District/School Administration Administration
The Massachusetts Board of Elementary and Secondary Education

Current Fiscal Conditions of Massachusetts School Districts

During the past several months, the Board of Education has begun a discussion on the fiscal conditions facing Massachusetts public school districts. The Board has heard considerable anecdotal evidence that a number of districts are facing financial difficulties that may be compromising their ability to provide quality educational services. At the Board's direction, the Department has conducted an initial investigation into district fiscal conditions in order to further this discussion and identify areas for possible Board action.

Our preliminary report from this investigation, "Current Fiscal Conditions of Massachusetts School Districts," was prepared by the Department's Office of Strategic Planning, Research, and Evaluation and the Office of School Finance. Our initial investigation found that:

• Academic expectations and challenges have risen, but spending on instructional services has not kept pace. From fiscal years 2002 to 2007, total spending by districts and spending per pupil have remained flat relative to inflation. At the same time, academic expectations for districts, schools, educators, and students have appropriately increased, and the demographic characteristics of the state's students have changed. Spending on instructional services is being crowded out by increases in other budget areas such as health insurance and out-of-district student placements. As a result, instructional services are declining as a share of total spending.

• On average, districts spend 18 percent more than their foundation budget, and nearly every district in the state is spending over foundation. This suggests that the current foundation budget formula may not reflect the cost of providing an adequate education to all students. Health insurance, payments to other districts, and teacher salaries were areas of particular concern; actual expenditures in these areas substantially outpaced the assumptions behind the foundation budget.

• Chapter 70 aid increases did not keep up with inflation between 2003 and 2006. From fiscal year 2003 to fiscal year 2006, most districts saw little or no increase in their aid, and many districts experienced cuts in fiscal year 2004. With the adoption of changes to the Chapter 70 formula in fiscal year 2007, aid has increased by more than 6 percent in each of the last two years. But after adjusting for inflation, state aid has only recovered to fiscal year 1999 levels, well below the high-water mark of fiscal year 2002.

• Despite the Chapter 70 aid cutbacks, many districts were able to maintain their overall spending levels, but only by increasing local funding, and, to a much lesser degree, imposing user fees for transportation and extracurricular activities. Although these actions helped protect school budgets, they created added pressure on municipal budgets and on parents and community members.

• A number of districts have experienced enrollment declines, which can have both a positive and negative fiscal impact. Declining enrollment should make it easier to maintain services when budgets are tight, but in extreme cases it may also require school consolidations and teacher layoffs. Declines have been especially common in districts that serve large percentages of low-income students.

• Districts have employed a variety of strategies to maintain services for students despite constraints in their instructional budgets. In some cases, staff reductions have compensated for higher-than-average salary increases. In other cases, lower-than-average salary increases have helped maintain staffing levels but leave the district at risk of not being able to attract qualified new teachers. Statewide, average salaries have grown more slowly than inflation but more quickly than assumed by the foundation budget, and student-teacher ratios have edged up slightly during the period.

In summary, at a time when districts need to be moving forward quickly to address their students' growing educational needs, they are hard-pressed to maintain their expenditure levels, let alone increase them to meet higher expectations. And unlike the situation in the late 1980s, when school budget cuts were disproportionately affecting the poorer urban districts, today's fiscal pressures appear to affect a much broader range of districts, including many middle-class communities that have traditionally taken great pride in the quality of their school systems.

The current statewide foundation budget is $8.4 billion. Some short-run increase in this funding level is likely necessary to address the rising cost of education in the Commonwealth. Beyond that, the Board of Education may wish to recommend a detailed study to update the foundation budget formula to ensure that it provides an adequate level of fiscal resources for both current and future needs. While the state continues to work toward a sustainable long-range funding plan, it will need to continue other initiatives to ensure that it is making the best use of its existing resources. Examples include:

• Creating incentives for local participation in the state health insurance and pension fund programs, to help bring the cost of these programs under control.

• Expanding the use of educational collaboratives and other regional entities to more efficiently provide services such as special education transportation, professional development, and specialized education programs.

• Helping districts to identify and adopt instructional practices and models that have been proven effective at improving student outcomes at a reasonable cost.

• Addressing the inefficiencies and lack of capacity created by the large number of small school districts in the state. Currently, 284 of the state's 328 operating districts serve fewer than 5,000 students.

Bringing all these resources to bear will allow districts to provide an adequate education to every child and allow the state to reach the vision and promise of education reform.

A copy of the report, as well as district-by-district data for the fiscal indicators mentioned in the report, will be available on our website at http://www.doe.mass.edu/research/reports/research.html.