Federal Reserve Bank Local Aid Proposal

An economist at the Federal Reserve bank of Boston has recently been doing work on the relative need for local aid of communities. Bo Zhao‘s work was the subject of a recent presentation at the state house. Mr. Zhao computes a municipal funding gap per capita based on estimates of local needs per capita — based on density, poverty, unemployment and jobs — and local capacity per capita — based mostly on property and income. Click here for an overview of his approach.

In general, the formula shows large gaps for the poorest cities, over $1000 per capita. Among communities showing a gap, the average gap (unweighted for size) is approximately $500. Arlington shows a per capita gap of $314, Cambridge shows a gap of $272.99 and Belmont shows no gap. Many would debate a computation that shows a funding gap for Cambridge that is comparable to Arlington’s — Arlington is under severe financial stress, while Cambridge still has a lot of flexibility. Cambridge also has much more flexibility than Belmont which shows up with no gap under the formula.

Communities standing to improve from the current allocation are those who (a) do poorly under the existing additional assistance formula; (b) have low income and property wealth. Arlington and Cambridge do relatively well under the formula and all three communities have relatively high income and property wealth. So, the formula would be unlikely to help my communities.

The formula may or may not have legs in the long term, but it would clearly have no impact in the current fiscal year when aid is being cut. Existing allocations would be held harmless; any new money would go out through the new formula. In this year, there is no new money. It seems unlikely that the legislature will add a formula debate to its agenda when the debate will have no impact on the present fiscal year.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.