Thursday, June 30, 2016

Christie Already Has the Power to Change State Aid


Since Chris Christie came out with audaciously unfair "Fair Aid" proposal on June 21st, many commentators have condemned the proposal for being brutal to poor districts throughout New Jersey, whose tax bases are woefully inadequate to sustain decently staffed school systems without above-average state help. One commentator, Julia Sass Rubin of Rutgers University and SOS-NJ, has pointed out that Christie's proposal goes beyond moral wrongness to mathematical and budgetary wrongness too, since real K-12 state aid is $8 billion, not $9.1 billion, and to redistribute $9.1 billion in state aid would require eliminating Extraordinary Aid, debt service aid, Pre-K, and much more, among which is private school pass through dollars.

Christie's proposal to give equal state aid to economically unequal districts is so self-evidently bad that I don't feel a need to write a post condemning it, but what shocks me is that Christie already has the power to eliminate the worst excesses that he condemned in his speech. In fact, Christie started to eliminate those excesses in 2012-13 before he changed his mind the next year.

Most of New Jersey's highest aided districts are indeed Abbotts and Asbury Park is an outlier in getting about $24,000 per student in state opex aid, but most of these ultra-high aid districts don't get so much because of the Supreme Court or because of the core formulas of SFRA per se. They usually get so much because of ADJUSTMENT AID.






Were Adjustment Aid to be eliminated, which is what Steve Sweeney wants to do, Asbury Park would only get about $13,500 per student. That's a lot more than the $6,599 per student Christie says he wants Asbury Park to get, but eliminating Asbury Park's Adjustment Aid would still save the state almost $25 million per year.

Unfortunately Christie never even mentioned Adjustment Aid in his speech. Although he condemned Asbury Park and Trenton's aid repeatedly (they aren't representative Abbotts or even similar to each other), he ignored other examples of overaided districts, such as Hoboken, Jersey City, Keansburg, and Pemberton. Ignoring Hoboken and Jersey City surprised me, since conservatives who condemn Abbott usually use Hoboken and Jersey City as examples of Abbott's unfairness.  (Example 1, Example 2, Example 3)

And yet Christie knows what Adjustment Aid is and even cut it in 2012-13 during Chris Cerf's commissionership.

Although Adjustment Aid is, part of a SFRA, any budget the legislature approves is automatically legal, even if it contradicts SFRA. Although the legislature has the power to reject a budget or write its own, in practice, the legislature is usually a rubber stamp. The legislature has approved Additional Adjustment Aid, even though it's not in SFRA, it has approved "Professional Community Aid" even though it's not in SFRA, it has approved "PARCC Readiness Aid" even though it's not in SFRA, it has approved "Student Growth Aid" even though it's not in SFRA either.  In 2013 Christie unilaterally capped Interdistrict Choice and again, the legislature accepted it.

The governor and legislature can also make SFRA cuts to districts that contradict SFRA. In 2010 the legislature accepted Christie's across-the-board cuts even though this contradicted SFRA.

Two years later, Education Funding Report, then-Commissioner of Education Chris Cerf was very critical of Adjustment Aid:

Adjustment Aid was a political add-on .... It served no purpose other than to hold all districts harmless in the transition from the old funding formula to the SFRA...
Today, the result is that a number of districts already funded at their Adequacy Budgets – the level, according to the PJPs, at which a district has sufficient funds to provide its students with a “thorough and efficient” education – receive huge windfalls from the State in the form of Adjustment Aid.  
Cerf, (cautiously) proposed cutting Adjustment Aid for districts that were above Adequacy:

Instead, for all districts at or above their Adequacy Budgets, the Department recommends reducing Adjustment Aid by 50% of the amount the district is over adequacy, and to phase in that reduction, like all funding formula changes recommended in this Report, over five years. So, by FY17, after giving districts five years to adjust to this new reality, the State will have taken a strong step in correcting a gross inequality and undoing a political giveaway of the past. Districts that were used to receiving these add-on dollars will no doubt cry foul, but even with the reduction in Adjustment Aid, they will still have more money to educate their students than called for by their respective Adequacy Budgets, i.e., be over-funded from the perspective of the PJPs.

And Cerf and Christie actually followed through on this for one year and cut over $40 million from districts which was then redistributed.

Since Christie's Adjustment Aid cuts are now so obscure, let me demonstrate:
Hoboken would have had a net loss of aid too, but it gained more money through Interdistrict Choice than it lost.

In all, $40 million was redistributed that year.  Unfortunately, 2013 was an election year, Christie changed his mind, and since then there has been no redistribution.

Christie's "Fair Funding" proposal of 2016 is motivated by a desire to lower taxes in middle class and affluent towns.  Were Christie to follow through on reducing Adjustment Aid, he could use the savings to lower suburban taxes.  The increased state aid for middle-class districts wouldn't be as large as what he would get under his "Fair Funding" proposal, but it's politically realizable and the amount wouldn't be trivial either.

To increase the amount of money that could be freed up for middle class (and even affluent towns), Christie also has the power to amend the Abbott list.

I've met people who say that only the Supreme Court can amend the Abbott list, but this is untrue.

In the Abbott II decision, Chief Justice Robert Wilentz created the guidelines for Abbott inclusion (DFG A or B status combined with being an "urban aid municipality") but he gave the elected branches some leeway on the final list.

The original text by Judge Robert Wilentz in the Abbott II decision shows this:

We leave it to the Legislature, the Board, and the Commissioner to determine which districts are “poorer urban districts.” It appears to us that twenty-eight of the twenty-nine school districts designated by the Commissioner as “urban districts” located in DFGs A and B should qualify. (We omit Atlantic City since its tax base for 1989-90 is far in excess of the statutory guaranteed tax base.) Perhaps more should qualify, perhaps fewer. The assured funding per pupil should be substantially equivalent to that spent in those districts providing the kind of education these students need, funding that approximates the average net current expense budget of school districts in DFGs I and J. In addition, provision will be made, presumably similar to categorical aid, for the special educational needs of these districts in order to redress their disadvantages. Such provision will necessarily depend upon the legislative judgment, informed by the Board and Commissioner

Later, in the Abbott VII decision, the Supreme Court made explicit what Wilentz had hinted at:

Whether the Legislature can remove a school district from its designation as an Abbott district has not before been specifically considered by the Court. The addition of districts, e.g., Neptune and Plainfield, that meet the criteria for Abbott classification certainly suggests that in the happy circumstance in which a district no longer can claim it is typical of poorer urban districts, Abbott II, supra, 119 N.J. at 346 n.21, it could be removed by the Legislature from the Abbott classification. We affirm that principle. When a district no longer possesses the requisite characteristics for Abbott district status, id. at 338-45, the Legislature, the State Board and the Commissioner may take appropriate action in respect of that district.  [my emphasis]

Commissioner of Education William C. Librera also said in 2005 that the Abbott list could be changed, although he believed that academic performance should have something to do with it.


