BACKGROUND

Among the goals of the 1993 Massachusetts Education Reform Act was the establishment of an adequate level of funding for public education through a new financing mechanism. Following enactment of the law, the Commonwealth accepted responsibility for increasing significantly the amount of state aid to education. Underlying this commitment were principles to establish for cities, towns, and special school districts throughout the state predictable and sufficient funding streams, equitably apportioned, for communities.

At the time of passage, the legislature anticipated that the Supreme Judicial Court would address inequities that existed among school districts because of the over-reliance on property taxes to fund public education. Wealthier communities could afford to spend more money to recruit the best teachers, build the finest facilities, and provide the best resources to a broad range of students. Across the country, citizens of less advantaged com-munities were finding in their own state constitutions language that would state governments to intervene and correct this disparity that forced districts with out the means to fund adequately their public schools. Such a case was filed in Massachusetts.

Looking ahead to a system that would help less wealthy communities in Massachusetts obtain the funding they would need to meet the mandates of the state constitution to "... cherish... the public schools, "the legislature acted with a sweeping measure. The 1993 law addressed the equity of funding issue and attached standards of accounta-bility by calling for the setting of a educational goals for each school district and by increasing state aid to achieve them within seven years. This overall spending level necessary to achieve those goals would be called the "foundation budget." The foundation budget would be set at a level that would, in theory, provide each school district with the resources to educate students.

Based on the system in the Education Reform Act, an individually calculated "foundation budget" would be set for every community. This foundation budget would then be achieved through a combi-nation of required local contributions (i.e. property tax revenues and other locally appropriated dollars) and increased state aid. In particular, less advantaged communities would receive a greater measure of state aid to speed their attainment of their foundation budget and, in theory, their educational goals.

The plan of the legislature came just in time. Between the time the General Court sent the Education Reform Act to Governor William Weld and the date he signed the bill into law, the SJC issued an important decision affecting school financing. While the court did not direct the specifics of how public education should be funded to meet state constitutional requirements, it set broad but dear goals and standards for which the state would carry a mandate to assure attainment for all its public school students.

In most communities, then as now, the greatest share of the "local contribution" is derived from property taxes. The objective of increased state aid to education and the distribution formula established by law to dispense these dollars to school districts is to reduce reliance on property taxes to fund local schools and help correct the disparity in public school spending between wealthy communities and school districts which are less well-off economically. Ideally, school districts should now be less reliant on property taxes because increased state spending would in gaps between what a school system should be spending and what the district could afford.

The Foundation Budget, established for each community or school district, is based on various multi-component formulas and a wage adjustment factor to account for the cost of labor. Coupled with a restructured state aid distribution formula and additional state-appropriated dollars in successive years since passage, the system has been generally successful. In 1993, 65% of school districts were budgeting below the foundation level. By Fiscal Year 2001, virtually all cities and towns in the Commonwealth were at or above that foundation mark, even as that level has been adjusted for student census growth and inflation.

Most state appropriate aid to public education comes to school districts under the provisions of Chapter 70 of the Massachusetts General Laws. Chapter 70 is not the only form of state appropriated financial assistance available to communities. In fact, revenues from the state lottery and other programs provide local aid, but these funds are not specifically targeted to support the public schools. However, over the past seven years, "Chapter 70" state aid has grown from $1.7 billion to over 3.2 billion. To many observers, the Commonwealth has kept up its part of the Education Reform bargain in financial terms.

For others, however, the job of financing education reform is not done. In FY 93, the state's share of public educational costs was 30.2%. By the start of FY 2001, that figure had risen to about 45%. Despite virtual statewide attainment of the foundation budget spending levels, many communities find their public schools still over-reliant on property taxes, under-performing and lacking resources to attract good teachers and administrators, reduce class size, secure technology and materials, or maintain facilities at an optimal level. Thus, many wonder if the foundation budget level is, in and of itself, set at an adequate level. A healthy debate continues currently as to whether it is the community, the state, or some combination of the two that should contribute more. The courts may have more to say on the matter

In fact, the McDuffy case continues as Hancock vs. Commissioner of Education on behalf of those students for whom, it is argued, the necessary level of financial aid to support education reform is inadequate. Advocates for students have presented argu-ments that the foundation budgets established for economically disadvantaged districts or communities with extraordinary social and education needs are not sufficient. They call for a greater level of state support to establish not only a theoretically adequate level of funding, but, in fact, an true, educationally sufficient local public school financing mechanism.

