Overview
Given the increased reliance by municipalities on the property tax to fund services at the local level and the growing financial burden of mandated services, it is important that the state provide additional funding to communities. The Legislature’s work on the FY 2023 budget is a major step in this direction, with significant increases in Chapter 70 education aid, UGGA, the Special Education Circuit Breaker, and PILOT for state-owned land. However, the existing commitments still leave substantial opportunities to strengthen the partnership between the state and local governments. DLM therefore recommends that the Commonwealth do the following.
1. Continue to meet financial commitments through the Student Opportunity Act.
The first priority should be to meet the substantial funding commitments made through the SOA. Meeting these funding commitments will result in substantial increases in Chapter 70 education aid and the Special Education Circuit Breaker. Estimates indicate that the Chapter 70 increases will add hundreds of millions of dollars per year to state aid. The continued phase-in of the component for OOD transportation will result in tens of millions of dollars of additional funding for schools. Continuing to include the hold harmless and minimum aid provisions will help districts that will be most impacted by enrollment declines and increases in expenses, such as RSDs and districts in Western Massachusetts.
Although there is always room for improvement, further extensive analysis must be made before the Chapter 70 formula is modified again by taking actions such as eliminating hold harmless and minimum aid or increasing the state’s share of education funding while reducing the target local contribution. It is strongly encouraged that stakeholders and legislators who have proposals to change the formula thoroughly review the impacts to economically disadvantaged districts, RSDs, rural districts, and districts that host students with the highest needs. In particular, attempts to eliminate hold harmless aid and minimum aid have to be judged in light of what they might do to budgetary stability, especially in districts that are more financially fragile. Furthermore, it is important as a principle of public policy for the Commonwealth to engage in cost-sharing and thus be present in all communities, both symbolically and as a lever of institutional influence.
2. Dedicate full funding to overlooked categories of school transportation.
School transportation is a major cost for districts. The stability of school budgets is at risk, given the spiraling cost of fuel and lack of competition for transportation contracts. Actions must be taken to explore how to make this business area more competitive, including having districts themselves provide services regionally or individually.
In addition, full levels of aid should be allocated to subcategories of school transportation that are sometimes overlooked. DLM recognizes that fully funding these categories would require at least $16.7 million in additional funding, as follows:
- $9.1 million to regional school transportation to fully fund the program at $91.3 million;
- $3.4 million to OOD transportation for students in foster care to fully fund the program at $4.3 million; and
- $4.2 million to OOD vocational school transportation to fully fund the program at $4.5 million.
By fully funding these programs, the Commonwealth would allow school districts to reallocate revenues that would otherwise have covered transportation expenses to other categories. Although funding for OOD transportation for students in foster care comes from the federal government and applying for reimbursement is voluntary, DESE should also encourage and assist all districts with these students to apply for all available monies in order for the funding pool to expand. Alternatively, state funding to reimburse transportation expenses for these students could be made contingent on the federal filing, as there was a significant drop-off in participation between FY 2020 and FY 2021.
One program for which state government has recently committed to provide full funding is school transportation for students experiencing homelessness. All expenses from the program were covered for the first time in FY 2022 under its appropriation, therefore complying with the unfunded mandate determination. This program will receive an additional $8.5 million in funding for FY 2023. Because transportation costs for students experiencing homelessness continue to grow, it is important that reimbursements also increase in order to comply with the mandate. Furthermore, we suggest that any overage for FY 2023 and subsequent years be used to help offset costs for the transportation of students in foster care.
If more money should prove difficult to find, it should at least be recognized that communities cannot rely on inconsistent reimbursement levels each year because they need to adequately budget their own funds. DLM recommends the provision of consistent annual funding—a set percent—which will ease both the financial burdens and the financial planning difficulty of transporting students receiving services OOD, as well as students in foster care.
