Sunday, February 26, 2017

John Wisniewski State Aid Plan, the Good, the Bad, and the Insufficient

Wisniewski's Aid Plan:
The Ends Don't Quite Meet

Gubernatorial candidate John Wisniewski has just come out with a plan on state aid that he claims will bring every district up to 100% funding entirely through higher spending, without redistribution.

As usual, there's some good news and bad news in this.

The good news is that Wisniewski is talking about state aid at all, which is an issue he has generally ignored on the campaign so far.  It is also laudable that Wisniewski actually has come out with a set of specifics on where the new revenue will actually come from, which is a major contrast to Phil Murphy, who frankly has a vapid "I'll fully fund the formula" line.

Although John Wisniewski is not the only Democratic candidate with a plan on state aid (Sen. Ray Lesniak supports Steve Sweeney's approach), Wisniewski at least is putting the most original thought into aid.

That being said, Wisniewski's plan comes up short.

The fastest way to immediately provide property tax relief in New Jersey is to fully fund our public schools.John Wisniewski is prepared to close the educational funding gap by taking the following actions: 
Restore the estate tax.  We must overturn the “deal” made between the Legislature and Gov. Christie last year that began the phase out and eventual elimination of the estate tax.  John Wisniewski voted against eliminating the estate tax because New Jersey is already underfunding education and we cannot afford tax breaks that benefit an estimated 3,500 super wealthy families at the expense of 1.4 million students.  Restoring the estate tax will generate an estimated $150 million within the first year and will eventually put as much as one billion in revenue back into the State budget. 
Freeze corporate welfare.  John Wisniewski will enact an immediate freeze and review of all corporate business tax incentive programs.  Gov. Christie has abused these giveaways as he has doled out $7.4 billion in corporate welfare to his wealthy friends and political cronies — without generating any measurable economic activity.  Simply freezing these giveaways will free up an estimated $800 million annually. 
Wisniewski will sign a millionaire’s tax.  Adjusting New Jersey’s highest marginal tax rate will generate $500-600 million annually.  Education is an investment in our future that pays dividends.  It is not unreasonable to ask New Jersey’s wealthiest residents to help fully fund education and provide property tax relief. 
Overturn Gov. Christie’s $300 million State House renovation.  New Jersey has to tighten its belt and this extravagance must wait or be bid out for much less money.Our next governor must think about New Jersey’s next generation, not the next election.  John Wisniewski will fully fund K-12 education.
First of all, even if we accept all of Wisniewski's assumptions on how much money would come in from these tax increases, the total is woefully insufficient to fund even the K-12 portion of SFRA.

If we accept Wisniewski's own numbers of $150 million from a restored estate tax, $800 million from eliminating tax incentives (which I'm highly doubtful on), and $600 million from a higher income tax and you assume no rich person or business leaves New Jersey and Wisniewski can put every cent into K-12 education, it doesn't add up to 100% funding.

$150+$800+$600 = $1.55 billion.

The cumulative deficit for the 379 underaided districts for 2016-17 is $1.93 billion.

That cumulative deficit will grow since the underaided districts are the ones with growing populations and/or falling tax bases.

Is repairing the Statehouse really an
"Extravagance"?
Wisniewski also says we can use $300 million from cancelling the State House renovation, but even if you agree with him that the renovation is a "extravagance," the $300 million is non-existent since the state was planning to bond that money through the EDA.

Is Wisniewski seriously saying NJ should start bonding money for K-12 operating aid?  Because his proposal to use the $300 million intended for the Statehouse Renovation is tantamount to this.   No state can stay solvent by using one-time revenue shots to fund recurring costs like K-12 spending.  

I agree with Wisniewski's proposals to increase taxes on incomes above $1 million and commend him for stating that this would only bring in $500-$600 million annually.

I also agree with Wisniewski's proposal to restore the estate tax, although I think he would find it politically difficult to restore it at the previous threshold of $675,000 since that was the country's lowest. Assuming Wisniewski could/would only restore the estate tax to $1 or $2 million, New Jersey would not recover the full amount lost.

However, by putting all of the estate tax revenue into K-12 aid (it previously went into the General Fund), Wisniewski would be taking money from one pocket and putting it into another. Since items paid out of the General Fund include non-discretionary spending categories like the Executive branch, non-TPAF pensions, and Corrections, taking this money out of the General Fund would put a lot of pressure on higher ed funding, which is technically discretionary.  But this conflicts with Wisniewski's plan to make public college "free" for students from families making under $125,000 a year.

The biggest gap in Wisniewski's proposals is his plan to fund K-12 aid by eliminating tax incentives.

