With budgets bedded down and Annual Town Meeting less than two weeks away, the one remaining uncertainty is, what will the state provide in local aid? The budget has been completed with an assumption that local aid will decline a further 6 percent from this year’s reduced levels. The latest signal from legislative leaders, now more than a month old, said cities and towns can depend on reductions of no more than 4 percent, but Harvard officials were skeptical, and preferred to budget using the more conservative assumption.

Budget discussions in recent years have been punctuated with concern about the “structural deficit”―funding from property tax and local aid growing more slowly than needed to fund operation of school and town services. Economy breaks―like the recession that began in September 2008, and the slowdown in 2003 and 2004―compound the problems and send leaders looking for other revenue sources.

In the warrant booklet that will be sent shortly to all Harvard households, two local aid numbers are displayed: “State Aid, Net of Offsets”, declining from $3.158 million this year to a forecast $2.949 million in fiscal 2011, and “State Cherry Sheet Charges” rising from $596,000 this year to $652,000 in fiscal 2011. From these numbers, it can be inferred that Harvard’s budget is expected to be supported by a net of $2.297 million in fiscal 2011, down from $2.562 million this year, a difference of $265,000.

What are the details behind these changes? And how has local aid changed over the last 10 years? Or the last 20 years? Is there anything the town can do to change the trend?

Receipts

Cherry sheets, so-called because they arrive printed on red-colored paper, comprise elements of income, and charges that reduce the actual amount of money delivered to the town. The two main categories of income are aid to education and aid to general government. Since 1990, aid to Harvard for education has grown from just over $1 million to nearly $2.2 million. Most of that growth has occurred since 2000, when aid for education was $1.1 million. Those who watch such things closely may recall what seemed to be a shocking drop in education aid in fiscal 2004, when Harvard’s total dropped by nearly $1 million, but in fact, it represented the end of reimbursement for school construction costs financed by a 15-year bond when both schools were expanded in 1988. Under school building assistance procedures at that time, towns borrowed for building projects, and were reimbursed as the payments came due. Harvard had been receiving more than $950,000 annually, and when the debt was paid off, the cherry sheet reimbursement stopped. The actual change in aid for 2004 was a drop of a few thousand dollars.

CLICK IMAGE TO ENLARGE  (Source: Mass DOR Municipal Databank)

Aid for education grew between 3 and 15 percent in fiscal 2005 through 2009, before declining less than 1 percent this year. Growth was enhanced by tuition received for School Choice students, ranging from just over $300,000 in fiscal 2006 to nearly $500,000 in fiscal 2008. This year, revenue from Choice was $383,170, and for fiscal 2011 it is forecast to be more than $380,000. Choice revenue is independent of revenue for educating Devens students, which is accounted for outside of the cherry sheet.

Most of the decline in local aid receipts has been in the “All General Government” category, which includes lottery (renamed this year to “unrestricted general government aid”), highway funds (which have been zero since fiscal 2003), and other minor amounts. All General Government funding declined by more than 30 percent this year, and is forecast to decline again in fiscal 2011.

The cherry sheet receipts graph shows the progression since 1990 of the two major categories of receipts, as well as total receipts. (Click here for receipt details from FY1990 to FY2010.)

Assessments and charges

The second part of the cherry sheet lists assessments and charges, which reduce the amount of money transferred to the town.

There are many minor charges that have been relatively stable for years. A county assessment and county tax charge was just over $8,000 in fiscal 1991, and grew to $14,256 in fiscal 2009. This year, the charge was $7,344, and it is forecast to be zero next year. An “Air Pollution Districts” charge has been steady at around $2,000 for 20 years.

CLICK IMAGE TO ENLARGE  (Source: Mass DOR Municipal Databank)

There are two charges that have grown significantly over the years―Retired Teachers Health Insurance and tuition assessments for Harvard students who attend charter schools or other schools under the School Choice program.

When a teacher retires from the Harvard school system, the town is assessed a charge for the town’s contractual obligation to pay a significant portion (currently 90 percent) of the retiree’s health insurance cost. The assessment doesn’t happen immediately, but typically one to two years after the retirement, and is based on average costs of all retirees. This assessment was less than $20,000 in 1990, and only $67,286 in fiscal 2000, but grew to $398,937 in fiscal 2007. It has dropped somewhat since then, to $339,600 this year, but it is anticipated to remain at these elevated levels for years to come. Although retirements can provide budget relief for the school system, as teachers lower on the salary schedule replace veterans, there is a delayed impact on overall town funding, as this increasing charge reduces future local aid.

The tuition assessment for Harvard students attending charter or Choice schools has grown from $161,306 in fiscal 2004 (the first year the charge was accounted for outside of Chapter 70 funding) to more than $260,000 this year, and is forecast to be more than $285,000 in fiscal 2011. These charges are not netted against local aid receipts for students attending Harvard schools on Choice; rather, they simply reduce Harvard’s overall local aid payments.

Click here for details of all assessments and charges for FY2000 through FY2010.

The Massachusetts House of Representatives is scheduled to begin debate on the budget bill April 26.