School Finance: Chapter 70 Program
FY15 Chapter 70 Aid and Required Contribution Calculations
January 22, 2014
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 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 FY15 foundation budgets is set at 0.86 percent, in accordance with the Chapter 70 statute, which stipulates usage of the ratio of the current year's third-quarter inflation index (2013 = 108.212) to the prior year's third-quarter index (2012 = 107.288). Enrollment grew from 938,083 in FY14 to 940,833 in FY15, a .3 percent increase. 56 percent of districts saw enrollment declines by as much as 15 percent. 41 percent of districts saw increases of as much as 18 percent.
The total statewide foundation budget increased from $9.711 billion in FY14 to $9.866 billion in FY15, a 1.6 percent rise. Of the §154.8 million increase, $14.7 million (10 percent) is related to removing the cap on regular education pre-kindergarten enrollment.
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 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 50 percent of the amount above the target.
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 2.5 percent below their target, an increment of either 1 or 2 percent will be added to their growth factor.
In FY15, the Chapter 70 aid calculation begins with each district's FY14 Chapter 70 amount. If the sum of that amount and the required local contribution is less than the district's foundation budget, then foundation aid is added to cover the gap. Finally, every district is guaranteed at least a $25 per pupil increase.
Target contribution calculations
Determine the state-wide target local contribution level. Fifty-nine percent of the statewide foundation budget of $9.866 billion amounts to a total target local contribution of $5.821 billion. For FY15, the property percentage is set at .3624%, which is applied to each municipality's 2012 aggregate equalized property valuation. The income percentage is set at 1.5113%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2011 calendar year. When these two factors are applied statewide, they yield a total local contribution of $7.072 billion with half ($3.536 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 the formula would fund a minimum of 17.5 percent of foundation through state aid, even for the wealthiest of communities. In FY15, 131 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 statewide foundation budgets, or §5.821 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 FY15 increments toward the targets
Increase (or decrease) the city or town's FY14 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 3.76 percent. The result of applying the mrgf to the FY14 required contribution is the FY15 preliminary local contribution.
If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY15, 279 or 80 percent of the 351 cities and towns have a total of $307.9 million in excess local effort. For each of these communities the preliminary local contribution is reduced by 50 percent of their excess effort to arrive at the FY15 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 2.5 percent below its target, the increment is 1 percent of the FY14 local contribution. If it is between 2.5 and 7.5 percent, the increment is 2 percent. If it is less than 2.5 percent, there is no additional increment. In FY15, 72 cities and towns have preliminary contributions that are below target, by $163 million. Those who fall below by more than 2.5 percent are required to make additional increments totaling $7.6 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.
Calculation of aid
The aid calculation begins with each district's FY14 Chapter 70 amount.
The difference between each district's foundation budget and its required contribution equals foundation aid. 59 operating districts receive increases over FY14 through this calculation.
Downpayment aid provides additional aid to districts whose required contributions are above their targets, to make up for expected reductions in those contributions in future years. The district's target aid percentage is multiplied by its foundation budget to determine how much the district would receive if the effort reduction were fully phased-in. If 35 percent of that amount is larger than the foundation aid increase calculated in the previous step, then the difference is its downpayment aid. 94 operating districts receive downpayment aid.
A minimum aid guarantee ensures that every district receives at least $25 per pupil in additional FY15 Chapter 70. 201 operating districts receive additional funding through this aid component.
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 FY15, the spending requirements remain fully in effect in accordance with statute.