From The Beacon, March 2013
The governor has proposed a sweeping plan to reshape state taxes and make forward-looking investments in transportation and education. These investments are very important to local government. For many months, it has been apparent that a significant increase in revenues will be necessary to adequately solve the state’s transportation finance crisis. In addition, the early education investments called for by the governor would require additional revenues as well. The ensuing debate over state taxes will add greater complexity and uncertainty to the state’s budget-setting process this year.

Cities and towns face a fifth year of very serious fiscal challenges and adversity due largely to the lingering impact of the Great Recession and the excruciatingly slow and weak economic recovery. Uncertainty will make the difficult local budget process much tougher, which is a key reason why it would be best for the Legislature to commit to investments in key municipal, education and transportation aid programs as early as possible.

Local revenues and spending have been growing at historically slow rates, even after accounting for the local-option sales tax on meals and expanded room occupancy excise enacted in 2009 and the landmark municipal health insurance reform law enacted in 2011. Cities and towns across the state are using and leveraging these new options as best they can to preserve jobs and protect services, and local leaders appreciate these important tools. Overall, though, the impact of these measures has been more than offset by cuts to municipal and school aid programs in the state budget since the beginning of fiscal 2009 and by weakness in the property tax and other municipal revenues.

Reductions in state aid to local government, particularly municipal aid, have translated into deepening over-reliance on the property tax and cuts in core services to residents and businesses. This is a trend that places enormous fiscal stress on cities and towns and undermines their ability to take care of basic obligations, including schools and public safety.

As a result of favorable actions by the Legislature last year, unrestricted municipal aid increased in fiscal 2013 for the first time since the Great Recession began, although, because of the severity of cuts to this category of aid, the funding level presently remains $416 million below the fiscal 2008 pre-recession level. This has unavoidably resulted in reduced police, fire, public works and other municipal services, and in less funding for schools.

For fiscal 2014, the MMA is seeking an increase in unrestricted municipal aid at the same rate that state tax collections grow. This is a basic form of state revenue sharing with cities and towns, and it would result in an increase of 3.9 percent, or a $35 million boost to Unrestricted General Government Aid.

The governor has proposed to level-fund the UGGA account at $899 million and create a new municipal aid account called Annual Formula Local Aid that would be funded at $31 million for fiscal 2014 and allocated through a new formula. For fiscal 2015 and years thereafter, it appears that 25 percent of the aid would be subtracted and set aside for a new program of “incentive” aid that would be withheld unless cities and towns make changes in practices under regulations to be established by the Executive Office for Administration and Finance, although it is our understanding that the intent behind this provision is for the incentive aid to be funded through a transfer from other available funds and not from the AFLA appropriation.

A $35 million increase in unrestricted municipal aid is a fair and balanced target, especially since $10 million of this would come through projected growth in local Lottery revenues. Further, cities and towns must oppose any restrictions or conditions on unrestricted municipal aid, as this would impose an unworkable one-size-fits-all method of evaluating communities, and would make it impossible for cities and towns to include the restricted portion of aid in their annual operating budgets to support ongoing programs and services, as these funds would be speculative and subject to disbursement by a state agency and not the Legislature, based on undefined agency-set rules. If an incentive program is included in the budget, this should be in a totally separate program and line item in addition to unrestricted municipal aid, and it should be funded by a transfer from the General Fund or another revenue source.

The governor has proposed a $226 million increase in Chapter 70 school aid to pay for the state’s basic obligation to ensure that all municipal and regional school districts can reach the foundation level of spending. The plan also expands the foundation budgets for all districts through changes to special education and pre-kindergarten enrollment factors, fully implements the 2007 equity reforms in one year, and provides a minimum of $25 per student in new aid for all districts.

The governor’s recommended level of funding is a solid proposal. Many districts, however, would be required to increase local contributions faster than the growth in local revenues, which would create real and painful problems. It will be important for the Legislature to take steps to mitigate excess increases in required local contributions.

For all that has been made of the proposed formula changes, nearly half of the state’s cities, towns and school districts would only receive a $25-per-student increase, which underscores the importance of minimum aid to ensure that all communities share in an increase in Chapter 70.

The MMA is asking the Legislature to fully fund the Special Education Circuit Breaker program, which would require an increase of nearly $15 million beyond what the governor is proposing. The program is a top priority because these funds flow directly to every city, town and school district. Although the governor’s proposed changes in the Chapter 70 formula would add additional weight for out-of-district placements, most communities would not see an increase in their Chapter 70 aid as a result. (Nearly half the districts would only receive minimum aid.) This means that fully funding the circuit breaker program is essential to ensure that all districts receive funds to offset a portion of the cost of this state-mandated program.

The MMA is asking the Legislature to restore funding to regional school transportation and McKinney-Vento reimbursements, programs that were cut mid-year by the governor. This would require an additional $6 million in the state budget.

In addition to direct funding, cities and towns would benefit from several key reforms that could be added to the budget, including updating the state and local room occupancy excise to bring consistency to the law and end the exemption for non-owner-occupied vacation or leisure rentals, and also ending the gaping loophole through which Internet re-sellers of rooms avoid paying the full room occupancy excise. These are straightforward reforms to update the law to account for changes in business practices and technology.

Resolving the state’s transportation finance crisis and investing in our crumbling roads and bridges is also an urgent priority. The future of the Massachusetts economy will depend on a solvent and modern transportation system.

From the municipal perspective, it is imperative that Chapter 90 funding be increased to at least $300 million a year, a need that has been clearly documented by the MMA’s recent study, which reveals that the current funding level of $200 million is far below the annual cost of $562 million that cities and towns would need to spend to have their roads maintained in a state of good repair, which is the industry standard.

A key concern for local government is accessing Chapter 90 funds in a timely manner. By statute, the state is required to release Chapter 90 authorizations to cities and towns by April 1, so that communities can make full use of the construction season and avoid costly project delays. Unfortunately, the state has missed this deadline for the past two years, cutting the local construction season nearly in half, adding to project backlogs, and making it extremely difficult for communities to undertake important maintenance and repairs. If passage of the comprehensive transportation package will be delayed beyond April 1, the state should fast-track Chapter 90 in a stand-alone bill in order to meet the April deadline and allow cities and towns to make full use of the construction season.

Dozens of questions surrounding these top priorities are unanswered, and the weeks ahead will provide greater clarity for cities and towns. Local taxpayers are depending on state officials to address all of these issues very soon, so that municipal budgets can be set, investments can be made, and localities can work with the state in close partnership to strengthen our economy.

This is a critical time for cities, towns and taxpayers. After five 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 comeback will only happen if cities and towns have the resources to adequately serve the residents and businesses of the Commonwealth.

 

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