Missing the Mark: How Chapter 70 Education Aid Distribution Benefits Wealthier School Districts and Widens Equity Gaps
Closing racial and socioeconomic achievement gaps in education is an urgent priority in Massachusetts. Across almost every indicator of student opportunity and achievement—from high school graduation rates to performance on Advanced Placement exams, to access to a college readiness course of study—Black and Latinx students, English learners, students with disabilities, and students from low-income backgrounds do not enjoy the same outcomes as their peers. Equitable access to resources is an important component of the effort to close these gaps.
The state foundation budget formula for K-12 education determines how much money a school district must spend per student to provide an adequate education. The formula is designed to provide additional resources for those students with greater needs by allocating more money for low-income students, English language learners, and students with a disability. In 2014, a state commission called the Foundation Budget Review Commission (FBRC) found that Massachusetts was shortchanging its higher needs students by underestimating the cost of providing them an adequate education. Wealthy communities have addressed this gap by tapping into local revenue sources to spend more than required under the foundation formula, resulting in significantly greater spending per student when compared with less wealthy communities. The Student Opportunity Act (SOA), passed in 2019, seeks to address this issue by altering the foundation budget formula to better reflect the actual cost of providing an adequate education and phasing in these changes over 7 years. These changes will provide additional money to close achievement gaps in K-12 education, particularly to districts with greater numbers of high-need students.
The responsibility for funding each school district’s foundation budget is shared by the state and municipalities. The Chapter 70 state education aid formula, created as part of landmark 1993 education reform that sought to address significant disparities in access to high quality education related to overreliance on local revenues to fund schools, determines the share of each school district’s foundation budget that must be contributed by the municipality or municipalities it serves. The state provides the remainder to each school district in the form of Chapter 70 state education aid. Governor Baker’s fiscal year (FY) 2021 budget proposal (House 2 or H.2) provides $5.48 billion in Chapter 70 aid to support a statewide foundation budget of $11.95 billion. Collectively, municipalities are required to contribute a total of at least $6.79 billion to meet their foundation budget spending requirements.
The Chapter 70 aid formula is designed to be progressive, using state dollars to fund a larger share of total required spending in less affluent school districts. The SOA did not significantly alter the Chapter 70 aid formula. Instead, the Legislature tasked the Department of Elementary and Secondary Education and the Department of Revenue with reviewing specific elements of this formula. In line with the Legislature's call for additional review, we conducted an analysis to determine if the Chapter 70 aid formula helps or hinders the goal of directing adequate resources to high-needs students.
This analysis shows that Massachusetts distributes to wealthier school districts more aid than their formula-determined need at the expense of increasing resources to low-income communities. In the FY 2021 H.2 budget proposal, $778 million, or 14% of total Chapter 70 aid, is distributed as a result of Chapter 70 aid formula factors that are not based on community wealth and income. These factors, many added to the formula during previous reforms to build political support by ensuring that nearly every community received more money than before, are essentially needs-blind in that they do not account for a community’s capacity to provide an adequate education. Under the current FY 2021 proposal, 64% of every needs-blind dollar goes to the wealthiest 20% of school districts in the Commonwealth (Figure 1).
Figure 1: Chapter 70 Aid by School District Wealth Quintile
Massachusetts is at a critical juncture in education funding reform. Because the SOA does not provide a pathway for raising additional revenue, the task of identifying the resources necessary to meet SOA spending obligations falls to state and local budget writers. In July 2020, legislators committed to providing schools with FY 2020 levels of Chapter 70 aid plus an inflationary adjustment for the coming FY 2021 school year while opting to delay passing a FY 2021 budget in the face of uncertainty caused by COVID-19. The severe pressure that COVID-19 places on the state's fiscal landscape likely hampers planned SOA-driven foundation budget increases for years to come. During this unprecedented budget cycle, the state must be creative in how it leverages its drastically reduced resources.
Faced with difficult financial choices, Massachusetts would be wise to consider how needs-blind state aid currently sent to its wealthiest communities could be better directed toward low-income students and communities to help close the decades-long achievement and opportunity gaps the FBRC recommended addressing with additional funding. It is prudent to address these inequities now, in light of the current fiscal crisis, both to ensure the maximum possible funding for high-needs communities and to better align the state’s total investment in K-12 education with student need.
Based on the findings described in this policy paper, we provide four recommendations to make the Chapter 70 aid formula more equitable. These recommendations can be addressed now, in conjunction with revisions to the foundation budget formula made by the SOA. Although these four items do not lead to a fully needs-based Chapter 70 aid calculation, they are impactful steps that ensure funding reaches those students who need it most.
1. Incrementally phase out the hold-harmless provision.
The hold-harmless provision guarantees that districts receive at least the same amount of Chapter 70 aid as the previous year even when their foundation budgets decrease. Chapter 70 aid attributable to the hold-harmless factor is equal to $319 million in H.2, with the wealthiest school districts receiving approximately 5 times more state aid attributable to the hold-harmless factor per student than the least wealthy. Many middle-wealth school districts, particularly rural areas with declining enrollment, also rely on this formula factor. These districts often face challenges related to diseconomies of scale that cause costs per student to be higher than contemplated in the foundation budget formula. The phase-out of the hold-harmless provision should proceed in parallel with a set of reviews, required under the SOA, related to assessing the long-term fiscal health of those rural school districts with declining enrollment.
2. Phase out minimum aid.
Minimum aid provides a flat per-student increase in state aid to districts in years when all other foundation budget and Chapter 70 formula factors do not generate an aid increase. The proposed FY 2021 minimum aid rate is $30 per student, accounting for $11.9 million in Chapter 70 state aid, with the wealthiest communities receiving more than 6 times more minimum aid per student than the lowest resourced school districts.
3. Eliminate below-effort aid to municipalities that have the capacity to fund 125% or more of their foundation budgets.
The state calculates a target percentage for each municipality’s share of its school districts’ total required spending. Under certain circumstances, the state allows municipalities to fall short of this target, filling the shortfall with state aid. This below-effort aid accounts for $156 million in Chapter 70 aid in the FY 2021 budget proposal. Currently, below-effort aid benefits low-income communities more than wealthier ones and therefore should not be removed entirely, at least until the full implementation of the SOA reforms. However, the state should stop providing below-effort aid to better resourced communities that can afford to fund 125% or more of their school districts’ budgets from local revenue alone. Doing so will free up $1 million with no impact on the lowest resourced school districts. More important, this measure improves progressivity of the state aid formula.
4. Increase the maximum required local contribution toward school district budgets that wealthy municipalities are expected to make.
A municipality’s local contribution to its schools is capped at 82.5% of its foundation budget. For FY 2021, the state calculates that 104 of Massachusetts’ 351 municipalities can afford to fund their schools entirely from local resources. The net effect of raising the maximum required local contribution from 82.5% to 100% of a municipality’s foundation budget is a Chapter 70 aid increase of $221 million statewide, with the lowest resourced school districts gaining $82 million in aid and the wealthiest school districts seeing an aid reduction of $4 million. A more incremental increase in the maximum required contribution share yields a progressive, but smaller, effect.