Thursday, September 15, 2016

Is Steve Sweeney Overselling His State Aid Proposal?

Readers know that I'm a fan of Steve Sweeney's "Formula4Success" proposal and, because of his stance on state aid, I'm a fan of Steve Sweeney himself.

I see Sweeney's proposal as the progressive, pragmatic, and fair plan for state aid that New Jersey needs. By combining $100 million annual boosts in K-12 education funding with at least $500 million in redistribution from overaided districts, Sweeney's plan could finally be the pathway to fair school funding that New Jersey has been waiting forty years for.  I also am thrilled that Sweeney's proposal will address the distortions of state aid that result from PILOTed property being "invisible" to the formula for state aid and amend the tax cap law too.

And yet, I worry that Steve Sweeney is slightly overselling his aid plan and that it won't bring every district up to 100% of its SFRA recommendation, nor will it end the disparities that vex the state.

To be brief, here's why:
1.  The amount of money being discussed is not enough.
2.  The aid targets may be for Capped Aid, not Uncapped Aid.

So, this is how Sweeney characterizes his plan:

That is why I joined with Senator Ruiz, Assemblywoman Joann Downey and Assemblyman Eric Houghtaling to introduce legislation to establish the State School Funding Fairness Commission.
By June, the panel will recommend revisions to the 2008 law to ensure that state aid is distributed on a fair and equitable basis to all districts, and that fast-growing school districts receive the additional funding they need to compensate for enrollment growth.
We have pledged to add $500 million in additional school aid over the next five years to guarantee that every school district receives 100 percent funding and that the commission’s recommendations are implemented.

I hate to say this, but something is wrong here. $500 million in new aid plus about about $500 million in redistributed aid is only about $1 billion.

According to data I received from the Department of Education, NJ's underaided districts have a deficit of $1,946,380,097 for 2016-17.  Since Steve Sweeney is unambiguously for redistribution, it's the net deficit that matters, which is only $1,378,606,184 (for non-vo-techs). (Hereinafter approximated at "$1.4 billion."  See the chart here to see the numbers)

So the total amount of excess aid is $567,773,913, but some of that is Interdistrict Choice money, which is not subject to redistribution under Sweeney's proposal.

However, that $1.4 billion deficit figure is a moving target since the DOE is supposed to make periodic inflation adjustments to districts' Base Per Pupil amounts, ie, their aid targets.  Although the Christie administration hasn't made these adjustments, the next Democratic Department of Education may do so.  As inflationary adjustments are made, the deficit will grow and the amount of Adjustment Aid to redistribute will (usually) shrink, since the Adequacy Budgets of Adjustment Aid districts will grow.

In any case, $568 million in excess aid, even with another $500 million thrown in, is less than $1.4 billion, even before inflationary increases are factored in and even before excesses from Interdistrict Choice are roped off from redistribution.

So what are Steve Sweeney and his coauthors talking about when they say "100 percent funding"?

The cap is 10% if the district is above Adequacy or
20% if the district is below Adequacy.
It appears they are talking about Capped Aid, with which NJ has a deficit of about $1 billion ($864 million according to Senator Ruiz) and Capped Aid full funding is not real full funding and the distribution of aid under full Capped Aid would still be unfair.

Capped Aid and Uncapped Aid are not aid streams like Equalization Aid, Special Education Aid, and Adjustment Aid are; Capped Aid and Uncapped Aid are aid amounts.

Capped Aid is just an incremental step on the way to Uncapped Aid.

Capped Aid's origins are in SFRA itself:

For the 2009-2010 school year and thereafter, total stabilized aid shall include Equalization aid, Special Education categorical aid, Security Aid, and Transportation aid. 
d. For the purposes of this section, “State aid growth limit” means 10% in the case of a district spending above adequacy and 20% in the case of a district spending below adequacy. 

SFRA also contains a section here ordering the Commission to "adjust" (ie, cut) a district's aid if it somehow exceeded the State Aid Growth Limit.

a. Notwithstanding any provision of this Act to the contrary, the total stabilized aid for each district shall not be increased by more than the district’s State aid growth limit. In the event that total stabilized aid exceeds the prebudget year total by a rate greater than the State aid growth limit, the commissioner shall adjust the components of total stabilized aid so that they total exactly the prebudget year total increased by the State aid growth limit.

