School Finance: Chapter 70 Program
FY10 Chapter 70 Aid and Required Contribution Calculations
June 29, 2009
Chapter 70 is the Commonwealth's program for ensuring adequate and equitable K-12 education funding. It determines an adequate spending level for each school district (the foundation budget). It then uses each community's property values and residents' incomes to determine how much of the foundation budget should be funded from local property taxes. Chapter 70 state aid pays for much of the remaining amount, although in FY10 there is insufficient funding to pay for the entire difference.
Summary of how the formula works
A foundation budget is calculated for each school district, representing the minimum spending level needed to provide an adequate education. The foundation budget is adjusted each year to reflect changes in the district's enrollment; changes in student demographics (grade levels; low income status; English language proficiency); inflation, and geographical differences in wage levels. A description of how foundation budgets are calculated is available at .
The inflation adjustment for FY10 foundation budgets is set at 3.04 percent, in accordance with the state budget language.
Enrollment fell from 944,224 in FY09 to 940,985 in FY10, a 0.3% decrease. Fifty-nine percent of school districts saw declines in their enrollment. However, inflation is such a powerful factor in the calculation, most of them still saw significant increases in their foundation budgets. The total statewide foundation budget rose from $8.811 billion to $9.089 billion, an increase of $277 million or 3.2%.
A target local contribution establishes an ideal goal for how much each city and town should contribute toward its foundation budget, based on the municipality's wealth. Two measures of municipal wealth are used: aggregate property values and aggregate personal income levels, with each given equal weight. The target is recalculated each year based upon the most recent income and property valuations.
The target calculations assume that local contributions in total should cover 59 percent of the state-wide foundation budget (target local share), with state aid covering the remaining 41 percent (target aid share). The target local share and target aid share for any individual city or town will vary in proportion to the municipality's wealth. The target calculation also includes A maximum local share of 82.5 percent, thus ensuring that all communities will get some minimum amount of state funding.
The required local contribution for each municipality for FY10 is based on the previous year's required contribution, and includes some transition factors so that the shift toward the target levels occurs over a period of several years.
Municipalities whose local contribution requirements are now higher than their targets will see a reduction in the requirement of 15 percent of the amount above the target. This is less than the 33 percent used in FY09, and less than the 50 percent anticipated for this year, but it does continue the progress toward a more equitable formula.
Municipalities whose local contribution requirements are now lower than their targets will continue to see their requirements increased by the municipal revenue growth factor. If they are more than five percent below their target, an increment of either one or two percent will be added to their growth factor.
Most communities spend well in excess of their required levels. In FY08 actual local contributions were $1.255 million or 25 percent above the total required amount of $5.003 billion. In order to reflect this reality in the formula, a one-time adjustment is made for FY10. For those municipalities whose preliminary contributions (including the one or two percent increment) are below their target levels, FY10 required contributions are set at the lesser of their target contributions or 95% of actual FY08 local spending.
In FY10, each district's Chapter 70 aid is cut by two percent compared to the FY09 cherry sheet estimate. SFSF federal grants are available for 151 operating districts if this two percent leaves their required net school spending short of their foundation budgets. More information about the application process for the SFSF grants will be available on the ESE website early this summer.
The other aid components used in past years-down payment aid, growth aid, and minimum aid-are not calculated in FY10.
Target contribution calculations
Determine the state-wide target local contribution level. Fifty-nine percent of the statewide foundation budget of $9,088,557,473 amounts to a total target local contribution of $5,362,248,910.
For FY10, the property percentage is set at 0.2961%, which is applied to each municipality's 2008 aggregate equalized property valuation. The income percentage is set at 1.4977%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2006 calendar year. When these two factors are applied state-wide, they yield a total local contribution of $ 6,406,864,786 with exactly half ($3,203,432,393) coming from the property percentage and the other half from the income percentage.
Apply the property percentage and the income percentage to each individual municipality's aggregate property valuation and income, which determines the municipality's combined effort yield. Some municipalities have so much wealth, or a small enough student population, that their combined effort yield is excessive. The maximum local contribution is set at 82.5 percent of foundation budget, which means that when fully phased in, the formula would fund a minimum of 17.5 percent of foundation through state aid, even for the wealthiest of communities. In FY10, 108 communities are assigned this maximum contribution. A municipality's target local contribution is the lesser of the combined effort yield and the maximum local contribution. The total target local contribution for all municipalities, after taking into account the 82.5 percent cap, equals 59 percent of foundation budget ($5,362,248,910).
A city or town's target local share presents the target local contribution as a percentage of its municipal foundation budget.
Calculation of the FY10 increments toward the targets
Increase (or decrease) the city or town's FY09 required local contribution by the municipal revenue growth factor (mrgf). The mrgf has been calculated each year since FY94 by the Massachusetts Department of Revenue and quantifies the most recent annual percentage change in each community's local revenues (such as the annual increase in the Proposition 2½ levy limit) that should be available for schools. Proposed local aid cuts factor heavily into the mrgf. The average mrgf is .75 percent-the lowest ever. Deep reductions in FY10 municipal aid are directly reflected in mrgf's. 76 communities actually have negative factors that go as low as minus 6.6 percent. The result of applying the mrgf to the FY09 required contribution is the FY10preliminary local contribution.
If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY10, 193 or 55 percent of the 351 cities and towns have a total of $228 million in excess local effort. For each of these communities the preliminary local contribution is reduced by an effort reduction percentage of 15 percent, totaling $34 million, to arrive at the FY10 required local contribution.
If the preliminary local contribution is less than the city or town's target local contribution, an additional increment may augment the preliminary contribution. If the community is more than 10 percent below its target, the increment is two percent of the FY09 local contribution. If it is between 5 and 10 percent, the increment is one percent. If it is less than five percent, there is no additional increment. In FY10, 158 cities and towns have preliminary contributions that are below target, by $427 million. Those who fall below by more than 5 percent are required to make additional increments totaling $21 million to get closer to their effort goals.
If the resulting contribution is still below the municipality's target local contribution, then a one-time adjustment is made for FY10. The required contribution is set at the lesser of the target or 95 percent of what the city or town contributed in FY08 to all of the school districts it belongs to. This provision affects 115 communities whose required contributions increase by an additional $108 million. The net shortfall below target is $296 million.
Most cities and towns belong to at least one regional school district. Some operate a local district and are members of as many as three regionals. A municipality's total contribution is apportioned among the various districts to which it belongs, based on each district's share of the total foundation budget for all of the municipality's students.
Net School Spending Requirements
Each district must spend the sum of its required district contribution and its Chapter 70 aid. This sum is referred to as the "net school spending requirement." In spite of the difficult fiscal challenges confronting school and municipal officials, the spending requirements remain fully in effect in accordance with statute.
SFSF grants are not included in the net school spending requirement.