Monday, August 31, 2015

Assemblyman Ciattarelli pension and state aid changes: a mixed review


Assemblyman Jack Ciattarelli proposes cutting teacher pensions and cutting state aid for the highest aid districts:

“It’s becoming more and more difficult to navigate our fiscal obstacle course and a lot of that has to do with us meeting these (pension payment) obligations,” said Assemblyman Jack Ciattarelli (R-Somerville). “In a state that already has one of the highest income tax rates, the highest property taxes, an estate tax, one of the highest sales taxes, we have all this tax revenue and we augment it with casino revenue taxes and lotteries, how is it that we can’t make these payments? The reason is because they’re becoming more and more expensive.”
Facets of Ciattarelli’s proposals include:

• No community is allowed to fund less than 25 percent of their school budget through the local tax levy (some communities fund less than 15 percent of their school budget, while others fund more than 90 percent)

• No community can abate school property taxes on new development (to encourage development, communities can abate municipal and county taxes if they so choose)

• For all current and future teacher retirees, no post-retirement Medicare Part B reimbursement if their pension plus social security equals or exceeds $30,000 per year

• For all teachers with less than 10 years in system, pension account is switched over to defined contribution pension plan (e.g., 401(k))

• All newly hired teachers go immediately into defined contribution pension plan (e.g., 401(k)) and their pension and Social Security are paid for by the local school district, not the state.


• "Cadillac" health insurance plans are discontinued for all newly hired teachers and all others at end of current contract

Even though they should support some change to the PILOT law, the NJEA, unsurprisingly, opposes these proposals wholesale.

“Assemblyman Ciattarelli’s proposal is deeply flawed for a number of reasons,” said NJEA President Wendell Steinhauer in an emailed response. “First, it specifically targets teachers. Given the scope of the state’s pension failures, that is utterly inappropriate. Second, none of his proposals do anything to reduce the unfunded liability that the state has created as a result of its many years of funding failures. The pension problem cannot be solved with more benefit cuts. It can only be solved with responsible funding. Finally, his plan would further degrade pensions of teachers, who are already paying far more for both their pensions and health benefits while the state fails to do its part.”
Wendell Steinhauer ignores that there is a funding component of Ciattarelli's plan. Ciattarelli proposes that every district pay at least 25% of its school budget from its local tax levy and then use the state aid savings for pensions. Since there are scores of large, usually urban, districts that pay less than 25% of their school budget locally, this potentially frees up large amounts of money.

While New Jersey will eventually have to cut education aid to pay its pension obligations and it will be necessary to cut the Abbotts, the 25% minimum share requirement for a school district budget needs refinement.

Just because a district pays for less than 25% of its school budget doesn't necessarily mean that the district is overaided nor that the town is undertaxed.

Paterson, for instance, has the state pay for about 80% of its budget ($405 million of $505 million), but Paterson has exceptionally low income ($15,543 per capita), low property resources ($242k per student in valuation), and a very high FRL-eligible percentage (90%). In fact, despite that $405 million in aid, Paterson only gets 85% of its uncapped aid.

Paterson's local tax levy is only $39 million on that $505 million budget, so Paterson would be due for immense tax increases/spending cuts under Ciattarelli's plan. For Paterson to pay 25% of its budget it would have to pay $126 million, or three times more than it pays now. Paterson's (equalized) tax levy is already 0.58 so sure, it could pay somewhat more, but if its school tax levy proportionally increased it would become 1.87.  A $126 Local Tax Levy for Paterson would be above its Local Fair Share of $97 million.

On top of the high school tax burden, Paterson residents would still have to pay county and municipal taxes. Paterson's tax levy is already 3.570, which is very high. If Paterson had to pay the higher school taxes that Ciattarelli is allowing, its very high tax burden would climb to nearly 5%.

A better solution would be to require any district receiving Equalization Aid to pay 100% of its Local Fair Share (or 80%, to use a more realistic figure).

Unfortunately, Ciattarelli's proposal would also leave untouched New Jersey's biggest aid hoarders.

For instance:

• Hoboken gets 184% of its recommended SFRA aid but would lose nothing since its Local Tax Levy is already 75% of its school budget.
Ocean City, Cape May gets 562% of its recommended SFRA aid but would would lose nothing since its Local Tax Levy is 50% of its school budget.
Jersey City gets 136% of its recommended SFRA aid (this translates to $111.7 million) but would lose only about $30 million (of its $566 million budget) because Jersey City already pays for 20% of its schools.

Of course Ciattarelli's proposal would face opposition from the legislature and the NJ Supreme Court. Ciattarelli gets credit for facing reality on pensions and I appreciate his boldness on PILOT problems, but this 25% minimum proposal needs some reform.

Sunday, August 30, 2015

"Steve Sweeney: Restoring pension COLAs would bankrupt N.J. system"



Senate president Stephen Sweeney says of the case against the state by former public employees to restore Cost of Living Adjustments will bankrupt New Jersey:

"I don't think they win it, to be honest with you. And I think it would cause the bankruptcy of the pension system."

John Bury of Bury Pensions says that the pension system is bankrupt anyway, but according to the NJ Treasury, the COLA suspension accounted for $74 billion of the $122 billion savings from the 2011 Pension Reform.  If COLA payments are restored the only provisions left of the 2011 Pension Reform will be increased (active) employee contributions and the increased retirement age.

Charles Ouslander, a plaintiff who is now seeking to accelerate New Jersey's bankruptcy, says "I don't think that if COLAs are reinstated it will bankrupt the system" but then seems to think that "bankrupt" and "deplete the funds" mean effectively differently things. "I do think it it will deplete the fund that much sooner, and frankly if that provides a sense of urgency as to how they're going to fix the funding problem, then so be it. This should light a fire under everyone."

Ouslander's idea of "fixing the funding problem" probably means screwing younger employees by cutting their pensions and making taxpayers pay even more.

Charles Ouslander himself gets a $67,183 annual pension based on twenty years of employment as a county prosecutor. He was born in 1962 and retired in 2010, meaning he "retired" at age 48.

Don't think that because Ouslander collects a pension that he is retired.  He is now an active public defender and has been a municipal court judge and lawyer for the ASPCA.  He gets a pension on top his other salaries.

Charles Ouslander says "“It’s simply not fair to change the rules in the middle of the game. For the people who had already retired before the law took effect, they changed the score after the game.”

Charles Ouslander forgets that the pension law was changed "in the middle of the game" in his favor in 2001 with Donald Di Francesco's pension increases.  Di Francesco's pension increases applied retroactively to retirees, so according to Ouslander, the pension can be made more generous "in the middle of the game," but not less generous.

To the next generation of New Jerseyans who will have to suffer from paying pensions like Charles Ouslander's that are exorbitant relative to age of the retiree and years served, Charles Ouslander says "nuts."




Monday, August 24, 2015

New Jersey loses 26,100 jobs in June and July

The next recession may have come early to the Garden State:

New Jersey lost 26,100 jobs in June and July, the state’s worst two-month loss since the spring of 2009 at the end of the recession, nearly wiping out all the gains for the year.
The figures, detailed Thursday in the state employment report for July, paint a far darker jobs picture than had been the case for the first five months of the year, when the state added jobs each month and appeared headed to a moderately healthy gain of 45,000 jobs for the year. 
Instead, the state has now added just 3,700 jobs this year, according to the report from the New Jersey Department of Labor and Workforce Development. At that rate, the state would gain just 6,500 jobs in 2015. 
The weak figures surprised economists, who could find few bright spots in the report, or explanations for the job losses. 
“It’s hot and it’s ugly,” said Charles Steindel, the state's former chief economist under Governor Christie and now a resident scholar at the Anisfield School of Business at Ramapo College of New Jersey. 
“I have no particular optimism here,” he said. “That was not a good report … We just have to face it. We have had two bad reports.”


