School Finance: Chapter 70 Program

Proposed Chapter 70 Aid and Required Contribution Calculations

Chapter 70 is the Commonwealth's program for ensuring adequate and equitable K-12 education funding. Since its original enactment as part of the 1993 education reform law, the Chapter 70 formula has required a minimum local contribution from each city and town in the Commonwealth. The intent was that richer communities would be asked to contribute more, and conversely would receive less state aid, than poorer communities. In the formula's early years, an effort was made to measure community wealth and to adjust local contributions accordingly. But these factors did not work well in practice, and most of them were dropped over the years. Today, there are too many examples of towns of comparable wealth with widely differing contribution requirements. This has led to considerable frustration on the part of local officials and taxpayers. The state budget enacted for FY07 included some significant changes to the Chapter 70 formula in order to address these issues. Both Governor Patrick's House 1 proposal and the final numbers based upon the legislative resolution passed on April 4, 2007 incorporate those changes for FY08 and continue the progress toward a more equitable funding pattern.

Summary of how the formula works

A foundation budget 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  .

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 FY08 is based on the previous year's contribution, and includes some transition factors so that the shift toward the target levels occurs over a period of several years.

• Municipalities whose local contributions are now higher than their targets will see a reduction in the requirement of 25 percent of the amount above the target.

• Municipalities whose local contributions 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.

Districts may receive state aid from any of four different but related computations. Foundation aid is the difference between a district's foundation budget and its required contribution. This ensures that every district will have funding at least equal to its foundation budget. Foundation down payment aid provides many districts with a share of the additional funding that they would receive if their contributions were reduced all the way to their targets. Growth aid guarantees an increase in state aid for any district whose foundation budget has increased, even if the district's aid already exceeds what is needed to bring the district to foundation. If these three components do not provide at least a $50 per pupil increase over FY07 Chapter 70 amounts, then districts receive minimum aid to reach that level.

Target contribution calculations

• Determine the state-wide target local contribution level. Fifty-nine percent of the statewide foundation budget of $8,406,096,436 amounts to a total target local contribution of $4,959,596,902.

• For FY08, the property percentage is set at 0.2943%, which is applied to each municipality's 2006 aggregate equalized property valuation. For FY08, the income percentage is set at 1.5779%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2004 calendar year. When these two factors are applied state-wide, they yield a total local contribution of $5,833,455,109 with exactly half ($2,916,727,551) 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 FY08, 106 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 ($4,959,596,902).

• A city or town's target local share presents the target local contribution as a percentage of its municipal foundation budget.

Calculation of the FY08 increments toward the targets

• Increase the city or town's FY07 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 2½levy limit) that should be available for schools. The result is the FY08 preliminary local contribution.

• If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY08, 218 or 62 percent of 351 cities and towns have a total of $494 million in excess local effort. For each of these communities the preliminary local contribution is reduced by an effort reduction percentage of 25 percent, totaling $124 million, to arrive at the FY08 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 FY07 local contribution. If it is within 5 to 10 percent, the increment is one percent. If it is within five percent, there is no additional increment. In FY08, 133 or 38% of the 351 cities and towns have preliminary contributions that are below target, by $352 million - up from 119 communities and $321 million in FY07. Those who fall below by more than 5 percent are required to make additional increments totaling $19 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 its share of foundation budgets at each of those districts as a percentage of its combined foundation budget. FY08 is the final year of a four-year phase-in of this regional allocation methodology.

State aid calculations

• The difference between a district's foundation budget and its required district contribution equals foundation aid. If a district's foundation aid exceeds its FY07 Chapter 70 amount, the difference is its foundation aid increase.

• Foundation down-payment aid accelerates the pace at which districts whose requirement contributions are above their targets receive additional aid 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. Where 30 percent of that amount is larger than the foundation aid increase calculated in the previous step, then the difference is its down-payment aid.

• A separate component called growth aid is designed to provide equitable increases in aid for districts whose current aid is already more than sufficient to reach foundation. A district's target aid share is determined by subtracting the target local share from 100 percent. This percentage is multiplied by the dollar change in foundation budget between FY07 and FY08. If the resulting amount is greater than the sum of the increases from step 1 and step 2, then the difference is "growth aid."

• If the combined increase from the first three steps is less than $50 per pupil, the district receives additional aid to bring it to that level.

• Non-operating districts do not operate local schools but sometimes receive aid because they tuition small numbers of pupils to other districts, especially for vocational programs. In a few cases where the number of pupils has decreased, their current year's aid actually exceeds their foundation budget for those pupils. In the three districts where this occurs, aid is reduced to the foundation budget. The non-operating district reduction to foundation totals $75,229 for eight districts.

• FY08 Chapter 70 aid equals the sum of its FY07 aid, plus 1) the foundation aid increase 2) down-payment aid 3) growth aid, 4) and $50 per pupil aid, minus 5) the non-operating district reduction.

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."