Local Aid Overview
Aid to cities and towns, or local aid, represents an important component of the Commonwealth’s annual budget. In fiscal year 2011, local aid programs account for $5.2 billion, or 18.4%, of the total state budget. The recommendation for local aid reflects the Patrick-Murray Administration’s commitment to a strong partnership between the state and its cities and towns.
While grappling with four major revenue revisions in fiscal year 2009 and an additional revision in fiscal year 2010, the Patrick-Murray Administration has prioritized protecting local aid. In fiscal year 2009, when the first revenue revision occurred in October of 2008, the Governor proposed a $1.4 billion budget solution without reducing local aid. Only when a second revenue shortfall of almost $1 billion was forecasted in January 2009 did the Governor seek shared sacrifice from municipalities, with the local aid cuts limited to $128 million, or 2.3%. In October of fiscal year 2010, the Patrick-Murray Administration again needed to reduce the state budget by $600 million to address a further decline in tax revenues. Ultimately, the Administration was able to preserve major sources of local aid in fiscal year 2010 and maintains this commitment into fiscal year 2011 for nearly all budgetary accounts.
In the past three years, the Administration has proposed a number of resources and tools that have helped relieve pressure on property tax payers and preserve critical local services.
Budgeted Local Aid
The fiscal year 2011 House 2 budget supports a total of $5.2 billion in local school aid, general government aid, and program-specific aid, essentially level funding support to the Commonwealth’s cities and towns from fiscal year 2010 to fiscal year 2011, despite continued fiscal pressures. Local aid is categorized as the programs that impact a municipality’s “Cherry Sheet”, the vehicle utilized by the Commissioner of Revenue to notify municipalities and regional school districts of estimated state aid to be paid and charges to be assessed over the next fiscal year. Below is a summary of funding for local aid cherry sheet accounts:
|Program||FY2010 GAA||FY2010 9C Reductions||FY2010 Estimated Spending||FY2011 H.2|
|Chapter 70 General Fund $||3,869,847,585||-||3,869,847,585||4,048,324,258|
|Chapter 70 ARRA $||172,175,259||-|
|Unrestricted Local Aid||936,437,803||-||936,437,803||936,437,803|
|Tax Reimb Vet, Blind, Widows||25,301,475||-||25,301,475||25,301,475|
|State Owned Land||27,270,000||-||27,270,000||27,270,000|
|Regional Library Local Aid||12,341,160||(514,000)||11,827,160||8,781,475|
|Municipal Libraries Local Aid||7,107,657||(284,000)||6,823,657||6,823,657|
|Local Share Racing Tax**||1,179,000||-||1,179,000||962,000|
|Regional School Transportation||40,521,840||-||40,521,840||40,521,840|
|School Food Services Program||5,426,986||-||5,426,986||5,426,986|
|Charter School Reimbursement***||79,751,579||(5,174,307)||74,577,272||74,577,272|
|Police Career Incentive Payment||10,000,000||-||10,000,000||5,000,000|
|*Benefits account grow by $7 million from FY10 to FY11 and the increase of $19.9M is the result of the consolidation of annuities account. |
**Based on projections and not budgetary decisions.
Section 3 Structure – How it Works
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 the state General Fund and/or other dedicated revenue sources. The presentation of Section 3 can change from year to year based upon the revenue assumptions used to fund the local aid categories. For example, fiscal year 2010 included additional categories to demonstrate the additional revenues proposed through an increase in local option meals and rooms occupancy tax. In fiscal year 2011, the presentation is much simpler given only two categories of local aid are included, indicating the amount of support for local aid through both Chapter 70 and Unrestricted General Government Aid.
Section 3 Fiscal Year 2011 Structure and Funding Achievement
The Governor’s fiscal year 2011 budget recommendation includes two categories of aid in Section 3: Chapter 70 and Unrestricted General Government Aid (UGGA). This simple structure will allow all municipalities to easily recognize and understand the amount of local aid that will be received in fiscal year 2011. More importantly, Chapter 70 aid is distributed in a way that fully funds foundation budgets, level funds communities that would have otherwise lost aid due to the formula calculation, and replaces every dollar of Chapter 70 aid in fiscal year 2010 that was funded from the American Recovery and Reinvestment Act’s (ARRA) stimulus funds with General Fund dollars. In addition, UGGA is held harmless to reductions, resulting in all municipalities receiving the exact same amount of aid in fiscal year 2011 as they did from the UGGA account in fiscal year 2010.