The job losses were in several sectors of the economy:


The state’s worst performing sectors were leisure and hospitality (down 7,400 jobs), professional and business services (down 5,200 jobs) and financial activities (down 2,700 jobs). 
There were gains in the trade, transportation and utilities sector (up 4,300 jobs) and the education and health services sector (up 300 jobs). 
Hughes said the large loss in the leisure and hospitality sector might be due to the contracting of casinos in Atlantic City, or because seasonal shore hiring still hasn't recovered from hurricane Sandy. 
Professional and business services was the state's second biggest loser, and paints a disturbing picture for corporations in New Jersey. 
"Professional and business services was a big loser for two straight months, and that doesn’t have much of a seasonal factor, that’s a core sector of the economy that would suggest big corporations are not hiring in New Jersey," Hughes said.


Technically New Jersey's unemployment rate fell from 6.1% to 5.9% (which Christie will brag about), but that is because of people leaving the workforce.

This is terrible for the individuals affected, but if this is a harbinger of things to come in New Jersey - or even if the job picture is just stagnant and not negative - these job losses combined with the bear market on Wall Street ( = drops in capital gains taxes (NJ's capital gains tax is one of the highest in the country)) will translate into large revenue problems for state government.

The consequences for the state budget are clear: FY2017 will be another year NJ cannot fully fund its pensions or SFRA.



Friday, August 21, 2015

The Education Law Center Demands that David Hespe Ignore the Real Problems in State aid

In a few weeks David Hespe and the Department of Education will release an "Education Adequacy Report."  The Education Adequacy Report is a requirement from the State Supreme Court (as part of its approval of SFRA) that the Department of Education review the implementation of SFRA every three years.

The Education Law Center was against SFRA in the first place, but after the Education Law Center lost the Abbott XX case in 2009 (over the constitutionality of SFRA) the Education Law Center has supported the law it once scorned as a threat to the Abbott districts.

However, now the Education Law Center's support of SFRA has reached the point of treating SFRA like holy writ.  As evidence, the Education Law Center is now demanding that David Hespe and the DOE confine their Education Adequacy Report within the most narrow confines of state aid law.  "To guide the Department of Education in preparing the September 2015 EAR, Education Law Center yesterday sent a letter to Commissioner Hespe underscoring the strict limits of the EAR’s parameters and bringing to the Commissioner’s attention several key issues that must be addressed in the report."


Indeed, the Education Law Center sent David Hespe and the DOE a letter in early August reminding them not to stray from the NJ Supreme Court's narrow description of what the Education Adequacy Report should be about:

Under the SFRA, the Commissioner must, every three years, review implementation of the SFRA funding formula and, based on that review, issue the Report which shall recommend to the Legislature adjustments to the base cost; preschool education aid per-pupil amounts; grade level, at-risk and other weights; cost coefficients for security and transportation aid; special education classification rate; excess special education costs; and extraordinary special education aid thresholds. N.J.S.A. 18A:7F-46b. In addition, the adjustments recommended in the Report “shall be deemed approved for the three successive fiscal years,” unless the Legislature, within 90 days of receipt of the Report, adopts a concurrent resolution stating the Legislature’s objections to “all or any specific part” of the Report. The concurrent resolution shall also “direct” the Commissioner to submit “a revised report which responds to those
objections.” N.J.S.A. 18A:7F-46b.

The Education Law Center is fearful of what Commissioner Hespe may produce because in 2012 Hespe's predecessor, Chris Cerf, produced two parallel reports on state aid.  The first was the narrowly-tailored "Education Adequacy Report" that dealt with things like at-risk student weights in SFRA and the second was the "Education Funding Report," which was not part of any Supreme Court mandate and questioned the efficacy of the Abbott districts' high-funding and called for a reduction of Adjustment Aid.

I, for one, believe that Cerf's 2012 recommendation to reduce Adjustment Aid for districts that were above-adequacy was a sound one.  Adjustment Aid was a provision of SFRA that was contrary to the spirit of SFRA. Adjustment Aid locked in money for districts that had gentrified (such as Hoboken and Jersey City), had gotten off-formula aid in the CEIFA-era.

Now that NJ is in even serious budgetary trouble than it was in 2012 and certainly more trouble than in 2008 (when SFRA was written) I think that the recommendation to reduce Adjustment Aid was intelligent and before its time.  It is disgusting that while 220 districts in NJ get more than 100% of what is recommended there are another funding 117 that get not even 50%.

The Education Law Center simply does not care or comprehend that New Jersey has a budget crisis. If you read the Education Law Center's documents, including this one from 2014 that purports to give the "background" of education underfunding in NJ, you will find not a single reference to the recession, the loss of state revenue, or the Pension Crisis.

I hope that Commissioner Hespe decides to stay in New Jersey's real world and try to consider ways to free up more aid for New Jersey's underfunded and underaided districts.  New Jersey has broad budgetary problems and broad state aid problems.  We cannot solve these problems while wearing the blinders that the Education Law Center demands Commissioner Hespe wear.

Update November 18, 2015:

The Education Law Center appears to have changed its letter about state aid to incorporate recognition that SFRA hasn't been fully funded and therefore changes to the weights in SFRA don't mean much.

ELC notes that the SFRA has been underfunded for years, and therefore the formula has not been properly implemented. This failure limits the extent to which the formula’s cost and aid components can be reviewed and adjusted. In addition, the past few years have seen multiple unfunded mandates imposed on school districts, including new teacher evaluations and PARCC tests. ELC is urging the Commissioner to address these issues, along with concerns about preschool and special education costs, in the September EAR.

Thursday, August 20, 2015

Moody's Warns of New Credit Rating Downgrades for NJ



Moody's warns that if the NJ Supreme Court orders that the state must pay Cost of Living Adjustments (COLAs) New Jersey's credit rating will fall again.


From NorthJersey.com:

New Jersey’s low-end credit rating could fall again if the state Supreme Court rules that retired public workers are entitled to yearly increases in their pensions, according to Moody’s Investors Service.
A lawsuit challenging one of Governor Christie’s pension-reform laws is pending at the high court, specifically over a section that froze pensioners’ yearly cost-of-living adjustments. The court is expected to hear oral argument at its new term, which begins next month.
Analysts at Moody’s issued a rare warning on Monday. New Jersey’s A2 credit rating, one of the lowest among the 50 states, could go down again if Christie received “an unfavorable court decision in the pension litigation regarding COLAs,” Moody’s said.

One of the plaintiffs of the case projects that if COLAs are reinstated NJ will immediately have to pay $1.1-$1.2 billion in back COLA pay dating back to 2011 and thereafter have to come up with another $30 million a month.

From the actual Moody's Report:


"The negative outlooks reflects our expectation that the state's financial and leverage position will weaken further before structural balance is restored. Without meaningful structural changes that improve the affordability or the state's liabilities, the state's structural imbalance will persist and/or the pension liabilities will grow, and the state's rating will continue to fall."

