Monday, January 14, 2019

The Highs and Lows of Local Fair Shares in New Jersey


What do you think should be a "fair" school tax rate for New Jersey school districts?  How about 0.7% of property value?  Or how about 2%?  How about 1.4%?

Well, if you are the School Funding Reform Act (SFRA) your answer is ALL OF THE ABOVE, because Local Fair Shares in New Jersey range from as low as 0.7% to as high as 2%, with a statewide median of 1.42%.

To demonstrate the variation in Local Fair Share another way, how about this real-world scenario?

Secaucus and Lawrence Township (Mercer) both have $4.8 billion in taxable property, so they should have the same ability to fund their schools, right?

Answer: NO.  SFRA assigns a Local Fair Share of $52 million to Secaucus, which would be a 1.1% tax rate, and a Local Fair Share of $69 million to Lawrence Township, which would be a 1.4% tax rate.

And Secaucus compared to Lawrence Township is not extreme either.  Avalon's taxable property is $8.42 billion and Cherry Hill's taxable property is $8.34 billion, but Avalon's Local Fair Share is only $60 million while Cherry Hill's is $136 million.

Why?

The reason SFRA creates such divergent tax rate targets is that the formula for Local Fair Share uses the Aggregate Income of a district's permanent residents in addition to the Equalized Valuation (ie, taxable property), so if a district has little income relative to its Equalized Valuation, it will end up with a Local Fair Share that is a low tax rate.  On the other hand, if a district has a high income relative to Equalized Valuation, it will have a high tax rate.

As for comparing Lawrence Township and Secaucus, Lawrence Township's residents make $1.5 billion, whereas Secaucus' make $808 million, hence Lawrence Township's Local Fair Share is higher despite the two towns having identical amounts of taxable property.  Likewise for Avalon and Cherry Hill.  Avalon's permanent residents only earn $75 million , while Cherry Hill's earn $3.4 billion.  Hence SFRA calculates a higher Local Fair Share for Cherry Hill.

So the divergence comes from the Local Fair Share formula itself!!

(Equalized Valuation x 0.013828828) / 2 + (Aggregate Income x 0.046200477) / 2

Which in simpler terms is:

0.7% of Equalized Valuation + 2.3% of Aggregate Income =

(If you're curious about what your district's Local Fair Share is as a tax rate, see this spreadsheet)

See note at the end of this post for where EV and Aggregate Income come from and what the state does for non-K-12 districts.

To see how the Local Fair Share formula gives divergent tax rates for towns with identical tax bases, consider the following:

If a district is perfectly average in terms of its Equalized Valuation:Income ratio, and has an Equalized Valuation of $1 billion and an Aggregate Income of $300 million (which is near NJ's average ratio of 28.5%), its Local Fair Share will be:

($1,000,000,000*0.013828828+$300,000,000*0.046200477) / 2 =  
$13.8 million per year, which would be a 1.38% school tax rate.  (eg, numerous from Mt Laurel to Paterson to Freehold Regional)

But if another district has an identical $1 billion Equalized Valuation but a lot more non-residential property or second-home property, so that its Aggregate Income is only $200 million, its Local Fair Share will be:

($1,000,000,000*0.013828828+$300,000,000*0.046200477) / 2 =  $11.5 million per year, which would be a 1.15% school tax rate.   (eg, East Hanover, Ocean Township,  Asbury Park, Englewood Cliffs)

On the other hand, if yet another district has the same $1 billion Equalized Valuation, but very little non-residential property and a lot of high-earners, so that its Aggregate Income is $400 million, its Local Fair Share would be $16.2 million, or a 1.62% school tax rate.   (eg, Kingsway Regional, Cherry Hill, Glen Ridge, South Orange-Maplewood)

Every school district in New Jersey must tax all taxable property at the same rate, so the regular homeowners are either hurt by or benefit from the incomes (or lack thereof) of their neighbors.

There are many unintended consequences of using Aggregate Income in the formula for Local Fair Share.  
  • If a district is economically diverse, the high-earners will skew Aggregate Income upwards and force middle-income and low-income property owners to have to pay a higher school tax rate.
  • If a district has a lot of non-residential property or second-home property, it is already advantaged, but then the SFRA formula adds further advantage to that since non-residential property has no income attached to it and hence a district with a lot of non-residential property will have a lower Local Fair Share.
  • Districts that have residents in tax-exempt property or PILOTed property will have higher Local Fair Shares.
  • Districts where people live below their means will have higher Local Fair Shares.
  • If a district happens to have high-income outliers, it would skew Local Fair Share to an amount unreflective of the average property owner's ability to pay.
  • If a district has many people working off-the-books who do not report their income, the Local Fair Share will be lower.
---- The Highest Local Fair Share Tax Targets 
Are Mostly in South Jersey ----

The clearest observation I have of New Jersey's highest Local Fair Share districts is that they are overwhelmingly in South Jersey due to property values there being lower there relative to income than in North Jersey.