Fiscal Year 2001 provides the transition between the first phase of Education Reform and the next stage. For that reason, the debate that will lead to the establishment of the FY02 budget is particularly important and merits detailed analysis. Similarly, a multi-year approach appears to be the best way to articulate broad goals in a realistic but attainable framework.

ANALYSIS

The Foundation Budget system is designed to reduce reliance on property taxes and position the Commonwealth as a significant financial benefactor of public schools. Concurrent with this increase in state aid and commitment to leveling the field for all communities, comes a call for accountability. Thus, along with the financial component, the Education Reform Law also provided for a system of goal setting, evaluations and measurements for school districts, individual schools, teachers, and students. Overall, the mix of funding, setting of standards, and measures of accountability comprise the broader picture of what is "Education Reform" in Massachusetts. Neither component can nor should be considered without taking into account the impact upon the others.

Legislative leaders have stated that meeting the standards of excellence for students requires the Commonwealth to provide schools and students with the resources to meet those benchmarks. The foundation budgeting system is a key vehicle to providing school districts with the resources they need to meet the high standards. Without an adequate funding mechanism, attainment of these objectives is jeopardized.

The Foundation Budget and Chapter 70 Formulas

In considering the foundation budgeting system and Chapter 70 distribution formulas, it is critical to note the differences between the two.

Both formulas are complex. They are the creation of public administrators and lawmakers who have considered a volume of data and recommendations. From them they have attempted to reconcile evolving financial goals with their best subjective judg-ments about the burden different components of school budgets or various student constituencies place upon the educational system. Since they were first defined and subsequently refined, demographic and economic factors and trends have emerged to challenge even the latest technical corrections.

Since, historically, most intrastate funding formulas are almost always controversial, it should be no surprise chat many communities currently argue that the foundation budget and state aid formula work to their disadvantage at the expense their goals or even when compared with the money provided to their neighboring cities and towns.

Interesting and challenging questions arise to con-found those responsible for the foundation budgeting and state aid distribution formula. For example, in setting the foundation budget, MASC has considered some of the following questions:

In considering the formula for distributing Chapter 70 state aid, some of the following questions have been considered:

When considering recommendations regarding the Foundation Budget and the state aid distribution formula under Chapter 70, it is important to separate the proposals and appreciate the implications for each.

MASC'S POSITION

The Massachusetts Association of School Committees has a number of recommendations related to the Foundation Budget and the Chapter 70 funding formula These recommendations fall into three categories: 1) attainment of simplicity and readability; 2) securing a process and forum to allow all interested groups to participate in regular recrafting of the aid formulas; and 3) achieving specific changes to the foundation budget system and Chapter 70 state distribution formula. Many of these recommendations also have financial implications.

1. Simplicity and Readability The Foundation Budget and the Chapter 70 funding formula are extremely complex mixtures of definitions, concepts, formulas, and mathematics. So few people have a sufficient understanding of these processes that in-depth discussions are hard to manage. The Foundation Budget consists of 19 categories each extrapolated from student census figures from 12 cadres, the rationale of which are, in and of themselves, subjects of dispute. State aid is divided into as many as six additional categories.

• MASC urges a restructuring of the Foundation Budget and the Chapter 70 funding formulas so that they can be understood by an average citizen, and further urges that the Department of Education and Department of Revenue collaborate on the production of a citizens' or public school educators' guide to understanding the Foundation Budget and Chapter 70 funding formula. This guide could be modeled after the explanation of ballot questions produced for state elections by the Secretary of the Commonwealth. We do not rule our that such a publication may, in fact, rely on complex calcula-tions, but could, in fact, help educate the public and the educational community. If insurance poli-cies can be made "readable," so, too, should the foundation budget.

2. Forum for Discussion Since the passage of Education Reform, the law has required the appointment of a Foundation Budget Review Commission (FBRC) and directed this board to report its findings and recommendations. Only one report was issued, in 1997. A new FBRC was appointed by the Governor in August 2000, only to find itself reorganized by the language of the state budget act a few weeks later. By October, 2000, there were two FBRCs in place: the statutorily constituted board created by the state budget lan-guage of 2000, and the former group, appointed by the Governor based on the law in place until August, 2000, which the Governor's Office has maintained as an advisory group to the advise the state's chief executive.