Monday, August 17, 2015

Sen. Mike Doherty on Steve Fulop: "If it’s good for Jersey City then screw everyone else"


Life is good for Mayor Steve Fulop of Jersey City.  Not only is his city doing so well that he can pull off that miraculous trick of governance of expanding services AND cutting taxes, but his own personal life is going great too, purchasing a townhouse in the Heights for $739,000 $845,000 with his girlfriend.  

The house has old-fashioned charm, three bedrooms, and a fantastic view of Jersey City and the NYC skyline.  Maybe best of all, it's total tax bill is only $7,700 a year!  Sweet!  Steve Fulop does not have children, but if he did they would get "free" Pre-K just for living in Jersey City too.  Sweet!

Sen. Michael Doherty, however, isn't among those congratulating Steve Fulop or sending a housewarming gift.  

Mean Mike Doherty even had the gall to question the fairness of how a Jersey City resident could pay a tax bill that is only a third of what people living in most other NJ towns would pay on the same property.  Doherty knows that Jersey City gets $490,000,000 in aid for its schools per year and knows that that huge subsidy enables Jersey City to have extremely low taxes.  Since there is only one Jersey City resident who is running for governor, Doherty used Steve Fulop himself as the emblem of that tax issue.

Now here is where I get serious.  Taxes are obscenely high in most of New Jersey.  It's true that someone with a $700k $800k house living most elsewhere would pay close to $25,000-$30,000.  The tax rate makes it hard for all of us to save for retirement and our children's educations, it separates families by forcing retirees out, and it deprives people of livlihoods here as businesses move out.  Steve Fulop, however, personally benefits from the fact that Jersey City has done done a reassessment since 1988 and receives so much state aid for education that it can make do with a 0.5878 school tax rate.

Steve Fulop's response to this legitimate economic and moral issue was completely callous.  Rather than acknowledging the basis of the complaint and attributing blame to Christie or the legislature or perhaps somehow defending Jersey City's state aid, Fulop just insulted Doherty:

"it is a little creepy that Sen. Doherty would pry closely into the Mayor's personal life in order to grandstand. If Sen. Doherty solved problems in Trenton instead of stalking Mayor Fulop, I am sure his constituents would actually realize a benefit."

Pry closely?  Please.  Political enemies "pried closely" into Bill Clinton's personal life.  Looking up a gubernatorial candidate's property taxes is not "prying closely."

At least Marie Antoinette offered the peasants cake, but Steve Fulop denies the validity of the peasants (ie, non-Jersey City taxpayers) even having a complaint.  All major politicians release their tax returns and property taxes are not private even for regular people, so Steve Fulop cannot hide behind the curtain of his "personal life" to shield himself from questions about the fairness of Jersey City's state aid.  The reason Sen. Doherty used Fulop as an example is that Steve Fulop is the only person from Jersey City running for governor.

Jersey City's low taxes are primarily due to it receiving massive state aid for its schools.  Just how high is Jersey City's aid?  

Jersey City receives $420 million from state taxpayers for K-12 aid and another $67.5 million for Pre-K aid.

Although Jersey City should get more aid than most suburbs, Jersey City also has the ability to pay much more in taxes than it does and if some of Jersey City's aid were redistributed the tax burden would be lighter elsewhere and services better funded.

Doherty doesn't get into this in detail, but Jersey City's local school tax levy is $110 million on $18.6 billion of (official, non-PILOTed) equalized valuation.  This is lower than West Orange's $125 million local school levy on only $5.8 billion in valuation.  Jersey City's $110 million is less than the $112 million local tax levy that Newark pays on $13.9 billion in valuation.  

Even not counting its "invisible" PILOTed property wealth, Jersey City is overaided by $111.7 million.   That unmerited aid would be almost enough to bring the districts that get less than 50% of their SFRA aid up to 50%.    

Fulop refuses to address the substance of Doherty's criticism.  He does not have any recognition of the fact that there are problems in how NJ distributes school aid and that Jersey City is part of the problem.  Every dollar that Jersey City clings to is one dollar less available for underaided districts like Egg Harbor Township, Chesterfield (which gets 11% of its uncapped aid), West Orange, Paterson (which just laid off 360 staff members).  Elected officials, especially ones who want to be governor, need to have some compassion on taxes too.

Mike Doherty insulted Fulop back for his "infantilism," but also had the maturity and knowledge to know that the fault was not entirely Fulop's:

Although irritated by Fulop’s answer to the criticism, Doherty said he doesn’t blame him so much as Republican Governor Chris Christie. “This issue should have been confronted by Governor Christie,” said the Warren-based Senator. “This is the classic opportunity for Chris Christie to step in, but unfortunately it’s not a top priority. Everyone’s supposed to play by the same set of rules and Jersey City is not. In Jersey City, the per capita income is higher than one of my towns – Hackettstown – but Jersey City gets 70% of its school budget paid for by New Jersey taxpayers while Hackettstown gets 16%.” 
Doherty pointed out that Jersey City has a per capita income of $30,490 per 2010 census. JC receives $485,970,438 (including pre-K) from state for its schools and spends a total of $680,134,496.  State contributes 71.45% of the total spending as state aid. The senator represents Hackettstown, which has a per capita income of $29,433 per 2010 census. Hackettstown receives $5,101,229 from the state for its schools and spends a total of $31,473,395.  State contributes 16.2% of the total spending as state aid.
Indeed.  Hackettstown only has $955 million in property valuation for 1,911 students, or barely $500,000 per student.  Even aside from its PILOTed property, Jersey City has more per student than that.  

Hackettstown gets barely $2,600 per student.  Not counting its Pre-K aid, Jersey City gets $12,500 per student.  Hackettstown also gets $0 for Pre-K.  

Steve Fulop is no reformer.  He appears to be completely ignorant of state aid issues and the privilege that he and Jersey City enjoy.  Since his low taxes are partially due to Jersey City not doing a reevaluation since 1988, Fulop presides over a system that is internally unfair within Jersey City.  Sen. Doherty seems to have gotten it right about Fulop's philosophy of governance:


He’s saying if it’s good for Jersey City, then screw everyone else. 




Friday, August 14, 2015

Taking a week off posting

Hi, just wanted to let any readers know that I will not be able to write an in-depth post again until Aug 24th or so.  If I see an important article about NJ's state aid distribution or the Pension Crisis I will post but I will probably not be able to post anything very long for a while.


Tuesday, August 11, 2015

Diane D'Amico Covers the Unfairness of Christie's "Flat Aid" Policies

Kudos to Diane D'Amico the Press of Atlantic City for good coverage of what Christie and the NJ legislature are doing with state aid.  Diane D'Amico, New Jersey's best state aid reporter, realizes that Christie's policy of not allowing any district to lose a cent of aid might initially sound benign, but it hurts districts that have growing enrollments and/or shrinking property bases and thereby exacerbates economic gaps between school districts.  

Nowhere is this more obvious than in Egg Harbor Township, once among the fastest-growing municipalities in the state.  But state education funding has never kept up with enrollment, which increased almost 35 percent, to nearly 8,000 students, between 2000 and 2007.Casino closings have led to enrollment dipping to 7,600 students, but new affordable-housing mandates could again bring in more families.The School Reform Funding Act of 2008 [SFRA] promised a more equitable distribution of funds based on student needs. It fell victim to the recession and has been replaced by a largely 'flat funding' model that seems to treat everyone equally but actually benefits shrinking districts while penalizing those with growing enrollment or need.