Audobon Park and Winfield are owned by tax-exempt mutual housing corporations.
They are not normal towns from the perspective of taxation.


Of the districts in New Jersey whose Local Fair Shares are above the state median (1.42%) and whose Local Fair Share is below Adequacy (meaning that actually the district should pay its full Local Fair Share), there is an overwhelming skew towards South Jersey, specifically the suburbs of Philadelphia.

Lindenwold, Woodlynne, Wenonah, Hi Nella have Aggregate Incomes that are half of Equalized Valuation, and hence their Local Fair Shares are approximately 2%.

CountyNumber of Districts w/ Above Median Local Fair Shares (and LFSs under Adequacy)CountyNumber of Districts w/ Above Median Local Fair Shares (and LFSs under Adequacy)
Camden34Mercer5
Burlington23Somerset4
Gloucester21Monmouth4
Atlantic12Passaic4
Cumberland9Morris4
Warren8Sussex3
Salem7Hudson2
Middlesex6Ocean2
Bergen6Hunterdon2
Union5

Winfield and Audobon Park are outliers here, but that is because they are highly-unusual mutual housing co-ops that originated as housing for industrial workers in World War II.  Most property in both towns is tax exempt, hence their Equalized Valuations are artificially low.  I do not consider them to be treated unfairly by the Local Fair Share formula.  On the contrary, I think what they are doing is similar to PILOT exploitation and both towns underpay in county taxes.


Winfield, NJ has a 19% all-in tax rate, but
that is
due to it having an exceptional
amount of tax-exempt
property on which people live.


There are also affluent districts among those with the highest Local Fair Share tax rates like Essex Fells, Somerset Hills, and Mountain Lakes, but the full Local Fair Share of an affluent district or high-tax base district is irrelevant because their Local Fair Shares exceeds their Adequacy Budgets anyway.

For instance, Essex Fells' Local Fair Share is $9.2 million, which would be a 1.84% Equalized tax rate, but Essex Fells' Adequacy Budget is only $2.8 million, so Essex Fells would never have to have a $9.2 million tax levy.  Essex Fells' actual tax levy of $4.6 million is thus more than enough for Essex Fells' students and a low tax rate for its residents.

Likewise for Somerset Hills. Somerset Hills' Local Fair Share is legally $62,518,639, but its Adequacy Budget is only $27,095,338, so Somerset Hills' Actual $25.4 tax levy is more than plenty for the district while actually resulting in a low tax rate for Somerset Hills.

It is not only conventionally affluent districts that will never need to tax at full Local Fair Share.  Secaucus' has a lot of non-residential property. 

It is entirely possible that the affluent districts among the highest Local Fair Share tax rates, Saddle River, Essex Fells, Chester, Somerset Hills, and Mendham are on the list due to randomly having ultra-high income outliers living there.

----  The Lowest Local Fair Shares ----

The districts with the lowest Local Fair Share tax rates have an obvious thing in common, which is being at the Jersey Shore.

This tendency is from the fact that residential properties at the Jersey Shore tend to have extremely high valuations, but they are second homes with no permanent income attached to them.  Hence, they only contribute to a district's Local Fair Share through the real estate component of Local Fair Share, not the Aggregate Income component.




The only one of the lowest Local Fair Share tax rate districts that isn't at the Jersey Shore is Carlstadt, which is 74% non-residential.   However, like the Jersey Shore districts on this list, Carlstadt's Local Fair Share is well in excess of its Adequacy Budget and hence it will never need to tax at 100% of Local Fair Share.  Carlstadt's tax levy is only $10 million on a $19 million Local Fair Share.

And this brings me to Brick and Toms River...

Brick and Toms River have aggressively said that SFRA overcalcualtes their wealth and ability to pay
These waterfront
mansions in Brick are worth $2-$5 million,
but if they are second homes, they have no
income attached to them. Hence, Brick's Local Fair Share
is a lower tax rate than what the median town in
NJ's is.
taxes but the OPPOSITE IS TRUE because Brick  and Toms River have second home properties to which no income is attached.

Hence, Brick and Toms River have Local Fair Shares that are below the median.  Brick's Aggregate income is only 22% of its ualized Valuation, so its Local Fair Share tax rate is only a 1.22% tax rate.  Toms Rivers' income is 21% of its Equalized Valuation, so its Local Fair Share would be a 1.18% tax rate.

Neither Brick nor Toms River pays anything near its Local Fair Share anyway.  Both are at approximately 1%, not the 1.2% SFRA recommends.



---- The Income Crossover Point: Why Having Affluent or Frugal Neighbors Will Raise Your Taxes ----

I do not know why the School Funding Reform Act uses income to calculate Local Fair Share.  County taxes are apportioned strictly by Equalized Valuation.  Taxes in regional school districts are almost always apportioned strictly by Equalized Valuation as well. 

