The money that the state provides to cities and towns for police and fire protection, parks, and other core local services is often referred to as general local aid (cities and towns receive separate Chapter 70 education aid to help fund their K-12 school districts).
For many years, general local aid in Massachusetts was funded through a combination of lottery revenue and state tax revenues.* Typically, the lottery provided the bulk of the money, but the state contribution could be significant. Each year between FY 2001 and FY 2009, the state added between $200 and $400 million of annual tax revenue to help cities pay for basic, municipal services. This state revenue sharing was especially important for those cities and towns whose local property wealth was low and for those that were bumping up against Prop 2 1/2 limits.**
When Lottery Aid and Additional Assistance were consolidated into Unrestricted General Government Aid (UGGA) in FY 2010, however, the state cut its support so deeply that total general local aid is now basically equal to net lottery revenue. Only a very small amount of state tax revenues was used to support local aid in FY 2010 and FY 2011—and in FY 2012 it looks as if funding for local aid may be lower than lottery revenue alone.
Ending this form of revenue sharing with cities and towns represents a marked shift in state policy, spurred by the onset of the state fiscal crisis. It’s worth noting, however, that this fiscal crisis is largely a result of state-level policy decisions to cut taxes dramatically during the late 1990’s, not just the result of the Great Recession. Structural budget problems unrelated to the economic effects of the Great Recession continue to cost the Massachusetts over $3 billion in annual revenue (for more detail, see: Our FY 2013 Budget Preview).
* After subtracting lottery admin costs and small transfers to the Massachusetts Cultural Council and to programs treating addicted gamblers.
** For more information on the history of general local aid see: Demystifying General Local Aid in Massachusetts.