MMA letter to governor outlining municipal priorities for FY17 state budget

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His Excellency Charles D. Baker
Governor of the Commonwealth
State House, Boston
Dear Governor Baker,
On behalf of the cities and towns across the state, the Massachusetts Municipal Association is deeply grateful for your commitment to achieving a revitalized local-state partnership to move the Commonwealth forward in the coming years.
We look forward to working with you and your administration to bring stability and strength to municipal and state finances and key policy priorities.
A strong and enduring partnership between cities and towns and state government is essential to a healthy and expanding economy and to the ability of local government to provide world-class education and municipal services, ensure safe streets and neighborhoods, and maintain local roads and vital infrastructure. These services are fundamental to our state’s economic success and competitiveness.
We are writing today to provide you with background information on important funding priorities and investments in key municipal and school aid programs that will be included in the fiscal 2017 state budget bill that you will file in January.
As you know, the Great Recession and the weak economic recovery have undermined the fiscal health of cities and towns, and communities will continue to face enormous fiscal challenges unless the Commonwealth embraces a revenue sharing approach to reinvest in local aid. The Massachusetts Taxpayers Foundation recently reported that cities and towns are in an era of “limited growth” where municipal revenue growth is smaller than previous rates, and local governments are facing serious long-term pension, retiree health insurance and fixed-cost liabilities that are rising faster than revenues.
Despite a tightly capped property tax, municipalities are more reliant on the property tax to fund essential services than at any time in the past 30 years. Adequate funding for municipal and education aid is necessary in order for cities and towns to provide the basic local and school services that the residents of Massachusetts deserve and expect, and to mitigate today’s overreliance on the most regressive of the major revenue sources in the state, the property tax.
Unrestricted General Government Aid (UGGA)
We strongly support an increase in the Cherry Sheet Unrestricted General Government Aid (UGGA) account of at least the same percentage that state tax collections for fiscal 2017 are forecast to grow through the state “consensus” revenue process, including distribution of the full municipal share of Lottery and other gaming revenue. The UGGA account is currently funded at $979.8 million. With the range of estimates from the December 16 hearing in the vicinity of 4 percent growth, this revenue sharing framework would result in an increase next year of approximately $39.2 million.
Municipal aid was cut deeply during the Great Recession and earlier retrenchments, and this year remains $334 million below the fiscal 2008 level of funding, without adjusting for inflation. 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.
Linking UGGA funding to the growth in state tax revenues would simply mean that unrestricted aid would track the growth in the state’s revenue capacity, no more and no less, and would provide cities and towns with much-needed funds to deliver vital services that are critical to our overall economic growth, and ensure that today’s municipal overreliance on the property tax will not deepen. We appreciate your support for a revenue sharing framework, and urge its full implementation in your fiscal 2017 budget submission.
During your campaign for the Corner Office, we note that you agreed with the MMA’s call to increase UGGA by the same rate as the growth in state tax revenues, with the condition that in your first budget (fiscal 2016), you would provide a minimum of 75 percent of the growth rate, and provide 100 percent each year thereafter (fiscal 2017 and beyond). We deeply appreciate your leadership on municipal aid in the fiscal 2016 budget debate, and respectfully ask that your fiscal 2017 UGGA budget recommendation reflect the full growth rate in state tax revenues.
CHAPTER 70 school aid
There are two important elements to ensuring progress in funding Chapter 70 education aid: 1) adequate funding for the current Chapter 70 framework; and 2) implementation of the Foundation Budget Review Commission’s recommendations to correct major outdated and obsolete aspects of the foundation budget itself.
First, we strongly support a funding increase for Chapter 70 school aid that is sufficient to allow all municipal and regional school districts to reach the “foundation” level of spending, implement the target share/down payment aid equity provisions adopted in 2006, and provide an adequate amount of minimum aid that ensures that all schools receive a suitable and appropriate increase in fiscal 2017, which we believe should be at least $100 per student.
A significant majority of school districts only receive minimum aid, which is why the minimum aid aspect of Chapter 70 is so important. In fiscal 2016, Chapter 70 included minimum aid of only $25 per student. Most districts received such a small Chapter 70 increase that state funding to their schools declined as an overall percentage of the budget, and they were forced to reduce programing, increase their reliance on the property tax or divert funds from the municipal side of the budget.