But if New Jersey is going to use income at all, it should use something based on median income, not Aggregate Income, because Aggregate Income is distorted by high-income outliers and there is the unintended consequence of using Aggregate Income is that the more money residents make relative to their housing values, the higher their property taxes are supposed to be.  

In fact, there is an Income Crossover Point where a frugal person or rich person will raise a district's Local Fair Share by an amount greater than his or her taxes.

Based on how Local Fair Share is computed by taking 2.3% of a district's income, the Income Crossover Point is the inverse of 2.3%, which is 43.5x.  

Whenever someone's income is 43.5 times his or her school taxes, he or she will RAISE Local
Note, this only applies if the district is eligible for
Equalization Aid and 240 districts in NJ are not
eligible
Fair Share by a greater amount than what he actually pays in school taxes.  Since Equalization Aid decreases as Local Fair Share increases, frugal and/or rich people can hurt a district financially. 
(43.5 = 1 / .023)

Imagine someone pays $10,000 a year in school property taxes and makes over $435,000.  2.3% of $435,000 = $10,000, so for every $1,000 over $435,000 that person earns, his district's state aid is reduced by $23!

Someone doesn't have to be rich to trigger a theoretical loss of state aid, but I'll use Phil Murphy as an example since he is a public figure with a known income and known property taxes, even though Phil Murphy's town of Middletown doesn't receive Equalization Aid.

Phil and Tammy Murphy pay $204,360 in property taxes on their Middletown compound, of which $130,381 is for the schools.  Phil and Tammy Murphy made $7.3 million in tax year 2015, which would increase Middletown's Local Fair Share by $167,900!



Livingston provides the supreme example of Equalization Aid loss since Livingston was the home of David Tepper, New Jersey's richest person whose taxable income was $800 million to $1 billion, which would be 28-34% of Livingston's total.   Although Tepper's house was spacious, it was not extravagant and only had an assessment of $2,155,900, or 0.03% of Livingston's total.

In Tax Year 2014/School Year 2016-17 David Tepper was a New Jersey resident and Livington's Aggregate Income was $3,809,964,019. That $3.8 billion number was used to calculate a Local Fair Share of $139,074,977.

Yet, in 2015 David Tepper moved to Florida and so in 2015/School Year 2017-18 Livingston's Aggregate Income fell to $2,943,567,080, which is actually less income than Livingston had in Tax Year 2013/School Year 2016-17. The departure of one ultra-high-wealth person, David Tepper, thus caused Livingston's Local Fair Share to fall to $123,636,221.

The fall in Livingston's Aggregate Income and Local Fair Share is totally anomalous.  All of the other affluent towns in NJ saw their Aggregate Incomes increase from 2014 to 2015.  We can thus conclude that the fall is entirely attributable to Tepper's departure.

$123 million is still in excess of Livingston's Adequacy Budget, so my point isn't to worry about Livingston itself, but the raise the possibility that if an ultra-high income person happens to live in a small town or a middle-class town, that person will distort the town's Local Fair Share.  What if David Tepper had fallen in love with an historic mansion in a middle-class town and moved there?  What if David Tepper had decided to live in a grand country estate somewhere in rural New Jersey?  Tepper's arrival would have crashed that district's Equalization Aid.  What if David Tepper lived like Warren Buffett in a middle-class house?  

Since a Board of Education cannot tax a rich person's income, it doesn't make sense to use Aggregate Income to calculate Local Fair Share.  

And, If New Jersey ever gets to the point where every district receives 100% of its Uncapped Aid and that principle is followed year to year, New Jersey will develop problems because Aggregate Income & Local Fair Share -- and hence Equalization Aid -- fluctuate year to year.

---- Residential PILOT and Tax-Exempt Property Distortion ----

Another oddity of using Aggregate Income to calculate Local Fair Share is that residents of tax-exempt buildings and PILOTed buildings will have their incomes count towards Local Fair Share, even though their properties are not taxable by a Board of Education.

---- Conclusion ----

New Jersey may not be able to ever have low or moderate property taxes, but at least we should have equitable taxes, in the sense where there is equity between taxpayers in different towns, where people generally pay the same property tax rates, unless one town is paying for extra services that other towns eschew.

SFRA is intended to equalize school spending and create a spending advantage for high-FRL districts, but as we can see here, it does not do as much to equalize school taxes and can actually exacerbate existing disparities.

The distortions from using Aggregate Income in the formula for Local Fair Share have been obscured by the completely off-formula distribution of state aid in New Jersey that existed because of Chris Christie and SFRA's own Adjustment Aid provision, but if New Jersey got to the point in 2024 where every district is funded at 100%, the disparities that result from SFRA's own core formulas will be harder to ignore.  

