Wednesday, March 9, 2016

Beyond the Point of Fairness: NJ's Most Overtaxed School Districts

Everyone in NJ thinks that their property taxes are brutal, but just because NJ's average property taxes are the country's highest doesn't mean that everyone's burden is equally excruciating.  This post is going to be about the school districts where taxpayers truly have the worst school taxes by the standards of New Jersey.

Although there are different ways to assess tax burdens, this will use the 2016-17 Local Fair Share.

Basic Facts on NJ School Tax Burdens:

  • The median district's 2015-16 tax levy was equal to 102% of its 2016-17 Local Fair Share. 
  • There are 306 districts that pay 100% or more of their Local Fair Share.
  • There are 17 districts that pay 150% or more of their Local Fair Share.
  • There are 284 districts that pay 99.9% or less of their Local Fair Share.
  • There are 55 districts that pay 49.9% or less of their Local Fair Share.

What is Local Fair Share?
(Readers who understand how SFRA is supposed to work can skip this section.)

Local Fair Share is a measurement of a district's ability to pay taxes.  It is a hybrid calculation that depends on Equalized Valuation (ie, market value of a town's taxable real estate) and on Aggregate Income.

The formula for Local Fair Share for 2016-17 is:

(Equalized Valuation x 0.013156218 + Aggregate Income x 0.046185507)/2

Where Equalized Valuation is from 2015 (for FY2016) and Aggregate Income is from 2013.

The formula for Local Fair Share might look wild, but all it says is that a district's fair share of taxes equals 0.65% of Equalized Valuation (1.3% / 2) plus 2.3% of income (4.6% /2 ).

So, to use South Orange-Maplewood as an example, its Equalized Valuation is $6,118,482,231 and its Aggregate Income for 2013 was $2,414,402,178.

Thus, when you plug those values into the formula you get South Orange-Maplewood's Local Fair Share of $96,003,237.

Local Fair Share is half of the calculation of Equalization Aid, the state's most important aid stream.

Equalization Aid is calculated by determining a district's Adequacy Budget (using population and various at-risk weights) and then subtracting Local Fair Share. So, South Orange-Maplewood's Adequacy Budget is $104,753,980 and its Local Fair Share is $96,003,237, therefore it would get $8,750,743 in Equalization Aid if SFRA were followed.

Of course, SFRA is NOT followed and South Orange-Maplewood gets $0 (ZERO) in Equalization Aid.

If a district's Local Fair Share is greater than its Adequacy Budget it does not get Equalization Aid. A third of NJ's districts do not qualify for Equalization Aid.

(It might seem inappropriate to some readers that I am using the 2015-16 tax levy and comparing it to the 2016-17 Local Fair Share, but Local Fair Share is (unavoidably) is calculated during the previous school year anyway and uses lagging data.  Thus, comparing the previous year's tax levy to the next year's Local Fair Share is a legitimate way to assess relative tax burdens.)

NJ's Most Overtaxed

Manchester Regional really stands out here for exceptionally bad taxes.  Manchester Regional's taxes are so incredible because of the new and unique tax apportionment arrangement Prospect Park, Haledon, and North Haledon have where North Haledon (a middle class district) pays taxes to Manchester Regional based 50% on Equalized Valuation and 50% on the percentage of students there who are from North Haledon. It must be known that most of Manchester Regional's taxes are paid by Prospect Park and Haledon.

Even though Manchester Regional is only a grades 9-12 district, even if you combined its taxes with the taxes of Haledon and Prospect Park, the resulting tax levies would still be exceptional for those two towns.  Prospect Park/Manchester Regional's combined tax levy would be 173% of Local Fair Share. (see graphic.)  Haledon/MR's combined tax levy would be 167% of Local Fair Share.  North Haledon, on the other hand, would have taxes that are slightly below LFS.

For some districts the high tax burden is something they found themselves in because their tax levies stayed constant (or increased) as their tax bases declined.  Atlantic City is the ideal example of a  district like this.  In 2008 when Atlantic City's Equalized Valuation was $22.2 billion, its $109 million school tax levy was easily affordable, now that Atlantic City's Equalized Valuation is about $8 billion, a $100+million tax levy is a huge challenge for a district whose income is as low as Atlantic City's is.

Linden, Lodi, and Newton have also had substantial losses to their Equalized Valuations.

Although Manchester Regional and a few other high-tax districts like Linden, Lodi, Woodlynne, West Orange, are severely underaided, the highest-taxed districts are overall a mix of districts that are overaided and underaided.  The underaided, high-tax districts can be seen as trying to make up for a lack of state aid; the overaided, high-tax districts can be seen as trying to spend more to improve educational quality.

Several of NJ's other severely underaided districts, such as Bound Brook, East Newark, and Freehold Boro, have tax burdens which are closer to their Local Fair Shares or even below their Local Fair Shares.

On the other hand, most of the districts whose districts whose taxes exceed Local Fair Share the most in absolute terms are indeed underaided.

Some of NJ's most overtaxed districts do well in state aid and should be considered voluntary overtaxers who; other overtaxers get a pittance for state aid and are essentially being forced to overtax themselves or else sacrifice their children.  If Manchester Regional taxed at its Local Fair Share ($4.7 million) instead of its actual $10.7 million levy, Manchester Regional would have $6 million less, or $6400 less per student.  Since Manchester Regional's total budget is about $18 million ($13300 per student), this would be a gigantic setback that would make Manchester Regional easily New Jersey's lowest spending school district.

All of the other overtaxed/underaided districts here tax themselves thousands of dollars in excess of their Local Fair Shares.

Some inequity in taxation is unavoidable because some districts (like Jersey Shore microdistricts) have more property wealth per student than others, but what is infuriating and unacceptable is how NJ's unfair distribution of state aid (where 199 districts get 100% or more of their uncapped aid) exacerbates these "natural" inequities.  Jersey City's school taxes are so low because it gets $130 million in K-12 aid in excess of what SFRA recommends.

What is also maddening is how little known all of these inequities are because the Department of Education does not publicize Local Fair Share data.

Both the Democrats and Republicans fail New Jersey's working class districts and poor non-Abbotts.  Republicans fail NJ's working class districts and poor non-Abbott districts through their opposition to any income tax increase whose proceeds could relieve property tax burdens; Democrats fail NJ's working class and poor non-Abbotts through their favoritism towards their urban (Abbott) base, lack of realism on pensions. and general non-prioritization of K-12 school funding.

Will help ever come for districts like Linden, Lodi, and Manchester Regional?  Not unless these districts can successfully make the case that they are truly victimized by the state and they can inform the public that not everyone's tax burden is equally heavy.


PS  The towns with the highest all-in (county, school, and municipal) Equalized tax rates are in this chart.

These data do not take income into account residential income.  I also excluded Winfield because its Equalized tax rate seems to be 18%, a figure I find unbelievable without further corroboration.



See Also:

Helping the Needless: New Jersey's Richest Districts and Their State Aid

The Robbers and the Robbed: State Aid Disparities for 2016-17

Choice Districts, Charterized Districts Are Big Winners for 2016-17 State Aid

More on 2016-17 State Aid: Where the Money's Going

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