Investing in Boston’s Students through Comprehensive Education Finance Reform

In Boston, we want to make sure that every child has a fair shot at success. That starts with making sure every student receives a good education in a quality learning environment. During Mayor Walsh’s third State of the City address on Tuesday night, he outlined several ways we can lift up our schools, in all of our neighborhoods. As a City, we are making significant financial investments so we can break down barriers to education and build bridges into college and career.

Building on his commitment to Boston’s students, Mayor Walsh is proposing transformative education finance legislation to expand access to high-quality education for students of all ages. Mayor Walsh is partnering with Boston’s State Legislators to propose targeted state education finance reforms that will increase annual funding to Boston by $35 million in its first year of implementation, and position Boston to receive $150 million in additional annual Chapter 70 aid within a few years if the state identifies a new revenue source for investments in education. In concert with the district’s Long-Term Financial Plan, the additional revenue will allow for the continued expansion of investments necessary to support all of Boston’s children. The package would unlock resources that would improve educational outcomes in Boston’s district, charter, and non-profit settings. The proposals would:

• Grant charter schools access to the Massachusetts School Building Authority and relieve the State General Fund of the of the cost of charter facilities, creating additional capacity for state funding for charter transition costs;
• Provide every Boston 4-year old with a high quality Pre-K seat;
• Streamline charter school transition funding in a way that limits state and City costs;
• Increase districts’ reimbursements for the highest-need and highest-cost students; and
• Make transformational education funding available for Boston if the State identifies a new education revenue source.

While internal reforms are underway at the Boston Public Schools, and the City is advocating for education financing reforms on Beacon Hill, the City will make an unprecedented investment in the physical spaces in which its students learn. Last night, Mayor Walsh announced a plan to build $1 billion in school construction and projects generated by the BuildBPS Master Plan. The plan will be funded over the next decade by the City’s capital budget and by building on the City’s new relationship with the Massachusetts School Building Authority (MSBA) to return more funding to Boston and ensure that the processes of the City and the Authority work together. Mayor Walsh’s $1 billion commitment is more than double the capital spending on BPS facilities over the last decade.

Background

In recent years, Boston has made numerous research-driven targeted investments and reforms to close the achievement gap. These have included:

• Extending the school day to at least 6 ½ hours for kindergarten through 8th grade by adding 120 hours of learning time for over 23,000 students;
• Serving 725 more students in high quality, full-day pre-kindergarten seats at Boston Public Schools and in community based organizations;
• Launching “Excellence for All” in 13 schools to provide access to rigorous and enriching academic experiences to hundreds of additional 4th grade students, and creating more equitable opportunities;
• An early-hiring program to provide school leaders with flexibility to put an effective teacher in every classroom; and
• Offering tuition-free community college to eligible students.

These investments are paying off already. This year, the number of BPS schools receiving the state’s top designation increased to 21. Graduation rates also reached an all-time high of 70.7%. Teachers hired through the early hiring initiative are two times more likely to receive “exemplary” ratings than those hired in later months, helping ensure that students have a teacher that meet their needs. In addition, Boston’s four-year cohort dropout rate fell from 18.5% in 2014 to 15.4% in 2015 (the most recent year for which data is available).

By many measures, Boston is the most successful large urban school district in the country. According to President Obama’s U.S. Census Bureau, it also invests heavily in its students, compared to its peers (https://www.census.gov/newsroom/press-releases/2015/cb15-98.html). However, areas in need of decisive action remain, not least of which being aggressively tackling the persistent opportunity gap. But historically, strategies have been hindered by the district largely only engaging in short-term planning, leading to annual discussions regarding tradeoffs and investments being made to achieve a balanced budget. However, this winter, Boston Public Schools completed a Long-Term Financial Plan that identified 10 big ideas to unlock resources for the district. The advisory committee identified a series of possible savings strategies within the district that are now underway. To date, this has included streamlining the district’s central office, maximizing efficiencies in transportation, and negotiating a responsible contract with the Boston Teachers Union. These savings will help address the district’s fiscal challenges and allow for funding to be reinvested in its students.

The Plan also identified that stagnant state education revenue, combined with the city’s steeply growing charter school assessments, will continue to contribute to the district’s fiscal challenges. While Boston’s charter school assessment has risen by 125% since the enactment of the 2010 Achievement Gap Legislation, the state’s stautory obligation has not kept pace (for more on this topic, click here). This has led to $48 million in lost revenue for Boston over three years, funds that could have been invested for student success.

In addition, the report found that the state’s Chapter 70 school funding formula does not work for Boston. The Commonwealth’s Chapter 70 per pupil Education Aid to Boston has been decreasing despite rising costs of educating students. Boston’s per pupil Chapter 70 Aid decreased from $3,519 in FY08 to $3,365 in FY17, while City funding for BPS and charter schools grew by almost 40%, leaving the City, with its limited revenue raising ability, to fill the gap at the expense of other City programming, and forcing BPS to annually look for cost bending opportunities. Over that same time, $900 million has been added to total state spending on education through Chapter 70, but because of the design of the state’s funding formula, Boston has experienced only a small increase in Chapter 70 funding relative to the BPS budget.