Many districts in New Jersey have had student population growth but Egg Harbor Township's growth is well above average.  Aside from the sheer increase in student population, Egg Harbor Township's students are becoming poorer and this create new challenges for the school district.

Almost half of all students in the district are eligible for the federal free-lunch program, up from less than 30 percent a decade ago. More than 700 properties within the school district are in some stage of foreclosure.
Indeed, Egg Harbor Township only gets 58% of its uncapped aid.  It should be getting $28.7 million more than it is, a $3941 per student deficit.

The biggest problem in state aid is the Pension Crisis and the state's inability to increase overall K-12 spending.  However, Chris Christie has some leeway to redistribute money away from districts like Hoboken and Jersey City but he has chosen not to in favor of a policy that lets him brag about how his model "ensures that no district will receive less state aid than the amount received for FY2015." The Christie DOE is oblivious to the fact that in per pupil terms and per assessed wealth terms numerous districts "receive less aid than the amount received for FY2015."

Chris Christie deserves most of the blame for this, but not all of the blame.  No one in the legislature aggressively calls to end flat funding and explains how this hurts districts like Egg Harbor Township. The New Jersey School Boards Association, supposedly the representative of all districts, and Education Law Center, supposedly the representative of low-resource districts, have supported Christie's policy of not allowing any district to lose aid.   The Corzine-era School Funding Reform Act itself strenuously tries to prevent any district from losing aid.  Christie fails as New Jersey's head of government, but the true fault belongs to the entire Establishment.

Again, kudos to Diane D'Amico for covering this.  I especially liked the Lynne Strickland quote she used to end the piece:

“The formula is hitting the fan. We have to start having the discussion of how to get out of this ever-deepening hole.”
I just hope that someone is listening.

Monday, August 10, 2015

Actual Aid Versus Uncapped Aid: A Tale of Gross Unfairness

If you want quick proof of how irrational and unfair New Jersey's aid distribution is all you should have to do is do a quick check of what percentage of a district's uncapped aid it actually receives.

Except you can't.  The DOE doesn't publicly release what a district's uncapped aid level is.  The numbers aren't confidential and were publicly released during the Corzine Administration but the Christie Administration prefers to ignore SFRA as much as possible.  The Christie Administration does give each district's uncapped aid figure to each district, but there is no public release of the numbers. 

Nonetheless the Education Law Center (whose data is great, even if I disagree with some of their priorities) does have the data and I'm posting it here for you.

http://tinyurl.com/pyzsvfr

The average NJ district only gets 85% of its uncapped aid, but there are 220 districts that get 100% or more of their uncapped aid.  There 117 districts that get 50% or less of their uncapped aid.

The most overaided district in percentage terms is  Cape May Point, which has $475 million in property valuation for only three students and yet gets $26,803 in state aid. Of larger districts Ocean Township in Cape May County is the most overaided.  Ocean Township has $5.4 million in property wealth per student and yet gets $6.9 million for its 2,101 students, coming out to 562% of what Ocean Township is supposed to get.

In absolute terms Jersey City is the most overaided, getting $111.7 million of excess aid.  Pemberton is in distant second place, with $27 million in excess aid.

The most underaided district in percentage terms is Chesterfield Township in Burlington County which only get 11% of its uncapped aid.

Chesterfield Township is likely so underaided because has experienced huge population growth, growing from 348 students in 2006-2007 to 563 students in 2010-11 to 728 in 2014-15, a 109% increase in under a decade.  Despite that enormous population growth, Chesterfield's state aid has only increased from about $310,992 to about $403,000.  Chesterfield, which is only a K-6 district, also has a $500,000 tax base per student, since it has to share a tax base with Northern Burlington Regional.  Chesterfield's $500,000 tax base means its Local Fair Share is very low, thereby pushing its Equalization Aid higher.

Chesterfield anticipates that population will exceed 800 students in the next two years meaning that Chesterfield will become even more underaided unless Christie and the legislature start to pay attention to districts whose budget needs are the most acute.

In absolute terms the most underaided district is Newark, which should receive $131.7 million more than it receives.  In percentage terms Newark gets 84% of its aid, which is at the state's average.

Paterson, Elizabeth, Union City, New Brunswick, and Plainfield are other Abbott districts in the bottom ten of gaps in absolute dollars.  This could set the premise of another Abbott lawsuit.

The Education Law Center has released these data but in the form of aid gaps per student, not in percentage terms or absolute dollars.

http://www.edlawcenter.org/assets/files/pdfs/Newsblasts/FY16%20SFRA%20Funding%20Gaps.pdf

The most underaided district in dollars per student appears to be Manchester Regional, whose $10.2 million deficit for 958 students works out to a deficit that is over $10,700 per student.  Bound Brook has the second highest deficit per student, at  $9,100 per student.

The most overaided district per student is Asbury Park, which gets $9,995 more per student than it should.

For clarification about the tables I link to:

1. "Column D." "K-12 State Aid (the district's actual aid)"

This is how much aid districts are getting in reality. These figures are the same figures that appear publicly in the State Aid Summaries. They include all streams of operating aid. The total cost is $7,957,828,723. This does not include Pre-K or Extraordinary Aid.

2. "Column E." SFRA "Full" Funding (Includes Transporation, Security, Sped, Equalization, Choice, Adjustment Aid, PARCC Readiness, SEGA etc etc)
This is what districts would get if SFRA were "fully funded" with caps in place but preserving Adjustment Aid and off-formula aids like PARCC Readiness Aid, Per Pupil Growth Aid, and "Additional Adjustment Aid," Supplemental Enrollment Growth Aid (SEGA), and Under Adequacy Aid were folded into Additional Adjustment Aid. The total cost would be $8,986,791,801.

However, the "full funding" figures include caps and is thus a misnomer.  Under capped funding many districts would still not get what they are legally entitled to. If you calculate what West Orange would get ($1,355) per student to what a wealthy exurb like Marlboro would get ($2,489) per student the aid amounts are still irrational.  Guttenberg would get $5,858, Lakewood would get $4,797, Dover would get $8,343; all much much less than the Abbott districts that they are demographic peers of.

The figures for "Fully funded SFRA" appear in the DOE's "Alternative Aid Scenarios."

3. "Column F."

SFRA Uncapped Aid (Transportation, Security, Sped, and Equalization)

This is how much aid districts should get from the four most rational and fair streams of aid, Equalization Aid, Transportation Aid, Security Aid, and Special Education Aid absent aid caps.

In other words, this uncapped aid is the real "full funding" of SFRA. These figures would be much more rational and internally fair. Guttenberg, Lakewood, and Dover would all get about double what they are getting now and they would receive as much as their Abbotts peers.

If excess aid streams like Adjustment Aid etc were preserved uncapped aid would cost New Jersey another $2 billion.  If redistribution were allowed and every district simply got 100% of its aid it would cost NJ another $1.37 billion.

It is impossible for NJ to come up with enough money right now to provide full capped aid to all districts, let alone uncapped aid.  However, to bring up the 117 districts that get less than 50% of their uncapped aid would only cost $120-130 million.  (the 117 underaided districts are usually not that large)  This is something the state can do.  

Sunday, August 9, 2015

Are deeper teacher shortages in the future?


The NYTimes reports:

In California, the number of people entering teacher preparation programs dropped by more than 55 percent between 2008 and 2012, according to the California Commission on Teacher Credentialing. Nationally, the drop was 30 percent between 2010 and 2014, according to federal data. Alternative programs like Teach for America, which will place about 4,000 teachers in schools across the country this fall, have also experienced recruitment problems.