3. Increase Unrestricted General Government Aid by the level of actual state revenues, as opposed to
In order to reflect the realities of rapid state revenue growth and inflation, it is crucial that unrestricted aid to municipalities significantly increase compared to recent years. Basing the changes in UGGA on actual state revenue collections will provide more state funds for communities, especially at a time when costs for services are rising at their highest rates in decades. For example, UGGA aid increased by 3.5% (or $39.5 million) between FY 2021 and FY 2022, consistent with the growth in tax revenues estimated by the Legislature and the Department of Revenue. Meanwhile, actual revenue collections between FY 2021 and FY 2022 increased by 15.3%.185 The MMA projected that, if the Legislature used actual state revenue growth to estimate UGGA funding for FY 2023, the program would be allocated $85.3 million—a 7% increase—instead of the $63.1 million compromise that was allocated in the budget.186 Communities would greatly benefit from such an infusion of funds before revenue collection growth goes back to pre-pandemic levels. Further, this source of revenue must be held harmless from state revenue shortfalls in order to protect critical local service delivery
4. Strengthen other local aid programs to guarantee full funding for lower-income communities.
There are municipal aid programs in addition to UGGA that could benefit from funding boosts if they were not restricted by formula-based parameters. In order to commit to full funding for upcoming years, DLM recommends that appropriations to these programs increase by $103.3 million in the following categories:
- $4 million to the state-owned land PILOT program to fully fund the program at $49 million;
- $8.8 million to fund municipal reimbursements for veterans’ benefits at 100%, or $43.9 million; and
- $90.5 million to fully finance CPA incentives, which total $179 million.187
The Legislature committed $88.5 million in funding to CPA incentives in FY 2022 and $80.1 million to veterans’ benefits and state-owned land PILOT reimbursements in FY 2023. Increasing the funding for these programs by $103.3 million—or by 61%—will greatly strengthen the financial position of communities.
Increasing appropriations to these programs will be most effective if the formulae for these programs are also adjusted under law. Changes advocated to these programs will strengthen the equity of aid distributions. DLM previously advocated188 in a 2020 report to change the state-owned land PILOT program formula along with an increased appropriation, noting that it would allow communities with lower property values to see higher reimbursements. Likewise, adjusting the veterans’ benefits reimbursement program to provide reimbursements at 100% will help lower-income communities, especially Gateway Cities with a larger concentration of veterans in need.
Commitments should also be made to the CPA program, at least to resume a 100% match in incentives when communities initially join the program. Absent that, consideration should be given to eliminating the 3% minimum CPA local surcharge requirement so all participating communities can be considered for funding in the equity rounds. It must be recognized that, over the past two decades, mostly wealthier communities have adopted the 3% surcharge rate, while communities with fewer resources have either not participated in the CPA program at all or adopted a lower rate. Thus, almost all of the funds disbursed in the equity rounds go to those communities with higher income and wealth characteristics. The entire CPA formula may need an overhaul, given the experience in the years since the program was launched. In particular, the ratio of disbursements between rounds (80% for the first round, 20% for rounds 2 and 3) seems arbitrary and results in disbursement outcomes that are not always easy to justify based on any obvious community characteristics.
5. Recognize the financial investment needed to fund other outstanding expenses.
By making full commitments to the SOA, boosting unrestricted aid to municipalities, and increasing formulae for formula-based aid programs, the state will provide a significant infusion of funds to cities and towns. DLM acknowledges that there are other local aid programs that have not seen an infusion of funds in years and are yet to be fully funded, but the shortfalls should be addressed after the previous recommendations are implemented.
Regular day and in-district special education transportation are significant cost drivers for school districts. These two categories comprise approximately half of the total cost for transportation, with very little provided by the state as reimbursement. The state should seriously consider offsetting more of this cost, but must address an equally important issue—the lack of clarity of the legislative language. In previous decades, in-district special education was reimbursed under M.G.L. c. 71, § 7B and § 14, but the latter provision was eliminated by the SOA. As a result, there is currently no methodology embedded in state law to provide reimbursements for in-district special education.
Note that other states (e.g., Connecticut and New Jersey) have formulae that offer reimbursements based on factors such as district wealth or average miles traveled within simplified categories.189 If applied in Massachusetts, this model would result in higher reimbursements.
There is also a need to have explicit reimbursement for substantial categories of investment, such as educational services for students in foster care and educator evaluation programs. One significant factor is the lack of available data from DESE detailing these programs’ expenses. It is crucial that DESE collaborate with EOHHS to establish a mechanism that tracks all students in foster care attending public schools each year. In order to accurately track the total amount school districts spend on educator evaluations, DESE also should establish an evaluation expense category for school districts’ end-of-year financial reports. Having accurate financial information related to these categories will help inform the Legislature about the amounts needed for full reimbursements to communities.