Full municipal aid increase necessary for local fiscal stability

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From the Beacon, June 2017
Cities and towns in Massachusetts are responsible for a great variety of public services that are highly valued by citizens and businesses and that play a fundamental role in the state’s economic future. In addition to public education, these services include police, fire and emergency protection for 6.8 million residents and thousands of businesses; the maintenance of 30,000 miles of roads and bridges; essential planning, housing and economic development programs; and the vital cultural and human services that are provided locally. These local municipal services are crucial to attracting and retaining families, businesses, jobs and investment in our state.
Each year, city and town leaders do their best to cobble together budgets to fund and maintain these services, and each year the task gets even harder. That’s because communities are not fiscally independent – they rely on state-funded local aid programs to close the huge mismatch between the cost of delivering essential programs and the money available from local revenue sources. For example, in fiscal 2016, municipal and school services cost $26.3 billion, but the property tax generated $15.18 billion. Without local aid to help close this massive gap, cities and towns would be unable to function effectively, taxpayers would pay even higher property taxes, and the Massachusetts economy would sag.
Looking ahead, the good news is that the governor, House and Senate have all advanced fiscal 2018 budget proposals that would continue to support growth in local aid, with an increase of $39.9 million for Unrestricted General Government Aid, the major municipal aid program. It is safe to say that every city and town in Massachusetts is counting on all of this aid to balance their budgets and is relying on the full increase to deliver basic services.
Local leaders and the MMA deeply appreciate the municipal aid increases that the Legislature and the governor have enacted over the past several years. State officials have sincerely embraced a stronger fiscal partnership, and the results are evident – the Massachusetts economy is stronger than almost any other state.
We only need to look to Connecticut, our neighbor to the south. During the last few years, the state has lurched from budget crisis to budget crisis and has continued to cut funding for local aid. Cities and towns have suffered and curtailed services, the Connecticut economy has spiraled downward, state revenues have fallen even more, and the state now faces a $2 billion budget shortfall.
Strong communities provide the foundation for economic stability and growth, and Massachusetts leaders know this.
Yet it is also important to recognize all of the facts about municipal aid funding here at home. Even with the $39.9 million increase for fiscal 2018, municipal aid will still be $253 million lower than it was 10 years ago. After considering inflation, the real reduction in UGGA has been $621 million over the past decade. In fiscal 2009, 2010, 2011 and 2012, local aid suffered extremely deep cuts, falling more than 30 percent from its high point of $1.315 billion. With local aid levels reduced so deeply, cities and towns have increased their reliance on the property tax, which is now at its highest point of the Proposition 2½ era, and they decreased the municipal (non-school) workforce by approximately 15,000 employees, according to U.S. Census Bureau Data reported by Governing magazine.
In normal years, local aid would be a settled issue by June. However, lower-than-expected state tax collections have created (at least for the time being) a $462 million gap in this year’s fiscal 2017 state budget. This is leading many to speculate that the House-Senate budget conference committee that will shape the final fiscal 2018 budget recommendation may propose across-the-board reductions if they believe the lower revenue trend will continue into next year.
The MMA is asking the Legislature and governor to protect municipal aid during this process. This is essential for fiscal stability in the delivery of all local services, from public education to public safety to public works, and everything in between.
Beyond the imperative to protect local services, there are several compelling reasons why communities should receive their full $39.9 million UGGA increase.
First of all, more than 97 percent of UGGA funding comes from the state Lottery and expanded gaming, revenues that are dedicated exclusively for unrestricted municipal aid by state law. This accounts for $1.029 billion of next year’s $1.062 billion UGGA appropriation. Every penny of Lottery and gaming proceeds is intended to flow directly to cities and towns and should not be diverted to the state for any purpose.
Second, when we look at the state tax-dollar contribution to UGGA, it is already at historically low levels. Out of more than $25 billion in state tax revenues projected for next year, only $33 million would go to UGGA. In contrast, in fiscal 2008, the state contributed $493 million of its tax revenue to fund local aid. That’s correct – even with the full $39.9 million UGGA increase in fiscal 2018, the state will have reduced its own-source appropriation to fund local aid by $460 million over the past 10 years.
Third, lowering UGGA funding below the full funding amount that communities are counting on would trigger mid-year budget disruptions throughout the state. The vast majority of cities and towns have already adopted their budgets. If local aid is reduced at this late date, communities would be forced to reopen their budgets to impose budget cuts and reduce services. Since every city and town uses UGGA to fund its schools (that’s part of the Chapter 70 education finance law), this means that school budgets would be disrupted, too. And these budget problems would continue well into the fiscal year, since 85 percent of communities have town meetings that meet for only one or two sessions a year.
This is a critical time for our economy, and for cities, towns and local taxpayers. The Massachusetts economy is growing, but we will only reach our full potential for statewide growth and job creation if all 351 cities and towns have the resources to adequately serve the residents and businesses of the Commonwealth. That’s why UGGA funding is so important.
We respectfully and urgently ask the state to maintain the full expected municipal aid increase.