B. Two-Part Test for Designation and Declassification

In order to be considered for Abbott designation or Abbott declassification, a school district must be characterized by both low student achievement and concentrated poverty for designation or the absence of both for declassification. Both Abbott II (page 385) and Abbott VII, as well as legislation (N.J.S.A.18A:7G-4), give the Commissioner the responsibility to determine those districts to include or, as will be discussed, to remove from Abbott status. . ...  [my emphasis] 
The decennial census may validate that some Abbott Districts no longer satisfy Abbott’s economic requirements. After each census, the Commissioner shall document those Abbott Districts, if any, that no longer satisfy the criteria for concentrated poverty. Should these districts also demonstrate satisfactory student achievement, an exit plan will be devised for each no longer qualifying district to permit an orderly financial and educational transition. Funding, for example, might be phased out over four years. These districts will continue to receive 100 percent facilities funding for all projects in the design or construction phase. Districts will be able to make application for adjustment based on hardship.

So a governor, with the consent of the legislature, can deAbbottize a district.

Since no district has ever been taken off the Abbott list there's no telling what this would mean, but it could mean:

  1. that the state does not have to pay 100% of construction costs
  2.  the state would not have to prioritize the district's aid if there is a new version of Abbott XXI, where the NJ Supreme Court orders full funding for the Abbotts and no other district.
  3. the state could stop paying for Pre-K or implement means-testing.

Hoboken is the obvious candidate for deAbbottization.  Since Hoboken has an extremely low tax rate and a tremendous $174 million in Local Fair Share (about four times is Adequacy Budget), the state could probably completely drop its Pre-K commitment there and save $11 million per year on top of savings on not having to pay for Hoboken's capital costs and Adjustment Aid.

Jersey City, Phillipsburg, Pemberton, Long Branch, Neptune, Harrison also should not be Abbotts.  Pemberton and Neptune are in DFG CD.   Other Abbotts might be reclassified in higher DFGs if the DFGs were ever updated.  Long Branch, Harrison, and Jersey City were still in DFG B in 2000, but they have nearly average tax bases and do not have the "municipal overburden" that was part of the justification of the Abbott list.  Phillipsburg has a very low tax base, but its FRL-eligibility is 53%, which is only about the 85th highest in NJ.

I can't say what would happen if a district were deAbbottized.  Technically under SFRA every district where more than 40% of the kids are FRL-eligible should get state-funded Pre-K and all of the less-poor Abbotts exceed 40% in FRL-eligibility, but Christie could plausibly fight for means-testing of Pre-K and save tens of millions of dollars.

Unfortunately, Christie doesn't seem to want to do any of this.  He hasn't even tried to deAbbottize Hoboken.

Christie's reasons for not supporting incremental reform are political.  He's spent the last three years preparing to run for president and wanted to avoid controversy.  He wanted to win an overwhelming victory in 2013 and knew that the aid-losing districts would be angrier about losing aid than the aid-gaining districts would be about gaining it.  Thus, he abandoned the endeavour.

Christie has been asked about what he thinks of Steve Sweeney's proposal and this is his answer:

I don’t think it’s bad, but it’s too small. To say you will have a commission to move $800 million around (in certain aid) in a $9.1 billion aid package, it is not going to solve the property tax problem … We’re talking about a monumental change that needs to be made from a property-tax perspective and an educational perspective.

I think Christie's "Fair Aid Formula" is neither fair nor a formula, but I do agree that taxes in middle-class communities are too high and and even worse in working class and poor communities.    

Since the governor's only real motivation is to lower taxes, he should not make the perfect the enemy of the good and should embrace the politically viable reform of eliminating Adjustment Aid and shrinking the Abbott list.  

(If I were governor I'd go farther and eliminate all aid from ultra-high tax base districts too, but I know that Christie would not want this.)

Christie already missed his chance to make sweeping changes when the Democrats retained the legislature in 2013.  At this point compromise is the only pathway forward for him.







Monday, June 27, 2016

The Phantom Budgetary Salvation: Cutting Tax Incentives


From time to time, one idea that pops up as a pathway out of New Jersey's deep budgetary quagmire is cutting or eliminating corporate tax subsidies.  I've seen this from repeatedly from public sector unions like the NJEA,  the liberal think-tank New Jersey Policy Perspective, and now gubernatorial candidate Phil Murphy.

See Minute 42:40 of the video below for the example of Phil Murphy where he discusses the cumulative underfunding of state aid, juxtaposes it with the roughly equal "cost" of tax subsidies, and appears to suggest eliminating tax subsidies as a solution to chronic state aid underfunding.  Murphy uses the $7 billion he believes NJ has "spent" on tax subsidies as a way to "fully fund" state aid without the more politically difficult choices of raising taxes or redistributing state aid.

Ok, the elimination of corporate subsidies is so extreme that I'll give Murphy the benefit of the doubt that he misspoke and doesn't want to completely eliminate subsidies in order to fund state aid.    Even the New Jersey Policy Perspective doesn't completely want complete elimination of subsidies.  BUT, in case Murphy actually does want to eliminate subsides to fund SFRA, this is a economically unwise, politically infeasible, and would deprive the state of its major mechanism for encouraging Smart Growth and urban revitalization.



October 2016 Update: Phil Murphy again says he will pay for his agenda by cutting tax incentives.  See 1:20 at the Ewing Town Hall.

Background

Indeed, as Murphy says, there has been a surge in tax breaks since Christie became governor, with nearly $7 billion approved (not "awarded") since January 2010 compared to only $1.2 billion in the previous decade.  This huge increase is only partly because of Chris Christie's own embrace of tax incentives; it is because the legislature nearly unanimously expanded the state law on tax incentives in the New Jersey Economic Opportunity Act of 2013.

However, to suggest that NJ would have had another $7 billion if we did not have a tax incentives program is incorrect for multiple reasons and ignores the positive externalities that tax subsidy-facilitated development has.

First, the $7 billion in tax incentives as only been approved, not awarded. The incentives are given out over long durations, usually a decade, and only after certain investment and job creation benchmarks are met.

The amount of tax breaks actually awarded under Christie is far less than $7 billion, as Al Koeppe, the chair of the Economic Development Authority explained in May 2015 (when the amount approved was only $5 billion):

While the [Economic Development Authority] board's approval represents the opportunity for a project to realize tax credits, companies and developers must then prove that they have satisfied specific legislative requirements before they receive any funds. Since all of the programs were designed by the N.J. Legislature to be performance-based, this means that approved projects must first generate new tax revenue, complete capital investments and/or hire or retain employees to receive the approved benefits. 
To date, very few developers or corporations have received tax credits under the state incentive laws. In fact, of the $5 billion EDA has approved for projects under the Urban Transit Hub Tax Credit, Economic Redevelopment and Growth and Grow New Jersey Assistance programs since 2010, a combined total of $63.2 million has actually been paid out to date.
Based on the statutorily-required independent certification of actual capital investment and job creation/retention tied to these projects, this $63.2 million has resulted in private investment of $732.3 million, the creation of more than 1,920 new permanent jobs and an estimated 3,129 construction jobs.  [my emphasis]
These tax subsidies will become a budgetary problem in a few years when the tax breaks mature, but had the companies followed through and left New Jersey, not expanded here, or not relocated here in the first place, New Jersey would not have been able to tax them either, since New Jersey cannot tax nonexistent business activity or a business that is located in another state.  In other words, New Jersey is fiscally screwed either way.