The structure of the Section 3 columns appears as follows:
Protecting Education Reform:
One of the Governor’s priorities is investing in education. In another fiscal year budget requiring additional cuts to important programs, this commitment to education is demonstrated by the decision to fully fund foundation budgets with Chapter 70 aid and to preserve Chapter 70 funding for municipalities and regional schools at not less than the fiscal year 2010 GAA levels. The fiscal year 2010 funding amount of $4.042 billion was an unprecedented high-water mark for Chapter 70, representing a 2.36% increase over fiscal year 2009. This amount was comprised of $3.869 billion in General Fund dollars and $172 million in ARRA funds. The fiscal year 2011 investment will surpass fiscal year 2010 levels, at $4.048 billion. This level of funding is even more significant, as the Patrick-Murray Administration providing stability for school districts concerned about budgets funded in part on one-time resources. This investment will provide the same amount of aid or more to all 328 schools districts and ensures that the growth in each district’s foundation budget is supported by the state.
*Included General Fund and ARRA funds from the State Fiscal Stabilization Fund
The Chapter 70 formula is based on many variables, including, enrollment, grade levels, municipal revenue growth factors (MRGFs), a federal inflation index, and more. In fiscal year 2011, the total enrollment is down by .28%, MRGFs are up by a statewide average of 2.4%, and the federal inflation factor is -2.2%. All of these variables, among other factors, impact the Chapter 70 aid calculation for each individual school district.
Based on the fluctuation of enrollment, MRGFs, and the federal inflation factor that the formula is based on 144 districts require less Chapter 70 aid in fiscal year 2011 than in fiscal year 2010 and 13 districts require more Chapter 70 aid. The Patrick-Murray Administration is investing $90 million into Chapter 70 aid to hold those 144 districts harmless, $6.2 million to increase funding for those that require more aid and an additional $172 million to replace all of the federal stimulus funds received in fiscal year 2010 with General Fund dollars. This investment will hold all districts harmless from cuts ultimately benefiting the students by creating less disruption in the school environment.
Lastly, the Governor’s budget recommendation also proposes a $250,000 reserve account to study the adequacy of the foundation budget, and a separate commission to look at the Chapter 70 formula as a whole.
Unrestricted General Government Aid
Unrestricted General Government Aid (UGGA) will be level funded at $936,437,803 in fiscal year 2011. This Administration understands that when a fiscal crisis hits the state government, it hits local government as well, and it takes local government longer to recover from recessions.
Additionally, the Patrick-Murray Administration recognizes that the current allocation of local aid among municipalities is meant to maintain stability and is no longer based on a current funding formula. The Administration is proposing a local aid study commission to evaluate local aid formulas. This commission will begin with the work on “Partnership Aid” by the Hamill Commission’s Municipal Finance Task Force, and make recommendations by November 15, 2010, that will be taken into account in the fiscal year 2012 budget.
New Initiatives for Fiscal Year 2011
This year, the Governor is proposing legislation to give cities and towns a number of key tools to support them in managing through this fiscal crisis and beyond, including:
- A local pension funding relief initiative to help local systems address unprecedented asset losses in a fiscally responsible and manageable manner. (Estimated savings: up to $200M statewide in first year of proposed new schedule.)
- An optional Early Retirement Incentive program for cities and towns.
- A rate freeze on special education private placements in fiscal year 2011 (also provided for fiscal year 2010). (Estimated savings: Savings of $3.2M (0.75%) increase).
- Relief from library “maintenance of effort” requirements and decertification rules (also provided for fiscal year 2010).
- Allow regional school districts to share superintendents. (Relief: An efficiency and cost savings opportunity.)
- Allow regional school districts greater access to stabilization funds. (Estimated savings: frees up additional financial means for coping with local aid challenges.)
- Low cost energy procurement opportunities for cities and towns.