New Jersey, like every other state, has problems with teacher retention.

Dr. [Daniel] Katz says historically a third of teachers leave the profession before five years. In urban areas he says it’s even higher than 50 percent, with students in those urban areas frequently getting the blame for causing teacher burnout. But he says a recent Harvard University study faults working conditions and lack of support.

Saturday, August 8, 2015

Tom Moran: " it's getting harder to swallow the idea that Fulop is a reformer."

Steve Fulop has no record on state education issues other than that he wants to keep all the $$$$$ flowing to Jersey City he can.

One can only guess what Fulop would do as governor based on how much  fairness and reform he has brought to Jersey City governance.

Fulop ran for mayor of Jersey City on a reformer's platform, saying "Recognizing the rich and colorful legacy of many of Jersey City's past mayors, I offer this one promise: We will be both honest and competent."

Tom Moran of the Star-Ledger disagrees:

Since Fulop became mayor less than two years ago, the list of political players who have benefited from city jobs and contracts reads like a pregame roster for a gubernatorial race.
Among those who have benefited, or saw family members benefit, are the following: Sen. Raymond Lesniak and former Assemblyman Joseph Cryan of Union County, along with a councilwoman from Edison; Assemblyman John McKeon of Essex County; Ralph Lamparello, the former head of the state bar association; Assemblyman Joseph Lagana of Bergen County, along with two county freeholders; Ed Farmer, a Democrat who is close to the party's state chairman, John Currie; Somerset County Democratic Chairwoman Peg Schaffer; and the powerhouse Democratic law firm Decotiis, Fitzpatrick and Cole.

Fulop also stopped a long-delayed property reevaluation of Jersey City.  This allows wealthy people to evade paying what they should in property taxes, New Jersey recommends that towns do reassessments when property assessment falls below 80% of market value.  Jersey City's ratio of property assessment to market value is 30.02% the lowest in Hudson County and one of the fifteen lowest in New Jersey.

I am not hopeful that Fulop would follow through with a redistribution of state aid if that would mean that anyone (even the relatively privileged) would pay more in property taxes.

Chris Christie has been indifferent to his own suburban base in state aid so Steve Fulop could conceivably be indifferent to his own urban base, but I do not like what I am seeing so far.


Friday, August 7, 2015

Additional Adjustment Aid: Real Money for Non-existent Students


One of the most unfair things in New Jersey's deeply unfair aid distribution is an obscure aid stream called "Additional Adjustment Aid."

Additional Adjustment Aid's calculation is very opaque but many of the districts that receive it are Interdistrict Choice districts that have lost Choice enrollment.

Interdistrict Choice is a program in which state taxpayers pay tuition for students to attend school outside of the district they live in. The formula for Choice Aid is simple:

Local Fair Share x # of Choice Students Enrolled = Choice Aid

The average Choice Aid payment is nearly $11,000 per Choice student.

Interdistrict Choice is supposed to be based on competition: if a district can't hold onto its students it is supposed to lose Choice money.

However, Chris Christie, for purely political reasons, opposes letting any district lose money, no matter how overaided it is. Thus for the 2014-2015 aid distribution he decided that Choice districts that LOST Choice students would still get the same amount of money they got the year previous with the aid being rechanneled from Choice Aid into "Additional Adjustment Aid."

Since Choice districts are paid "Additional Adjustment Aid" for students who have left it is literally taxpayer payment for non-existent students. It means that while scores of non-Choice districts have to figure out how to educate growing student populations with the same amount of money Choice districts get to figure out how to spend the same amount of money on shrinking student populations. 

This undermines the integrity of Interdistrict Choice.  If Choice districts keep their Choice money, no matter what, they have little incentive to retain their Choice students.

The Department of Education makes no announcement of this policy.  No journalist covers it.  Taxpayer groups do not protest.  The Education Law Center, supposedly the guardian of low-resource districts, does not protest the diversion of money away from the state's neediest districts.


The announcement is buried in obscure legislative documents like this from 2015-2016:


The FY 2016 recommended budget provides little increase in direct K-12 State aid to school districts, with such funding increasing by 0.07 percent ($5.2 million) Statewide to $7.96 billion. The only school districts that would receive an increase in State aid under the proposal are 83 districts that participate in the interdistrict public school choice program that are projected to serve more students in that program in the 2015- 2016 school year than in the 2014-2015 school year. All other school districts will receive the same amount of total State aid in FY 2016 as was received in FY 2015; this includes 26 school choice districts that will receive additional adjustment aid to offset a decrease in school choice aid that resulted from the districts serving fewer students in the program.

And here's the version for 2014-2015:

Most school districts will receive the same amount of adjustment aid in FY 2015 as was received in FY 2014. The one exception is for the 19 school districts that participate in the interdistrict public school choice program. The districts are projected to experience a decrease in the number of school choice students enrolling in the districts’ schools in the 2014-2015 school year, and will receive less school choice aid in FY 2015 as a result. These districts will receive an increase in adjustment aid to fully offset the decrease in school choice aid. 

Additional Adjustment Aid is the most opaque of all the aid streams. The DOE doesn't release which districts are getting the aid, nor the total amount.

However, here are a few I've found through careful digging into the State Aid Summaries:

  • The Morris School District is getting $316,000 in Additional Adjustment Aid for non-existent students.

  • Cumberland Regional $138,000 for non-existent students.


The Christie Administration is even letting Choice districts even carry over their Additional Adjustment Aid into the next year.  

Hence:
  • Englewood got $497,000 in Additional Adjustment Aid for 2014-2015 and now it is getting that same amount for 2015-2016.

  • Hoboken (which is involved in every aid hoarding scheme) got $255,000 in Additional Adjustment Aid in 2014-2015 and is now keeping that money for 2015-2016.

This is especially infuriating because Englewood and Hoboken are resuming their increase in Choice students and getting even more money.  Englewood is getting another $331,380.  Hoboken is getting another $749,133.

I try not to blame Christie for everything but this is completely his unfair, irrational fault. The only mitigating circumstance that Christie has is that the NJ legislature rubberstamped this.

Again, why does this matter?  Why am I angry about other districts' "good fortune"?  It's because the state is broke and exactly 513 districts got exactly $0 in increase, often despite growing residential enrollments. When the state can only find another $2.2 million for Extraordinary Aid there is no justification for even a few million to "educate" students who are no longer in a district.

Wednesday, August 5, 2015

The Role of Abbott Funding in NJ’s Pension Crisis


When people in New Jersey talk about the pensions crisis the focus is always on who underfunded the pensions, never why. Surprisingly few people wonder about the paradox of how New Jersey, whose credit rating was once AAA, whose income is the second highest in the country, whose taxes are high, and whose pension generosity is average, could become so hopelessly indebted.

 When New Jerseyans look for whom to blame the state’s gigantic indebtedness on the villains are always our governors, as if the governors were the only people who controlled New Jersey’s fiscal policy. The explanation for the crisis is rarely deeper than “the governors raided the pension funds.”

The political series of events in the early 1990s that created the pension crisis is very complex, but at the same time the problem was simple: the pension system had fundamental problems that grew into disaster as the state taxed too little and spent too much.

