Education Financing in Massachusetts and the 50 States in FY 2007

The economic crisis of the past year has greatly changed the dynamics of education finance in Massachusetts and around the country, with cuts to state and local spending and a large infusion of additional federal funds. However, even with these substantial changes, recently released FY 2007 education spending data from the United State Census provides important information on long-term trends in education spending in Massachusetts, as well as how Massachusetts compares to other states in terms of commitment to K-12 public education.

The following section of this brief examines education spending in Massachusetts by looking at education spending in three ways:

1. What are the sources of funding? This brief examines the proportion of federal, state and local funds that go to education. Looking at how the composition of state and local education spending in Massachusetts has changed over time provides important context for discussion of how education reform in Massachusetts has changed how public education is paid for. This information also allows for comparisons between Massachusetts and other states.
2. What is the share of total economic resources within the state that is dedicated to primary and secondary education? In order to see how education spending in Massachusetts compares to the size of our state economy, how that has changed over time, and how it compares to other states it is important to look at spending as a share of the economy, this brief examines that question by comparing education spending to personal income, a common measure of economic growth.¹
3. How much do we spend per student? How much is invested on each student and how does that amount compare with other states. Cost differences between states and inflation over time make direct comparisons difficult. To examine per-pupil spending, this brief adjusts for these differences to allow for an appropriate comparison to other years and other states.

Composition of Education Spending

Fiscal year 2007 continued a trend in Massachusetts where education finance has become more and more a responsibility of the state. In fact, the 2006-2007 school year marked the first time in Massachusetts where local revenues comprised less than 50 percent of education spending. Perhaps due to changes to the education funding system in Massachusetts made in FY 2007, state spending on education in the 2006-2007 school year reached its highest point since data has been available.

While Massachusetts has continued to shift some of the education spending responsibility away from local sources, compared to other states Massachusetts is still heavily reliant on local revenues. This reliance on local funds makes up for the small share of federal education revenues received by Massachusetts. Massachusetts continues to rank among the lowest in the nation in percent of education funding that comes from federal dollars.

Massachusetts Sources of Funding: 1993-2007²

• State funding, as a share of total education spending, reached its highest level ever in FY 2007. In FY 2007, state funds accounted for 44.8 percent of total education spending in Massachusetts, an increase of 0.8 percentage points from the FY 2006 level. This is the highest figure of the previous 15 years, going back to FY 1993, eclipsing the previous high point of 44.4 percent in FY 1997. While one year of data is not sufficient to draw a full conclusion, the FY 2007 data is consistent with the success of 2006 Chapter 70 reforms in shifting some of the cost of paying for education from the local communities to the state.
• FY 2007 marked the first year in Massachusetts where local revenues made up less than 50 percent of education spending. The share of total education spending from local sources decreased in Massachusetts in FY 2007 from 50.7 percent to 49.9 percent. Since 1993, local share of education spending has declined by more than 20 percent.
• Federal funding for education in Massachusetts remains relatively flat. In FY 2007, federal funding comprised 5.2 percent of education funding. In FY 1993, the federal funding share was 5 percent, meaning that in 15 years the federal share of education funding increased by 4 percent.

Massachusetts Compared to Other States

• Even with the increase in the share of state spending on education, Massachusetts is still below the national average in state share of education spending. In FY 2007, the state ranks 29th in the nation in state spending as a percentage of the total education investment. In FY 2006, Massachusetts ranked 30th in the nation in this category.
• Massachusetts continues to rank very low in federal support of public education. In FY 2007, 5.2 percent of total education spending was from federal sources, meaning that Massachusetts continues to rank 48th in the nation in federal support. One of the chief reasons for this low percentage is that a high percentage of federal education aid given is tied to the number of low-income school children in a district. As Massachusetts is a relatively affluent state, it is not a large recipient of these funds. As the first section of this brief illustrated, however, Massachusetts’ reliance on federal funds will increase sharply in FY 2009 and FY 2010 when federal monies are being used to offset declining state revenues.

Education Spending as a Share of the Economy

Education support in Massachusetts remained approximately the same share of the state’s economy in the 2006-2007 school year, lagging well behind the national average. As has been the case in recent years, much of the difference between spending as a share of the economy in Massachusetts and figures for other states is the relatively low level of capital spending at schools in the state. When only current education spending is considered the state is closer to the national average, but Massachusetts still fares poorly when looking at education support as a share of the total economy.

Education as a Share of the Economy in Massachusetts, 1993-2007

• In FY 2007, education spending in Massachusetts as a share of the economy remained flat. Education spending represented 4.53 percent of personal income, a slight decline of 0.04 percent from the 2005-2006 school year.
• 2006-2007 marks the 3rd consecutive year in Massachusetts where non-capital education spending has declined slightly as a share of the economy. In the 2004-2005 school year, 4.17 percent of state personal income was devoted to K-12 education spending. In the 2006-2007 school year, that figure was 4.15 percent. While this decline is hardly large, it does show that education spending has basically remained stagnant when looked at as a share of the economy.
• Education support comprises a much larger share of the state’s economy than it did in the mid 1990s. In the 1992-1993 school year, education spending comprised 3.53 percent of the state’s economy, compared to 4.53 percent in the 2006-2007 school year – 28 percent growth. To put this change into perspective, if Massachusetts education spending had remained a constant share of personal income, total education spending would be reduced by close to $3 billion.

Massachusetts Compared to the Rest of the Country

• Even with the growth of education as a share of the economy in Massachusetts over the past 15 years, the state continues to fall well below the national average. According to the most recent Census data, on average education makes up 4.95 percent of a state’s economy, almost 10 percent more than the education share in Massachusetts.

• Massachusetts is closer to the national average when looking only at state and local education spending as a share of the economy, and leaving aside federal money. State and local education spending in Massachusetts comprises 4.30 percent of personal income in FY 2007, compared to a national average of 4.54 percent.
• In terms of capital spending as a share of the economy, Massachusetts ranks among the lowest in the nation. Massachusetts ranks 45th in education capital spending as a share of personal income. With a personal income share of 0.29 percent, Massachusetts capital spending has declined by 0.02 percent of personal income from its 2005-2006 school year level. Massachusetts capital spending falls 0.3 percent below the national average of 0.59 percent. If Massachusetts were to meet the national average in terms of capital spending, as a share of personal income, K-12 capital spending would be doubled to more than $1.7 billion.

How much do we spend per pupil?

Massachusetts continues to rank well in terms of cost-adjusted spending per pupil. The state’s per-pupil spending level of $13,545 ranks 11th in the nation, exceeding the national average by almost $2,000. While Massachusetts ranked 10th in the nation in cost-adjusted per-pupil spending in FY 2006, the Massachusetts cost-adjusted per-pupil spending level continues to exceed the national average by 17 percent.

The measure used above is more inclusive than many measures of per-pupil education support because it also includes capital spending, not just current education costs. Because of this inclusion, the measure is a good way to capture a state’s total education support. However, it is important to note that, given Massachusetts’ relatively low capital spending level, this measure understates how Massachusetts compares to other states when looking at only in-classroom spending.

1. For more information on the use of personal income to gauge economic growth please see New England Public Policy Center of the Federal Reserve Bank of Boston, “Assessing Alternative Measures of State Income,” July 30, 2008.

2. Education spending data in FY 1997 contains an error in state spending information and so the chart above uses an average of FY 1996 and FY 1998 data to approximate FY 1997.