Also, new dimensions to the use of the foundation budget and state funding are hovering on the horizon of discussion. In particular, there have been recommendations to establish a performance-based set of standards to the formulas. This initiative represents a dramatic and significant new dimension to the debate. It also holds intriguing possibilities, potentially positive and negative. Linking levels of stare aid or factors of calculation into the Foundation Budget with such factors as student achievement, outcomes of MCAS testing, or other district performance relative to attainment of goals and standards is a matter worthy of the most open, thorough, balanced, and statewide discussion. This is necessary to ensure that any such initiatives or proposals receive the most intense scrutiny before the largest and most appropriate audience in the most open and participatory forum.

• MASC urges that the FBRCs meet on an ongoing basis, conducting throughout the year public hearings and meetings with a range of parties at interest to public financing of education. This will to promote public awareness and education, a thorough discussion of the concepts involved in foundation budgeting and public aid to education, and the presentation of timely recommendations to restructure and recraft the Foundation Budget as needed from year to year.

• MASC also urges that each group, that constituted under the law and a group advising the governor, focus its attention on making the key issues understandable and involving the widest possible range of parties at interest at the discussion and planning table. In particular, this includes taking aggressive steps to reach out to and solicit information and recommendations from not only educators, students, parents, and citizens at large, but also special interests including constituencies who are economically disadvantaged, linguistically non-English dominant, clients of the special education system, students in vocational technical programs, and others identified among the categories in the foundation budget.

• MASC calls upon parties at interest and policy makers to use public forums to identify the extraordinary criteria in school districts that would justify and establish a higher level of foundation budgeting and state aid.

• MASC calls for a series of statewide forums on the advantages, disadvantages, benefits and pitfalls of performance based funding.

3. Specific Changes to the Foundation Budget and Chapter 70 Distribution Formula School Committee members, administrators, teachers, parents, and other interested parties have identified many areas where the Foundation Budget and Chapter 70 funding formula may be restructured, and they have also cited areas where the overall funding level should be increased.

Barring a significant economic downturn or another crisis thar would impact negatively access to state funding, MASC recommends the following changes:

Enrollment Figures

The current system works to the disadvantage of districts with high student population growth.

• MASC supports the use of population projections based on trending and forecasting, subject to future corrective adjustments, in order to obtain more accurate and timely student census figures to use in calculating the Foundation Budget.

• MASC supports including an additional category of students within the "bilingual" population for those with "limited English proficiency" (LEP), including those enrolled in English as a Second Language programs but who are not enrolled in Transitional Bilingual Education (TBE) programs. This calculation should not be used as a rationale for restricting access to TBE, LEP, or ESL services for students who qualify.

Flexibility Within Foundation Budget Categories

• MASC supports the greatest possible flexibility among Foundation Budget categories, recognizing the need to provide the appropriate rationale. This will reinforce both local control and local administrative discretion in meeting the specific needs of particular school districts and individual schools.

Personnel Expenses

In some cases, the foundation budgets for specific categories may understate actual staffing in place.

• MASC recommends that where foundation budgets understate the actual number of teachers, principals, aides, and other staff in place, the actual numbers in place during the current fiscal year be substi-tuted to ensure realistic data that reflect what is happening in the school district.

• MASC support using as accurate and timely salary data as is available, adjusted to reflect the current year, to calculate the average wage for teachers, administrators, aids, and other support personnel.

• MASC endorses adding to the foundation budgets sufficient amounts to reduce class sizes in the middle and lower grades, provide an optional full-day kindergarten program, expand pre-school services where current facilities can accommodate these pro-grams. We support the recommendations of the Massachusetts Association of School Superintendents to set, as a goal over a five year period, a ratio of 17:1 for grades K-3 and 23:1 for middle schools. We support the right of any school committee to request a waiver from these standards based on available facilities and space, current faculty deployment, operative collective bargaining agreements, and student achievement levels.

Professional Training and Development

• Training and Development budgets should include professional development for members of School Committees to assist them in strategic planning and goal setting, financial planning, and establishing appropriate roles in governance of their public school systems.

Regional School Districts

• MASC supports the position of the Massachusetts Association of School Superintendents that mini-mum district member communities should be assessed contributions by redistributing the FY 1994 portion of Base Aid and all other per-pupil aid based on the current operative Regional District Agreements.