When NJ gives out a tax incentive to get a relocation the loser is the state the company was formerly located in (usually New York).

Even over the long term, the only way someone could believe that a cessation of tax incentives could mean another $7 billion for the Treasury is to assume that every single previously out-of-state business that got a tax incentive to relocate to NJ would have done so without an incentive and every single NJ business that got an incentive to stay in NJ was just bluffing about leaving.  Given the high-profile departures in recent years of BMW, Hartz Mountain Industries, several pharmaceutical companies, (half of) Pearson, and Sealed-Air, I don't think every company that threatens to leave is lying about it  Goya admitted it would have gone to Suffern, NY if it hadn't gotten $90 million in state and local tax incentives; Panasonic has admitted it would have definitely left.  Thomson Reuters would have moved 450 jobs to Carrollton, Texas.  IDT would have certainly left too.

L-R,
Boston mayor Martie Walsh and Mass. gov.
Charlie Baker knew Boston was an attraction
for GE, but they still gave GE record-setting tax
breaks to relocate to Boston.  
Ironically, Phil Murphy often uses the example of GE's relocation from Connecticut to Massachusetts to argue that a "high-tax" state can still thrive if it offers certain things, like a high quality workforce (Massachusetts is actually a medium-tax state, not a high tax state.

What's ironic about this is that even though Boston and Massachusetts thought that Boston would be a good fit for GE, they still gave GE $145 million in tax incentives over 20 years.  

It's also bizarre of Murphy to condemn tax incentives because his own website calls for tax incentives and grants for technology companies (even though NJ already has something like this too!) and a new plan for tax incentives for college loan forgiveness.

Positive Externalities: Tax Subsidies Are Often Urban Subsidies

Don't get me wrong, sometimes the company is lying about wanting to leave the Garden State and New Jersey ends up giving up tens of millions just to get a company to relocate within New Jersey, but sometimes these relocations can have positive externalities anyway.

It's little admitted among critics of tax subsidies that these subsidies are usually urban and Smart Growth subsidies and go disproportionately to New Jersey's struggling cities and/or transit hubs.

For instance, New Jersey gave a $210 million incentive given to the Prudential to get the Prudential to build an office complex on Military Park in Newark.


On economic grounds, this looks like a really bad deal for New Jersey,  at $21 million per year for 400 jobs, this works out to $52,500 per job.   It's especially suspect in economic terms since the Prudential is too invested in Newark to leave. All the Prudential did was move some employees from existing office buildings at the Gateway Complex to Military Park. Although the Prudential did promise to hire another 400 people, it might have done this anyway and just rented more office space in or around Newark.

But those are the bad aspects about this deal.  In exchange for the $210 million in tax incentives, the Prudential built a $444 million office complex for 3,000 employees where there had previously been abandoned buildings and an ugly surface parking lots for decades.  The Prudential donated millions to fix up neglected Military Park into a gorgeous urban space.  The construction of the new Prudential building has spurred redevelopment nearby in Newark, like the historic and abandoned Hahne's Building, whose development was first seriously proposed in 2002 and yet stalled for years until the Prudential itself moved next door and stepped forward with financing.

And if you don't believe me that Newark development needs tax incentives, just go walk up to Broad Street station, where there are literally acres of completely vacant property.


And the tax incentive only lasts for ten years.  It's not like the Pru is going to abandon the building after that or Hahne's will revert to being an empty shell.  The Prudential's headquarters on Broad Street has been in use for fifty years and why shouldn't these new office buildings last just as long?

And the Hahne's building next to the Prudential is another subsidy recipient, getting $40 million in tax incentives.

What does the state get for that $40 million?  First, it leverages that money into a $174 million investment.  The Hahne's renovation closes what was a large gap in Newark's central downtown, northern downtown, and Rutgers-Newark.  The Whole Foods will be stimulative to future development and there will be hundreds of jobs at the Whole Foods and other retail there.  There will also be 160 apartment units, of which 40% are earmarked for affordable housing.  Suburbanites take nice supermarkets for granted, but Newark is a "food desert" and a Whole Foods is a "holy grail."

As Mayor Ras Baraka said at the groundbreaking for Whole Foods and the Hahne's conversion:
The Hahne’s Department Store is one of the legendary buildings of our historic downtown and today’s groundbreaking is another step in the transformation of Newark’s core.  For nearly three decades, this structure has stood vacant, but now it is becoming an integral and dynamic part of our efforts to transform Newark’s downtown into a 24/7 neighborhood.  (source)
[Hahne's has] always been graffiti. It's always been boarded up, representing a phase of people leaving the city of Newark. Reopening it means people are coming back to the city of Newark (source)

The Hotel Indigo in Newark
is in a formerly near-abandoned
office building.

There are many examples in NJ of "corporate welfare" being used for historic preservation.  For instance, the Hotel Indigo, which opened in a Cass Gilbert-designed office building that had been vacant for decades, benefits from large subsidies from the Urban Enterprise Zone Loan Fund, First Mover Loan, a Redevelopment Area Bond, Historic Tax Credits, and New Market Tax Credits.  Since the building is so historic, so underused, and the boutique hotel is an asset for Newark, isn't it worth it?



Camden has also been a major beneficiary of these tax subsidies, where various businesses have gotten over $1.2 billion to relocate and the state is subsidizing a separate $1 billion megadevelopment built by Liberty Property Trust that will provide millions of square feet of office space and hundreds of apartments.

On one hand, this is a negative, we're talking about over $1 billion in lost taxes, but isn't anything that provides jobs in Camden a good thing?  (Does any critic have any better ideas for how else to revitalize Camden?)

Overall, the overwhelming majority of tax subsidy projects by dollar valuation are in poor cities.

New Jersey also gives up a huge amount of tax money to get businesses to relocate or expand around transit hubs, ie, to foster Smart Growth.  (In order to qualify for Grow New Jersey subsidies a project must meet Green Building Standards too.)

Through the state's Urban Transit Hub Tax Credit program, businesses can receive tax writeoffs for locating near public transit in thirteen cities.  After Panasonic relocated from Secaucus to Newark, 60% of its employees started taking the train to work.

Ironically again, Phil Murphy constantly talks about NJ's public transit infrastructure and how expansive our public transit networks are, but just because a place has a public transit infrastructure doesn't mean that people can use it if their workplace is nowhere near public transit.  Smart Growth makes it more likely that people will be able to use PT by encouraging PT business relocation.  It's not enough to have good public transit network, people have to have the ability to use it.  


The Bad Stuff:

Interstate Subsidy War
Goldman Sachs got $164.3 million to build
this tower in Jersey City. Goldman got $200 mil
for another tower in NYC.

States would probably be better off if none of them had subsidy programs, but these subsidy programs aren't going away and even if they did, New Jersey would still be at a competitive disadvantage to states that have lower taxes than we have.

I agree that these tax breaks need to be better scrutinized.  I also believe that the destructive interstate job poaching between New Jersey and New York has to be reduced.  Goldman Sachs should not be allowed to repeatedly play New Jersey and New York off against each other to get bigger and bigger tax breaks.  Neither should Pearson.  Neither Should BNY Mellon.