If Wisniewski actually followed through on this, there would be no immediate savings since NJ cannot rescind tax credits already granted.  The theoretical savings would come from not giving out any new tax incentives, but even that assumes that the business would still relocate to New Jersey or remain in New Jersey without the incentives.
  • If the XYZ Corporation is currently located in New York and says it would locate 500 jobs to New Jersey if it gets a $20 million (cumulative) tax credit, and John Wisniewski says no to a tax credit, New Jersey hasn't gained $20 million since the XYZ Corporation still won't be paying anything to the NJ Treasury!  The business will stay put where it is in New York State or go to another state that will gladly give it a tax credit.
  • If the 321 Corporation is located in New Jersey and says it will relocate to Georgia if it doesn't get a $20 million tax subsidy, Wisniewski says no, and then the 321 Corporation really does relocate to Georgia, New Jersey still loses at least that $20 million, since the 321 Corporation no pays zero New Jersey taxes, plus tens of millions of more in spending power by the corporation itself and its employees.
  • If Big Rebuild developers propose converting a vacant office building in downtown Paterson into apartments if they get a $5 million tax subsidy and Wisniewski says no, the NJ Treasury hasn't gained either since that renovation project probably wouldn't happen without a subsidy.

So Wisniewski is blowing hot air when he says that eliminating tax incentives is a budgetary salvation for New Jersey.

The Forgotten Piece:
A major missing piece of Wisniewski's proposal is any reform of how PILOTs distort state aid.

Conclusion:
So I'm glad that John Wisniewski has come up with a plan of sorts.  I hope this encourages Phil Murphy and Jim Johnson to come up with anything too.  I hope this encourages Ray Lesniak to talk about his support for Steve Sweeney's much more mathematically-literate plan.

BUT John Wisniewski has got to go back to the drawing board.

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Wednesday, February 15, 2017

Education Law Center Insults Kingsway Regional

The Kingsway Regional School District is one of New Jersey's most underaided and underfunded districts.

Kingsway Regional receives students from East Greenwich Township, Logan Township, South Harrison Township, Swedesboro and Woolwich Township, a rapidly growing area of New Jersey. Whereas SFRA says that Kingsway Regional should be receiving $19,476,369, the state only gives it $8,866,900, a $10.6 million deficit.

Kingsway thus only receives 45% of the aid SFRA says it needs. Since it has nearly 2600 students, its deficit per student is -$4325, which is one of the forty worst in New Jersey.

Kingsway Regional's taxes are over $525,000 in excess of Local Fair Share, but Kingsway's Total Budgetary Cost Per Pupil is only $10,362, which is one of the ten lowest in New Jersey. Although most of the other districts among the lowest-spending are demographically poorer than Kingsway, most of the other lowest-spending districts are K-8s, so Kingsway's budgetary distress should be seen as exceptional.

Kingsway Regional is one of the most active districts on state aid reform. They launched a petition that got 2600 signatures, have launced a letter-writing campaign, successfully gotten their legislators in favor of reform (including Senate President Steve Sweeney).

In addition to all this effort, Kingsway is suing the State of New Jersey for fair funding with a demand that Adjustment Aid be eliminated.

And to this basic demand for Justice the Education Law Center SHOUTS NO as part of its staunch defense of aid hoarding (aka "Adjustment Aid.").

Rather than even respecting Kingsway's anger, the Education Law Center mocks Kingsway, comparing it to a dog.



And then virtually celebrating the (technical) rejection of Kingsway's case by the NJ Supreme Court:

I've said before the Education Law Center and its chief David Sciarra were reactionaries, but I didn't realize they were such assholes.


Tuesday, February 14, 2017

SFRA Was Never Fully Funded

One of the most pernicious myths about the School Funding Reform Act is that it was fully funded in its first year, 2008-2009.

This myth is spread by the Education Law Center
NJ’s weighted student funding formula – codified as the School Funding Reform Act (SFRA) – stands as a national model of state public school finance. But the formula has not been fully funded since its first year in law (2008-09), and was cut in 2010-11 by Governor Chris Christie.

Including from Paul Tractenberg himself:

Tractenberg said the current state funding formula under the School Funding Reform Act has only been fully funded once under Christie. That's the real problem that should be addressed, he said.

and picked up by many journalists.

Example, Meir Rinde of NJSpotlight

The formula was run and funded for one year. Then the recession hit, Christie was elected, and he cut education aid overall by $1 billion (though half of that was eventually restored to Abbott districts).

“The school funding formula that is written into law has only been fully funded once in the last seven years.”
And even the state legislature:
WHEREAS, While the SFRA was used to distribute State school aid for the 2008-2009 school year, since then the SFRA has not been fully funded and its provisions which lay out a constitutional pathway for the distribution of State school aid have been ignored and overridden;
However, SFRA was never fully funded in a real sense because in that first year districts were only funded at their Capped Aid levels.

It's rarely explained, but SFRA contains a cap in the amount of aid an underaided district can gain in a single year, either a 10% boost if the district is above Adequacy or a 20% boost if the district is below Adequacy.

