Reduced local aid translates into higher property taxes

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From The Beacon, April 2014

This past month, the state’s Division of Local Resources reported that the average residential property tax bill has increased for 10 consecutive years and has reached an all-time high of $5,044. The fact is that cities and towns are more reliant on property tax revenues to fund local services and balance their budgets than at any time since the passage of Proposition 2½ more than 30 years ago, a trend caused in great part by reductions in state funding for local aid and education accounts.

During the past 25 years, cities and towns have weathered three severe recessions. Each time, the Commonwealth has significantly cut local aid and education funding as part of its own budget balancing efforts. Even after each of the recessions ended and state revenues recovered, the reduced local aid funding levels were not fully restored. Thus, over time, communities have become more reliant on the property tax and local-source revenues, and local aid has become a smaller portion of municipal budgets.

It is instructive to compare funding for the two major local aid accounts, Unrestricted General Government Aid and Chapter 70 education aid, before and after the recent Great Recession.

From fiscal 2008 to this year, UGGA funding fell from $1.315 billion to $920 million, a $395 million cut of 30 percent, an average 5 percent reduction each year. During that same six-year period, Chapter 70 aid increased from $3.745 billion to $4.3 billion, a $575 million increase of 15.4 percent, or 2.6 percent a year. Combined, these major local aid accounts went from $5.04 billion to $5.22 billion, a total increase of only $180 million during the past six years, or less than 1 percent a year. To be exact, the overall change is an anemic six-tenths of 1 percent.

This analysis ignores the elimination of $50 million in Quinn Bill funding, and the underfunding of many other critical local aid and reimbursement programs.

During this same six-year period, state tax revenues increased from $20.9 billion to $23.2 billion. This overall growth of $2.3 billion in state tax collections reflects an 11.1 percent increase. Granted, the average state tax growth rate of 1.85 percent per year is low, and has presented the state with many difficult fiscal challenges. But that revenue change is much higher than the 0.6 percent trajectory for local aid.

And the difference adds up. If state officials had simply maintained local aid funding by matching the growth in state revenues, cities and towns would be receiving $400 million more today than they are. Instead, local aid is now a smaller portion of the state budget.

The bottom line is that during the past six years, local aid has not kept pace with inflation, the cost of providing vital services to the citizens of Massachusetts, or the rate of growth in state tax revenues.

Local officials have embraced and implemented valuable tools that state lawmakers have provided during this time, including municipal health insurance reform and expanded local-option taxes, and we applaud state leaders for enacting these important and much-appreciated measures. Even with these tools, however, the situation has been so dire that communities have been forced to eliminate more than 15,000 jobs, reduce the scope of many services, and increase property tax collections by nearly 30 percent in order to make ends meet.

Cities and towns are struggling to maintain and protect essential services that are vital to our economy, and communities cannot realistically increase their already too-high overreliance on regressive property taxes. This is why the local aid and Chapter 70 funding levels are so critical this year, and other local aid accounts are needed more than ever.

The Legislature’s good news announcement that lawmakers will add $25 million to UGGA funding for fiscal 2015 certainly helps and is very much appreciated, but the stark reality is that this will not close the fiscal gaps that communities are facing as they cobble together their budgets.

Local aid funding is a lifeline, and local leaders are turning to members of the House and Senate for support and assistance during the Legislature’s upcoming budget deliberations.

Under the governor’s proposed budget, most cities, towns and school districts are in line for only a bare-bones $25 per student Chapter 70 increase, which is totally inadequate to maintain existing programs and school services, and which is why the MMA continues to call for an increase in minimum aid of $100 per student.

The special education circuit-breaker is $13 million short of full funding in the governor’s proposed budget, which would translate into a 4 percent shortfall next year.

Charter school reimbursements are $28 million short this year, and underfunded by over $30 million in the administration’s proposed fiscal 2015 budget. Without these funds, many poor and at-risk school systems will be forced to slash education and student-based programs.

Other key reimbursement accounts need additional funding, including regional school transportation, McKinney-Vento homeless student transportation, and PILOT payments.

With state tax collections projected to grow by 4.9 percent next year, the Commonwealth is finally emerging from the Great Recession and will have the revenue capacity to make strategic investments in the future. The key question is whether local aid, and thus the communities of Massachusetts, will share in the state’s restored revenue capacity.

If Beacon Hill embraces a fiscal policy that increases local aid by the same rate of growth as state revenues, then full funding for all of these critical accounts can be achieved, and the local aid lifeline will be long enough to span the fiscal gaps confronting cities and towns.

But if these programs are underfunded, we can expect that next year the Division of Local Services will issue another report confirming that the local property tax burden has increased yet again.
Written by MMA Executive Director Geoff Beckwith