Every time New Jersey offers a tax incentive to a New York business, New York tries to match the incentive.  Fewer New Jersey businesses threaten to go to New York (Goya being an exception), but New York gladly offers them subsidies whenever they ask and New Jersey has to make a counteroffer.  Whenever businesses play the two states off each other, either New York or New Jersey loses tax revenue and other taxpayers have to make up the difference.

Unfortunately, the value of subsidies is increasing nationwide and regionally, meaning that for NJ to cease subsidies would be a dangerous unilateral disarmament.  See below for the increase in Connecticut's subsidies:

Source: http://trendct.org/2016/02/17/tracking-government-subsidies-to-businesses-in-connecticut/


Trenton Picks and Chooses Winners and Losers

It's inaccurate to think that these subsidies are a statewide program.  They aren't.  Trenton picks and chooses where businesses can locate or developers can build to get a subsidy. So it's a program for certain towns and counties of New Jersey and oftentimes the towns that are eligible are politically chosen.  If anyone wants to see the power of George Norcross and the South Jersey Machine, just studying the subsidy laws in New Jersey is enough.

Specially benefiting certain parts of New Jersey might be defensible if this policy always promoted Smart Growth in transit hubs or redevelopment in genuinely distressed cities but that's not consistently true.

These are the "Qualified Incentive Areas" for Grow NJ, the state's biggest subsidy program:

Current areas in which GrowNJ incentives are available are:

  • Priority Area 1 and Priority Area 2 
  • Any urban, regional, or town designated center under the State Development and Redevelopment Plan.
  • An area zoned for development or redevelopment in the Meadowlands.Area owned by the New Jersey Sports and Exposition Authority. 
  • Pinelands regional growth area, town management area, a pinelands village.
  • Military and federal installation area established pursuant to the pinelands CMP
  • Area designated for development, redevelopment, or economic growth within the Highlands Region 
  • Federally owned land approved for closure under any federal Base Closure and Realignment Commission 
  • Vacant commercial building having over 400,000 square feet
Ok.  So this program is about containing sprawl except when it isn't.

I support subsidies for redevelopment in struggling cities like Camden, Trenton, Passaic and Paterson, all of whom have special status under current tax subsidy law.  I even accept subsidies for places which aren't struggling, but are true transit hubs, like Jersey City and Hoboken, but the lists of qualifying towns are not totally rational.

 For instance, Hoboken (!), Harrison, and Weehawken qualify as "Distressed Municipalities," but Prospect Park, Jamesburg, East Newark, and Woodlynne do not.  How does this make any sense?  These towns, as non-Abbotts, are doubly disadvantaged since their school aid is inadequate and their tax rates are high.  Hoboken and Weehawken are also "Urban Aid Municipalities," which qualifies them for subsidies for real estate development.  Hoboken is NJ's richest large town and has a small tax burden, how is this fair?  Harrison and Weehawken aren't that distressed either.

Camden qualifies for the most generous subsidies of any town; projects there have to meet a lower cost:benefit ratio to get subsidies than anywhere else in New Jersey.  The New Jersey Policy Perspective claims that some Camden projects could be net losers for New Jersey.

Special subsidies for Camden may be justified, but there are also special subsidies for Paulsboro which is undeniably an example of Steve Sweeney using his power to enrich his constituents at state expense (Paulsboro is in Sweeney's district.)

Likewise, the list of towns that qualify as "Transit Hubs" is also political and arbitrary: Bridgeton, Camden, East Orange, Elizabeth, Hoboken, Jersey City, Mount Holly, New Brunswick, Newark, Paterson, Salem City, Trenton, West New York.

Bridgeton, Salem City, West New York, and Mount Holly don't have train stations.  Meanwhile, busy train locations like Edison (Metropark), Princeton Summit, Dover, and South Orange are not on the list. Irvington, which has a major bus hub, is also not on the list.

And just because a business is located near public transit doesn't mean that employees will use public transit.  If parking is limited and there are multiple train lines converging at the location,  like there are in Newark, Hoboken, and Jersey City, then a high percentage of employees will take PT, but if these factors are not in place and the business is a half mile from a train station or bus stop, few employees will take public transit.

There is also a blatant South Jersey bias (legally defined as Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean or Salem counties) that I think is unjustified. The number of jobs that a project has to produce to get subsidies in South Jersey is lower than it is in the rest of NJ.   Projects in those South Jersey counties in areas designated "in need of redevelopment" (ie PILOTed) is lower than in the rest of the state.  South Jersey towns with high "revitalization indexes" qualify for extra subsidies too that towns in the rest of NJ with equally high revitalization indexes would not qualify for.

Furthermore, sometimes when a subsidized project provides jobs it doesn't mean there is a net increase in jobs for New Jersey because sometimes the business will be in direct competition with other New Jersey businesses.  The Hahne's/Whole Foods subsidy is defended based on the 200 jobs that will be at the Newark Whole Foods, but these jobs will presumably come at the expense of other supermarkets.  It's not like subsidizing a supermarket makes people buy more food; only new housing development can accomplish that.  Whole Foods is still a massive boost for Newark and perhaps reduce Newark's massive spending-power leakage, but we have to be skeptical about some of the jobs claims made on the project's behalf.

Pre-2013 NJ's tax incentives also disproportionately rewarded big companies since the state would always give into a company threatening to take 1,000 jobs out of New Jersey but might ignore a company threatening to take only 20 jobs out.   From the mid-1990s to 2013, the state gave out incentives to over 500 companies, but half of the money went to only 22 companies.

After the 2013 subsidy reform this tendency may be less pronounced, but I haven't seen any comprehensive data.


Conclusion

Despite the political inclusions, usually this program gives subsidies to Smart Growth locations and poor cities.  As NJ Future summarized:

Since the passage of the Economic Opportunity Act [of 2013], New Jersey's two remaining economic development incentive programs the Grow New Jersey Assistance Program (Grow NJ) and the Economic Redevelopment and Growth Program (ERG) appear to be functioning reasonably well at steering economic growth into "smart-growth" locations where infrastructure is already in place to accommodate it, and away from open space and farmland. They also continue to direct almost two-thirds of their awards (both in terms of number of projects and dollar amounts) to the state's most fically and socioeconomically distressed cities, towns, and inner-ring suburbs. The focus on steering economic development into transit-accessible locations appears to have been somewhat diluted by the loss of the Urban Transit Hub Tax Credit and its exclusive focus on such locations, although part of the explanation for this may be an increase in the number of awards being given to industrial projects, which are not optimal uses for land near transit stations.

What would happen probably if New Jersey stopped giving out tax incentives is that there would be less business investment overall and significantly diminished investment in New Jersey's struggling cities and transit hubs.  Overall, the Treasury might not be in much better shape.

Tax incentives will always be controversial since we in the public can never know if a business really would have left New Jersey had it not gotten a tax break.  The value of Smart Growth and historic preservation are subjective too, but to me they are worth it.  Any walk around downtown Newark, Paterson, Camden, or Trenton will show that these cities have vast swaths of underused property and beautiful, yet decaying, historic buildings.

And as I said before, even the very liberal New Jersey Policy Perspective doesn't appear to support completely eliminating subsidies.  They favor an annual cap, but overall their position is critical, but nuanced.