Municipal Reforms and Partnerships
The Patrick-Murray Administration has consistently recognized the significant impact that the state funding and its laws, regulations and policies have on the 351 cities and towns across Massachusetts. In numerous ways the state’s cities and towns are invaluable in their role in delivering core services and functions that are necessary to keep residents safe, promote business activity, educate our children and coordinate civic activity. This fact becomes even more apparent in times of fiscal and budget tightening as communities across the state are forced to make difficult decisions about how to perform core services with limited resources.
In January of 2007 and January of 2009 the Patrick-Murray Administration proposed Municipal Partnership initiatives that the Administration believes could help municipalities achieve long term fiscal stability. These initiatives are a combination of revenue initiatives, cost saving initiatives, increased legal flexibility and administrative streamlining that, over the long term, should both stabilize the property tax burden on the homeowners of Massachusetts and encourage sustainability in local governments.
In July 2007, Governor Deval Patrick signed into law two key pieces of his proposed Municipal Partnership Act to provide communities with the tools to help relieve the pressure on property taxes by allowing them to join the state health insurance plan and by merging underperforming local pension funds with the state’s high- performing system.
- Local Group Insurance Commission Option - The Governor proposed, and in July of 2007 signed into law, the opportunity for municipalities, through collective bargaining, to join the state Group Insurance Commission, thus controlling local health care costs.
- Since its passage, 19 municipal entities have joined the GIC. (For those communities who have taken advantage of this new option for providing employee health benefits, it has produced millions of dollars in savings across the state.)
- Pension Reserve Investment Trust - The Governor proposed, and in July of 2007 signed into law, a provision merging underperforming local pension funds with the state Pension Reserve Investment Trust (PRIT). This legislation reminded additional well-performing municipal pension systems that PRIT is a good deal: additional well-functioning pension systems voluntarily joined PRIT fully after the legislation passed.
In response to economic downturn that began in fiscal year 2009, the Patrick-Murray Administration has proposed and/or taken a variety of measures to assist localities in confronting difficult spending and revenue decisions. In addition, reforms have been proposed to help cities and towns better work together to link shared activities.
In November, 2009, the Governor signed into law the restoration of the construction procurement threshold that allows municipalities to use sound business practices for procurements under $5,000. (For a number of years, the law required municipalities must pursue three quotes for any procurement, even if the total cost was just $1, hence the nickname for this reform as “$1”.) Local officials had been pursuing this correction since it inadvertently got changes in construction reform legislation under the prior Administration.
In addition, the Governor proposed and signed into law (for fiscal year 2009) the creation of the Edward J. Collins Center for Public Management at UMASS-Boston, a resource for local government that provides a comprehensive range of consulting services to municipalities including executive recruitment, organizational, management and governance studies. Since that time the Collins Center has facilitated the development of intergovernmental agreements and provided interim management services to municipalities in transition.
As part of his priority to relieve pressure on the residential property tax, Governor Patrick pursued, and secured through the Legislature, key revenue options for cities and towns that allow municipalities to expand their tax base beyond the property tax. Key highlights of these initiatives include the following:
- Local option revenues: For fiscal year 2010 the Governor proposed and signed into law a new local option meals tax (Estimated value: $80 million) and a local option increase in the rooms excise tax (Estimated value: $20 million.)
- Expansion of the property tax base: For fiscal year 2010 the Governor proposed and signed into law the closing of the telecommunications property tax loophole on telecommunications poles and wires. (Estimated value: $26 million for poles and wires). In January 2009, the Governor also proposed closing the telecommunications tax loophole on telecommunications equipment. (Estimated value: $26 million for machinery.)
Improved Partnerships and Efficiencies
As Chairman of the Administration’s Municipal Affairs Coordinating Cabinet, Lt. Governor Murray has led over 20 listening sessions across the Commonwealth. These meetings allowed the Lt. Governor and fellow Cabinet members to hear directly from municipal officials and the public about local concerns across the region. Furthermore, through this work as the chair of the Regionalization Advisory Commission, the Lt. Governor is presently assessing a wide range of local services and opportunities to prepare comprehensive recommendations for municipalities to achieve cost savings, efficiencies and maintain or improve services through inter-municipality collaboration.
