MMA testimony to Legislature outlines municipal concerns for fiscal 2019 state budget

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The Honorable Jeffrey Sanchez, House Chair
The Honorable Karen E. Spilka, Senate Chair
The Honorable Stephen Kulik, House Vice Chair
The Honorable Joan B. Lovely, Senate Vice Chair
The Honorable Elizabeth A. Malia, House Assistant Vice Chair
The Honorable Sonia Chang-Diaz, Senate Assistant Vice Chair
The Honorable Todd M. Smola, Ranking House Minority Member
The Honorable Viriato M. deMacedo, Ranking Senate Minority Member
Joint Committee on Ways and Means
State House, Boston
 
Dear Representative Sanchez, Senator Spilka, and Distinguished Members of the House and Senate Committees on Ways and Means:
 
On behalf of cities and towns in all parts of the Commonwealth, the Massachusetts Municipal Association is writing to support important funding for key municipal and school aid programs in the fiscal 2019 state budget bill that you and your colleagues in the House and Senate will consider in the coming weeks. 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. This is fundamental to our state’s economic success and competitiveness.
 
Cities and towns have a heavy reliance on local property taxes to fund essential local services, in spite of the reality that property tax revenues are strictly capped under Proposition 21⁄2. This property tax reliance creates enormous fiscal and operational challenges for local government, and communities can only function with a consistent and adequate state revenue sharing plan enacted annually by the Legislature. Recent changes to federal tax law, specifically the limit on the deductibility of state and local taxes (SALT), have made it even harder for cities and towns to use property tax revenues to maintain local services, pay debt service on capital projects and make progress on long-term liabilities such as pension and post-employment health insurance obligations.
 
Revenue sharing 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 the $37.2 million increase in the Unrestricted General Government Aid (UGGA) account included in House 2, the fiscal 2019 budget submitted by the Governor on January 24, and ask you to include this increase in your budget recommendations. This is a high priority for cities and towns across the state. The UGGA account is currently funded at $1.062 billion, and the 3.5 percent increase included in the Governor’s budget is certainly achievable, as it does not exceed the consensus revenue forecast for growth in state tax revenues.
 
Municipal aid was cut deeply during the Great Recession and earlier retrenchments, and this still year remains $253 million below the fiscal 2008 level of funding, without adjusting for inflation. The lagging recovery in municipal aid levels has increased local reliance on the property tax.
 
Linking UGGA funding to the growth in state tax revenues simply means that unrestricted aid tracks the estimated growth in the state’s revenue capacity, no more and no less, and provides 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.
 
It is important to note that the Governor’s funding recommendation is covered almost entirely by Lottery and gaming revenues, including $64 million in revenues from the Plainridge Park Casino that opened in 2015 and additional gaming revenues anticipated from the MGM Springfield Casino that will open later this year. Most of the remaining amount would come from local Lottery proceeds that the State Treasurer has forecast at $965 million next year.
 
We respectfully ask that the fiscal 2019 UGGA budget recommendation reflect the full forecast growth rate in state tax revenues, as proposed in House 2.
 
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 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 2019, which we believe should be at least $100 per student.
 
A significant majority of school districts only receive minimum aid, which is why this aspect of Chapter 70 is so important. Under the Governor’s recommendation, 201 school districts (63 percent of all operating districts) would receive an increase of only $20 per student. For many districts, this would represent another in a long series of years of receiving only minimum aid, which has forced a growing reliance on the property tax to fund schools that is not sustainable.
 
The extraordinarily high number of minimum aid districts demonstrates that the Chapter 70 foundation budget calculation for fiscal 2019 produces far too little aid for public education. Unless fundamental changes are made in the Chapter 70 calculation, the only way to make up for the inadequate Chapter 70 results is to increase minimum aid to $100 per student.
 
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.
 
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.
 
We appreciate the modest steps proposed in House 2 to implement these recommendations by an enhancement of the foundation factor for school employee health insurance benefits. This builds on the reforms started this year. However, unless the Foundation Budget Review Commission’s recommended corrections to the Chapter 70 formula are fully 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.
 
Cities and towns are providing special education services under a mandate imposed by state Government. Cities and towns 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.
 