This essay focuses on where New Jersey spent too much.  The Abbott decision is not the primary cause of pension underfunding, but neither is it unrelated.  Without pension underfunding, the massive Abbott spending rampup would have required tax increases that the public would not have tolerated.  The Republican tax cuts of 1992-1996 removed more money that could have gone to pensions than the Abbott mandate did, but those tax cuts did not last as long as the Abbott regime has lasted. Of items on the spending side of the ledger, the Supreme Court’s mandate for “Parity Plus Funding” in the Abbott districts plus two years of Pre-K and 100% state construction responsibility were and remain major contributors to pension underfunding.

One Chart Says It All.
Source, Dept of Education


1990

There may not have been any good time for New Jersey to embark on as expensive a program as Abbott, but 1990 was a particularly bad time to do it in New Jersey. New Jersey’s economy was already in recession, a federal Social Security tax increase had kicked in, the state had a $600 million deficit that year and a forecast of a $1 billion deficit for the next year.

The deficit was mostly due to the recession, but there was a structural deficit due to pension costs.

The pension system at the time was fully funded, but costs were increasing by 10% a year.  Analysts even then were calling the pension system a "ticking time bomb."  During the previous eight years state government costs in Jersey had doubled, but pension costs had tripled, and COLA costs had quadrupled. Policy makers had realized that in creating a teacher pension system paid by the state but determined by salaries agreed to by local school districts the state had given local districts a blank check.  The locally determined/state funded hybrid pension system incentivized school districts and unions to agree to salary guides that backloaded pay because high pay at the end of a career would translate into salary savings for the school district, but a high pension paid for by state taxpayers.


New Jersey’s governor in 1990 was a former Congressman named Jim Florio. In Congress he had distinguished himself on environmental issues as the author of the Superfund law, but one thing that helped him win the governorship was an oft-repeated statement that the saw “no need for new taxes.”

But in addition to the recession, New Jersey's budget problems were exacerbated by the Abbott II decision of June 5th, 1990. In lofty language, Chief Justice Robert Wilentz said of urban poor students:

The students of Newark and Trenton are no less citizens than their friends in Millburn and Princeton. They are entitled to be treated equally, to begin at the same starting line. Today the disadvantaged are doubly mistreated: first, by the accident of their environment and, second, by the disadvantage added by an inadequate education. The State has compounded the wrong and must right it.
The urban districts were indeed less well-funded than the richest suburban districts, but contrary to popular belief, the future Abbott districts were actually only slightly below the state's average.   Nonetheless, many expected (and wanted) the New Jersey Supreme Court to order more money for urban poor districts, hopefully bringing them up to the 60th percentile in spending.

But the New Jersey Supreme Court went farther than most anticipated with the “Parity Plus Doctrine;”

Obviously, we are no more able to identify what these disadvantaged students need in concrete educational terms than are the experts. What they don't need is more disadvantage, in the form of a school district that does not even approach the funding level that supports advantaged students. They need more, and the law entitles them to more.

Wilentz’ Parity Plus Doctrine meant that the children of the low-resource urban districts (and only low-resource urban districts) had a Constitutional right to the same school spending that children in the richest 108 suburbs got, plus additional money for supplemental programs. The consequence of the “Parity Plus” doctrine was that the state had to find at least $440 million to the Abbott districts within four years at a time when the state’s budget was only $12 billion and the recession was deepening.

Jim Florio praised the Abbott decision as "a clear cut victory for the children of our state," but he knew that it would be politically impossible (and unfair) to give new money to only the Abbott districts, so he thus crafted a proposal to direct over $1 billion in new state aid to the Abbotts plus another 330 districts. The Abbott districts and the other districts to gain aid represented a 75% majority of New Jersey students and, critically, their Assemblymen and Senators represented a majority of the New Jersey legislature.

Despite his statements about seeing “no need” for a tax increase, Florio persuaded the legislature to pass a $2.8 billion tax increase for Abbott plus other programs, the largest proportional tax increase in American state history. Florio and the legislature doubled the top tax rate to 7.0%, increased other rates, added a penny to the sales tax, and created new taxes on everything from trucks to telephone bills to toilet paper.

But new money from taxes wasn’t enough.

If the “Parity Plus Doctrine” was ever going to be affordable the state not only had to give more money to the Abbotts, but it had to reduce and restrain spending in the suburbs whose spending the state now had to match in the Abbotts. Two more mechanisms to both free up money for the Abbotts and restrain suburban spending were necessary.

  • Require all school districts to now pay for the pensions, retiree health care, and Social Security costs of their employees, but give new state aid to compensate for those costs to all but “wealthy” school districts. 150 “affluent” school districts would be completely on their own for retiree benefits while another 70 would be partially on their own. 
  • Eliminate almost all state aid from the 220 “affluent” districts and give it to the poorer districts. 

Florio passed this far-reaching and expensive reforms and tax increases in a legislative blitz of less than one month.

The State Says "No"

The result of these unprecedented tax and education finance changes was the most ferocious tax and interest group rebellion in New Jersey’s or even any state’s modern history.

Taxpayers were incensed. A group “Hands Across New Jersey” sprung up to protest the tax hikes and change New Jersey’s constitution to allow recalls and voter-initiated referenda. The leader of the “Hands Across New Jersey,” John Budzash of Howell Township, said he was personally unaffected by Florio’s income tax hikes, but his opposition to them was on principle: “It’s ridiculous to try to take money away from people that work and earn their money and give it to people that don’t.”

No less furious was the NJEA. The teachers were adamantly against making local school districts assume responsibility for retiree benefits because they knew that school districts would harden their opposition to raises if they later had to pay pensions on them. As the president of the NJEA said, "If you have to pay the pensions and you want to keep the cost of pensions down, you keep down the salaries." The NJEA did not believe the Florio administration’s assurances that their pensions would be protected if school districts were unable to make their contributions.

Finally, suburban school districts were irate at the complete loss of state aid and the new pension mandate, realizing that taxes would double in five years. Faced with inevitable cuts, one superintendent warned “Excellent school systems in the state will become mediocre.” Another said ''Anything that makes our district unique will be put on the chopping block.” When the Florio administration promised to set up a “blue ribbon panel” to help suburban districts deal with their losses of aid Livingston's superintendent said "It's like shooting someone in the kneecap and then appointing a committee to help that person learn to walk with crutches." Since pension costs were increasing by 10% a year, suburban residents felt like Jim Florio was thrusting a ticking time bomb into their arms.

Additionally, Florio’s list of “wealthy” districts slated to lose aid included many districts and many individuals that had never been considered “wealthy” before. Working class towns like Belleville, Hackensack, and Clifton were even slated to lose at least some aid.

As one South Orange resident wrote in the local newspaper:

Yes, I am for equal education, but how many people must I be responsible for? I happen to be a single parent who resides in the so-called “wealthy” village of South Orange. But, we moved into South Orange before the divorce and my family and I are still here because of lots of hard work. Now, as it might happen, when the taxes go up, we might have to move. You ask, how do I feel? I am furious. Furious enough to write. 
...Yes, we will be destroyed. We are being destroyed very slowly but it is happening. Maybe not the wealthy, but we, the blue collar workers won’t be around…. I know where I fit in. I work too hard, I am tired and I am scared. I don’t want to lose my home, uproot my family and have them change schools and friends. I don’t want to change my lifestyle because I must be responsible for other people.