Ceasing tax subsidies to fund SFRA might make sense in a campaign where a candidate wants to denounce "corporate welfare," but it doesn't make economic and budgetary sense since every state in the country has its own tax subsidy program and for NJ to unilaterally stop is to just to surrender jobs to rival states who have no qualms about giving subsidies to the richest companies in America, as Connecticut just gave $52 million to Bridgewater Associates.

Someone needs to tell Phil Murphy that there is no painless way to produce fair school funding in New Jersey.  Fairly funding schools will take a combination of tax increases and redistribution.  While tax subsidies can be made fairer and maybe reduced, there's no pot of gold in eliminating them.

I'm honestly not sure Phil Murphy wants to do with subsidies, but the NJEA's position is clear that it wants suspension:
NJEA Secretary-Treasurer Sean M. Spiller and NJEA Vice President Marie Blistan joined New Jersey Working Families today in calling for a moratorium on subsidies to corporations from the New Jersey Economic Development Authority (EDA) until it can be demonstrated that such giveaways produce any positive results for everyday New Jerseyans....

This trickle down concept hasn’t worked and we keep going back to it,” Spiller said. “We see 38 percent of our families struggling to meet basic needs. We see the number of students living in poverty skyrocketing—up 20 percent since 2008.”

Spiller noted that while Gov. Christie is busy handing out subsides to the wealthiest in New Jersey through the EDA, he is not living up to his obligations under the pension funding law he signed in 2011. Known as Chapter 78, that law was Christie’s promise to fund the pension systems to their actuarially required levels over a period of seven years. After following the law for two years, Christie stopped paying the legally required amount, thus violating his own law.

Someone should remind the NJEA that other states have subsidy programs too, New Jersey's taxes are high to begin with, not every subsidy is evil "corporate welfare," and businesses do relocate.

And how is the NJEA not saying to Camden "Drop Dead" since redevelopment there would be nil without subsidies?

Phil Murphy ought to be more balanced than the NJEA leadership and he may not be serious but eliminating subsidies, but if he does want to stop subsidies he has an uphill political fight, since eliminating tax subsidies would be opposed by business groups, South Jersey Democrats, urban Democrats, and probably unions.  I thus don't see eliminating subsidies as politically viable.

Sadly, I continue to await a serious school funding (and pension funding) proposal from New Jersey's leading candidate for governor.  

See Also:


Friday, June 24, 2016

Dana Goldstein Misunderstands Abbott, SFRA


Dana Goldstein is a good education writer, but like most other journalists, she uncritically accepts certain myths about Abbott that circulate among the NJ edusphere without anyone bothering to look up if they're true or not.

Goldstein's essay in Slate is right about the foolishness of Chris Christie's proposal to give every district equal state aid per student, but this section on Abbott history is incorrect:

The vast majority of public education funding comes from state and local sources, most notably from property taxes. In 1990, in Abbott v. Burke, New Jersey’s Supreme Court ruled that the state’s school funding formula betrayed the state constitution’s promise of providing a “thorough and efficient education” for all by sending more money to affluent suburban schools in towns with high property values. To remedy that, the court required supplemental funding for the state’s 31 poorest districts, including Newark, Trenton, Camden, Union City, Jersey City, and Hoboken. Today, thanks to a revised funding formula crafted by both Democrats and Republicans, the state sends extra per-pupil dollars not only to those 31 “Abbott districts” but to students in any district who are poor, learning to speak English, or disabled. Cities and towns with large groups of those kids receive additional money to compensate for the challenges that come with concentrated poverty, such as the need to hire social workers or bilingual teachers.

Let me unpack the wrongness of this paragraph alone:

First, the NJ Supreme Court accepted the constitutionality of the school funding formula for most poor districts, but only said it was unconstitutional for "poor urban districts," ie, the then-28 Abbott districts.



Second, this is totally untrue:
"[NJ was] sending more money to affluent suburban schools in towns with high property values." 

NJ had progressive state aid even in 1990, but it was a flatter distribution than what we have now.  In 1990, for instance, Newark already got $263,782,806.  Paterson got $94,935,249.  Millburn got $1,729,178, or 0.6% as much as Newark.  I don't have early 1990s student enrollment figures, but Newark was getting much more per student.  

Even if you look at less extreme comparisons, you see that NJ was not sending more money to "affluent suburban schools."  Bloomfield was getting $5,228,575, again, which is much more than Millburn was getting per student but less than Newark.  Bound Brook, a very small district, was getting $2,139,354 in 1990, which was more than Millburn, more than Bloomfield, but less than Newark.

In fact, six of the future Abbotts were already spending above the state average in 1990.

Third, this is also partly untrue:

"To remedy that, the court required supplemental funding for the state’s 31 poorest districts, including Newark, Trenton, Camden, Union City, Jersey City, and Hoboken.:

The 31 Abbotts (originally 28) were never NJ's 31 poorest districts. Over 30 districts in DFG A were excluded from the Abbott list because they weren't considered "urban." Very poor DFG A districts that didn't become Abbotts included Buena Regional, Pinelands Regional, Bass River Township, East Newark, Paulsboro, and National Park Boro.  (See the 1980s DFG classification used by the Supreme Court to create the Abbott list.)

Hoboken, Pemberton, Long Branch, Burlington City, and Neptune, who were Abbottized, were not plausibly among the poorest in NJ even in 1990 either.  

Fourth, this section is totally untrue because it  characterizes SFRA as an operating law not utopian fantasy:

Today, thanks to a revised funding formula crafted by both Democrats and Republicans, the state sends extra per-pupil dollars not only to those 31 “Abbott districts” but to students in any district who are poor, learning to speak English, or disabled. Cities and towns with large groups of those kids receive additional money to compensate for the challenges that come with concentrated poverty, such as the need to hire social workers or bilingual teachers.

Yes, NJ theoretically has a law to send more money to poor non-Abbotts, but SFRA IS NOT AN OPERATING LAW!!!  The state "does not send extra per pupil dollars to students in any district who are poor."  SFRA is a joke.  Poor non-Abbotts are lucky if they even get half as much of what their Abbott peers get.  SFRA has never been fully funded and cannot be as long as NJ is in a fiscal crisis.  Having a fair school funding law is one thing, but funding it is quite another.  

Here's more error from other sections of Goldstein's essay:

But Christie has always opposed [Abbott]. When he came into office in 2010, he proposed more than $1 billion in education budget cuts, a move the state Supreme Court declared unconstitutional.

This is wrong in context and factuality.  In 2010 Christie cut $1 billion in response to the budget crisis and the depletion of federal stimulus money, not because he didn't like Abbott.  The $1 billion in cuts was across the board, with every district losing aid equivalent to 4.9% of its budget.  Many affluent districts, including Christie's hometown of Mendham, had their state aid drop to $0.  The aid cuts affected the Abbotts, but the Abbotts weren't specifically targeted.

In the Abbott XXI decision, the NJ Supreme Court only declared unconstitutional cuts to the Abbotts.  Cuts to poor non-Abbotts, like Freehold Boro, Dover, Fairvew were considered constitutional.  The NJ Supreme Court ordered $500 million restored to the Abbotts, not the full $1 billion.

