The Honorable Alice Peisch, House Chair
The Honorable Sonia Chang-Diaz, Senate Chair
Foundation Budget Review Commission
State House, Boston
 
Dear Representative Peisch, Senator Chang-Diaz and Members of the Commission,
 
On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association is writing to submit testimony regarding the state of the Commonwealth’s school finance system. Nearly 22 years have passed since the enactment of the landmark education reform act of 1993, and it is clear that many aspects of the law must be updated to ensure adequate and equitable funding for local schools. We have focused our comments on the foundation budget framework that is at the core of the Chapter 70 school finance law, and are also submitting comments on other aspects of the law and school finance that are very important to municipal officials, reflecting much of the input and testimony you received at the six public hearings that the Commission held across the state.
 
The Foundation Budget Is Inadequate
There have been a number of reports in recent years evaluating the adequacy of the foundation budget and Chapter 70 aid levels. These studies have agreed that the current foundation budget significantly understates the cost of providing an adequate education in local school districts, particularly related to certain foundation budget components. These conclusions are supported by school finance data collected by the Department of Elementary and Secondary Education (DESE). Clearly, the foundation budget in its current form does not reflect the amount needed to provide an adequate or acceptable education for the Commonwealth’s students.
 
DESE reports that for fiscal 2015, municipal and regional school districts statewide are spending an estimated $2.3 billion above local foundation budgets. This has been the trend for more than a decade, through good economic times and bad. This is fundamental proof that the foundation budget is inadequate. On average, cities and towns are spending 24 percent more than what is called for in the foundation budget framework, in spite of the reality that Unrestricted General Government Aid has been cut by nearly $400 million since fiscal 2008.
 
Measured in a slightly different way, DESE reports that estimated actual net school spending statewide in fiscal 2015 is expected to exceed the minimum required amount by $1.9 billion, or approximately 20 percent. This also is a long-term and growing trend.
 
Communities have funded their school budgets at above-foundation levels by reducing municipal services, reducing the number of municipal employees, increasing local reliance on property taxes and other local revenue sources, and shifting resources to school departments. This has been done because local leaders have concluded that simply appropriating the amounts called for in the foundation budget would be woefully inadequate, and would compromise the quality of public education in their schools.
 
Another major indicator that the foundation budget framework must be updated is the growing number of minimum aid school districts. Running the Chapter 70 formula through the current foundation budget framework implies (incorrectly) that there is no need for the state to increase education aid to a significant majority of cities, towns and districts. Indeed, 245 districts do not qualify for additional aid beyond the minimum amount set for distribution on a per-student basis. And all parties agree that recent minimum aid levels have fallen far short of inflation, meaning that each year the Commonwealth is contributing a dwindling share of the cost of educating students in these communities.
 
Messages regarding the inadequacy of the foundation budget were a loud and recurring theme during the six public hearings held by the Commission, providing ample evidence that the 1993 law is in need of revision.
 
Special Education
We join with the Massachusetts Association of School Superintendents (MASS) to support an increase in the foundation budget rates for “tuitioned-out special education enrollment” and “in-school special education enrollment” to better reflect the real and unavoidable costs of providing special education services to students with disabilities. Municipal and regional school districts are spending far more than the foundation budget rate, and more students are receiving special education services than assumed in Chapter 70. The foundation budget needs to be adjusted to reflect this reality.
 
At the March 10 meeting of the Commission, DESE reported that local school districts spent $1.6 billion on in-district special education services ($30,161 per in-district special education FTE student) in fiscal 2013. This per-student rate is 24 percent higher than the foundation rate of $24,368.
 
For out-of-district enrollments, DESE similarly reports that actual expenditures statewide ($516,640,265) are far higher than the foundation amount ($202,691,203), that actual FTE enrollments are substantially higher than the foundation assumption, and that the actual FTE per- student rate of $40,564 is nearly 60 percent higher than the foundation rate.
 
The substantial undercounting of special education costs is not new to the foundation budget. An analysis done by the Massachusetts Budget and Policy Center (MBPC) in 2011, Cutting Class: Underfunding the Foundation Budget’s Core Education Program, found that the foundation budget understates core special education costs – for in-district SPED teachers and out-of-district SPED tuition payments to specialized private schools – by about $1 billion. A 2013 DESE report on the status of school finance recommended that the foundation rate for out-of-district education be increased.
 
Employee Benefits
We support a substantial increase in the foundation rate for employee benefits and fixed charges to more accurately reflect the true cost of school employee benefits, mainly health insurance for active and retired employees. The upsurge in the cost of health insurance for public employees over the past decade was not anticipated in 1993, and consequently the foundation rate does not reflect actual costs. Despite municipalities and school districts making use of a wide variety of tools to restrain growth in health insurance costs, the foundation standard still lags far behind actual achievable costs.
 
The DESE presentation in March reported that local spending on employee benefits is 150 percent of the foundation rate. This serious mismatch between the foundation rate and actual spending was a key finding in the 2011 MBPC report, and the subject of a recommendation to remedy this deficiency in the 2013 DESE report. MASS also recommends that this foundation assumption be adjusted to accurately account for employee benefit obligations.
 
Low-income, English Language Learners and Other Students in Need of Services
Over the course of the public hearings, a number of municipal and school officials made a strong case that the foundation budget does not adequately recognize the cost of educating an increasing number of non-special-education students who require special services to succeed.
 