To the residents of many middle class New Jerseyans whose communities faced huge tax increases or cuts, the transformation in state aid and pensions was no “clear cut victory” for their children. The advocates for Abbott may have seen themselves as Robin Hoods, but Robin Hood stole from the rich and in the eyes of the state Jim Florio stole from the middle class.

Jim Florio’s approval rating plummeted to 18%. “Florio Free in ‘93” bumper stickers appeared everywhere. Despite near-immediate backpedaling from the Democratic party, hundreds of Democrats who had nothing to do with Abbott or Florio were voted out of office. Bill Bradley barely won reelection to the Senate in 1990 against an underfinanced and obscure county freeholder named Christine Todd Whitman. The NJEA endorsed scores of Republican candidates in the legislative elections.

The Democrats and Jim Florio went into a rapid retreat before 1990 even ended. $360 million originally intended for education was redirected to tax relief. The aid cuts to suburban schools were suspended. The plan to have local school districts pay for retiree benefits was suspended. The suspension and later cancellation of aid cuts to the suburbs and offloading pension responsibility was doubly costly in the long-run. First, the state lost the offset it needed to pay for Abbott; second, by removing a constraint from suburban spending the suburbs could spend more than they would have otherwise. Since the funding for the Abbott districts was judicially tied to spending in the suburbs, when wealthy districts approved large budget increases it automatically meant large percentage increases in the Abbotts.

All of Florio's retreat wasn't enough to save the legislative Democrats and hundreds of Democratic office holders at the county and local level.  In 1991 Republicans won veto-proof control of the legislature.

Pension Responsibility Dropped

Despite the tax rebellion and the reversal of his plans to financially support the “Parity Plus Doctrine,” Florio, the Education Law Center, and the NJ Supreme Court were still determined to increase state aid for the Abbotts. Florio had become notorious for his “$2.8 billion tax increase” but the tax increase hadn’t created that much revenue and the state still had a deficit. The Republicans, for their part, were still determined to undo Jim Florio’s sales tax increase, a $600 million annual loss. For a solution to the budget crunch and to avert severe cuts to middle-income school districts, Florio and the legislature turned to reducing the state's annual pension contribution.

The New York Times wrote simply:

The protests [from middle income districts over lost aid] quickly dissipated when education officials announced plans for the extra infusion of $341 million, which would be made possible by reducing the state's contribution to public employee pension funds.

The reduction of state contributions was made legal by the Pension Reevaluation Act of 1992. The Pension Reevaluation Act changed the actuarial valuation of NJ's pension assets and increased the expected rate of return from 7.0% to 8.75%. Overnight, the value of NJ’s pension funds rose from $24 billion to $29 billion. Due to PRA, New Jersey could legally spend $770 million less in FY1993 and FY1994 (combined) on pensions and $570 million less thereafter, much of which could go to schools.

It should be noted that pension reevaluation had been considered before and many states reevaluated their pensions in the same way. The Pension Reevaluation Act’s reassessments turned out to be correct given that they preceded the booming 1990s stock market and economy.

Most of the public sector unions accepted pension reevaluation, however, there was one group from the AFL-CIO that sued the state and denounced pension reevaluation "They'll want to balance the budget with our pension monies."

It was under Christine Todd Whitman that the state totally committed to "buy now, pay later."   Whitman kicked the last leg out of Florio’s strategy to pay for Abbott and the rest of government by cutting income taxes by 30%.

The top two brackets remained higher than they were pre-Florio, but the tax cuts cost NJ hundreds of millions of dollars a year and that could have gone into the pensions. Whitman also stopped pre-funding retiree health costs too in the "Pension Reform Act of 1994."

Despite the tax rebellion and the absence of any offsets to fund Abbott, over the next decade the New Jersey Supreme Court repeatedly overruled the legislature on state aid laws, ignored warnings about pensions being underfunded, and added new mandates for Abbott funding, such as two years of “free” Pre-K and 100% facilities funding (which eventually cost $8.9 billion). Flush with money from the booming 1990s economy, Whitman sent a tidal wave of money to the Abbotts. From 1989-90 to 1995-96, state aid for the Abbotts increased from $1 billion to $1.8 billion. By 1997 the Supreme Court’s Parity Plus mandate was reached and the Abbotts equaled or exceeded spending in NJ’s richest districts.

Source, DOE Public Data for 1996-97 onward, OPRA request data from 1989-1996. http://pension360.org/chart-a-history-of-new-jerseys-pension-payments/ and WSJ for pension data.


From 1996-1997 to 2000-2001 the state increased Abbott aid from $1.8 to $2.5 billion. Even the early 2000s recession put no dent in Abbott funding, with funding increasing even more rapidly as the Pre-K mandate kicked in, reaching $4.1 billion a year 2004-2005 and $5 billion now. From the early 1990s to 2010, the percentage of state education aid going to the Abbotts rose from 28% to 61% even as their share of the state student population fell from 25% to 20%.

And in 2000 the legislature authorized $8.6 in bonding for (mostly) Abbott construction, the largest bond offering in NJ history.  ($8.6 billion = $11.83 billion in 2015 dollars)

As the state put more and more money into the Abbotts it put less and less into pension system. In 1990 New Jersey had put $750 million into the pension system. From 1994-1996 the state only put in $200-250 million. The PRA’s assumptions turned out to be correct, so even the lower funding should not have been fatal to the pension system, but then in 1997 and 1998 the state started to ignore actuarial recommendations and put in less than $100 million per year.  Even after the stock market bubble burst in 2001, Gov. Donald Di Francesco increased pension generosity by 9% (retroactively to retirees). Starting in 2001 the state began a multiyear streak of contributing nothing while it massively increased Abbott funding.  It is not a coincidence that the big rampup of Abbott spending in the early 2000s were the worst years for pension contributions.

Ultimately, when the state couldn’t offload pension obligations onto local districts it dropped them altogether. 

 

The Impossible Compromise

Abbott was implemented after a four-way compromise between the taxpayers, suburban districts, the NJEA, and the Education Law Center. 

The compromise was supposed to be that taxes stayed moderate, the suburbs kept their aid, pension costs remained a state responsibility, and the Abbotts saw massive increases in aid. But the state drastically reduced its pension contributions and then abandoned contributions altogether.

Policy makers have been slow to realize that a tidal wave of pension debt is hitting New Jersey. The full actuarial contribution NJ should be making for pensions is at least $5 billion and the unfunded liability is $83 billion. Annual payouts are $9.65 billion and rising. Even if the funds meet their investment benchmarks, the pension funds will “zero out” starting in 2021 and the teachers’ own fund will zero-out in 2027. No version of a “Millionaire’s Tax” brings in anywhere near enough money even for the actuarial payment. The debts are on the verge of unpayable.

The Abbott decision represented as far as any American state has come in attempting to give (some) poor children opportunity equal to wealthier children. NJ’s urban districts did need more aid than they were getting in 1990 and Jim Florio tried honestly to deal with the costs of Abbott funding and preexisting issues in pensions, but the fierce counterreaction showed that the state was not ready to accept higher taxes and the teachers were not willing to give up future wage growth in order to have a sustainable pension system.

Arguing over the relative roles of the Whitman tax cuts and Abbott funding in creating the pension disaster is a moot argument because the Whitman tax cuts have already been reversed and income tax rates in New Jersey are higher now than they were under Florio. The high funding levels of the Abbott districts do still exist and the Supreme Court remains blind to the state’s fiscal reality as well as the non-results of Abbott funding. In 2011, even after revenues had fallen by billions and the ticking of the pension time bomb was audible again, the Supreme Court blocked the cuts to the Abbotts, while allowing cuts to all other districts. Christie accepted the decision and the state reverted to making negligible pension contributions.

