Local Aid Overview
Aid to cities and towns, or local aid, represents approximately 16% of the Commonwealth’s annual budget. In fiscal year 2012, local aid programs account for $5.05 billion. The recommendation for local aid reflects the Patrick-Murray Administration’s unprecedented commitment to a strong partnership between the state and its cities and towns.
Budgeted Local Aid
The fiscal year 2012 House 1 budget recommendation supports a total of $5.05 billion in local school aid, general government aid, and program-specific aid, increasing total funding support to the commonwealth’s cities and towns from fiscal year 2011 to fiscal year 2012 by 1.48%. Local aid is categorized as the programs that impact a municipality’s “Cherry Sheet,” the vehicle utilized by the Commissioner of Revenue to notify municipalities and regional school districts of estimated state aid to be paid and charges to be assessed over the next fiscal year. Below is a summary of funding for local aid cherry sheet accounts:
|Account Name||FY2011 GAA||FY2012 H.1|
|Section 3 Aid|
|Chapter 70 Education Aid||3,851,193,043||3,990,519,338|
|Unrestricted Local Aid||898,980,293||833,980,293|
|Cherry Sheet Aid|
|Tax Reimbursement for Vets, Blind, Widows||25,301,475||25,301,475|
|State Owned Land||25,270,000||25,270,000|
|Regional Library Local Aid||8,781,475||8,263,946|
|Municipal Libraries Local Aid||6,823,657||6,457,849|
|Local Share Racing Tax||962,000||962,000|
|Regional School Transportation||40,521,000||40,521,000|
|School Food Services Program||5,426,986||5,426,986|
|Charter School Reimbursement||71,554,914||71,554,914|
|Police Career Incentive Payment||5,000,000||5,000,000|
Section 3 Structure – How it Works
Section 3 of the Commonwealth’s budget, provides each of the 351 cities and towns with the amount of local aid they are expected to receive from the state General Fund and other dedicated revenue sources. The presentation of Section 3 can change from year to year based on the revenue assumptions used to fund the local aid categories. For example, fiscal year 2010 included additional categories to demonstrate the additional revenues proposed through an increase in local option meals and rooms occupancy tax. In fiscal year 2011, Section 3 included the potential distribution of education funding that the Commonwealth received through the American Reinvestment and Recovery Act (ARRA). In fiscal year 2012, the presentation is much simpler given the federal stimulus funds have been exhausted, therefore only requiring two categories of local aid: Chapter 70 education aid and Unrestricted General Government Aid.
This simplified structure will allow municipalities to easily recognize and understand the amount of local aid that will be received in fiscal year 2012. More importantly, Chapter 70 aid is distributed in a way that fully funds foundation budgets.
Protecting Education Reform
The Governor has made investing in education to help close the achievement gap a top priority for the second term. In spite of many tough choices in this budget, foundation budgets are fully funded with Chapter 70 aid and address the loss of federal ARRA funds that were used in fiscal year 2011 to support our school districts. The fiscal year 2012 Chapter 70 funding is $3.99 billion, a $140 million increase of state funding to cities and towns over fiscal year 2011. In addition to this $3.99 billion, funding for the special education circuit breaker, which goes directly to municipalities, increases by $80 million from fiscal year 2011 to fiscal year 2012.
The Chapter 70 formula is based on many variables, including, enrollment, grade levels, municipal revenue growth factors (MRGFs), a federal inflation index, and more. In fiscal year 2011, the total enrollment is down by .28%, MRGFs are up by a statewide average of 2.4%, and the federal inflation factor is -2.2%. All of these variables, among other factors, impact the Chapter 70 aid calculation for each individual school district.
This level of Chapter 70 funding will fully fund foundation and in addition, there are over 50% of school districts that will use additional federal EduJobs dollars to support schools in fiscal year 2012.
Unrestricted General Government Aid
Unrestricted General Government Aid (UGGA) will be funded at $833.9 million in fiscal year 2012. While this is a reduction from fiscal year 2011, $10 million from this reduction will be used to support a competitive grant program to drive regionalization and other efficiency initiatives as well as a performance management, accountability and transparency program for local government.
In addition, a task force will be established to develop a rationale for the distribution of additional dollars that may be appropriated in the future based on elements of the work of the Hamill-Higgins 2006 Municipal Finance Task Force (Partnership Aid proposal) and the work of the Federal Reserve which take into account a municipality’s economic and financial capacity. This task force will be charged with developing a new formula that also incentivizes performance results and best practices.
Initiatives for Fiscal Year 2012
The budget continues the Patrick-Murray Administration’s unprecedented support for cities and towns. The Administration’s approach to fiscal year 2012 includes key tools to support municipalities in managing through this fiscal crisis and beyond, including:
Municipal health insurance reforms, including:
- A new local health insurance plan design process that will achieve material savings for cities and towns. This could save more than $94 million in year one.
- Require that all municipalities have eligible retired local employees enrolled in Medicare as their primary source of health insurance coverage, as this federal program covers a substantial portion of their health costs. (Estimated savings: $15 to $30 million remaining to be saved from requiring municipalities who have not already done so to move eligible retirees to Medicare.)
- Increasing Chapter 90 Local Road Program funding for fiscal year 2012 to $200 million, $45 million more than fiscal year 2011 and $80 million more than the last year of the prior administration.
- Expansion of the local property tax base by closing the loophole on telecommunications equipment exemption. (Estimated revenue: $26 million.)
