School Finance: Chapter 70 Program
FY11 Chapter 70 Aid and Required Contribution Calculations
August 25, 2010
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 FY11 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. The Massachusetts Foundation Budget is a description of how foundation budgets are calculated.
The inflation adjustment for FY11 foundation budgets is set at minus 2.2 percent. This is the first time since the advent of foundation budgets that the state and local price deflator index has been negative.
Enrollment fell from 940,984 in FY10 to 938,333 in FY11, a 0.3% decrease. The total statewide foundation budget fell from $9.089 billion to $8.921 billion, a decrease of $168 million or 1.84%.
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 FY11 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 30 percent of the amount above the target. This is double the 15 percent used in FY10. Although the anticipated 5 year phase-in toward 100 percent by FY11 has not been achieved, a factor of 30 percent does continue significant 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.
In FY11, each district's combined Chapter 70 aid and SFSF grants from FY10 are cut by four percent. Foundation aid then is added for 67 districts that would otherwise fall below their foundation budgets. The new Chapter 70 total is then reduced by 1.91 percent for all districts, with this second cut being replaced by SFSF and Education Jobs grants on a dollar for dollar basis.
$144 million in Edujobs money is then used to restore the 4 percent cut, and then to ensure that every operating district receives a minimum of $25 per pupil more than its combined total of Chapter 70 and SFSF grants in FY10.
Four districts received waivers in their FY10 contributions on June 30, 2010-too late to refect the impact of their aid for FY11 in the state budget signed on the same day. The Education Jobs and SFSF grants add a combined total of $2.2 million to ensure that their formula calculations are now intact.
Target Contribution Calculations
Determine the state-wide target local contribution level. Fifty-nine percent of the statewide foundation budget of $8,921,047,970 amounts to a total target local contribution of $5,263,418,302.
For FY11, the property percentage is set at 0.2956%, which is applied to each municipality's 2008 aggregate equalized property valuation. The income percentage is set at 1.3682%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2007 calendar year. When these two factors are applied state-wide, they yield a total local contribution of $ 6,396,357,604 with exactly half ($3,198,178,802) 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 FY11, 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 ($5,263,418,302).
A city or town's target local share presents the target local contribution as a percentage of its municipal foundation budget.
Calculation of the FY11 Increments Toward the Targets
Increase (or decrease) the city or town's FY10 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. The average mrgf is 2.85 percent and takes into account a four percent reduction in each community's unrestricted general government assistance. The result of applying the mrgf to the FY10 required contribution is the FY11 preliminary local contribution.
If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY11, 282 or 80 percent of the 351 cities and towns have a total of $366 million in excess local effort. For each of these communities the preliminary local contribution is reduced by an effort reduction percentage of 30 percent, totaling $110 million, to arrive at the FY11 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 FY10 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 FY11, 69 cities and towns have preliminary contributions that are below target, by $228 million. Those who fall below by more than 5 percent are required to make additional increments totaling $11 million to get closer to their effort goals.
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 and Education Jobs grants are not included in the net school spending requirement.