As a prime example, at the February 7 hearing in South Yarmouth, the Barnstable Superintendent of Schools described the increase in low-income students, in English Language Learner (ELL) students and state-defined “high need” students who are low-income, ELL or disabled, or any combination of the three. The Superintendent informed the Commission that 45 percent of the students in Barnstable schools are now classified as high need. We recommend that the Commission evaluate how the foundation budget currently accounts for the cost of providing best-practices services to high needs students, and ask that you support adjustments to accurately incorporate the true expense involved.
 
Improving the State-Local Share of Education Funding, Addressing Overall Adequacy, and Using Care in Reviewing the Impact of Foundation Budget Changes on Local Contributions and Chapter 70 Aid Amounts
The reality is that updating the special education, employee benefits and high-need student factors in the foundation budget will not go far enough to fully address issues related to the adequacy and equity of school funding for most school districts. We strongly urge you to review and improve the local contribution and school aid calculation factors in the Chapter 70 formula to address the major questions of adequate state funding levels and equity in the distribution. While these elements of Chapter 70 may not be within a narrow reading of the Commission’s charge, these matters are of great importance to cities and towns and local school districts, and have a direct impact on the quality of education.
 
It is our understanding that increasing the foundation budget would mean additional aid to some districts, but that a large number would be left behind, as their only new aid would come in the form of minimum per-student aid each year, and that other districts would receive less new aid than if the foundation budget remained unchanged. We strongly recommend that no changes to the foundation budget be proposed by the Commission until the impact on the local contribution and school aid amounts are available for public analysis and fully understood by all stakeholders.
 
In addition, we recommend that the Commission seek approval from the Legislature and Governor to expand the scope of work to include an evaluation of the how the local contribution and school aid amounts are calculated under Chapter 70 and in state budget acts. The Chapter 70 recommendation filed by the Governor for fiscal 2016 provides a minimum new aid amount of only $20 per student to 245 school districts. This has been a regular feature of Chapter 70 over the past several years with increasing numbers of districts facing no new aid, or aid cuts when the formula is run without a hold-harmless and minimum new aid provision. This indicates a school finance system that relies far too heavily on the property tax and that is unable to support quality education programs in most districts.
 
The MMA has proposed that the basic state-local share between Chapter 70 school aid and the local revenue contribution be reset from 41 percent (state) and 59 percent (local) to a 50 percent state – 50 percent local partnership. This would provide adequate and improved funding to more districts than could be achieved via input changes to the foundation budget alone, and would represent a much more equitable share of responsibility between state and local government.
 
Transparency and Accountability in Charter School Funding
The current method of funding charter schools is creating significant and growing financial difficulty for municipalities and school districts. The City of Newburyport raised this issue at Commission hearing in Danvers last November, as have many others. The general theme is that the amount of local Chapter 70 school aid that is withheld to be paid to charter schools as tuition, even after partial reimbursement, dramatically reduces resources for local public school districts, eroding the delivery of education services to the vast majority of students who do not attend charter schools.
 
The system lacks basic measures of transparency and accountability. There is no appropriation of tuition amounts at the state or local level, and no local approval of local public funds used in charter school budgets. In spite of this lack of transparency, in fiscal 2015, it is expected that cities and towns will be forced to divert $444 million to fund charter schools, 10 percent of all Chapter 70 dollars. In fiscal 2016, $55 million more will be diverted from Chapter 70 to fund charter schools, more than half of the $105.3 million in new Chapter 70 funds proposed in House One.
 
Further, the Commonwealth is not fully funding the charter school reimbursement formula set in state law (section 89 of Chapter 71 of the General Laws). In fiscal 2015, full funding would require $110.5 million, but the current appropriation is $76.86 million. Next year full funding would require $130.4 million, but the House One recommendation is to level fund at $76.86 million. Without these funds, cities and towns will be forced to reduce programming for the overwhelming majority of students who do not attend charter schools.
 
In addition to asking you to support full funding of the charter school reimbursement program, we ask you to recommend legislation to establish a separate appropriation process to fund charter schools at the state and local level, thus ensuring full transparency in the use of state tax revenues and local property tax dollars to fund charter school operations, rather than the current process that involves no specific appropriation of public tax dollars at either the state or local level.
 
Out-of-District Vocational Education Programs
We have heard from municipal and school officials across the Commonwealth that the rules governing out-district-vocational education programs are causing local financial problems.
 
Concerns are related to how vocational education students are recruited and accepted, how tuition is calculated, and the high cost of student transportation. Clarifying these questions would certainly ensure greater stability and predictability at the local level. In addition, we ask the Commission to also recommend that the Legislature fully fund the out-of-district vocational student transportation reimbursement program that was last funded in fiscal 2014.
 
Summary
We thank you and the members of the Commission for convening public hearings across the state over the past four months, and inviting input from all stakeholders. We hope you agree that the message is clear – the foundation budget framework must be updated, and action is also required on a number of priorities that are integrally related. The consistently high attendance and quality of the testimony you heard reflects the deep passion and concern that municipal and school officials have regarding funding, resources and support for local schools. The MMA’s comments are intended to underscore the wide scope of issues that must be addressed, and we urge swift action to reignite the progress and momentum that was first generated 22 years ago.
 
Please contact us at any time if you have any questions or need additional information by having your office reach out to me or MMA Legislative Director John Robertson at (617) 426-7272 ext. 122, or jrobertson@mma.org.
 
Thank you very much.
 
Sincerely,
 
Geoffrey C. Beckwith
Executive Director & CEO, MMA

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