School Finance: Chapter 70 Program
FY12 Chapter 70 Aid and Required Contribution Calculations
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 all of the remaining amount.
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 FY12 foundation budgets is set at 1.78 percent, in accordance with the Chapter 70 statute which stipulates usage of the ratio of the current year's third-quarter inflation index (2010 = 119.084) to the prior year's third-quarter index (2009 = 116.999).
Enrollment fell from 938,329 in FY11 to 937,307 in FY12, a 0.1% decrease. Although sixty-one percent of school districts saw declines in their enrollment, cities in particular experienced substantial growth.
The total statewide foundation budget increased from $8.921 billion in FY11 to $9.119 billion in FY12, a 2.22 percent Increase. 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 FY12 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 20 percent of the amount above the target. This is less than the 30 percent used in FY11, and less than the 100 percent anticipated by this point when the model was first put in place in FY07. The progress toward a more equitable formula does continue, albeit over a longer time span.
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 FY12, the Chapter 70 aid calculation begins with each district's FY11 Chapter 70 amount, plus its State Fiscal Stabilization Fund (SFSF) federal grant which was part of the formula that year. If the sum of those amounts and the required local contribution is less than the district's foundation budget, then foundation aid is added to cover the gap.
The FY11 Chapter 70 base totals $3.851 billion statewide. SFSF grant amounts add another $21 million.
Ninety-nine districts receive an additional $119 million in foundation aid.
In FY11 $200 million in federal Education Jobs grants were also included in the formula, yielding a combined total of $4.072 billion in aid. That one-time stimulus money does not recur in the FY12 calculations which total $3.991 billion. The net result is a decrease in funding of $81.5 million (two percent).
The budgetary impact of this decrease will likely be mitigated by the fact that many districts have not applied for their full Education Jobs entitlement for use in FY11. Districts have until September 30, 2012 to expend their entitlement, and more than half the money is still available as of this date.
Target contribution calculations
Determine the state-wide target local contribution level. Fifty-nine percent of the statewide foundation budget of $ 9,119 billion amounts to a total target local contribution of $5,380 billion.
For FY12, the property percentage is set at 0.3148%, which is applied to each municipality's 2010 aggregate equalized property valuation. The income percentage is set at 1.4641%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2008 calendar year. When these two factors are applied state-wide, they yield a total local contribution of $ 6.451 billion with half ($3.225 billion ) 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 FY12, 116 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 ($5.380 billion).
A city or town's target local share presents the target local contribution as a percentage of its municipal foundation budget.
Calculation of the FY12 increments toward the targets
Increase (or decrease) the city or town's FY11 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 state average mrgf is 2.99 percent. The result of applying the mrgf to the FY11 required contribution is the FY12 preliminary local contribution.
If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY12, 257 or 73 percent of the 351 cities and towns have a total of $293 million in excess local effort. For each of these communities the preliminary local contribution is reduced by an effort reduction percentage of 20 percent, totaling $59 million, to arrive at the FY12 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 FY11 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 FY12, 94 cities and towns have preliminary contributions that are below target, by $211 million. Those who fall below by more than 5 percent are required to make additional increments totaling $10 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 fiscal challenges confronting school and municipal officials in FY12, the spending requirements remain fully in effect in accordance with statute.