MEMORANDUM

This joint DOR/ESE memorandum provides instructions to municipal and school officials on the expected reduction in the FY09 Chapter 70 state aid allotments for cities, towns, and regional school districts. Municipalities and districts were initially notified of these reductions, and the use of federal stimulus funds to offset the reductions, in the May 7 memorandum from Education Commissioner Mitchell Chester.

1. The    accompanying chart shows the amount of FY09 Chapter 70 aid that will be withheld from the June 30 local aid payments for each municipality and regional school district. In most cases, the amount of the reduction equals 10.52% of the district's full FY09 Chapter 70 allotment. The only exceptions are for non-operating districts and for certain districts where there are insufficient Chapter 70 funds remaining.

2. Each school committee must apply for an ARRA FY09 state fiscal stabilization fund (SFSF) grant in the exact amount of its Chapter 70 aid reduction. The application form is posted on the ESE website, and we ask your cooperation in completing it and returning it to ESE by May 22. Please note that the SFSF grants are being funded through two separate fund codes; please be sure to note the correct code for your district on your application form.

3. ESE plans to issue notices of grant awards by mid-June. This will be followed by a single EFT transfer to the municipal or district treasurer for the full amount of the approved grant.

4. School committees are not permitted to make any direct charges to the FY09 SFSF grant. School officials, working with municipal finance officials as appropriate, must identify eligible expenses previously charged to the school or municipal budget and initiate journal entries as of June 30 to transfer those expenses from the general fund budget to the federal SFSF grant. This reduction in general fund expenses will create a budgetary reversion that will exactly offset the revenue deficit created by the Chapter 70 aid reductions. The grant does not allow for additional spending authority.

5. Eligible expenses include any expenses incurred during the fourth quarter of FY09 (April 1 - June 30) that are directly related to the school district's operation, with the following exceptions:

   • maintenance costs;

   • stadiums or other facilities primarily used for athletic contests or exhibitions or other events for which admission is charged to the general public;

   • purchase or upgrade of vehicles;

   • improvement of stand-alone facilities whose purpose is not the education of children, including central office administration or operations or logistical support facilities.

   Eligible expenses can include expenses in the school department budget as well as expenses in other municipal department budgets that directly support the operation of the schools.

   Please note that any educator salaries charged to the SFSF grant will be subject to the 9% teacher retirement payment. Therefore, districts may wish to maximize the amount of non-salary expenses to be transferred to the grant. Out-of-district tuition, bus transportation, and employee health insurance are examples of eligible non-salary expenses that would avoid the 9% assessment.

6. Districts will need to identify the expenses to be transferred prior to submitting the grant application, so that the grant budget form can be properly completed. Districts should also classify the planned transfers using the ESE chart of accounts, as these expenditures will need to be reported separately on the FY09 end of year financial report. Districts must also retain supporting documentation regarding the eligibility of the expenses being transferred.

7. The full amount of the grant must be expended by June 30. No carryover into FY10 will be permitted.

8. The reductions in Chapter 70 aid and the corresponding reductions in general fund expenditures will be taken into account when ESE reviews districts' compliance with FY09 net school spending requirements.

9. In setting the FY10 tax rate, municipalities will be required to identify how they journalized their entries in an effort to avoid revenue deficits associated with this matter. The appropriate forms will be made available shortly. Further, regional school districts will also be required to submit a similar form when calculating their excess and deficiency for the close of FY09 when submitting their balance sheet.

The proposal to reduce the FY09 Chapter 70 allotments was submitted to the Legislature last week by Governor Patrick as part of a supplemental appropriations bill. In the event that the Legislature does not take timely action on the appropriations bill, we expect that the Governor will use his so-called "9C" authority to implement these reductions. Given that there are only a few weeks left in FY09, it is necessary for us to move ahead with this plan without any further delay.

SFSF grants for FY10 and FY11. The use of SFSF funds for offsetting FY09 Chapter 70 reductions does not affect the previously-announced plans to use SFSF funds to cover shortfalls in the FY10 Chapter 70 allocations. The Governor is continuing to reserve $168 million for this purpose, and these allocations will be finalized after the FY10 state budget is enacted. Application forms for FY10 will be available after we finish processing the FY09 SFSF grants. Commissioner Chester's April 17 guidance memo provides more information on the FY10 SFSF grants.

At this time, no plans or commitments have been made for the use of SFSF funds in FY11. We will obviously have less funding available in FY11 because of the need to cover the FY09 revenue shortfall.

We appreciate your cooperation in helping us to deal with this difficult situation. If you have any questions or need additional information, please contact Jeff Wulfson at DESE (781-338-6500, jwulfson@doe.mass.edu) or Gerry Perry at DOR (617-626-2134, perryg@dor.state.ma.us).