From the statute itself:
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. 

Due to the existence of these caps, there is a difference between the statutory full funding of SFRA and the real full funding of SFRA, which would be funding every district at uncapped aid.

In 2008-09, yes, every district was funded at its Capped Aid level, but there was a $1 billion funding deficit between actual aid and uncapped aid, which, again, is the real demographic-economic aid level for districts.

I got these data from the Department of Education via an OPRA request and have put the Actual Aid vs Capped Aid data online.

Let's look at Clifton as an example of how the State Aid Growth Limits (aka "caps") reduce a district's aid:

SFRA's formulas looked at Clifton's enrollment and tax capacity and determined Clifton should get $55,999,000, which would have been $5300 per student.

But what did Clifton actually get in 2008-2009, the year SFRA was "fully funded"?

$27,374,845.

Which is only $2,600 per student.

$27 million is actually 40% higher than Clifton's 2007-08 aid of $19 million, so I admit I don't know quite was going on here, but I know 

$27,374,845  $55,999,000.

And there are 278 districts that were, like Clifton, not fully funded in 2008-09, despite so many groups and journalists saying they were.

These are just the largest deficits in absolute terms:

The data I received from the DOE had errors for certain districts which I have removed from this graph, and yet reappear in the original source material:
http://bit.ly/2knaI6K

River Edge was the most underaided in NJ in percentage terms, getting only 19% of its uncapped aid. Northvale, Clinton, and Chesterfield also in the bottom four.

In that year Manchester Regional was the most underaided in per student terms, with a $5,300 per student deficit.

Overall, in that year there were 44 districts who got less than 50% of their uncapped aid, which is better than now, when 141 districts get less than 50% of their uncapped aid, but still, this means that many districts were still underaided even when SFRA was statutorily followed.

So, again, in 2008-2009, SFRA was fully funded in a statutory sense, but not a real sense.

The total cumulative deficit for the 279 underaided districts that year was $1.05 billion (not counting vo-techs).

Adjustment Aid was $850,612,518 ($948 million with inflation) that year so the net deficit appears to have been smaller then than now (It is now $1.4 billion in 2016 dollars, counting vo-techs), but when so many districts were still in 2008-09 substantially underaided, it's wildly inaccurate to say that "SFRA was fully funded in its first year."

Here's the bottom line:

New Jersey, going back to the 1970s, has always struggled to fully fund its aid formula.

Since the Great Depression, New Jersey's fiscal situation has never been worse, nor its economy more slowly growing.

New Jersey did not fully fund SFRA in 2008-09, and our oncoming pension depletion, stagnant economic growth, and the high spending targets of SFRA make fully funding SFRA now unrealistic unless the Democrats were to pass tax increases much larger than they have ever hinted at.

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Tuesday, February 7, 2017

2017-18 Looks Like Another Bad Year for State Aid


State Aid is Zero-Sum.
Accept It


Gentle Reader, we do not know if Christie will allow any state aid redistribution, will flat-fund all districts yet again, or even attempt to implement his so-called "Fairness Formula."

But one thing we can rule out is any significant increase in state aid as indications mount that it will be another bad year budgetarily for New Jersey.

The State Treasury created the FY2017 budget with an expectation that revenue would increase by 3.6% (which is $1 billion), but 3.6% isn't happening.

In December 2016, the Treasury said that revenues were only up by 2.1%.

In January 2017, things are worse, with the Treasury saying that revenues are only up by 1.7%.

These numbers are for FY2017 and FY2018 could be better (especially if people start taking more capital gains), but we are below where we forecasted ourselves being at this time last winter.  Persistently low revenue also makes Fitch and Moody's more likely to follow S&P in downgrading our debt, which will mean higher borrowing costs for New Jersey.

And even in good years, growth in the PHD costs of Pensions, Healthcare, and Debt exceed or equal New Jersey's revenue growth.



On top of low revenues so far, the tax cuts for the Transportation Trust Fund will start to eat into revenue and the state must reserve more money to make quarterly pension payments.

I'll let real experts ascribe causation to NJ's bad revenues and forecast FY2018, but I know this: Things Look Bad and the NJEA/Education Law Center's demand "Just Fund the Formula" is more ridiculous than ever.
Adjusted for Inflation, New Jersey's Quarter Revenues are
Still Lower than They Were Pre-Recession
Source: Pew Fiscal 50


And for anyone who thinks this mess is entirely Christie's fault and things will get better after we have a new governor and higher taxes, look at Connecticut, whose FY2018 deficit is yet again 8% of state revenue. ($1.5 billion out of $19 billion)

What this means we have to fight even harder for redistribution because fairness isn't going to come through new spending.

Sorry everyone, but ZERO-SUM RULES.  We have no choice but to redistribute state aid.






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