This is also mostly untrue:

It is true that New Jersey school districts like Newark and Camden continue to struggle. What Christie didn’t mention is that those districts are in state receivership, which means that the person ultimately accountable for their low performance is ... Chris Christie. It isn’t reasonable to expect that Newark, a city where 81 percent of students live in poverty, would have the same graduation rate as Hillsborough, where only 5 percent of students are poor. Even so, high-school graduation rates in Newark are up. And overall, poor children of color across New Jersey have experienced big academic gains since Abbott—gains that Christie is loath to acknowledge and that would be rolled back if his new funding plan becomes a reality.

Umm, four of the Abbotts were or recently were under state control (Newark, Camden, Paterson, and Jersey City).  The others are autonomous, although there's been some special monitoring of Asbury Park.

What Goldstein doesn't admit about academic gains is that they have occurred in poor non-Abbotts too, not just Abbotts.  Chris Cerf demonstrated this in 2012 in his Education Funding Report and other researchers have found the same gains in non-Abbotts.  


Dana Goldstein means well, but she is spreading myths here.  Maybe it would help journalists if they talked to people other than David Sciarra?

Thursday, June 23, 2016

Sweeney, Prieto Condemn Christie Proposal; Murphy, Fulop Silent

Update: This post was accurate when written.  Phil Murphy has now tweeted criticisms of Christie's unfair aid plan.


Senate President Steve Sweeney and Assembly Speaker Vincent Prieto both immediately criticized Chris Christie's proposal to redistribute state aid so that every district receives an equal $6500 per student.

Here's Steve Sweeney, speaking with fellow state aid reformer Teresa Ruiz:

“The governor’s proposal is a direct attack on the core principles of equality for all of New Jersey’s communities, denying too many schoolchildren the opportunity for an equal education. “This plan is unfair, it is unjust and it is blatantly unconstitutional. “It is a maneuver that discriminates against the most vulnerable students and would systematically deny children an equal opportunity to achieve the American Dream.

Children do not choose their zip codes, and this proposal decimates educational opportunity, resulting in more poverty and increased income inequality. It is a divisive plan that’s not fit for New Jersey. “Which is why the school funding proposal we sponsored recognizes the values of this state, the values the people of New Jersey committed to in the 1947 Constitution.

We believe in those values and we know the people of New Jersey do as well. We want to pursue excellence in education, not limit it to those who already possess the advantages. We don’t want to give up on the families throughout the state who look to educational opportunity as the equalizer that can help their children succeed in the rapidly-evolving economy.”
Ok, good.

Vincent Prieto also condemned Christie's proposal, although he came out with a call to fully fund SFRA that I see as hopelessly unrealistic:

“Gov. Christie’s idea is unconstitutional and harmful to our most vulnerable children. Gov. Christie has been in office for more than six years and not once has he fully funded the school funding formula that would provide increased aid and property tax relief to school districts throughout New Jersey. In fact, he even vetoed a Democratic initiative (A4203 in 2011) to accomplish that goal. If Gov. Christie truly wants to undo the damage caused by his policies, he must acknowledge his responsibility by working with legislators to finally fully fund the existing – and constitutional - school funding formula.”
I'm not going to get into why NJ can't fully fund SFRA, but at least Prieto is right that Christie's proposal is "harmful to our most vulnerable children."

What's disappointing is that it's now over 48 hours after Christie made his state aid proposal and Steve Fulop and Phil Murphy have been totally silent.

Steve Fulop's not shy about criticizing Christie, but he initially refused to comment until he sees the official proposal.  Doesn't he know enough about state aid to know that equal funding per student is nonsense?  Doesn't he know enough about Jersey City to know that it receives substantially more than $6500 per student and would be a massive aid loser?   

Apparently Fulop knows enough about state aid to forward a reporter a condemnation the Education Law Center wrote, but he doesn't care enough to write something himself.  

Phil Murphy is showing the same silence, even though Murphy is usually more aggressive in attacking Christie than Fulop is.  
I appreciate Phil Murphy's stances on gun control, but being governor involves more than just signing gun control legislation.  

Fulop and Murphy's Facebook pages are equally silent.  

Are Murphy and Fulop ceding state aid as a political issue to Sweeney?  

It's not like a Tweet takes long to compose.  It's literally the least they could do.   

UPDATE: 
Phil Murphy Tweets three days later about Christie's proposal in response to a press release from Ras Baraka.

https://twitter.com/PhilMurphyNJ/status/746427805915807744

Tuesday, June 21, 2016

Chris Christie's Total Incoherence on School Aid



When Chris Christie ran for governor state aid was on his agenda. Christie's agenda then was that the Abbotts received too much aid and that more money should go to middle class districts. Christie rightfully denounced the excesses of Asbury Park's state aid, but also criticized Newark's less excessive package.

When Christie became governor in January 2010 the state was in budgetary freefall and federal stimulus money was exhausted. Like many other governors, Christie slashed school aid, cutting over $1 billion.

Although the cuts themselves may have been necessary, Christie made the cuts in an extremely unfair way, cutting the equivalent of 4.9% of every district's budget, if it was underaided or overaided, under Adequacy or above Adequacy, poor or middle class. The only exceptions were over 50 affluent districts for whom state aid was already less than 4.9% of the budget. These districts lost less than 4.9% of their budgets, but their state aid went to $0.

In 2011 Christie reluctantly accepted the New Jersey Supreme Court's decision to reinstate $500 million to the Abbotts. When the legislature tacked on a few hundred million more for non-Abbotts he accepted it.

When Christie rebuilt state aid after the bottom of the recession he followed some progressive principles and gave more money to the districts that were the most underaided and most under Adequacy.

And the governor who had come in criticizing Abbott went around to Abbott
Christie Celebrates Abbott Bucks for Long Branch.
districts to celebrate their 100% state-funded school construction. For instance, Christie celebrated Long Branch getting $27.5 million for another elementary school after the state had already spent $189 million to build four other new schools since 2002.

In 2012 Christie's Commissioner of Education, Chris Cerf, proposed cutting Adjustment Aid for districts that were above Adequacy. In 2012-13 Christie actually followed through with this and cut sometimes hundreds of thousands of dollars from Adjustment Aid districts, but just for one year. Thereafter Christie even created "Additional Adjustment Aid" which disallowed any cuts. The biggest beneficiaries of "Additional Adjustment Aid" are Interdistrict Choice students that have lost Choice students. Additional Adjustment Aid is money for non-existent students.

Since 2013-14 state aid has been flat. In 2013-14 every non-Choice district gained $20 per student. In 2015-16 the aid change was $0 for non-Choice districts. For 2016-17 the increase will be $10 per student, although there is a small $36 million increase in Equalization Aid plus some extra money for Newark and Atlantic City.

Unlike the Education Law Center, I accept that SFRA cannot be fully funded, but the unfairness of the funding I cannot accept, where 200 districts are overaided while everyone else is underaided and the most underaided districts have deficits greater than $9,000 per student.

Aside from criticizing Abbott and the NJ Supreme Court, Christie has been incoherent on state aid. He's made sensible criticisms of Abbott, but he has never discussed how the real victims of Abbott are poor and working class non-Abbotts. Through his Commissioner of Education, he has the power to recommend changes to the Abbott list, but he has never done so.