And since Boards of Education can't tax income, getting rid of income as a component of Local Fair Share (or at least using a median!) would make sense


---


Note on Sources of Equalized Valuation & Aggregate Income 

To calculate Local Fair Share, the Department of Education uses Equalized Valuation from previous budget year (so tax year 2017 for 2018-19 state aid and Aggregate Income is from two pre-budget years previous, so 2016 for 2018-19.

Note on Non-K-12 Districts

If a town sends students to two sequential school districts, like a K-8 and then a 9-12, the tax base is split according to a formula where the percentage of taxable property is equal to the percentage of a town's students in a district.  If 75% of the students are in the K-8 district, then that district's Equalized Valuation is equivalent to 75% of the full, real Equalized Valuation.  If 60% of a town's students are in the K-8 district, then the K-8 district's Equalized Valuation and Income are equivalent to 60% of the full, real Equalized Valuation.

To give a real world example, Chesterfield's real Equalized Valuation (used for county taxes) was $793,850,669 for tax year 2017, but the Chesterfield Public Schools' Equalized Valuation is only $472,499,918 because Northern Burlington County Regional also taxes Chesterfield Township. 

This is because 60% of Chesterfield's public school students were at Chesterfield Elementary School and 40% of the students were at Northern Burlington Regional.

If a town has a K-8 district and then has a Send-Receive relationship for its high school-age children, then the state calculates Local Fair Share on the district's full Equalized Valuation.































Thursday, December 27, 2018

Why Cape May Needs Consolidation, Not Permanent Adjustment Aid!

What county in New Jersey is the wealthiest when it comes to Local Fair Share per student?

Bergen?  No!
Hudson? No!
Morris?  No!
Hunterdon? No!

Answer: CAPE MAY.

BY FAR.

Yet, despite Cape May's exceptionally high wealth, Cape May school districts and politicians have been fighting not for an effective means of tapping their own tax base, but for more of the state's money, specifically, keeping Adjustment Aid permanent.

This post is an argument that what Cape May needs is district consolidation in order to be able to tax its wealthiest towns, not permanent Adjustment Aid.

---- Background ----

Certain Cape May County districts have been amongst the staunchest opponents of state aid reform in the last two years.  Certain Cape May districts, like by Wildwood City,  have waged this fight for permanent Adjustment Aid without acknowledging New Jersey's fiscal crisis or the state aid deficits in hundreds of their sibling school districts in other parts of New Jersey.

Wildwood's superintendent J. Kenyon Kummings, has been outspoken in favor of Adjustment Aid.  He has called taking money from overaided districts and giving it to underaided districts a "shell game."

Writing in May 2018, Wildwood's superintendent said:

Last spring [in 2017], school districts received their state aid notices, approved their budgets and prepared for the 2017-18 school year. After finalizing their budgets, over 100 districts were told other districts needed more funding so some of their aid would be cut and sent to those other districts.
In effect, the state Legislature moved money around, creating winners and losers among our school children..... 
Cutting our funding to give other districts more money, as happened last year, is not what our students, schools and communities need. 
Public school educators have a professional responsibility to represent the needs of all students, not just in our own district, but across the state. We cannot support changes in the distribution of state aid that negatively impact some of our children at the expense of others. 
We need to take a firm stand against a final state budget that moves money around from district to district again this year, pitting groups of districts against one another. Playing shell games does not help our students or their schools, regardless of whether one district may be owed more aid under the funding formula than another. 
The good news is that Murphy and most legislators agree on the urgent need to reduce the deep deficit in school funding caused by the last eight years of neglect. But taking books out of one child's hands to place them into the hands of another is simply not the way forward.
In that whole op-ed, Kummings says not one word about underaided districts and places all the blame on NJ's funding deficit on Chris Christie and says the problems only started eight years prior.  Kummings even denies that receiving additional state aid is a "help" at all to a district receiving that aid.  He never even comes close to saying what the "best way forward" even is, let alone how much it would cost or where NJ would get the money.

Wildwood Crest's boro administrator, Constance Mahon, claims that there isn't "anyone" who would claim any district in Cape May is overfunded:

"Ironically, I know of no school in this county that anyone would consider overfunded. Schools are struggling every day to provide the level of service and quality of education that our children deserve. This Robin Hood approach to school funding will create a financial dilemma for not only Wildwood Crest residents but a vast majority of our county residents."

Really, anyone?

