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Governor's FY07 budget misses the mark

Governor Mitt Romney released his proposed budget – House 2 – for the next fiscal year (FY07) on Jan. 25.  His proposal increases spending by 5.3 percent over last year for a total of $25.2 billion.

FY07 Budget Spreadsheets

Despite initial press headlines that Governor Mitt Romney proposed record amounts for public education, the actual numbers leave thousands of students shortchanged. Programs and spending levels for public education preK-graduate school have not been restored to the levels reached at the beginning of the decade.  Under House 2, over 90 percent of school districts fail to re-attain FY02 Chapter 70 aid (state funds to local school districts) after accounting for inflation and enrollment changes.  In FY07 dollars, Chapter 70 aid in House 2 is about $401 million below FY02.  House 2 spending for public higher education is still 26 percent below spending in FY01 after adjusting for inflation.  If this budget is enacted without changes, school districts and campuses will continue to struggle with issues such as increasing class sizes, inadequate remedial and literacy programs and not enough staff and faculty to provide a high quality education for the students of the Commonwealth. 

PreK-12

Chapter 70 received an increase of $164 million over last year for a total of $3.453 billion.  Twenty-three of the state's 328 operating districts incurred aid losses from FY06 levels.

Despite an increase in funds dedicated to grants, most grant programs were funded at last year's levels.  Some of the programs, including class size reduction and school transportation which have not been funded since FY04, are still not funded.

The increase in grant funding goes to several programs such as merit pay and turnaround schools that have not been shown to improve student achievement. 

Higher Education

New funding for higher education increases only $29.9 million (3 percent) over last year. This leaves funding still 26 percent or $341 million below FY01 when inflation is taken into account.
The governor has proposed increasing all employees' health insurance premium contributions to 25 percent from the current 15 percent or 20 percent.

Revenue

The governor's budget substantially underfunds education, and at the same time reduces the personal income tax rate from 5.3 percent to 5.0 percent over two years.  In FY07 that amounts to a loss of approximately $150 million.  When fully phased-in after two years, the loss climbs to $610 million – enough to significantly increase funding to public education.

Employee Benefits

House 2 includes municipal employee health insurance proposals similar to the ones contained in the bill the governor filed this summer.  Health plans would be designed by mini-GICs (group insurance committees) in each city or town, controlled by management.  The governing body of the town would set the premium rates without collectively bargaining them.

The governor includes no COLA for retiree pensions. 

Below are some of the details of the governor's proposal.

PreK-12 Education Budget

Chapter 70 – State Aid to Local School Districts
The 5 percent increase ($163.7 million) over FY06 still leaves Chapter 70 aid $401 million lower than its high point in FY02 when adjusted for inflation and enrollment.

The governor proposes a new formula to distribute the money to cities, towns and regional school districts.  Under his proposal for next year, 23 districts lose money and many of the districts with the most low-income students do not receive increases close to the same percent as last year.  While increasing aid to "growing districts,” the new formula does not increase aid to communities where the achievement gap is the most severe.  Nor does it provide additional funds for programs that research has shown help students achieve, such as smaller class sizes in the early grades or remedial programs.

Romney's only substantive change to the foundation budget – the state-defined minimum level of expenditures necessary for educational adequacy – is an increase in the employee benefits component.  But in order to continue to receive this increase of 5 percent in FY07, the city or town must adopt the governor's plan for local GICs which take away collective bargaining over health insurance (see below for more details).

Other Local Aid (Lottery, Additional Assistance and PILOT)
Romney proposes to increase unrestricted aid to cities and towns by $167.9 million, including an increase of $158.7 million in lottery aid and $9.2 million in Payment in Lieu of Taxes (PILOT).  Local aid funding is still $257 million lower than FY01 when inflation is taken into account.  Because many communities rely on these accounts to fund schools, the failure to keep pace with inflation will continue to put a strain on property taxes.

Education Grant Programs
The governor proposes to provide the same funding for education programs over last year.  Many of these programs were cut in FY03 and FY04.  He does make modest increases in some administrative accounts and in regional school transportation.  

• Class Size Reduction for Low-Income Districts – not funded in House 2
• Comprehensive Health Education Programs – not funded in House 2
• Transportation of Pupils – not funded in House 2, except for regional school districts funded with an increase of $5 million (total of $50 million)
• Racial Imbalance Grants (Chapter 636) – not funded in House 2
• Full Day Kindergarten – funded at FY06 level ($25 million)
• Special Education "Circuit-Breaker" – funded at FY06 level ($201.6 million)
• Early Literacy Programs – funded at FY06 level ($3.7 million and $2.7 million)
• School Breakfast Programs – funded at FY06 level ($2 million and $2.2 million)
• METCO – funded at FY06 level ($17.6 million)
• Alternative Education Grant Program – funded at FY06 level ($1.25 million)
• Early Childhood Education (Community Partnership for Children Program) – funded at FY06 level ($68.7 million)
• MCAS Remediation – increases funding by less than 2% over FY06 level ($10.3 million increased to $10.5 million) Charter School Facility Aid – increases funding to Commonwealth charter schools for per-pupil facilities aid by 14% (from $14.7 million to $16.9 million)
• Charter School Reimbursements – level funds this program at the FY06 level that reimburses school districts for funding losses due to charter schools ($50.1 million)
   

