Massachusetts School Revenues FY00-FY12 (in billions)

Understanding the Nuts and Bolts of the Foundation Budget and Local Contribution

Roger HatchMelissa King

MASBO Annual InstituteMay 17th, 2013

Massachusetts School Revenues FY00-FY12(in billions)

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Governor’s 2014 BudgetHighlights

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Foundation Budget• All eligible regular education pre-kindergarten pupils

now count in the foundation budget.• Out-of-district special education rate is raised by

$10,000

Local Contribution• For the first time, there is full phase-in of the equity

component of the formula changes put into effect in FY07.

• Communities below their local effort targets are required to reach them at a faster pace than in past years.

Aid• Every district receives at least a $25 per pupil

increase.

The proposal increases aid from $4.171 billion to $4.397 billion, an increase of $226 million or 5.4 percent.

State Budget Process

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The release of the Governor’s budget is the first step in a budget process that concludes in June with the passage of the final budget, known as the General Appropriations Act

(GAA).

Chapter 70 Defined

• Chapter 70 is the Commonwealth’s school funding statute. – The program seeks to ensure adequate and equitable

school funding for all Massachusetts public pupils. – It defines and calculates an adequate funding level

for each district, given the specific grades, programs, and demographic characteristics of its students.

– It then determines how much of that “foundation budget” should be paid for by each city and town’s property tax, based upon the relative wealth of the community.

– The remainder is funded by Chapter 70 state aid.

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Chapter 70: Three Basic Steps

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Districts receive different levels of chapter 70 aid, because their community’s ability to pay differs

17.5% 18.1%26.0%

38.8%48.2%

53.6% 56.7%

73.7%

95.6%

0%10%20%30%40%50%60%70%80%90%100%

FY14 Preliminary Chapter 70 as a % of Foundation

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Key Factors in School Funding Formula

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Foundation Budget• Enrollment• Wage Adjustment

Factor• Inflation

Local Contribution• Property value• Income• Municipal Revenue

Growth Factor

These six factors work together to determine a district’s c70 aid.

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Foundation BudgetFY14 Foundation Rates per Pupil

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The Governor’s FY14 budget proposes to increase the out of district special education rate by $10,000 to $35,848.

Average Foundation Rate is $10,438 per pupil.

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Foundation Budget Categories

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General Fund Expenditures Compared to the Foundation Budget

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Local ContributionDetermining the Target Local Share

Statewide• Determine the state-wide

target local contribution level– The current ratio of state to

local share is 41% to 59%

• Using this ratio, calculate a property percentage and income percentage that, when combined, yield the total state share with half coming from property and half from income

For each city/town - Target Local Share

• To determine local effort, apply the property and income percentages to the municipality’s– Equalized Property Valuation– Aggregate Income

Local Property Effort + Local Income Effort

Combined Effort Yield

• Target Local Share = Combined Effort Yield, capped at 82.5% of foundation

– In FY14, 126 of 351 communities are capped.

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Property Percentag

e

Income Percentag

e

0.3593% 1.5595%

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Local ContributionExample – Target Local Share Calculation

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Getting Closer To the Target ContributionDetermining the Upcoming Year’s Local ContributionPreliminary Contribution• Increase last year’s required local contribution by the

municipality’s Municipal Revenue Growth Factor (MRGF)– Calculated annually by the Department of Revenue– 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

Required Contribution• If the preliminary contribution is above the target, reduce by the

effort reduction percent (100% in FY14).• If the preliminary contribution is below by less than 2.5%, the

preliminary contribution becomes the new requirement.• If the preliminary contribution is below by more than 7.5%, an

additional 3% is added to the preliminary contribution. For those below by between 2.5 and 7.5%, 2% is added.

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Local ContributionExample – Required Local Contribution Calculation

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Reaching the Targets Over Time

• Local contribution and aid targets were first defined in FY07, with a projected five-year phase-in.

• Phase-in was slowed by state revenue crisis. • House 1 Chapter 70 proposal fully implements the

effort-reduction targets for the first time.• 241 communities with excess effort are reduced

by 100% of that excess, amounting to $202 million in lower required contributions.

• 110 communities are below their targets and are moved closer by their MRGFs, plus:• an additional 2 percent if below by 2.5 to 7.5% (n=44), or• an additional 3 percent if below by more than 7.5%

(n=20).• The additional contributions total $28 million.

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Reaching the Targets Over TimeAbove Target Example, Rowe

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Reaching the Targets Over TimeBelow Target Example, West Newbury

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Progress Toward Target Contributions

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Progress Toward Target Contributions

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Regional AllocationExample: Berkley

• The city or town’s required local contribution is allocated among the districts in which it is a member.

• This is based upon the share of it’s total foundation budget.

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Calculating Chapter 70 Aid

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• Base aid = FY13 c70 ($4.173 billion).

• Add together the base aid and the required local contribution.

• If the combined amount is less than foundation budget, then foundation aid provides additional funding for districts to spend at foundation levels. (179 operating districts)

• Each district received at least $25 per pupil in additional aid over FY13.

10 ARLINGTON

Aid Calculation FY14

Prior Year Aid

1 Chapter 70 FY13 8,109,496

Foundation Aid

2 Foundation budget FY14 46,899,313

3 Required district contribution FY14 37,130,874

4 Foundation aid (2 -3) 9,768,439

5 Increase over FY12 (4 - 1) 1,658,943

6 Minimum $25 per pupil increase 0

Non-Operating District Reduction to Foundation

7 Reduction to foundation 0

FY14 Chapter 70 Aid8 sum of line 1, 5 and 6 minus 7 9,768,439

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Progress Toward Target Aid Share

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Progress Toward Target Aid Share

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Net School Spending v. Actual NSS

Net School Spending (NSS)

Chapter 70 Aid+ Required Local

ContributionDistrict’s NSS Requirement

• NSS requirement is legal funding obligation for each district.– Remains fully in effect

and will be enforced– Aid penalties result

from non-compliance

“Actual” NSS

• Computed each year from each district’s End of Year Financial Report– Includes operating

expenditures– Includes municipal

indirect costs such as insurance, maintenance and administration

– Excludes non-appropriated funds such as grants and revolving funds

– Excludes capital spending

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Most Districts Spend in Excess of Their Net School Spending Requirement

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Chapter 70 Websitehttp://finance1.doe.mass.edu/chapter70/

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FY14 link

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Chapter 70 Contact Info

• Melissa King, 781-338-6532, [email protected]

• Roger Hatch, 781-338-6527, [email protected]

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