Second, we strongly support implementation of the recommendations of the Foundation Budget Review Commission to update the Chapter 70 “foundation budget” minimum spending standards for special education and health insurance costs for school employees, and to add to the spending standard a measure of recognition for the cost of services for low-income, English Language Learner (ELL) and other students who would benefit from more intensive services. The Commission recommends phasing in the changes over a four-year period, a position the MMA supports as well.
These recommendations, approved in June 2015 and October 2015 by the Commission, would update the increasingly obsolete foundation budget and restore some measure of credibility to the standard developed as part of the landmark education reform law of 1993. The recommendations reflect broad agreement among Commission members, including representatives from your administration and executive branch education agencies, that the foundation budget does not reflect the real cost of educating students because the special education and health insurance factors are seriously understated.
The financial consequences of the obsolete Chapter 70 formula are enormous. In fiscal 2015 (the most recent year with complete data), cities, towns and regional school districts spent $12.2 billion in actual net school spending under Chapter 70, which is $1.9 billion or almost 20 percent more than the required amount in the outdated foundation budget. The state’s contribution totaled $4.4 billion, or only 36 percent of actual spending. The increasing reliance on the property tax and other municipal revenues to fund schools is not sustainable. Unless the Foundation Budget Review Commission’s recommended corrections to the Chapter 70 formula improvements are implemented, it is inevitable that the quality of public education here in Massachusetts will decline, undermining the state’s knowledge-based economy.
Special Education “Circuit Breaker”
We support full funding of the Special Education “Circuit Breaker” Program, through which the state provides a measure of support for services provided to high-cost special education students.
Under section 5A of Chapter 71B of the General Laws, the state’s share is 75 percent of costs that exceed four times the state average per pupil foundation budget. This is an essential program that provides critical funding to assist all school districts with the increasingly burdensome and volatile cost of complex and expensive special education services.
Reimbursements for this and related programs in fiscal 2016 are funded at $271.7 million, which reflects the original estimate of the state’s full share of costs. We hope that the full 75 percent will be provided when the state’s final fiscal 2016 obligation under the law is calculated.
Cities and towns are providing special education services under a mandate imposed by state government, and communities recognize the importance of these services to the schoolchildren who rely on these programs to achieve their maximum educational potential, which is why cities, towns and school districts are committed to meeting their obligations as mandated by the state. The Circuit Breaker formula is intended to partially fund the state mandate, and thus we know this program resonates with you, as you have clearly outlined your opposition to imposing unfunded mandates on local taxpayers. We respectfully ask that your fiscal 2017 budget submission reflect the estimated cost of fully funding the Circuit Breaker program in the coming year.
Reimbursements for school aid losses related to charter schools
The diversion of Chapter 70 school aid away from public schools to pay tuition to charter schools has imposed a major and growing financial burden on cities and towns, a problem made more acute as the state grants more charters and existing charter schools expand. Local officials strongly support full funding of the Commonwealth’s commitment under section 89 of Chapter 71 of the General Laws to reimburse school districts for the loss of a portion of their Chapter 70 aid that is redirected to fund charter schools.
In fiscal 2016, it is expected that cities and towns will be forced to divert almost $500 million to fund charter schools, more than 10 percent of all Chapter 70 dollars. This illustrates the importance of this issue to local governments, and is why it is critical for the state to meet its statutory commitment to this program. The $80.5 million appropriation in the fiscal 2016 general appropriations act is estimated to be between $50 million and $60 million below the full funding amount required in the statutory formula, which was signed into law only a few years ago.
The funding shortfall means that cities and towns are receiving a fraction of the reimbursements due according to state law, and this is impacting a large number of communities. When charter school reimbursements fall short, communities are forced to cut other programs and services to make up the difference. Of the cities and towns with the largest shortfalls, most of have been deemed by the state to have underperforming schools. These include some the state’s poorest and most financially distressed cities and towns. Thus, the underfunding of the charter school reimbursement formula is harming the most vulnerable and challenged school districts and communities.
We continue to call on the Commonwealth to close this year’s gap, and to appropriate the full amount necessary to meet the state’s statutory obligation in fiscal 2017.
