Local aid is key to Bay State comeback

From The Beacon, March 2012

Cities and towns are facing a fifth year of serious fiscal challenges and adversity, due primarily to the frustratingly slow recovery from the global recession that began in 2008 and the dramatic reduction in important local aid and state revenue sources that have followed.

As lawmakers spend the next three months crafting the state’s fiscal 2013 budget, it’s essential for all stakeholders to recognize the connection between local aid and our economic recovery. The MMA is pressing hard to protect local aid and begin the rebuilding process for local government.

City and town leaders deeply appreciate the sweeping municipal health insurance reform law enacted by the Legislature last year. Communities across the state are using and leveraging the new law to hold down the growth in health insurance expenditures for their municipalities and employees, preserving jobs and protecting services.

Overall, though, this reform will make up only a portion of the extraordinary cuts to municipal and school aid programs made since the beginning of fiscal 2009. In fiscal 2012, the cuts to key local aid accounts now total $665 million on a year-over-year basis and $2.03 billion in the aggregate since the beginning of fiscal 2009.

These reductions have translated into an over-reliance on the property tax and deep cuts in core services to residents and businesses. According to a recent analysis by the Massachusetts Taxpayers Foundation, “Property taxes now account for 56.8 percent of all local revenue, up from 55 percent in fiscal 2010 and the highest share since Proposition 2 1/2 was passed.”

The recommendation in the governor’s proposed budget to level-fund the main municipal aid account – Unrestricted General Government Aid – at $834 million would leave this vital account almost half a billion dollars below fiscal 2009 levels, a cut of nearly 40 percent. Simply put, the municipal side of local government has been hit far harder by state budget cuts than almost any other large state budget account. The result has been deep cuts in municipal services and the highest reliance on the regressive property tax in more than 30 years.

Cities and towns deliver the bedrock services that are essential to our economic prosperity – police and fire protection, emergency medical response, the education of nearly 1 million schoolchildren, maintenance of 90 percent of our public roadways, drinking water and wastewater treatment, and much more – which means that local aid is an investment in our economic future. Our state will not fully recover from the recession until communities have the resources necessary to attract and keep families and businesses in Massachusetts.

As the Legislature begins its work to craft a responsive state budget for next year, the MMA is targeting a wide range of key priorities.

First, Unrestricted General Government Aid, the primary municipal Cherry Sheet account, has been cut by $481 million since the beginning of fiscal 2009, a 37 percent reduction. This has forced cuts in police, fire, public works and other municipal services, and in funding for schools as well.

The MMA is calling on the House and Senate to increase the governor’s $834 million appropriation for the UGGA account by $65 million to account for the supplemental aid distributed last October. The governor included a provision in his budget bill that would provide a $65 million supplemental distribution in October 2012 if the year-end fiscal 2012 state “consolidated net surplus” reaches $90 million. Under the administration’s approach, there is no way for cities and towns to incorporate the $65 million into the budgets they must vote on this spring and enact by July 1. Special October payments cannot be used in the local budget process, and thus those funds cannot be used to support ongoing municipal and school services and town and school workforces. This is particularly true for school districts that need to have revenue and spending plans in place by the time schools open around Labor Day. Special payments are generally restricted to one-time uses.

With state tax revenues increasing by nearly $1 billion, cities and towns are merely asking that Unrestricted General Government Aid remain steady. It is important to note that state Lottery proceeds are projected to rise by tens of millions of dollars, and those funds should flow directly to cities and towns without waiting for an end-of-the year state budget wrap-up in October. The clear solution is to fund the main local aid account at an up-front level of at least $899 million, guaranteeing that cities and towns will receive at least as much discretionary municipal aid in fiscal 2013 as they received in total in fiscal 2012. Ideally, the Legislature would also increase the $899 million by another $35 million to $40 million to share a portion of increased state tax revenues with cities and towns.