- Establishing a $9.7 million Regionalization and Efficiency Incentive Grant Program to provide financial support for one-time or transition costs related to regionalization and other efficiency initiatives, with allowable applicants to include municipalities or Regional Planning Agencies and/or Councils of Governments serving as the administrative or fiscal agent on behalf of municipalities. New fiscal reality demands that we invest in and incentivize innovation among local governments to find new and more efficient ways to delivery local services.
- $300,000 for the development of a program to enhance performance management, accountability, and transparency for local governments. This incentive will be overseen by municipal officials and administration officials with the support of the Collins Center for Public Management at the University of Massachusetts Boston. The goal is to develop a set of common accountability and performance measures that can be adopted by all municipalities and to determine how to provide the necessary support and tools to municipalities, support including education, training, standardized software and reporting, and technical assistance to municipalities to participate in the program.
- Establishing a Municipal Procurement Program within the state Operational Services Division to create statewide contracts specifically needed by cities and towns that will leverage purchasing power and save money.
- Filed a new pension reform initiative providing for a comprehensive overhaul of the pension system that would ensure the long-term sustainability and credibility of the system and save communities an estimated $2 billion over 30 years in pension costs and an estimated $1 billion in reduced retiree health benefit costs for new employees over the next 30 years.
Record of Commitment to Communities
Capital improvements: Increasing Chapter 90 Local Road Program funding for fiscal year 2012 to $200 million, $45 million more than fiscal year 2011 and $80 million more than the last year of the Romney Administration. Historic levels of investment in municipal grant programs, transportation, land conservation, public housing, and economic development. Over $7.9 billion in capital spending for municipalities in the first term. Capital spending for municipalities projected to be $11.5 billion in the second term.
Energy: Launched the Green Communities grant program, providing $7 million to communities to support energy efficiency, renewable energy and other innovative energy projects. Expanded energy performance contract opportunities for cities and towns.
Expansion of the property tax base: Eliminated exemption on telephone poles and wires, generating $26 million for communities. Proposed eliminating exemption on telecom machinery, which would generate $26 million.
Healthcare savings: Signed into law opportunity for municipalities to join the Group Insurance Commission, the state health insurance program (estimated savings more than $94 million in year one). Communities that have joined have saved millions of dollars. Proposed transferring eligible retirees into Medicare (estimated savings $15 to $30 million). Proposed pro-rating insurance for part-time employees
Local Option Revenues: Signed into law local option meals and hotel taxes to give communities new tools to balance their budgets, with the potential to generate over $120 million in additional annual revenue.
Libraries: Provided relief from library “maintenance of effort” requirements and decertification rules.
Local Authority: Proposed provisions allowing municipalities more legal flexibility in certain areas, including local licensing authority, dramatically reducing need for special exemptions.
Municipal Finance: Proposed and signed into law tools allowing enhanced flexibility and improved processes in municipal finance, including increased borrowing flexibility, allowing regional school districts greater access to stabilization funds, extending municipal lease term limits, eliminating fees for State House Notes borrowing program, streamlining process by which assessors can grant abatements, and providing procedures for municipalities to enforce fines imposed for violations of housing, sanitary, or municipal snow and ice removal requirements.
Partnership: Created the Municipal Affairs Coordinating Cabinet, which held over 20 listening sessions across the Commonwealth with municipal leaders. Also created the Edward J. Collins Center for Public Management, providing an array of services for local government.
Pension savings: Signed into law a responsible local pension funding relief initiative worth up to $200 million of relief in the first year if all communities take advantage of it. Signed into law provision merging underperforming local pension funds with state pension fund. Savings can be achieved by both underperforming and well-performing local funds. Signed into law two Pension Reform initiatives that eliminated the most egregious abuses in pension systems that cost money and compromise the integrity of the system. Filed a new pension reform initiative providing for a comprehensive overhaul of the pension system that would ensure the long-term sustainability and credibility of the system and save communities an estimated $2 billion over 30 years in pension costs and an estimated $1 billion in reduced retiree health benefit costs for new employees over the next 30 years.
Personnel management: Proposed and signed into law an optional Early Retirement Incentive program for cities and towns.
Procurement: Proposed tools for reforming municipal procurement and advertising requirements, providing savings and efficiencies. Increased thresholds for municipal procurements and construction payment bonds. Provided for use of reverse auctions to provide a method of acquiring best pricing from qualified bidders while providing environmental and financial benefits, and allowing for greater flexibility for municipalities and bidders. Establishing a Municipal Procurement Bureau within the state Operational Services Division to create statewide contracts specifically needed by cities and towns. Proposed Internet advertising of procurements, which could provide savings to municipalities of $250,000 per year statewide.
Public Safety: In fiscal year 2010 advocated for and won $71 million in federal recovery funding for local police and fire departments. Proposed allowing municipal red light camera enforcement programs.
Regionalization: Proposed and signed into law tools to encourage and facilitate regionalization of municipal services including elimination of collective bargaining requirement for joining a regional entity, expanded collective purchasing opportunities, mutual aid agreements, shared superintendents, and joint assessing services. Also created the Regionalization Advisory Commission, which examined opportunities for communities to achieve cost savings, efficiencies and improve services. Proposing for fiscal year 2012 a $9.7 million Regionalization and Efficiency Incentive Grant Program to incentivize innovation by supporting the development of sound regionalization proposals and other efficiency initiatives.
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