Christie says "A funding formula that puts a higher value on one child over another is morally wrong and it has been economically destructive. We cannot let it continue," but if you don't put a higher "value" on children in poor towns, their schools will have inadequate resources since their towns' tax bases are inferior.  Bridgeton, Camden City, and Woodlynne have less than $2,000 in Local Fair Share per student, how can they offer decently staffed and equipped schools without superior state aid?

Christie never mentioned the most unfair things about Abbott either, such as the fact that the Abbotts get 90% of Pre-K money or that the state pays for 100% of their construction.

Anyway, Christie's state aid proposal is a joke. It's dead on arrival. Sweeney had a condemnation out in less than an hour. Prieto condemned it too, but added a hopeless call to fully fund SFRA.

I don't need to explain in detail why giving Millburn and Newark, Bridgeton and Haddonfield, Hoboken and Fairview the same $6,599 per student is wrong, but if you're curious, here's Bruce Baker of School Finance 101 doing the work I don't feel like doing.

Christie's proposal will go nowhere in the legislature, but the Framers of the NJ Constitution, in their infinite wisdom, copied the US Constitution and gave a governor the ability to thwart the will of two-thirds of a legislature.  So anything the legislature doesn't pass overwhelmingly will be dead on arrival as soon as it reaches Christie's desk.  There will thus be stalemate until NJ's new governor takes power in January 2018.

If Christie digs his heels in and vetoes the Sweeney state aid reform bill there is no hope for reform until January 2018 and at that point in the budget cycle it might be too late for the new governor to set up a fairer aid distribution for 2018-19.  If Christie blocks aid reform than the soonest we might get relief is 2019-20.
















Saturday, June 18, 2016

What if Christie Had Never Become Governor?

Imagine someone invented a Trans-Dimensional Hyperdrive that allowed one to travel to a parallel dimension that was our same Planet Earth and same moment in time as we are, but where some event in our history had never happened.

You don't need Sci-Fi technology to see NJ
without Christie,
All You Need is to Drive to Connecticut
A lot of novelists and television shows like to imagine an alternate reality where Germany had won WWII, but I'll look at something more prosaic:

What if Jon Corzine had been reelected in 2009? or a Democrat, maybe Barbara Buono, had defeated Chris Christie in 2013?

Well, I can't invent a Dimensional Travel Machine, but I don't need to because the equivalent already exists.

The car.  

To experience a New Jersey where Chris Christie had never become governor just drive up I-95 north to the Nutmeg State, Connecticut, our peer in stagnant growth, massive indebtedness, decaying central cities, and an increasingly unappealing suburban landscape.

Gov. Dannel Malloy did everything in Connecticut that Democrats wanted Chris Christie to do in New Jersey.  He was a "dream progressive governor" who challenged other Democrats to "grow a pair," and passed two rounds of billion dollar tax increases; in 2011 increasing taxes by $2 billion and in 2015 increasing taxes by another $1.1 billion.  He imposed Combined Reporting, which the New Jersey Policy Perspective has been calling for in New Jersey, but instead of turning a multi-billion dollar deficit into a surplus, he just turned a multi-billion dollar deficit into another multi-billion deficit. After losing GE to Massachusetts, Connecticut is now handing out tax subsidies left and right, even $52 million to Bridgewater Associates, the world's richest hedge fund whose owner, Ray Dalio, has a net worth of $15.3 billion.
Hey, Where's Connecticut?

Connecticut's economy is in worse shape than New Jersey's.  While New Jersey has recovered 93% of jobs lost in the recession, Connecticut has only recovered 80% and has a 5.7% unemployment rate.

Connecticut's credit rating is falling.  In May 2016 it received a rare double downgrade from S&P and Fitch:



"Substantial revenue shortfalls over the past year have left Connecticut with what we believe are low reserves and an increasing share of the budget devoted to fixed costs....it remains unclear whether the state has succeeded in fully aligning its budget to potential future economic and revenue performance."

Oh, I'm not saying that Connecticut's economic malaise and hopeles
s indebtedness are Dannel Malloy's fault per se, only that his pursuit of policies which are the opposite of what Christie has done hasn't turned the Connecticut economy around or put the budget on a sustainable position.  Absent serious pension reform, Connecticut may be in worse shape than New Jersey in a few years.

I'm also not saying that Malloy and Christie are morally equivalent either. Malloy has a lot more integrity than Christie has. He hasn't been involved in any scandals, abandoned his state to run for president, endorsed Donald Trump, or created a traffic nightmare as political retribution.  And yet despite avoiding Christie's unforced errors, Dannel Malloy's approval rating is only 29%.

Faced with the reality that sometimes businesses do relocate (partly) for tax reasons, Dannel Malloy is now making the cuts that he avoided for several years. His latest budget eliminates 2500 state jobs, reduces spending by 4.4%, and eliminates school aid to wealthy districts. He is not raising taxes again. Malloy now talks about budgeting the same way a Republican would, saying government needs to "live within its means."
Malloy justifies his budget cuts and lack of tax increases thusly to a skeptical Democratic base:

“What’s changed is that the money’s not coming in the door...We live in a new dynamic in the United States where most states’ revenue is not growing at a rate to which we became accustomed.”
Malloy defends his previous rounds of tax increases, but says, “At some point, you simply can’t raise taxes to an extent that you price yourself out of the market.”

Anyway, the notion pushed by groups and individuals like the NJ Policy Perspective, the Education Law Center, and Phil Murphy that all Chris Christie has to do is govern like a Democrat and New Jersey will be a-okay doesn't seem plausible to me.  
Like Connecticut, New Jersey has structural economic and budgetary problems and the getting a Democratic governor won't change that.  Any revenue increase from tax increases will be eroded away by structural growth of the state budget, as Connecticut's two rounds of tax increases have been eroded.   Any gubernatorial candidate who promises to pay for new programs or fund the pensions through "economic growth" is bullshitting you.

Steve Fulop and Steve Sweeney also talk about the magic of increased revenue, but Phil Murphy's claims are the most optimistic and far-fetched:

Aron: Do you believe in keeping taxes down if possible?
Murphy: If possible, but I think it’s going to be hard. I think it would be false to stand up and say, “I’m running because I believe we can cut taxes by X or Y percent.” This state, thanks to the current administration, we’re in a crisis and we’re going to have to lock arms and get out of that, but I’m a huge optimist about New Jersey. I’m encouraged because it’s been done elsewhere. Jerry Brown led California, another liberal Democrat, from a $25 billion deficit to an $8 billion surplus in five years. That’s the sort of change I hope we can see sooner, frankly. That’s the sort of change in our economy and our state I think that’s available to us and we can get out with the right kind of leadership.
Murphy says that New Jersey is in crisis "thanks to the current administration," but Connecticut's administration has done what Phil Murphy advises for New Jersey and it's in crisis too.

