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Report: MA Local Aid Lowest in 30 Years

Monday, January 07, 2013

 

A recent report from the MassBudget center found that state aid in the Commonwealth has decreased by roughly $1.7 billion over the past 30 years, and Worcester's share of local aid has fallen by more than 50 percent in the last three decades.

In the report, entitled "The Rise and Fall of Local Aid in Massachusetts," author Luc Schuster found that education funding has remained consistent over the past 30 years, but non-education aid has declined by around $1.3 billion after adjusting for economic growth, falling to its current, lowest level during that time period.

Total local aid, as a share of the Bay State's economy, was 2.0 percent in 1981. For 2013, total local aid represents 1.7 percent of the state economy.

The Effect of Major Policy Changes

"While spending on local aid as a percent of the economy is down somewhat when compared to 1981 levels, there has been significant variation during the intervening years," Schuster writes, noting that three major policy initiatives over the past three decades have changed the funding landscape at various times.

First, in 1980, voters passed Proposition 2 1/2, which put a crimp on the amount of revenue the Commonwealth's 351 municipalities could generate from local property taxes.

"In order to help stave off deeper cuts to local services the legislature responded by increasing general local aid significantly during the 1980s," said Schuster.

The booming economy of the mid-80s boosted state tax revenues, enabling the increased aid across the board.

Then came 1993's Education Reform Act, which saw a dramatic increase in the state's contributions to education funding through the new millenium. In addition, Schuster noted, the Chapter 70 formula, which allocates the education dollars to local districts, was revamped as well, shifting more of the burden to the state.

"Prior to Fiscal Year 1994, the state contributed less money to K-12 education, leaving school districts more heavily dependent on the local property tax," he said. "The booming economy of the late 1990s aided the legislature in keeping its commitment to increasing this important form of education funding."

However, income tax cuts during the years of the Education Reform Act's implementation and the early 2000s, taking the personal income tax rate from 5.95 percent to 5.3 percent, as well as divident and interest tax rate cuts from 12 percent to 5.3 percent, coupled with an expanded personal exemption led to dramatic decreases in state revenue.

"All told, these large tax cuts along with a few smaller ones, combined with an economic recession in the early 2000s, resulted in an annual loss of about $3.0 billion in revenue, revenue previously used for funding state and local programs," said Schuster.

The Decline of General Local Aid

General local aid has been in a pretty consistent decline since 1981, following a spike in the late '80s, dropping from 0.6 percent of the Massachusetts economy to 0.3 percent in 2012. Education aid, on the other hand, is essentially equal to the level sof the early 1980s.

"Interestingly, however, General Local Aid spending was higher for much of the 1980s and early 1990s, whereas Education Local Aid spending spent much of the 1980s and early 1990s below the 1.5 percent level," Schuster said. "It wasn't until the Education Reform Act of 1993 that education aid, namely Chapter 70 aid, increased dramatically, offsetting cuts of the 1980s. While Chapter 70 aid has remained above its early 1990s level, it has more recently experienced another period of decline starting around 2003."

The MassBudget report found that in Worcester, general local aid fell by 58 percent over the last 30 years to its fiscal year 2012 level of $37,049,646.

In Leominster, the decline was even greater, with the city's general local aid funds decreasing by 63 percent since 1982 to $5,102,442 in FY2012. General local aid in Fitchburg fell similarly by 62 percent over the last three decades to $7,608,206. Framingham's general local aid has been halved in the last 30 years to $8,869,815.

"Ultimately, cities and towns must use a given amount of revenue, regardless of source, to fund all of their municipal services combined—schools, police and fire protection, road construction and maintenance, etc.," Schuster said. "Dollars not spent on one program are freed up for spending on another. In the case of the 1990s, cities and towns cut their local education spending as new state revenue became available, allowing total education spending to remain relatively level while also freeing up funds for other local non-school services."

 

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