The Commonwealth should formalize its partnership with cities and towns by adopting a revenue-sharing policy that allocates, as a minimum, a fixed percentage of state tax receipts for the primary local aid accounts that support municipal government.  Even though such a policy cannot prevent fluctuations caused by economic factors and changes in state revenues, it can protect local aid accounts so that they will not bear a disproportionate share of cutbacks.  

In the years following the adoption of Proposition 2½, the state followed an informal revenue-sharing policy that made it possible for cities and towns to meet the requirements of that measure to reduce or stabilize property taxes, while continuing to support schools, public safety and provide other services.  The policy resulted in the allocation of an increasing share of state revenues to local support.  Recent recessions and increased state expenditures on health care and other services have upset that informal arrangement.  The Commonwealth’s percentage commitment to local aid was reduced for the fifteen years between 1981 and 2005.  Even with recent increases to local aid, current state aid to municipalities has not yet returned to 2001 levels when adjusted for inflation.  Therefore, the Commonwealth should adopt a policy of sharing with cities and towns a minimum of 40% of state revenues each year.  Furthermore, the Commonwealth should consider formalizing that commitment through a constitutional amendment.

Massachusetts should also support general municipal government by returning to a formula-based approach of distributing local aid that captures and responds to the disparities in the cost of providing services compared to municipal revenue capacity (tax base and other revenue sources).  This basic thesis is best captured by the Partnership Aid proposal recommended pursuant to the work of the Municipal Finance Task Force, and further summarized in Strategy #1.  Partnership Aid, if fully implemented, will do more than simply deliver more aid to cities and towns; it would do so in a fair way that takes into account the cost structure facing each municipality as well as its local revenue-raising capacity.  Partnership Aid does a better job in accurately assessing need, as a function of costs and capacity, than other parts of the current local aid system which are purportedly based on need.

In order to promote smart growth consistent with both MetroFuture and the state’s Sustainable Development Principles, the revised aid formula should include elements that promote consistency with the regional plan.  For example, new growth inconsistent with the local and regional plans would add to the municipal capacity, but associated costs would not be included in the formula.  Conversely, tax revenue that municipalities forego due to regional tax sharing or transfer of development rights would not be counted as part of the municipal capacity and would therefore be reimbursed by the formula.  To succeed, this reform effort should hold current Additional Assistance communities harmless, but use additional funding as a base to broaden non-school aid.  For more details on this capacity gap local aid proposal, see Strategy #1B.   

15.a    Through the budgeting process, the Governor and Legislature should mandate that municipalities receive a minimum of 40% of state revenues each year

15.b    The Commonwealth should consider a constitutional amendment mandating that municipalities receive a minimum of 40% of state revenues each year

15.c    The Commonwealth should increase the sales tax, or an alternative revenue source, to expand local aid and to reduce local property taxes

15.d    The Legislature should adopt requirements to make local aid predictable

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