Personally I know a lot of "anyones" who would say that some Cape May districts are overfunded/overaided, including myself, the authors of S2, and including the impersonal formulas School Funding Reform Act, which in 2018-19 says that sixteen Cape May districts are receiving more state aid than they need:




Total State Aid Surplus (or Deficit)Surplus PP
Dennis Twp$4,530,673$7,090
Lower Cape May Reg.$5,926,651$4,136
Wildwood City$2,004,676$2,796
Lower Twp$3,284,398$2,165
Upper Twp$3,859,137$1,997
North Wildwood City$379,586$1,987
Middle Twp$3,332,585$1,509
Cape May Co Voc.$809,728$1,296
Cape May City$179,428$1,128
Woodbine Boro$201,855$841
Wildwood Crest Boro$163,189$581
Avalon Boro$9,775$315
Stone Harbor Boro$8,579$306
West Cape May Boro$3,733$53
Ocean City-$459,309-$316
Sea Isle City (Non-Operating)$89,589$1,149
Cape May Point (Non-Operating)$17,981$3,596
West Wildwood (Non-operating)$0$0


---- Cape May County is Rich ----

"Ironically,"  Constance Mahon concedes this a "Robin Hood approach," which would seem to acknowledge that some Cape May districts are rich, which indeed they are, with seven operating and the three non-operating Cape May districts having more than $30,000 per student in Local Fair Share.


LFS Per Student2018-19 Local Fair Share2018-19 Projected Enrollment
Avalon Boro$1,935,039$59,986,22331
Stone Harbor Boro$1,146,454$32,100,72228
North Wildwood City$105,581$20,165,910191
Cape May City$92,527$14,711,829159
Ocean City$65,703$95,532,6061,454
Wildwood Crest Boro$62,655$17,605,956281
West Cape May Boro$39,498$2,804,37171
Cape May Point (Non-Operating)$671,226$3,356,1325
Sea Isle City (Non-Operating)$451,956$3,356,13278

Although Cape May's residential income is slightly below the median for NJ, Cape May has, by far, the highest tax base per student of any county in New Jersey, with nearly twice the Local Fair Share per student of Morris County, the next wealthiest county.




Cape May County's overall tax wealth per student is actually superior to that of New Jersey's richest independent suburbs, like Princeton, Millburn, and Mountain Lakes.

This is a representative sample of NJ's affluent suburbs. Note, Franklin Lakes actually does have a larger
tax base per student than Cape May, but that's just the exception that proves the rule.  NJ's
richest K-12 district is Hoboken.


This extraordinary property wealth is due to Cape May County having many second-home properties and hotels.

Since the seventeen Cape May districts had a $161.8 total tax levy for 2017-18 and Cape May County's total Equalized Valuation is $51 billion, if Cape May County became a single, consolidated district it would only need a tax levy of 0.33%, which is one-quarter the state average!

---- The Budgetary Solution is Consolidation ----


Cape May County's problem is that its gargantuan tax-base assets are barricaded within a handful of small towns who have independent school districts and are thus not required to share their wealth with the rest of Cape May County's students.  Several of these small, rich towns have "Send-Receive" relationships with larger, K-12 districts where they pay flat-rate per student tuition to the receiving districts, in which the total tuition is a minuscule portion of their tax capacity.

Indeed, Avalon has 15.3% of Cape May County's tax base, but only 0.26% students.  Avalon's Equalized Valuation is larger than Cherry Hill's, but it has barely a classroom worth of residential students.  Stone Harbor has 8.2% of Cape May County's tax base, but only 0.2% of the students.  North Wildwood has 5.2% of the tax base, but 1.7% of the students.

Cape May Point and Sea Isle City also have huge tax bases relative to enrollment, but they are non-operating districts.  Cape May Point has $457,833,090 in Equalized Valuation, and only four students.  Sea Isle City has $4.8 billion in Equalized Valuation and 85 students.

Overall, Cape May's ten districts who have more than $30,000 in Local Fair Share per student possess 64% of Cape May's Local Fair Share ($251 million out of $391 million), but only 20% of the students (2,326 students out of 11,527)



Since Wildwood City has been aggressive in fighting to maintain its $2 million in Adjustment Aid, let's take a deeper look at the untapped tax bases of its own Send-Receive districts:

2018-19 Local Fair Share2018-19 Local Tax LevyGap Between Local Fair Share and Tax LevySchool Tax Rate
North Wildwood$32,100,722$7,043,281$25,057,4410.2768
West Wildwood$1,749,539$989,215$760,3240.49
Sea Isle City$35,252,530$1,827,302$33,425,2280.0378
Wildwood Crest$17,605,956$7,541,532$10,064,4240.3441
Total of Send-Receive Districts$86,708,747
$51,456,217
$17,401,330
$15,574,028
$69,307,417
$35,882,189
(Note, the (Equalized) School Tax Rate is the tax levy divided by Equalized Valuation, so it will be correlated with, but not equal, taxes as a percentage of Local Fair Share.)

The four three sending districts alone have taxes that are $35.9 million  million below Local Fair.