Student transportation reimbursements
Another critical budget priority is funding to assist cities, towns and school districts with the cost of transporting schoolchildren. There are four aspects to this important budget priority: 1) reimbursements to regional districts; 2) the transportation of homeless students under the McKinney-Vento program; 3) transporting out-of-district vocational students; and 4) renewed reimbursements to regular (non-regional) school districts. A brief summary of each of these transportation funding issues follows below.
1) Funding for transportation reimbursements to regional school districts is vital to all regional districts and their member cities and towns, particularly in sparsely populated parts of the state. Decades ago, the state promised 100 percent reimbursement as an incentive for towns and cities to regionalize, and the consistent underfunding of this account has presented serious budget challenges for these districts, taking valuable dollars from the classroom. This account was funded at $59 million this year, which is significantly lower than the original pre-9C appropriation in fiscal 2015. We respectfully ask that you support increasing this key account to reflect higher transportation costs for communities and to move the state closer to its full reimbursement commitment.
2) The State Auditor has ruled that the McKinney-Vento program is an unfunded mandate on cities and towns. Under the program, communities are providing very costly transportation services to bus homeless students to schools outside of the local school district. Full funding for fiscal 2016 is estimated at $20.1 million, but the Commonwealth level-funded the program at $8.35 million, creating a shortfall of over $11.75 million in the current fiscal year. We respectfully ask that House 2 fully fund this state mandate, which would require $20.1 million plus the amount necessary to meet rising costs.
3) The fiscal 2016 state budget includes a $1.75 million item to reimburse communities for a portion of the cost of transporting students to out-of-district placements in vocational schools, as mandated by state law. This account recognizes the significant expense of providing transportation services for out-of-district placements, as these students must travel long distances to participate in vocational programs that are not offered locally. Full funding would require an estimated $3.9 million this year, and we respectfully ask that you fully fund this account in your fiscal 2017 budget submission.
4) Finally, we support a renewed reimbursement program for non-regional school districts to help fund a portion of the burden of student transportation costs. The program was removed from the state budget during a time of economic distress. Restoring funding would benefit school districts in every corner of the state, and would provide important relief that would allow communities to use more of their Chapter 70 aid and local property tax dollars in the classroom.
Payments in lieu of taxes (PILOT)
We support full funding of the Commonwealth’s obligations and commitments to the program for payments in lieu of taxes for state-owned land (PILOT). This is a particularly important program for the cities and towns that host and provide municipal services to state facilities that are exempt from the local property tax. This account is currently underfunded at $26.77 million, and it is still below the $28.3 million funding level provided in fiscal 2008.
Shannon Anti-Gang Grant Program
We support continued funding for the Shannon anti-gang grant program that has helped cities and towns respond to and suppress gang-related activities. The program was funded at $7 million in the fiscal 2016 General Appropriations Act. We respectfully ask that you maintain funding for this important crime prevention program in House 2.
Local aid resolution to facilitate timely budget decisions at the local level
Cities, towns and regional school districts need timely notice of the main municipal and school aid accounts in order to prepare and approve forward-looking local revenue and spending plans. We ask that state leaders secure an agreement on our requested Unrestricted General Government Aid (UGGA) amount for next year, and also agree on a methodology for calculating Chapter 70 local contribution and school aid levels (including the MMA’s Chapter 70 funding recommendations). An agreement would set the stage for a consensus Local Aid Resolution and a commitment to minimum municipal and school aid amounts during March. This would avoid the very difficult budget challenges that occurred in fiscal 2014 for regional school districts and member cities and towns when required local contributions were not finalized until mid-July.
This is a critical time for our economy, and for cities, towns and local taxpayers. We know that you are an outstanding partner for communities across the Commonwealth, and we look forward to working with you to make real progress over the coming years. Massachusetts is starting to find some new vigor in its economy, but it is clear that the Massachusetts economy will only reach its 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.
Thank you very much for your support, dedication and commitment to the cities and towns of Massachusetts.
Geoffrey C. Beckwith
MMA Executive Director & CEO
cc: The Honorable Karyn Polito, Lt. Governor of the Commonwealth
Secretary Kristen Lepore, Executive Office for Administration and Finance