Starting in Fiscal 2002, the state moved away from reliance on the statutory Chapter 70 formula, distributing education aid based on annually changing formulas written into outside Section 3 of the annual general appropriations act. It was increasingly recognized that, although Chapter 70 had been fairly successful in reducing disparities in education spending, it was not distributing aid based on ability to pay. See generally this 2005 white paper from the Department of Education.
In 2006 (for Fiscal 2007), the state undertook a major revision of the distribution of education aid. The revision was intended to align aid levels more closely with community ability to pay. The major new element was a concept of “aggregate wealth” — an ability-to-pay construct advanced by the department of education that equally weighted the aggregate property value of each community (based on equalized valuation) and the aggregate income of each community (based on income).
The new formula computed a “target local share” of education spending for each community. Basically, the “foundation aid” for each community would be computed as the difference between the target local share and the foundation budget for the community (which is based on number of students, regional teacher salary levels, etc.). The basic aid allocation appears sound. The problems come up in the computation of the foundation budget itself (not discussed in this analysis) and also in the multi-year transition rules, discussed further below.
The basic target local share computations are published on the “townwide contributions” tab of DOE’s complete formula spreadsheet which is available for download here. In summary, the methodology is:
- For each community, compute the foundation education budget.
- Sum the total foundation budgets for all communities in the Commonwealth ($9.5 billion in FY13).
- Decide what “target aid share” of that total statewide foundation budget should be paid for by the state in and what residual “target local share” should be borne in aggregate by communities. This target split has not changed since 2007, but in some years the state’s actual share has been above target because of grandfathered communities.
- Compute an income factor (1.6124% in FY13) that, when applied to the aggregate income of all communities ($204 billion based on tax returns) yields 50% of the total local share; compute a property factor (0.3221% in FY2013) that, when applied to the total equalized valuation of all communities ($1.0 trillion), yields 50% of the target local share.
- Apply these factors to the income and property of each community individually to derive a “combined effort yield” for each community.
- In cases where the combined effort yield exceeds 82.5% of the foundation budget, set the target local share at 82.5%, otherwise set target local share at the combined effort yield.
- Note that the statewide income and property factors actually have to be adjusted upwards so that the statewide total of individual target local shares will come out to the statewide target local share even after the individual target local share is trimmed down to 82.5% of the foundation budget for some of the communities.
- Note also that the target local share for each taxpaying community has to be allocated between local and regional school spending. This allocation (proportional to foundation budgets) occurs on the DOE localcont tab of the DOE complete formula spreadsheet — this tab is hidden in the download (in Excel 2003, format/sheet/unhide to view hidden sheets).
Funds were not available in 2007 to immediately increase aid to communities who were not historically receiving their full “foundation aid”. And many communities that were receiving more than the “foundation aid” had to be grandfathered. A five year plan was conceived that would phase in “foundation aid” — communities receiving below their target aid would receive down payment aid to bring them up in five roughly equal steps. Grandfathered communities would receive growth aid (proportionate aide increases to help cover enrollment increases and inflation) and possibly minimum aid ($50 per pupil to make sure all communities got some benefit from the new formula.). See this DOE 2007 resource page, especially DOE white paper on the 2007 plan.
The plan would have, over the long term, continued to address inequalities in education spending while also aligning aid more closely with ability to pay. However, the implementation got derailed by the financial crisis.