For J. Kenyon Kummings to fight to keep $2 million in Adjustment Aid, and not fight just as hard to get Wildwood's Send-
Steve Sweeney Already
Supports Consolidation that
Would Benefit Wildwood City.
He Just Needs Help from
Wildwood City Itself.
Receive districts to contribute anything above the bare minimum is worse than indifference to NJ's 370 underaided districts, it is malpractice, since Wildwood's Send-Receive districts have so much more taxpaying potential than the bankrupt the State of New Jersey.  There is also quite a lot more moral justice in going after that local money too, since continuing to clench Adjustment Aid deprives underaided districts of state aid that they need.

Kenyon Kummings might demur by saying that it is not politically viable for Wildwood City to get more taxes out of its Send-Receive districts, but that is changing, since the consolidation of non-K-12s into K-12s is part of Steve Sweeney's "Path to Progress."  

Cape May districts themselves have discussed consolidation, with the usual complaints from the rich beachfront districts that tax apportionment be based on student enrollment, so that they are treated "fairly."

For example, in 2012 Cape May City's deputy mayor bemoaned the fact that Cape May City was forced to pay the same tax rate as Lower Township because it meant that Cape May City spent more per student

'I’ve been talking about [tax apportionment] since the year 2000,' he said. 'It is so inequitable what’s happening to us.'
Wichterman said the $50,000 per student fee could send each student to Princeton.'We have no say in the formula that’s utilized to determine how much money we pay to that school district,' he said.
 'There are several formulas that can be used and the one that the Lower Township members of that school board chose to use is the one that penalizes the City of Cape May because our real estate values are so much higher than they are in Lower Township.'

But why should "equity" be measured according to how much money a town spends per student?

NJ's towns are artificial political entities with arbitrary borders.  No one claims that a district's wealthiest neighborhood is "penalized" when it contributes more per student in taxes than poorer neighborhoods.  Few families that live in expensive houses don't say they are "penalized" for paying they will pay more per student than the owners of less expensive houses.

Even conservatives who advocate for a flat income tax acknowledge that wealthier people should pay taxes that are out-of-proportion to the services they receive.

So why would it be any different for property owners in a section of Cape May called "Avalon" or "Sea Isle City" "Wildwood Crest" or "Cape May City" to pay more per student than property owners in other sections called "Wildwood City," "Dennis Township," "Lower Township," or "Woodbine"?

Even if Adjustment Aid were not going to be phased-out, it would behoove Cape May County to consolidate because its K-12 student enrollment has been falling for years, falling from 13,800 in 2007-08 to only 11,743 in 2017-18.  As Cape May's births per year is down by 15% since 2000,it seems likely that that enrollment decline will continue indefinitely.

It would also behoove most year-round Cape May residents to seek consolidation because their taxes would actually fall as all districts converged on the 0.33% countywide tax average.  As Avalon, Stone Harbor, pay more, Dennis Township, Wildwood City, Lower Township, and Upper Township will pay less.


----

See Also:











Saturday, December 15, 2018

NJ School District Consolidation and Tax Apportionment


A major political saga of 2019 is going to be the fate of Senate President Steve Sweeney "Path to Progress" tax savings recommendations.

Sweeney's task force differs from many previous attempts to address property taxes in New Jersey by making an assumption that NJ has a spending problem, not a revenue problem, and therefore makes 40 recommendations to help rein in state and local spending in New Jersey.

One of "Path to Progress's" recommendation that I'll address here is the recommendation to consolidate all non-K-12 districts into K-12 districts.

This blog post will then identify the complexities that will arise in tax apportionment in newly-consolidated districts and why taxation must be apportioned by Equalized Valuation and not student enrollment.

---- The Consolidation Recommendation ----

As NJ State Senator Vin Gopal writes:

One of the smartest ways to provide property tax savings is to regionalize services where we can save tax dollars while providing equal or better service.

Let’s start with school regionalization. On average, more than 50 percent of every property tax bill goes into funding education from preschool to 12th grade. New Jersey students score second only to Massachusetts on national standardized exams, and the quality of our schools is one of our best selling points as a state.
But we can do better and at a lower cost. Too often, our K-4, K-6 and K-8 school districts do not coordinate curriculum or teaching methods, textbooks or specialized services with the regional high school districts their children will be attending, so 7th and 9th graders arrive with different skill sets. 
Furthermore, a recent analysis showed that the 120 K-4 to K-8 school districts with 480 or fewer students spent 17 percent more on average — about $3,400 per child — than the 360 districts with more than 1,000 students. 
Clearly, it makes sense on both an educational and a cost basis to move forward with K-12 regionalization plans that will create larger districts with the more diverse curriculum that students need heading into high school while saving on duplicative administrative and back-office operations.