Special Education

The current foundation budget appears too conservative in estimating the number of students served by special education programs. There are two important issues related to these assumptions.

• The assumptions of ratios of special education students to the overall school population are understated. MASC recommends a reassessment of current assumptions, increasing the special education foun-dation budget assumption for in-district students based on this analysis, and adjusting the out-of-district budget to an actuarially correct figure.

• In 2000, the legislature amended its special educa-tion law to redefine the level of services mandated to students with special education needs from the original language established by Chapter 766 of the Acts 1972 to that established by federal law. MASC supported this redefinition in part because the state had failed to meet its funding commitment articulated in 1972 and, in part, because communities could not afford to support the required level of services without additional state and federal resources. Communities have already absorbed a crushing burden meeting the legitimate demands of students. However, the impact of the new language is unclear. Advocates argue persuasively that the number of students and parents who might try to "game the system" to obtain unnecessary or wasteful special education services, including costly out of district placements, for their children is, in fact, minimal. MASC recommends that the legislature study carefully and report findings annually on the impact of the change in language of eligibility so that this data can be utilized in reformulating the foundation budget.

• MASC supports the establishment of a "stop loss" provision to protect school districts from the extraordinary costs of individual student special education requirements. Similar to that used in health insurance programs, we urge the creation of a stop-loss pool, administered by the state, that would provide, in effect, insurance for the school districts from very high case costs.

Technology

• An appropriate level of technology services should be determined so that school districts which lack access to computers and other important technolog-ical supports may identify those costs and plan toward using state aid in attaining that level.

Chapter 70 Funding and Other State Support

• All restructuring of school aid should ensure that, except in extraordinary circumstances where dramatic loss of students takes place, no community would absorb any loss in Chapter 70 "Base Aid" funding and that per-student or per-district mini-mum increases be kept in place.

• Inflation factors used in calculating state aid for public education should reflect accurately the over-all cost of operating a public school system and incorporate not only a wage adjustment factor based on the cost of labor but other expenses, including the cost of employee benefits such as health insurance, fuel, and otherwise unreimbursed transportation and construction costs.

• Efforts should be made to obtain and report the most accurate student enrollment data possible. Currently, student census can be as much as a year and a half old and can fail to reflect in and out--migration as well as extraordinary student expense for high cost student services. MASC supports the use of demographically sound population forecasts that can be adjusted subsequently in order to proj-ect and use accurately potentially more correct and study student census numbers.

• A study should be made as to the viability of using personal income data from the Department of Revenue to determine the economic strength of a community as one of a number of possible criteria that can be used to assess the ability of cities and towns to support public school foundation budgets. Such data should be considered in aggregate and should not compromise the confidentiality of indi-vidual tax returns.

• Aid to support a greater measure of the costs of special education services should be phased in until the state's share of these expenses is equal to 50% of overall special education costs.

• Revenues generated from Medicaid reimbursement for services to special education students should be re-deployed into the school district budget to assist in meeting special education costs. In determining which students shall be deemed eligible for Medicaid coverage or where Medicaid reimbursement is sought, school districts should take extraordinary precautions to ensure the privacy of records of those students.

• The Department of Education administers a num-ber of grant programs that supplement Chapter 70 funding. These programs include resources for early childhood education, desegregation, and a range of other objectives. These resources are dispensed dis-proportionately to those larger districts which have the staff support to research, prepare, and adminis-ter grants. The Department of Education should consider developing a mechanism to increase the participation of smaller school districts to support programs not specifically identified in the current foundation budget such as, but not limited to pilot initiatives, services to gifted and talented children, advanced placement courses, after-school services, tutoring, or service to manage disruptive students. The process for determining local contributions to funding the foundation budget and the process for apportlonmg costs for commumtles who are members of more than one school district (i.e., regional districts or vocational technical school districts) should be simplified but reassessed to assure fairness and equity over time.

• A special analysis should be made for those com-munities where legitimate, documented extraordi-nary circumstances impact the distribution of aid to the unfair disadvantage of some or the disproportionate advantage of others. For example, there should be a full analysis of the facts and arguments posed by many communities on or contiguous to Cape Cod where some conspicuous high property values mask the presence of a large number of moderate and low wage workers in transient, seasonal, and retail employment.