Relief and Reforms
Governor Patrick and Lt. Governor Murray recognize that during these difficult economic times, cities and towns are being asked to do more with less. Municipalities, like the state, have been forced to cut staff, making it even more challenging to support needed services. However, even before the current economic and fiscal crisis, the Patrick-Murray Administration made it a priority to partner with cities and towns to find new ways and to think differently about how to provide essential municipal services. Patrick-Murray Administration has responded to many of the concerns that both the Lieutenant Governor and Governor have heard from communities across Massachusetts over the last three years.
Though its fiscal year 2011 budget and submission to the Joint Committee on Municipalities and Regional Government, the Patrick-Murray Administration is proposing a number of new tools to support cities and towns, including: a local pension funding relief incentive to help local systems address unprecedented asset losses in a fiscally responsible way; an optional Early Retirement Incentive program for cities and towns, a rate freeze on special education private placements that could save $3.2M; relief from library “maintenance of effort” requirements and decertification rules; allowing regional school districts to share superintendents, providing savings and efficiencies, and allowing regional school districts greater access to stabilization funds
Other municipal relief and tools to assist cities and town in managing employee benefits, encouraging regionalization of municipal services, reform procurement, reducing legal and regulatory burdens and improving local finances have been proposed by the Governor, but have not yet been adopted, These measures include the following:
- Transfer of eligible retirees in to Medicare, which is estimated to provide savings to localities of between $100 and $200 million dollars.
- Pro-rating insurance for part time employees, which allows a municipality to pro-rate its contribution for a part-time employee’s health insurance premium based on the number of hours per week worked by the employee, providing increased flexibility and savings.
- Eliminate collective bargaining requirement for joining a regional entity.
- Joint or regional assessing agreements, in order to clarify the law permitting joint or cooperative assessing agreements to allow cities and towns to share assessors as well as assessing department staff.
- Collective purchasing by education collaboratives, potentially generating millions of dollars in savings depending on what is being purchased, the scope of the purchase and the number of entities involved.
- Coordinating assessment schedules on a regional basis to produce efficiencies and cost-savings at local level and the state’s Division of Local Services. This would allow the sharing of consultants (particularly helpful for small communities) and would also benefit the taxpayer by resulting in more accurate assessment values (and tax bills) by allowing for shared knowledge of values in the area.
- Increased thresholds for municipal procurements and construction payment bonds extending long-term municipal lease limits beyond what is currently allowed only through a home rule petition to the Legislature.
- Encouraging Internet advertising of procurements, which could provide savings to municipalities of $250,000 per year statewide.
- Promote use of reverse auctions to provide a method of acquiring best pricing from qualified bidders while providing environmental and financial benefits, and allowing for greater flexibility for municipalities and bidders.
Reducing Local Burdens
- Increase local licensing authority discretion to give the legislative body of each municipality that has voted to grant licenses for the sale of alcoholic beverages the discretion to determine the number of licenses to be issued.
- Allow the Secretary of State to validate a town election or actions taken at a town meeting where an inadvertent failure to comply with certain procedural requirements occurred, but the result did not contradict the fundamental purposes of those requirements and the error was unlikely to affect the outcome of the election or meeting.
- Appoint a special commission to consider ways to grant increased local authority in areas currently requiring home rule petitions.
Improve Municipal Finance
- Clarify that cities and towns are not responsible for making up state cuts to the state’s share of the Quinn bill police career incentive program, unless a collective bargaining agreement specifically so provides.
- Allowing municipal red light camera enforcement programs.
- Grant more flexibility in municipal and regional school district borrowing.
- Eliminate fees for State House Notes borrowing program.
- Streamline process by which local assessors can grant abatements.
- Give municipalities the option of amortizing their fiscal year 2009 revenue deficit up to the amount of their 9C cut over the next three fiscal years.
- Allow a 3 year "look back" period to audit personal property taxpayers and assess additional taxes owed for underreporting.
- Allow taxation of additional units constructed or under construction on land subject to a condominium master deed to the developer who retains development rights in the land. Those improvements now escape taxation until the master deed is amended because they are not separately taxable under the condo statute.
- Appoint a state and local commission to study use of State technology for municipal purposes.
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