The Governor’s budget would fund the Special Education Circuit Breaker program at $291 million, an increase of $9.9 million. Because funding for this year is about $25 million short of full funding and claims are expected to grow by 4.2 percent next year, this would leave funding approximately $28 million short in fiscal 2019, according to DESE estimates. This is a vital account that every city, town and school district relies on to fund state-mandated services. Thanks to your leadership, the Legislature has fully funded this program in past years, and we respectfully ask you to ensure full funding again in fiscal 2019.
 
REIMBURSEMENTS FOR SCHOOL AID LOSSES RELATED TO CHARTER SCHOOLS
The diversion of Chapter 70 school aid from local 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 2019, it is expected that assessments on cities and towns to support charter schools will increase by $66 million (about 11 percent) to $663 million. Assessments are slated to grow by $165 million (about 33 percent) during the three fiscal years of 2017, 2018 and 2019. This is not sustainable and has already undermined local public schools.
 
The $80.5 million appropriation in this year’s fiscal 2018 general appropriations act is estimated to be about $73 million below the full funding amount required in the statutory formula, which was signed into law just several years ago. The level funding of this account by the Governor in House 2 would result in a new shortfall of $90 million or more, according to recent DESE estimates.
 
The funding shortfall means that cities and towns are receiving a fraction of the reimbursements due according to state law, and this is having a deeply negative impact on 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, underfunding 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 2019.
 
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. Regional School Transportation. 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 $61.5 million this year. The Governor has proposed that reimbursements be level-funded in fiscal 2019. We respectfully ask that the House and Senate support increasing this key account to reflect higher transportation costs for communities and move the state closer to its full reimbursement commitment, which is about $87 million, according to MMA estimates.
 
2. McKinney-Vento. The State Auditor has ruled that the McKinney-Vento program is an unfunded mandate on cities and towns. Under the program, municipalities and school districts are providing very costly transportation services to bus homeless students to schools outside of the local school district. Full funding for fiscal 2018 is estimated at $22 million, but the Commonwealth level-funded the program at $8.1 million, creating a shortfall of almost $14 million in the current fiscal year. We respectfully ask that the House and Senate fully fund this state mandate at the full-funding estimate of $22 million in fiscal 2019.
 
3. Vocational Transportation. The fiscal 2018 state budget includes about $250,000 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 $3.8 million this year, and we respectfully ask that the House and Senate fully fund this account in the fiscal 2019 budget.
 
4. Non-Regional Schools. 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 eliminated 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 $26.8 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 $6 million in the fiscal 2018 General Appropriations Act. We respectfully ask that you maintain funding for this important crime prevention program.
 
A 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 legislative leaders secure an agreement on the $37.2 million increase in 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, ideally including a minimum aid increase of $100 per student, and a phase-in of the Foundation Budget Review Commission recommendations. An agreement would set the stage for a consensus Local Aid Resolution and a commitment to minimum municipal and school aid amounts during April. This would avoid the very difficult budget challenges that has occurred in the past for regional school districts and member cities and towns when required local contributions were not finalized until mid-July.
 
LOCAL OPTION TAXES
Like last year, the Governor ‘s budget submission introduced a limited modernization of the room occupancy excise (section 32) that recognizes major changes in technology and business practices in the short-term rental industry. The traditional model of away-from-home stays in hotels and bed- and-breakfast (B&B) establishments that are regulated and subject to the room occupancy excise are in competition with new online businesses operations such as Airbnb and HomeAway that avoid regulation and taxation. This has led to an unfair and distorted playing field in the industry, and a loss of revenue for both state and local government in Massachusetts.
 
We support the efforts in the House and Senate to update the law to reflect new business practices. While there are still discussions about details in the legislation, we support including strong room occupancy language in the budget bill or in separate legislation to enact an overdue update to short-term rental statutes this year.
 
SUMMARY
This is a critical time for our economy, and for cities, towns and local taxpayers. We respectfully ask that you adopt the local aid investments and targeted funding detailed above. The Massachusetts economy is growing. However, 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.
 
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 for your distinguished record of support, dedication and commitment to the cities and towns of Massachusetts.
 
Sincerely,
 
Geoffrey C. Beckwith
Executive Director & CEO