In addition to the internal changes recommended to be explored at BPS, the Long-Term Financial Plan’s 10 Big Ideas included a call to “Advocate to Realign State Education Formulas” and to “Advocate to Give Boston More Flexibility to Modify its Revenue Structure.” Based on these findings, the Mayor is recommending comprehensive education finance reform legislation that would increase annual available funding for Boston by about $35 million for increased investment in education in its first year of implementation. The package would fix the broken charter school finance model, more fully fund the cost of the Commonwealth’s highest need students, and redirect existing tax revenue produced in Boston back to its residents. In addition, if more state revenue becomes available for education, the Mayor’s Chapter 70 Education Aid proposal would fundamentally change Boston’s stagnant state education aid and provide an additional $150 million per year to Boston students within several years.

Proposal Details

Charter Facilities Reform

The proposed legislation makes the Massachusetts School Building Authority responsible for charter school facilities charges and makes charter schools eligible for MSBA funding for school construction and renovation. Currently, cities and towns pay a per pupil facilities rate to charter schools and are then reimbursed by the State, making municipalities essentially a pass through function. This reform would both relieve $35 million in annual costs and afford charter schools the same opportunities as their district school peers. The $35 million freed up by this change, paired with the more affordable direct funding model proposed by the Mayor, would allow for charter transition funding, which is currently underfunded by 54%, to be nearly fully funded. The Massachusetts School Building Authority is funded through a portion of the state sales tax. Since its creation, almost $1 billion of its funding has been generated in Boston, yet only $65 million in Boston capital spending has been approved.

Providing Every Boston 4-year old with a high quality Pre-K seat

One of the highest priority areas for investment in each of the Mayor’s last three budgets has been in pre-kindergarten. Boston has been moving closer to its goal of providing a high-quality pre-K seat for every 4-year old in the City. Studies show that investments in high-quality pre-K translate directly into closing early racial and class achievement gaps. Investments in this area prepare children for success entering school. Research has also demonstrated that Boston is the national leader in pre-K education, due in large part to the program quality improvements made in Boston Public Schools, which have recently been replicated in community provider settings through the local “K1DS” initiative and through the federal Pre-K Expansion Grant effort. While Boston has been increasing early education investments at BPS, the Universal Pre-Kindergarten Taskforce has been studying ways to enable a full scale, high-quality, universal, mixed delivery system in Boston.

This proposal would deliver on the Mayor’s vision of Universal Pre-K for the city. The Universal Pre-Kindergarten Taskforce gained important insight into the supply and demand of pre-K seats in Boston. It also found that Boston had solved the overall access challenge, but continued to face a significant shortage of quality seats. The taskforce estimates a 1,350 seat gap in Boston between the number of quality seats — roughly 4,000 — and the current number of 4-year olds (5,350).

Additionally, it concluded that quality seat gaps differ substantially by neighborhood, with places like South Boston, Brighton, Charlestown, Allston, and Jamaica Plain containing enough quality seats to serve their populations, while Dorchester, Hyde Park, West Roxbury, Roxbury, East Boston and Roslindale were in need of increased supply.

Mayor Walsh is proposing to close the “quality gap” in pre-kindergarten seats in Boston by investing in programs at public schools and community based organizations with surplus revenue raised in Boston from the Convention Center Fund. To dedicate $16.5 million to early education in Boston, this legislation would redirect the amounts generated by two Convention Center Fund revenues that are produced exclusively in the City of Boston: the Boston Sightseeing Surcharge and the Boston Vehicular Rental Transaction Surcharge. Both charges are already in existence and neither revenue source is directly related to convention center business. Although Convention Center revenue is almost entirely raised in Boston, Fund surpluses have been used to balance the statewide budget in recent years. In FY16 alone, the Commonwealth drew $60 million from the Convention Center Fund to close the year in balance. Boston residents have a strong claim on this revenue, and supporting early education will make a difference in the lives of thousands of children and families in Boston, and will provide all children with equal opportunities for success.

Based on their findings, the taskforce is formulating a set of quality seat expansion strategy options that would:

• Invest in reducing gaps in teacher compensation, assisting teachers to earn advanced credentials, and providing tuition assistance in community-based settings across the city;
• Sustain PEG programs beyond the life of the federal grant;
• Strategically expand the number of BPS seats in neighborhoods where BPS can expand;
• Increase seats in community-based organizations that meet the city’s quality thresholds in shortage neighborhoods;
• Invest in improving quality in community-based organizations that are close to meeting quality thresholds ; and
• Create an oversight system for Pre-K investment and program delivery

New revenue from the Mayor’s legislative proposal would support these types of early education investments.

