Vote NO on Massachusetts Ballot Question 1Simulation Methodology
The estimated state aid cuts presented for cities, towns, and school districts are based on a simulation of the impact of Question 1 which, like all simulations, uses various assumptions and procedures. The data should therefore be taken as indicators of the magnitudes of cuts that may result if Question 1 passes, and not as guaranteed predictions of actual cuts.
The major assumptions and procedures are outlined below.
How the state revenue reductions were run through the simulation
The simulation uses the Fiscal Year 2009 state budget, including transfers to off-budget items such as pensions, the School Building Authority, the MBTA, and spending associated with the new health care reform law. Total expenditures equal $32.8 billion when these transfers are included.
Although Question 1 phases in the elimination of the state income tax over a two-year period, the simulation assumes that the income tax repeal is fully implemented in Fiscal Year 2009.
The total loss of revenue associated with the repeal of the income tax is $14.6 billion: $12.6 billion based on Massachusetts Department of Revenue estimates of the impact of the income tax repeal once it is fully phased in, and an additional $1.9 billion of federal Medicaid and other revenues that will be lost as a result of reductions in spending. (The two figures do not add to $14.6 billion due to independent rounding.) The $14.6 billion revenue reduction amounts to approximately 44% of the $32.8 billion in total expenditures.
The simulation does not simply apply a proportional or "across the board" cut to all state expenditures, for two major reasons: First, constitutional provisions prohibit some spending from being reduced beyond certain levels. These apply primarily to debt service and to education funding. Second, for programs that leverage significant federal matching funds, in some instances it may not be fiscally prudent to cut expenditures to a level that would result in a substantial loss of federal funds and therefore require even deeper reductions in other areas of the budget.
The spending items that are constitutionally constrained, or which leverage federal funding, receive a targeted reduction in the simulation that, in most cases, is lower than the proportional reduction applied to the rest of the budget. These items comprise $19.8 billion of the $32.8 billion in total spending, and are cut by $6.3 billion. (See below for details.)
In addition, close to $300 million of state spending is from retained revenue accounts (accounts that generate and retain revenue for the purpose of supporting the spending from that account). With the exception of the Lottery distribution to cities and towns (see below), the simulation does not cut these accounts.
This leaves $8.2 billion of cuts still to be made on a proportional basis from the remaining $12.7 billion of total spending. Dividing $8.2 billion by $12.7 billion yields an across-the-board percentage of about 65%, which is applied to the remaining spending items, including state aid to education (with the exception of Chapter 70 aid; see below) and to cities and towns.*
Items for which spending cuts are constrained
General Education Aid (Chapter 70)
The simulation takes into account the constitutional provision that effectively requires each school district to spend at its "foundation budget." The foundation budget is financed by a combination of expenditures from 1) property taxes and other local revenues (the "local contribution") and 2) Chapter 70 state aid. The simulation provides just enough Chapter 70 aid to each district to enable it to reach foundation, given the district's projected actual local contribution. This results in a statewide Chapter 70 aid reduction of almost $1.1 billion (27%) from the FY09 budget level.
The calculation was performed as follows:
For each school district:
1. Chapter 70 aid = the greater of a) the foundation budget minus the FY09 projected local contribution or b) zero.
2. The FY09 projected local contribution = the FY09 minimum required local contribution as generated by the Chapter 70 formula multiplied by the "local contribution adjustment factor."
3. The local contribution adjustment factor = the average of the following:
- The ratio of the FY06 actual local contribution to the FY06 minimum required local contribution.
- The ratio of the FY07 actual local contribution to the FY07 minimum required local contribution.
- The ratio of the FY08 budgeted local contribution to the FY08 minimum required local contribution.
4. Constraint: The local contribution adjustment factor is greater or equal to one.
5. Devens: Since Devens does not have a foundation budget, its Chapter 70 aid is reduced by the statewide Chapter 70 aid percentage cut of roughly 27%.
Medicaid (MassHealth)
For MassHealth, the simulation gives special consideration to the portion of MassHealth's population that is regarded as the "traditional Medicaid" population, which is entitled to services under federal law. If Massachusetts is to remain in the federal Medicaid program and receive 50% Federal Financial Participation - i.e., reimbursement - for state spending, it must provide coverage to this population.
In FY2007, spending on the traditional Medicaid population was $5.8 billion out of $7.6 billion budgeted for MassHealth. In order to support the traditional Medicaid spending in FY09, the FY07 base of $5.8 billion is increased by 9% per fiscal year to account for inflation (or $1.1 billion overall), bringing the total spending on this population to $6.9 billion in FY09.
In this simulation, some appropriations are eliminated if they only include expansion populations that are not part of the traditional Medicaid population.
Based on the estimated $6.9 billion in spending on the traditional Medicaid population, MassHealth expenditures are reduced by almost $3.1 billion (31%) from the FY09 budget level.
To reduce MassHealth spending to this level, the state's new health reform law would have to be repealed.
Pensions
The simulation assumes that all retirees will continue to receive their pension benefits, but that the state will no longer make annual payments to pay down the state's unfunded liability. This results in a reduction of about $1.1 billion (75%) from the FY09 budget..
Debt Service
The simulation takes into account the state's constitutional provision that requires that certain debt of the Commonwealth be paid regardless of an appropriation. Those accounts were identified and are held to a level of funding that will ensure that the Commonwealth's existing debt obligations are paid. Debt service to support new debt is cut proportionally to other programs. As a result, debt service under the simulation falls by almost $650 million (18%).
TANF Block Grant
The simulation assumes that the Commonwealth will still receive $459 million in federal Transitional Aid to Needy Families) (TANF) block grant funds, which will require the Department of Transitional Assistance (DTA) to meet $358 million of TANF-allowable Maintenance-of Effort (MOE) expenditures by DTA.
For the purposes of the simulation, any spending in an account that counts towards the State's Maintenance of Effort is reduced so that in total those accounts do not exceed the required MOE of approximately $358 million. If spending in an account does not count towards the state's MOE, it is reduced by the across-the-board percentage of 65%.
Outside of DTA, it is assumed that the Commonwealth's spending will be sufficient to continue to draw down the TANF component of the Child Care Development Fund and Social Service Block Grant (approximately $138 million).
These assumptions result in a cut of $410 million (46%).
A note on Lottery aid
Although the Lottery distribution to cities and towns is funded from a retained revenue account, in various prior-year budgets, a portion of Lottery revenues has been redirected to the state's general fund to support overall spending. In keeping with this practice, the simulation reduces Lottery aid by the 65% proportional cut applied to most spending items and assumes that the resulting saving in Lottery proceeds is redirected to reduce the required proportional cuts. This results in a decline of $605 million in Lottery aid.
Note: Several state aid items are funded from retained revenue accounts and are therefore not reduced in the simulation.
Community-specific Data Sources
Data compiled from publicly available sources:
State aid to cities and towns (Note: In data shown here, Chapter 70 aid to the Northampton Smith district is included in Northampton's Chapter 70 aid.)
State aid to regional school districts
Special education reimbursement