Another account to fully fund is the Payment-in-Lieu-of-Taxes program, which is particularly important to smaller and medium-sized communities across the state. Municipal officials know that the members of the Legislature have historically worked with the goal of fully funding the account, although the current appropriation falls short of that aspiration.

In terms of school aid, the MMA supports the governor’s recommendation to increase the state appropriation for Chapter 70 by $146 million and ensure that all cities and towns can reach the “foundation” level of spending. While the state appropriation would increase under House 2, only 114 municipal and regional school districts would receive an increase; the remaining 213 districts would be level-funded. It’s important to point out that cities and towns use their unrestricted municipal aid to support school budgets, and incorporating the $65 million fiscal 2012 supplemental aid amount into the base for fiscal 2013 is an effective way to support essential municipal services and local school budgets in every corner of the state.

Further, the MMA supports funding for student transportation in regional school districts. At the fiscal 2012 level, funding would only cover about half of the state’s share of local costs. Over time, adequate funding of this account will be vital if the Commonwealth wishes to encourage other school districts to consider whether regionalization offers long-term benefits.

In addition to the standard regional school transportation account, State Auditor Suzanne Bump has issued an unfunded mandate ruling in the case of state-mandated transportation of certain homeless students by local municipal and regional school districts. Specifically, the auditor’s determination is that the state plan to implement the federal McKinney-Vento Act has resulted in a costly $11.3 million unfunded mandate on cities and towns during the current fiscal year. The MMA strongly supports the auditor’s recommendation that the Legislature and governor provide full funding for this mandated cost, consistent with the local mandates law. Because of expected increases in fuel and transportation costs, this would require a new budget line item of $11.3 million plus inflation (which has run close to 8.5 percent in recent years, according to the auditor’s analysis), or approximately $12.25 million.

All local officials know that the state is falling short of its obligation to fully fund the special education “circuit breaker” program. At the level in House 2 (the governor’s budget proposal), the state would fall short of the 75 percent reimbursement provided in the special education statute, and funding would sag to just 60 percent to 65 percent of the state’s obligation.

The MMA is also asking that the state fully fund its statutory obligation to cover a portion of Chapter 70 school aid lost to charter schools. The governor’s recommendation should be increased by $7 million. The state revamped the charter school reimbursement formula just 25 months ago, and communities are surprised that the account would be under-funded so quickly.

Although funding for Chapter 90 road projects is not provided directly through the state budget, it is an essential program that the Legislature should act on very quickly, and the MMA used the recent Ways and Means budget hearings to call attention to the issue.

Because current Chapter 90 authorizations will soon be exhausted, a Chapter 90 bill must be expedited within the next five weeks or the state will be unable to meet the statutory April 1 notification date, and communities will be in danger of losing critical planning time and much of the upcoming construction season.

While the administration announced that it would soon be filing a bond bill continuing the $200 million amount that communities are currently receiving, it is absolutely clear that this is far below what is actually needed to keep local roads and bridges from deteriorating further. The MMA membership is calling for a multi-year Chapter 90 program that includes authorizations of at least $300 million a year.

We are also pressing for important revenue reforms to allow cities and towns to collect the portion of the room occupancy excise being withheld by Internet re-sellers of rooms, to expand the room occupancy excise to cover seasonal rentals, and to end the obsolete “equipment” property tax loophole for telecommunication companies. In all three cases, these are straightforward reforms to account for changes in business practices and technology that have created unanticipated loopholes, so that our tax laws maintain their integrity and original intent.

The MMA’s budget agenda may appear to be ambitious. It has to be. The bottom line is that this is a critical time for our economy, and for cities, towns and local taxpayers. After four long years of cuts and cutbacks, of increased reliance on the property tax and diminished local services, Massachusetts is on the verge of a comeback. But that will only happen if cities and towns have the resources to adequately serve the residents and businesses of the Commonwealth.

This is the time – the budget season – to begin that comeback.