Charter Finance Reform

Mayor Walsh’s proposal reforms charter school financing by reducing the state’s overall General Fund liability while returning to a true partnership between the the Commonwealth and its cities and towns on education reform financing. The proposal would replace the broken charter reimbursement model with a new three year transition funding system while charter schools expand. Current law provides for the Commonwealth to reimburse the city for the full first year costs of charter growth and 5 years of partial growth. However, over the past three years, the Commonwealth has not approached full statutory funding to cities and towns (and district students) for transition costs, leading to an aggregate $48 million in lost revenue for Boston alone. By contrast, the City of Boston’s full $154 million assessment was deducted directly from its education aid. The transition funding formula was created to account for the difficulty of immediately reducing district costs when students leave district schools to attend charter schools. Under the proposal, the Commonwealth would fund 100% of the growth in tuition in Year 1, 50% in Year 2, and 25% in Year 3 directly to the charter schools, with the municipality responsible for the balance in Years 2 and 3. Cities and towns would be responsible for 100% of the cost from the fourth year on.

The proposal also adjusts the charter school per-pupil tuition calculation to recognize the full transition costs for students leaving BPS to attend charter schools, rather than just the amount funded through the transition funding formula. Due to a flaw in the current formula, the charter assessment directly penalizes communities that have had their charter reimbursement appropriations underfunded.

Lastly, the proposal finds efficiencies in school transportation by allowing district and charter schools to split transportation costs equally if transportation schedule agreements cannot be reached, and by prohibiting charters from passing costs of third party transportation to municipalities. The City dedicates significant resources to school transportation, spending over $100 million, or 10% of the annual BPS budget. In recent years, BPS has made numerous policy and operational changes aimed at reducing its own transportation costs, but has limited ability to control the charter transportation costs that it is responsible for.

Increased State-City Partnership for Highest Need Students

Because Boston Public School students overall face more significant and more numerous disabilities than students in other districts, the proposal increases Circuit Breaker reimbursement for the highest need and highest cost students. BPS has seen an increase in the number of high need students and DCF involved students placed in group homes who require private placement. These students in out of district educational programs cost an average of $84,000 per pupil. Currently, the state formula provides for 75% reimbursement to districts for costs above 4 times the average pupil cost. The proposal would change this threshold to 3 times the average pupil cost. If fully funded, the change would increase BPS funding by about $6 million.

Transformational Education Funding for Massachusetts

Finally, the Mayor’s legislative package fixes the Chapter 70 Education Aid Formula for communities like Boston that serve the Commonwealth’s most economically disadvantaged students and are investing more in their students than is required, but are receiving stagnant education aid each year. If the Commonwealth identifies a new revenue source for education, the Mayor’s proposal combines needed foundation budget updates for economically disadvantaged students, special education, and English Language Learning (which were recommended by the Foundation Budget Review Commission) with a local contribution reform for communities like Boston. Some previous proposals have come with high price tags, but would not have greatly benefitted the state’s capital City, which produces nearly $5 billion in annual tax revenue for the Commonwealth.

If new state revenue is identified for education aid, the proposal caps the municipal revenue growth factor at 2 1/2% for certain communities, including Boston. With the Mayor’s proposal, Boston could fundamentally change its State Education Aid picture and invest an additional $150 million annually in its students within the next several years.

The Chapter 70 formula does not adequately recognize the expensive nature of the City’s student population, which is among the most economically disadvantaged in the state, speaks over 85 languages at home, and includes more than five times the number of special education students that the formula assumes. It also considers Boston “rich” due to its high property values and income, while failing to recognize that these characteristics do not directly contribute to municipal revenue, because Massachusetts municipalities do not levy an income tax, and have their property tax levies constrained by Proposition 2 1/2.

Providing programs designed to close achievement gaps and prepare Boston students for higher education and careers will require diligence by the educational providers entrusted with this important task. However, internal measures alone cannot enable Boston students to reach their full potential. The fortunes of both the city and the state depend on the eventual success of Boston’s students. With an estimated $4.8 billion in state tax revenue produced in Boston, the Commonwealth’s fate is tied to the capabilities of the workforce in its capital city. Mayor Walsh’s education finance reform package provides a variety of no cost, low cost, and transformative solutions to move toward a more equitable sharing of Boston’s success with all of its families. The proposals benefit district, charter, and non-profit students alike.

Each proposal reflects a desire to modernize existing relationships between the City and its state-related partners. School building policy would be updated to reflect the charter sector’s growing share of student enrollment to the benefit of all students. The Circuit Breaker line item, designed to mitigate the financial impact of providing high cost services, would more appropriately share costs that comprise a growing share of the City budget. Funding formulas and statutes created when charter school expenditures were a rounding error relative to overall education spending, and when the full impact of Proposition 2 ½ had not yet taken root, would be updated for the 21st century.

In 2017, Boston is truly entering a new era of school investment. Mayor Walsh is proposing concrete and creative plans to not only make targeted investments in education in the short-term, but fundamentally advance Boston’s state education aid for the future. From making a $1 billion commitment to investing in school construction projects, to giving every 4-year old access to high-quality pre-k education, to freeing up funding through reforms and state revenue for BPS to reinvest in their students, we are beginning to transform all of BPS’ schools into spaces for 21st century learning. These are some of the most important ways we can invest in and support our students. As Mayor Walsh said on Tuesday night, we urge everyone to come together for our students. If we trust in our shared values, we can help ensure strong futures for all of Boston’s students for years to come.

David Sweeney is the Chief Financial Officer for the City of Boston. Katie Hammer, Budget Director for the City of Boston, and the Office of Budget Management contributed to this report.