the Executive Office for Administration and Finance · Rooms 373 & 272 · State House
For more information contact:
Brian Gosselin (firstname.lastname@example.org
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