----Background on Enrollment and Taxes----

Although K-12 districts educate 71% of NJ's students, they are actually just 22% of NJ's geographically-defined districts.  (NJ non-geographically defined districts are charter schools, special education districts, and vo-techs.)
  • K-6, 56 districts, 12% of the total districts, but only 32,410 students, or 3.1% of enrollment.
  • K-8, 222 districts, 47% of the total, but only 179,473 students, or 17.2% of enrollment. 
  • 7-12 and 9-12, 64 districts, 14% of the total, but only 90,235 students, 8.7% of enrollment. 
  • K-12, 131 districts, 28% of the total, but 740,311 students, 71% of enrollment.
Overall, NJ's K-6s and K-8s have a slightly disproportionate share of NJ's overall tax base relative to K-12s but a much wider variation in wealth than K-12s.  K-6 and K-8 districts range from NJ's fourth poorest district in tax base, Woodlynne, whose Local Fair Share is only $2,343 per student, to all fifteen of NJ's richest districts in tax base, with Avalon as the absolute richest, whose Local Fair Share is $1,935,039 per student.

Of the sixty districts in NJ with the highest tax bases per student, 42 are K-6 or K-8 districts.

District TypeDistrict NameLocal Fair Share Per StudentDistrict TypeDistrict NameLocal Fair Share Per Student
K-8Avalon Boro$1,935,039K-8Colts Neck $36,596
K-8Stone Harbor Boro$1,146,4547-12 / 9-12Southern Regional$36,285
K-8Alloway Twp$1,006,527K-12Millburn $35,462
K-6Long Beach Island$236,582K-8Tewksbury $34,964
K-6Beach Haven Boro$170,436K-8Florham Park $32,272
K-8Spring Lake Boro$166,397K-8Belmar Boro$32,268
K-8Sea Girt Boro$153,326K-8Bradley Beach Boro$32,085
K-8Andover Reg$151,537K-8Spring Lake Heights Boro$31,695
K-8Bay Head Boro$148,283K-12Princeton$31,619
K-8Lavallette Boro$135,130K-6Edgewater Boro$31,576
K-6Saddle River Boro$121,1367-12 / 9-12Shore Regional$30,669
K-8North Wildwood City$105,581K-12Point Pleasant Beach Boro$30,291
K-8Deal Boro$93,959K-12Summit City$29,903
K-6Cape May City$92,527K-8Mendham Boro$29,491
K-8Margate City$90,812K-12Weehawken $29,326
K-12Hoboken City$79,1067-12 / 9-12Warren Hills Regional$29,205
K-8Englewood Cliffs Boro$70,8047-12 / 9-12Carlstadt-East Rutherford$27,958
K-12Ocean City$65,703K-12Mahwah Twp$27,740
K-8Wildwood Crest Boro$62,655K-12Paramus Boro$27,706
K-8Monmouth Beach Boro$57,5167-12 / 9-12Rumson-Fair Haven Reg$27,539
K-8Avon Boro$56,337K-8Watchung Boro$27,460
K-8Franklin Lakes Boro$45,511K-8Cranbury Twp$26,819
K-8Brigantine City$45,091K-8East Hanover Twp$26,682
K-6Essex Fells Boro$44,064K-8Woodcliff Lake Boro$26,594
K-8Bedminster Twp$40,784K-8North Haledon Boro$26,549
K-6West Cape May Boro$39,498K-8Demarest Boro$26,458
K-8Mendham Twp$38,0437-12 / 9-12Hanover Park Regional$26,254
K-8Carlstadt Boro$37,1127-12 / 9-12Watchung Hills Regional$26,190
K-12Somerset Hills Regional$36,9937-12 / 9-12West Essex Regional$25,963
K-8Rumson Boro$36,919K-6North Caldwell $25,908

So, Sen. Vin Gopal's statement about high spending is slightly incomplete about the causation of high average spending in small districts because many K-6s and K-8s are extremely rich in tax base and they skew the spending average higher.  Avalon Boro alone is an outlier and skews the spending of K-8s higher.

NJ Districts with the Highest Spending PP. The Small Districts on This List Have Huge Tax Bases
District TypeName2016-17 Total Spending Per PupilDistrict TypeName2016-17 Total Spending Per Pupil
B. K-8 / 0 - 400Avalon Boro$61,489B. K-8 / 0 - 400Alpine Boro$30,633
F. K-12 / 1801 - 3500Asbury Park City$36,957G. K-12 / 3501 +Lakewood Twp$30,441
B. K-8 / 0 - 400Margate City$34,881C. K-8 / 401 - 750Brigantine City$29,886
B. K-8 / 0 - 400Stone Harbor Boro$34,679H. 7-12 / 9-12Shore Regional$29,864
B. K-8 / 0 - 400North Wildwood City$34,213B. K-8 / 0 - 400Spring Lake Boro$29,642
H. 7-12 / 9-12Henry Hudson Reg.$32,760H. 7-12 / 9-12Monmouth Reg.$29,230
A. K-6Beach Haven Boro$32,305D. K-8 / 751 +Colts Neck Twp$29,007
H. 7-12 / 9-12Carlstadt-East Rutherford$32,230G. K-12 / 3501 +East Orange$28,655
A. K-6Long Beach Island$32,077E. K-12 / 0 - 1800Burlington City$28,460
B. K-8 / 0 - 400Califon Boro$31,485D. K-8 / 751 +Franklin Lakes $28,315
B. K-8 / 0 - 400Milford Boro$31,446G. K-12 / 3501 +Neptune Twp$28,252
C. K-8 / 401 - 750Demarest Boro$31,226C. K-8 / 401 - 750Mendham Twp$28,113
G. K-12 / 3501 +Camden City$31,151B. K-8 / 0 - 400East Amwell $28,109
E. K-12 / 0 - 1800Keansburg Boro$30,950B. K-8 / 0 - 400Frenchtown $28,008
H. 7-12 / 9-12High Point Reg.$30,800H. 7-12 / 9-12Northern Valley Reg.$27,945