Phil Murphy can talk about California all he wants, even though I see no comparison between a state that has half of the West Coast, has multiple megacities, and is 163,000 square miles and New Jersey, which has no major cities, which is 8700 square miles.  California has economic moats around moats and New Jersey just has highways to the rest of the country.  California has Hollywood and Silicon Valley, neither of which can likely be recreated in New Jersey.  
Connecticut, which also lacks a major city and is only 5500 square miles, seems the more relevant comparison to me.

Let the Garden State beware!
http://www.city-journal.org/html/malloy-middle-14578.html

http://njeducationaid.blogspot.com/2016/01/ge-leaves-connecticut-and-what-it-might.html


Friday, June 10, 2016

Sweeney State Aid Bill: A Preliminary Analysis


I've now gotten to see a copy of Steve Sweeney's state aid reform bill and can present a preliminary analysis of it.  

The text of the bill appears to differ in some key respects from what has been reported and what its own authors have said in public.  There are also provisions in the bill affecting the tax cap and PILOTing which are important and yet I hadn't seen discussed yet.


9/15/2016 Update:  This post was accurate when it was written.  The final text of the Sweeney -Ruiz bill is much improved from the original.  This post is mostly not accurate anymore.  

http://www.njleg.state.nj.us/2016/Bills/SCR/119_I1.PDF

Bringing All Districts to Adequacy, Not Necessarily 100% Funding


First, this bill is not a bill to bring every district up to 100% funding.  Using ballpark figures, 100% funding for every district would cost $2 billion without redistribution and with redistribution would cost $1.5 billion.  

What the Sweeney bill appears to be is redistribution plus new spending in order to bring every under Adequacy district up to 100% of Adequacy.    This differs from how Sweeney has described the bill in public and I'm confused as to what the actual intent is.  

This is the relevant statutory text: 

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;  

So affluent underaided districts who tax themselves above their Local Fair Shares and therefore spend Above Adequacy, would apparently not benefit from this bill.  Very wealthy districts like Princeton and Millburn wouldn't gain, which is ok, but neither would diverse districts like West Orange, Teaneck, Wayne, East Brunswick, Fair Lawn, South Orange-Maplewood, Mount Olive, and Cherry Hill. (source for Adequacy Figures, the Fair Funding Database)

However, NJ's most severely underaided districts (who are all below Adequacy) would gain and there are hundreds of districts in this category.  

However, there is no risk to underaided/above Adequacy districts in this bill since the commission is charged with looking at Adjustment Aid and, by definition, these districts receive no Adjustment Aid.  So, this is a redistribution conditioned on state aid relative to uncapped aid, not residential wealth, which I believe is how redistribution should be handled.   

Since the text of the bill differs from how its authors have described it, there could be a pure mistake here. SFRA spells out Adequacy Budget in Section 9, Local Fair Share in Section 10, and the calculation of Equalization Aid in Section 11. If the bill read "calculated persuant to Sections 9-11 of that act" it would square much better with how Steve Sweeney has presented it in public.

Correcting this possible mistake or changing what is a bad idea is needed is for the commission to be able to differentiate between districts that are above or below Adequacy because of their own tax effort, not just state aid.

For instance many underaided districts are also below their Local Fair Share, so if they were to be brought up to Adequacy without a requirement that they tax at their LFS, they would become overaided. 

A few of the Abbotts are prominent districts in this category, like Trenton, Newark, and Paterson. Paterson is underaided by $36 million for 2016-17, but under its Local Fair Share by $46 million.  If Paterson were to be brought up to Adequacy it would get about $82 million.  (these are ballpark figures, the DOE has been confusing this year as to what exact Adequacy budgets are)

Conversely, there are underaided districts who are below Adequacy and tax massively above their LFS. Manchester Regional's taxes are more than twice what they should be.  

So, if a district is $10 million below Adequacy, but taxes $4 million above Local Fair Share, would it only get $6 million?  If so, the district is still underaided and the taxpayers overburdened.  

To avoid perverse tax incentives, the goal of the law should be to bring districts up to 100% of SFRA aid, not 100% of Adequacy.  This would also free up some more state money that could go to overAdequacy/overtaxed districts.



I accept that districts like Paterson, Newark, and Trenton cannot pay their full 100% Local Fair Shares because their residents are poor and their municipal taxes are very high, but the solution should be to change the formula for Local Fair Share should that it is calculated differently for poor districts than for wealthy districts.

Without a systematic change to the LFS formula or the language of the bill, there is a risk that the state will make up the tax deficit and districts will be, in effect, penalized for not paying their full Local Fair Share. So, if one district taxes at 100% of LFS and another district taxes at 50% of LFS, they would both get whatever the state aid needed is to bring them up to Adequacy and the district with taxes at 100% of LFS will be punished for that.  

A sensible change should be to task the commission with reforming the formula for Local Fair Share for poor districts.  If the formula were changed to "Aggregate Income -$10,000 per adult" the drop in a low-income town's Local Fair Share would be significant and Equalization Aid would increase, but the drop in a high-income town's LFS would be small.

Reforming the calculation of LFS may already be allowable under the existing text, but it's ambiguous.

Those of us in the fair aid community will have to constantly point out that a district's tax levy affects is spending relative to Adequacy, not just state aid.  

Reforming the Tax Cap

(2) the tax levy growth limitation as established and calculated pursuant to section 3 of P.L.2007, c.62 (C.18A:7F-38) and its impact on the ability of school districts to adequately fund operating expenses;

Reforming the tax cap is necessary for aid redistribution because even though an overaided district might be below Local Fair Share, it cannot tap its tax base if it is only allowed to increase taxes by 2% a year anyway.  

For Jersey City to increase school taxes by $20 million a year would be economically manageable, but it is illegal since Jersey City's tax levy is only $114 million.

This proposal to reevaluate the tax cap law is also a big deal even absent redistribution since overaided/low tax levy districts are scheduled to be flat-funded forever.  Since these districts have tax levies that are proportionally small in relation to their budgets, a 2% tax levy increase for them would bring in minute increases in the overall budget.  For instance, Jersey City's tax levy is 19% of its budget.  2% of 19% is nothing.

Personally, I believe that property taxes are too high in most towns and that the tax cap gives districts leverage in bargaining with unions.  I hope that the tax cap is only amended for districts whose taxes are below Local Fair Share.  

Reforming PILOTs

(4) the equalized valuation and income measures used to determine a school district’s local share of its adequacy budget as calculated pursuant to section 10 of P.L.2007, c.260 (C.18A:7F-52), and the impact of property tax abatements on that local share

PILOT reform would only have an impact on a few districts that receive Equalization Aid and grant many PILOTs, such as Jersey City and to a lesser extent Asbury Park and Harrison.   However, since Jersey City is the state's second biggest district, anything affecting it has a large impact on school finance and this is a case of a reform that would affect a small number of districts but have a big financial impact.    

Hoboken is another heavy PILOT user, but it does not receive Equalization Aid so PILOTs do not distort Hoboken's Local Fair Share in a relevant way since Hoboken's LFS is quadruple its Adequacy budget anyway.  

However, the list of overaided/heavy PILOT districts could expand in the future, so it's good that the bill addresses PILOTing now.


Overall, I have a lot of respect for Steve Sweeney and think his proposal is a very good one, but I hope that certain changes are made between now and passage or that the appointed commission takes the local tax levy into consideration in making it above or below Adequacy.