Implementation of the Abbott decision is not the sole reason New Jersey has pension problems, nor even the primary reason, but it is a major reason. The Abbott decisions was more or less of a factor at different times, but the early 2000s, when pension payments were $0 and Abbott funding increased enormously, were a time when Abbott and pension underfunding are the most clearly linked. New Jersey’s governors have been irresponsible, but so has the whole political establishment, including the NJ Supreme Court, the legislature, and special interest groups.

At this point New Jersey's pension debts are so enormous that allowing the Abbott districts to have more modest levels of funding would not be sufficient to balance the pension system, but just because something doesn’t completely solve a problem doesn’t mean that it isn’t, unfortunately, necessary.  If New Jersey is ever going to put its house in order cuts to the Abbott districts must be made.

See Also:


Tuesday, August 4, 2015

"Why NJ's School Funding Reform Act of 2008 failed and where we go from here"



Newsworks ran my op-ed on the unfundability of SFRA.

The op-ed says what everyone who follows NJ's budget should know but doesn't seem to realize.
... SFRA was a method of distributing new aid and not a redistribution of the existing aid stream. In order to prevent any redistribution of aid -- especially from Abbott districts -- SFRA contained a provision for something titled "Adjustment Aid." Adjustment Aid guarantees that any district for whom the new SFRA aid calculations give less aid than it got under the previous funding law that it would be "held harmless" and could keep their old aid and even receive aid growth at 2 percent that first year.
If New Jersey had experienced economic and revenue growth after 2008 and the state could pour an additional $2 billion a year into SFRA, New Jersey's school districts might finally have fairness based on needs and resources, but the reality is that SFRA was signed at New Jersey's peak employment. The recession hit the next year and Jon Corzine himself and later Chris Christie slashed over $1 billion in funding from New Jersey's public schools.
And now even though the recession has been over for over five years, New Jersey has no chance of fully funding SFRA now and the ideology of the next governor is irrelevant.
The reason for this is plain: the Pension Crisis. New Jersey's unfunded pension liabilities verge on being unpayable - $82.7 billion as of mid-2014. For FY 2013, New Jersey's pension funds paid out $9.1 billion in pension benefits but only received $4.6 billion in contributions from the state, localities, and active employees. The $4.5 billion gap means that the pension funds are rapidly depleting and will start to "zero-out" within a decade. According to Moody's, even if the pension funds hit their 7.9 percent investment goal (which they didn't in 2014), the Judicial Retirement System will go broke in 2021, then the Police and Firemen's Retirement System and the state portion of PERS in 2024, and then the biggest fund, the Teachers' Pension and Annuity Fund (TPAF) will go broke in 2027.

Monday, August 3, 2015

Lakewood: An Underaided School District


Lakewood is one of New Jersey's most demographically unique communities. Whereas in all other NJ communities private schoolers are a small minority whom the Board of Education barely deals with, in Lakewood an overwhelming majority of students are private schoolers and private school parents control the Board of Education. While Lakewood's unique demographics present some one-of-a-kind problems for the schools there, in its severe state aid underfunding Lakewood is like many other districts in New Jersey.

The point of this blog post isn't to defend everything that happens in Lakewood. Indeed, some things that the Lakewood BOE appears to do, like placing Jewish special needs students in (semi-)sectarian private schools, are not defensible. Some anger at the Lakewood Board of Education is justified, but this anger should be tempered by the knowledge that Lakewood is one of New Jersey's most underaided districts.

Taxes

One accusation that has surfaced is that since Lakewood's Board of Education consists of majority private school parents that the parents are anti-tax and are willing to let the public schools "starve."

A fact to note is that Lakewood's equalized school taxes are comparable to the school taxes in neighboring and peer-size districts in South Jersey.

District Name
Lakewood
Jackson
Toms River
Brick
Howell
Equalized Tax Rate
1.1082

1.2623
.66-.96
0.9495

1.1838


Indeed, Lakewood's equalized school tax rate is higher than that of Summit, Millburn, and Princeton, three districts in New Jersey that are never accused of shortchanging public education.

State Aid and Funding

Despite its equalized tax rate being similar to its neighboring districts, Lakewood's schools are much less well funded.

District Name
Lakewood
Jackson
Toms River
Brick
Howell
Per Pupil Spending
$11,682

$13,415

$12,065

$13,157

$14,558


Compared to nearby Abbott districts, all of which except Asbury Park have LOWER FRL-eligible rates, Lakewood's schools are even comparatively more underfunded.


District Name
Keansburg
Long Branch
Neptune Township
Asbury Park
Per Pupil Spending
$21,389

$15,148

$15,638

$28,229


Why are Lakewood's schools so badly funded? Most people immediately attribute primarily this to high private school transportation expenses in Lakewood, but a large part of the reason is Lakewood's relative lack of state aid:


District Name
Lakewood
Jackson
Toms River
Brick
Howell
Property Wealth Per Student
$1,188,155
$727,547
$947,427
$1,121,383
$928,944
Median Income (2010)
$35,634
$86,327
$71,934
$52,092
$68,069
State Aid Per Student 
$4,023
$5,553
$4,150
$3,836
$5,051
FRL Eligible
86%
21%
28%
31%
17%


Lakewood has, by far, the highest percentage of students who are FRL-eligible of its neighboring, large districts but it receives the second lowest amount of aid per student from the state.

One ostensible reason for the low state aid is that Lakewood nominally has a high property valuation per (public school) student and this increases Lakewood's Local Fair Share and thus decreases the amount of Equalization Aid that Lakewood should receive. SFRA isn't followed anyway, but even if it were followed the same usage of property wealth to calculate Equalization Aid that works for other school districts in New Jersey does not work for Lakewood.

Most districts in NJ that have high property wealth per student have valuable industrial property, commercial property, or retail property, none of which requires anything from the school system. Lakewood is completely different because the only reason it has high-ratables is because it has thousands of houses full of private school children who inflate Lakewood's Local Fair Share but then require a variety of services from the public school system.

As Lakewood's longtime BOE attorney Michael Inzelbuch said, "The law never imagined a Lakewood."

But even property wealth is only half of the calculation of Local Fair Share and income is the other half.  Not only is Lakewood's median family income lower than its non-Abbott peers, it is even lower than many Abbotts.

Lakewood's $35,600 median household income is the same as Newark's and lower than Keansburg, Long Branch, and Neptune Township, all of which are Abbott districts. Asbury Park's household income is a little lower than Lakewood's, but then again, Asbury Park gets $24,000 per student in state aid plus Pre-K. In other words,

Finally, Lakewood is simply underaided even by SFRA's flawed recommendation for it.  Lakewood's uncapped state aid is $40.3 million, but it only receives $24.5 million.  Lakewood's per student aid deficit is $2558, the largest deficit in Ocean County.

Lakewood's underaiding doesn't excuse inefficient private transportation bus routes or overuse of expensive private school placements for children with special needs, but critics of Lakewood should consider Lakewood's underaiding in any descriptions of Lakewood's budget problems.  Lakewood isn't the most underaided district in New Jersey, but it is emblematic of the irrational, off-formula, and unfair distribution of aid in our state.

----

See a 2016-17 Update on the "Origins of Lakewood's Budget Disaster."