---- To Apportion Taxes By Enrollment or Tax Base, That is the Question ----


Because there will be situations where K-6 and K-8 districts will be merged with districts who are much less wealthy or more wealthy than they are, a battle will arise on how taxes are to be apportioned.
  • If taxes are apportioned by enrollment -- so that a town that contributes 15% of the students pays 15% of the costs even if it does not possess 15% of the tax base -- then there will be divergences in tax rate between the towns.  
  • If taxes are apportioned by Equalized Valuation -- so that a town that has 15% of the tax base pays 15% of the costs -- then tax rates between the towns will be equal, although per pupil costs will diverge. 
To illustrate this point about how enrollment and tax base will not line up, let's just consider a hypothetical "Northeastern Monmouth Regional School District," which would consist of the six towns who now send students to Asbury Park High School: Lake Como, Deal, Allenhurst, Belmar, Interlaken, and Asbury Park itself.



Since Asbury Park has 71% of the students at this consolidated district, it would have to pay 71% of the costs, which is triple its share of the tax base.

Deal, which has 35% of the combined tax base, would pay merely 6% of the costs to match its 6% of the total enrollment.

Mathematically, Asbury Park's tax rate would be 18x what Deal's is if taxes are based on enrollment.

If taxes are based on enrollment, then the tax bases of Deal, Allenhurst, Interlaken, and to a lesser extent Belmar and Lake Como would effectively be "walled off" from being tapped and the tax base would appear artificially low in the eyes of SFRA.  The State of New Jersey would then have to deliver unneeded Equalization Aid.  Apportioning taxes by enrollment would thus make a mockery out of SFRA since the Equalized Valuations of towns with high tax base:enrollment ratios would be untouchable by the consolidated school districts.

BY CONTRAST, under tax apportionment by Equalized Valuation, every district would have an equal tax rate, although taxes per student would be very high and Deal, Interlaken, and Allenhurst. They would probably end up paying over $100,000 per student they actually send to the new district.

Many people living in Deal, Interlaken, and Allenhurst would argue that that is "unfair" to make them pay more per student than less-wealthy towns, but is it "unfair" if the taxpayers in a wealthy section of a town pay more per student than the taxpayers in a poor section? Is it unfair if the owners of a $600,000 house pay more per student than the owners of a $400,000 house?

If taxes were apportioned by enrollment, a family living in Asbury Park would pay thousands of dollars more per year in property taxes than a family living in a property of identical value in another town.  Since the tax rates would vary so much, even houses worth $100,000 in Asbury Park would pay more in school taxes than $1+ million houses in Deal, Interlaken, and Allenhurst.

The phenomenon of staggeringly unequal tax rates already happens in Manchester Regional High School in Passaic County, where North Haledon, Prospect Park, and Haledon have a unique hybrid tax apportionment formula that is based 50% on Equalized Valuation and 50% on enrollment.

Although North Haledon has 60% of the three towns' tax base, it only pays  21% of the taxes.  Conversely, Prospect Park has only 14% of the tax base, but it must pay 31% of the taxes.


See "Manchester Regional: NJ's Most Underaided and Divided School District"

If apportionment by student enrollment is duplicated in all consolidated districts, then inequality like will exist through New Jersey.

---- Conclusion ----

The elected officials who are promoting consolidation in the Path to Progress deserve respect for taking on multiple third-rails of NJ politics in school spending and home rule.

However, consolidation isn't something that will save every taxpayer money, even if school district administrative expenses decrease.  If newly consolidated school districts apportion taxes by Equalized Valuation, which I see as the only fair way to have apportionment, then some towns that have walled off their tax bases behind "home home" independence are going to have to pay higher taxes (aka, their fair share).

Although towns who have high ratios of tax base:students will resist fighting their fair share and make this an uphill struggle, it's a battle to make sure that all New Jersey taxpayers have somewhat equal burdens for local education and therefore a battle worth fighting.

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