School Finance: Chapter 70 Program
FY09 Chapter 70 Aid and Net School Spending Requirements
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 a 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 FY09 foundation budgets is 5.18 percent. This is the second largest rate  since the inception of the foundation budget in the early 1990's.
Enrollment fell from 949,580 in FY08 to 944,224 in FY09, a 0.6% decrease. Sixty percent of school districts saw declines in their enrollment. Yet because inflation is such a powerful factor in the calculation, most of them still saw significant increases in their foundation budgets. The total statewide foundation budget rose from $8.406 billion to $8.811 billion, an increase of $405 million or 4.82%.
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 FY09 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 33 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 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 FY08 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 $8,811,314,229 amounts to a total target local contribution of $5,198,675,397. For FY09, the property percentage is set at 0.3106%, which is applied to each municipality's 2006 aggregate equalized property valuation. For FY09, the income percentage is set at 1.5561%, which is applied to each municipality's aggregate total personal income, as reported to the Department of Revenue by local residents for the 2005 calendar year. When these two factors are applied state-wide, they yield a total local contribution of $ 6,158,240,432 with exactly half ($3,079,120,2169) 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 FY09, 108 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 ($5,198,675,397).
A city or town's target local share presents the target local contribution as a percentage of its municipal foundation budget.
Calculation of the FY09 increments toward the targets
Increase the city or town's FY08 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 result is the FY09 preliminary local contribution.
If the preliminary local contribution is greater than the target local contribution, then the difference is called excess local effort. In FY09, 214 or 61 percent of the 351 cities and towns have a total of $372 million in excess local effort. For each of these communities the preliminary local contribution is reduced by an effort reduction percentage of 33 percent, totaling $123 million, to arrive at the FY09 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 FY08 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 FY09, 137 or 39% of the 351 cities and towns have preliminary contributions that are below target, by $359 million. Those who fall below by more than 5 percent are required to make additional increments totaling $21 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.
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 FY08 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 33 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 FY08 and FY09. 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 nine districts where this occurs, aid is reduced to the foundation budget. The non-operating district reduction to foundation totals $179 thousand. FY09 Chapter 70 aid equals the sum of its FY08 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
Note:
* For FY09, total Chapter 70 aid is actually 44.8% of the total state-wide foundation budget. This is higher than the nominal 41% target because some districts are still receiving above-foundation aid and some districts are still below their target local contribution level. It is a slight upward change from the FY08 level of 44.3%.
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