Senate OK’s FY26 state budget bill that would increase key local accounts

The Senate yesterday approved a $61.4 billion state spending plan for fiscal 2026 that would make several significant investments in schools and municipalities.

The Senate’s budget bill would increase the main discretionary local aid account by 2.2% over the current fiscal year and raise Chapter 70 minimum new aid from $30 per pupil to $150. The Senate’s agreement with the House’s increase for minimum aid sets up continued progress on a key MMA priority, which is great news for the more than three-quarters of districts that were statutorily set to receive a significantly smaller Chapter 70 increase.

The Senate also adopted another MMA priority: reforms to the liquor license process that would give cities and towns greater control over the number of licenses in their communities.

The Senate spent three days on its budget debate, considering more than 1,000 amendments.

The Division of Local Services has updated preliminary Cherry Sheets to reflect the final Senate budget.

The following are key components of the final Senate budget for cities and towns:

UGGA
The Senate adopted the recommendation of the Senate Committee on Ways and Means for a 2.2% increase in Unrestricted General Government Aid, which would increase the account by $28.8 million over fiscal 2025. This figure matches what the governor proposed in her budget bill and would align UGGA growth with the consensus state revenue forecast. This local aid account helps cities and towns deliver vital services, and the proposed increase would help mitigate municipal overreliance on property taxes.

Chapter 70
The Senate budget would continue implementation of the funding schedules in the 2019 Student Opportunity Act.

The bill would leverage Fair Share income tax surtax revenues in order to increase minimum new aid to $150 per student, which would benefit 77% of school districts (245 out of 318) that were set to receive a smaller increase for fiscal 2026. This funding level matches the amount in the budget bill passed by the House on April 30.

Charter schools
The Senate budget would fund the charter school reimbursement account at $183.8 million, which would cover roughly 93% of the state’s statutory obligation to mitigate Chapter 70 losses to charter schools.

Special education
The Senate budget would fund the Special Education Circuit Breaker program at $492 million. The Senate version of a fiscal 2025 supplemental budget bill includes another $190 million for this account. Once the House and Senate reconcile both funding sources from each bill, it is expected that the Legislature’s final proposal would meet the state’s obligation for this account in fiscal 2026.

Rural schools
The Senate budget would fund Rural School Aid at $16 million for eligible towns and regional school districts. The grant program helps districts facing the challenge of declining enrollment to identify ways to form regional school districts or regionalize certain school services to create efficiencies.

School transportation
The Senate budget would fund regional school transportation reimbursements at $103.7 million for fiscal 2026. According to updated cost projections from the Department of Elementary and Secondary Education, this represents a roughly 84% reimbursement of anticipated claims.

The budget would also fund the account for transportation of homeless students under the federal McKinney-Vento program at $28.6 million for fiscal 2026. The impact of this funding level on a particular community would depend on the number of homeless families that remain sheltered in local hotels and motels.

The Senate budget would level-fund out-of-district vocational transportation at $1 million.

PILOT
The Senate budget would fund payments-in-lieu-of-taxes (PILOT) at $54.5 million, an increase of $1.5 million. This amount is expected to hold communities harmless from recent valuations.

Surtax investments
Fiscal 2026 is the third year for allocating revenue from the Fair Share surtax on annual incomes over $1 million. The Senate budget would use $1.95 billion to invest in education and transportation needs, including the following:
• Transportation Fund investment: $600 million for the Commonwealth Transportation Fund, which is a key component of the governor’s $8 billion, multi-year transportation plan. This infusion of funding would provide significant capacity to increase the Commonwealth’s bond cap, leading to future investments in transportation priorities, including in local roads, bridges and culverts. An expansion of the Commonwealth’s bonding capacity would enhance the prospects of a transportation bond bill — which includes Chapter 90 funding — currently in the Joint Committee on Transportation.

The Senate also included $190 million in surtax investments for local roads, bridges and culverts in its recent supplemental budget bill, which is now in a conference committee to reconcile it with a House version.

• Student Opportunity Act expansion: $240 million to raise minimum aid to $150 per pupil in fiscal 2026, on top of the $104 per pupil increase for fiscal 2025.

• Universal School Meals: $170 million to continue the Universal School Meals program, which allows all Massachusetts students to eat for free at school, regardless of household income.

Outside sections
During this week’s budget debate, the Senate adopted several MMA priority amendments addressing the following:
• Liquor license cap reform: The Senate budget bill would lift statutory liquor license caps and allow municipalities, at local discretion, to create a plan for the number of liquor licenses that it deems appropriate.

• Chapter 70 and local contribution study: In recognition of local school funding challenges, the Senate budget would have the Department of Elementary and Secondary Education study and make recommendations to improve the adequacy and equitability of the formula to determine a municipality’s target local contribution and required local contribution.

• MSBA special commission: The Senate budget would establish a special commission, including a designee from the MMA, tasked with studying and making recommendations regarding the Massachusetts School Building Authority’s capacity to meet the needs of current and future school facility projects.

The Senate budget also includes relevant outside sections that had been included in the proposal submitted by the Senate Committee on Ways and Means:
• UGGA distribution special commission: The Senate budget would establish a special commission to examine the distribution method for Unrestricted General Government Aid to municipalities — work that would have a direct impact on cities and towns. The panel would make recommendations to maximize equity in UGGA distributions for communities.

• Housing production dashboard: The Senate budget would have the Executive Office for Administration and Finance establish a housing production dashboard to provide information about state loans, grants, project-based vouchers and tax credits for the purpose of housing production or preservation.

Next steps
In the coming weeks, the House and Senate are expected to appoint a six-member conference committee to work out differences between their two state spending plans in order to present a final legislative budget to the governor.

Looming over the negotiations will be any potential impact on the Commonwealth from the ongoing federal budget reconciliation process, which will likely take place on the same timeline. Additionally, the House and Senate will also be negotiating a final version of a surplus surtax supplemental budget, which has its own implications for key local accounts in fiscal 2026.