Report  Fulfilling the Promise of Local Aid by Strengthening State-Local Partnerships

State assistance is a critical lifeblood for municipal finance in Massachusetts. Funds for education, general aid, and reimbursements support over one-fifth of budgets of local communities. For some communities, state aid is the largest category of revenue, but overall it is the second biggest following the property tax levy. Additional assistance comes from a variety of grant programs, typically discretionary, whereby the state helps communities invest in schools, water and sewer systems, libraries, and other municipal services.

Even with the volume of assistance available, there are commitments and authorizations under state law that are not fully kept by the Commonwealth. For example, school transportation monies for most programs are promised but fall short, some by design and some by formulae that require local participation. A few programs are fully funded, such as the school transportation mandate for students in families suffering homelessness. Some formulae for reimbursement are capped at arbitrary reimbursement levels that vary widely. Other categories of reimbursements are not explicitly visible to municipalities and school districts but are instead included in larger, broader funding formulae, such as the Chapter 70 education formula.

There is a continued need for state investment for these programs as municipal finance is constrained by the property tax limits of Proposition 2 ½ ; despite these limits, municipal tax levies have increased faster than state aid. However, the ability of municipalities to raise the tax levy heavily depends on “new growth” revenue that flows from new housing and non-residential construction. Among the concerns mentioned in this report is the uncertainty of the economy in the next few years, as well as rising interest rates and a slowdown in the growth of residential real estate.

Given the strong current fiscal position of the state, the Division of Local Mandates feels that this moment offers an opportunity to discuss many of the major programs that provide financial support to municipalities and school districts and make funding recommendations. This report reviews the major categories of state aid and various reimbursement programs offered to municipalities in the Commonwealth and details the revenue that flows from these categories. We indicate where a program’s appropriation or formula falls short of the amount required to fully reimburse communities, or, alternatively, where the state meets its obligation. Our findings and recommendations build on the work of state agencies, municipal advocates, and legislative commissions and highlight the need for equitable funding and a continued partnership between the Commonwealth and its cities and towns.

Below is a summary of our findings and recommendations, with links to each page listed.

A PDF copy of the report Fulfilling the Promise of Local Aid by Strengthening State-Local Partnerships is available here.