So, if a district was getting $50 million pre-SFRA (ie, 2007-08) and SFRA said it should get $90 million (ie, $90 million is its Uncapped Aid),the biggest boost the district would get is 10% or 20% of what it got previously, so $5 or $10 million, depending on whether or not the budget was above or below Adequacy.

So calling "Capped Aid" "100 percent funding" is inaccurate.

SFRA never envisioned that districts would lose aid in the Great Recession, so the calculation of Capped Aid is now very opaque, but the basic point is that Capped Aid is tied to what a district got in the past and its own spending relative to Adequacy, not what a district's economic-demographic needs are at the present.

(See Also:
"The Long Wait for Full Funding Under Capped Aid")

Steve Sweeney knows the difference between Capped Aid and Uncapped Aid and his proposal has always contained a clause to correct the unfairness of Capped Aid, but Capped Aid targets appear on the Formula4Success website. (see Edison for example)

If a district is brought up to its Capped Aid the gain is often just trivial.  For Edison to gain only $2.5 million over five years is pathetic.  Edison has a $226 million operating budget, so $2.5 million is 1% of that.  Edison already increases taxes by $5-$10 million per year, so what does an additional $2.5 million do?  

$2.5 million is only $160 per student for Edison.  

What's even more annoying is that since SFRA sets increases according to a percentage of what a district got previously, and not a set amount per student, a high-aid/moderately underaided district would gain more than a low-aid/severely underaided district.

Compare Newark and Red Bank Boro.  Red Bank Boro is underaided by almost $5000 per student.  Newark is underaided by $1800 per student, but Newark would gain the full $1800 (since its existing aid is $14,700 per student) whereas Red Bank Boro would gain not even $400 per student, since its existing aid is only $2100 per student.  

People have brought up the problems of Capped Aid versus Uncapped Aid and the legislation may have been changed to directly the Commissioners to consider Uncapped Aid needs.  

Originally the legislation said:

2. a. It shall be the duty of the commission to study: (1) the adjustment aid and State aid growth limit provisions of the “School Funding Reform Act of 2008” (SFRA), P.L.2007, c.260 (C.18A:7F-43 et al.), to determine recommendations for revising those provisions in order to bring all school districts to their adequacy budgets as calculated pursuant to section 9 of that act over a period of five school years; 

     (1)   the impact of the adjustment aid and State aid growth limit provisions of the “School Funding Reform Act of 2008” (SFRA), P.L.2007, c.260 (C.18A:7F-43 et al.), on the fairness of the school funding formula, to make recommendations for revising those provisions in order to provide full funding of the “School Funding Reform Act of 2008” over a five-year period, and to bring fair and equitable funding to all school districts for enrollment growth over a multi-year period;

"Fair and equitable manner" can mean absolutely anything, but it is an addition to the text and the Commissioners could read it to prioritize districts with the largest deficits relative to Uncapped Aid.

And even if Sweeney's plan is affirmed by the legislature in 2017 and Christie signs it, an additional problem with Sweeney's approach is that it depends on NJ's next governor being pro-reform.

Chris Christie has proven that a governor can ignore the state's funding law if he doesn't like it and the state's revenue is adequate.  If NJ's next governor doesn't like redistribution, wants to do something outside of SFRA, such as give extra aid to charterized districts, or conflates being below Adequacy with being underaided, he can ignore NJ's new state aid law and allow more aid hoarding.

NJ's overaided districts have been passive so far in the face of losing state aid, but once it actually begins to happen and their taxes increase way beyond inflation, they'll howl.

Steve Sweeney or a pro-reform Republican like Jack Ciattarelli may be NJ's next governor, but the governor could also be Phil Murphy or Steve Fulop.

State aid is not a priority for Phil Murphy and Steve Fulop.  They rarely comment on aid to begin with, but when they do, their views are uninformed.  Phil Murphy says he wants to "implement that formula," but is evasive on the subject of redistributing state aid, has made billions in non-education promises, takes inaccurate cheap shots at Chris Christie, and does not recognize that fully funding SFRA without redistribution would cost $2 billion a year.  Steve Fulop is even worse.  He has never admitted the unfairness of Jersey City's state aid level and his strenuous opposition to a tax reval for Jersey City indicates a contempt to fair taxation altogether.

Yet, Steve Sweeney is still just a politician and he has exaggerated what his plan would do.  I still support Sweeney's plan and like Steve Sweeney very much, but aid-activists should clarify with Steve Sweeney about the need to focus on Uncapped Aid, not Capped Aid.  Journalists should also investigate what the true costs to fully fund SFRA would be.

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