Most of the proposed increases in the governor's budget request go to new programs that are part of his "education reform” proposals, including:

• Performance Bonus Pay – limit of 1/3 of teachers and administrators per district; criteria for bonus would be based on student performance – $25 million
• Differential Pay – for A.P. math and science teachers whose students pass with grade of 3 or higher and for certain new math and science teachers - $10 million
  Turnaround Partners – funding to private entities brought into low-performing schools - $25 million
• Math Teacher Testing – $5 million
  Laptop Initiative - funding for every 6th and 7th grader to have a laptop computer ($100/laptop) – $18 million 
   

The governor's proposal includes most provisions of his "education reform” bill, H 4375.  That bill, filed in September 2005, was referred to the Education Committee, which held a hearing on it on Jan. 11.  The MTA testified in opposition to the bill.  The Legislature is unlikely to consider these provisions included in the budget without a favorable report from the Education Committee, which is also unlikely.  The chairs of the committee have been publicly quoted as having concerns about most aspects of the bill. 

Higher Education

The FY07 funding levels proposed in House 2 are:

• UMass:  $20.1million (4.6 percent) over FY06
• State Colleges:  $10.3 million (5.3 percent) over FY06 
• Community Colleges: $8.1 million (3.8 percent) over FY06
   

These three increases plus those in other areas of the budget are only a total of 3 percent increase over last year's budget and funding increases during this year.  Funding for public higher education is still 26 percent ($341 million) below FY01 funding when inflation is taken into account.

Health Insurance Costs
Increases active state employee health insurance premium shares to 25 percent – an increase of two-thirds in the active employees' insurance premium share for those hired before 7/1/03 who currently pay 15 percent and an increase of 25 percent for those hired since 7/1/03 who currently pay 20 percent.

Percentage split for retirees who are 65 and retired before 7/1/94 remains at 90-10.  Premium percentage splits for those who retired on or after 7/1/94 have two components.  For those who retired under Chapter 32A, Section 18 (where Medicare is the primary payer) the percentage split remains at 85-15.  For those not eligible for Section 18 Medicare coverage, the percentage split would become 75-25, instead of 85-15.

Dual Enrollment
Outside section mandates the Board of Higher Education, in consultation with the Board of Education and the president of UMass, to establish a grant program for public and private colleges to partner with high schools to offer dual enrollment programs or pilot early-college or middle-college programs in math and science courses.

To receive grants, the programs must provide:

a) simultaneous high school credit and transferable college credit

b) courses taught by college faculty and include some experience on a college campus

c) programs that include early outreach to middle school students to promote preparation for college and

d) data requested by the BHE that includes an evaluation plan.

Employee Benefits

Pensions (COLA)
No cost-of-living adjustment (COLA) for retiree pensions during FY07.

Dental and Vision Benefits
Increase active state employees' premium shares for dental/vision benefits from 15 percent to 25 percent – a two-thirds increase.

Retired Municipal Teachers' Health Insurance
Premium share by the employer remains at 90 percent.  (Retired municipal teachers from 75 school districts receive health insurance through the state plan.) 

Municipal Health Insurance
Creates local group insurance committee (GIC) comprised of seven members – five appointed by municipality and two by employees – who determine plan design.  In exchange for taking away collective bargaining rights, the state would increase by 5 percent that portion of a school district's foundation budget allocated for "employee benefits and fixed charges,” beginning in FY08.  (Governor made similar proposal in his health care bill that was not included in the Senate or House version of the health care reform bill currently being considered by a conference committee.)

Local legislative bodies would be permitted to unilaterally set the maximum health insurance premium contribution by a municipality.  Employees would be required to pay whatever the local legislative body approves, but not more than 50 percent.

Pension Reform
Effective July 1, 2006, extended longevity plans that are subject to employee choice and are not "ordinary, normal, recurrent, repeated, and of indefinite duration” are prohibited from being included as part of an employee's "regular compensation” for the purpose of calculating the amount of one's pension.  (There is no so-called "grandfather” protection in the governor's proposal.)  In the meantime, PERAC is submitting its recently voted "grandfather” regulation to the Public Service Committee for its review and possible comment.  However, PERAC, and not the Legislature, has the final authority to approve, reject or modify any changes that might be recommended.

Miscellaneous

Labor Relations Commission
The budget of the agency is increased by $270,964 or 32.5 percent.

Board of Conciliation and Arbitration
The budget of this agency is increased by $81,979 or 10.6 percent.