Wednesday, March 29, 2017

The Tide is Turning: Even Education Law Center Accepts Cuts to Adjustment Aid

For years, the Education Law Center has opposed any cuts to Adjustment Aid and insisted that any relief for underaided districts must come from increases in overall spending on K-12 aid.

In October 2015 the Education Law Center published a lengthy defense of Adjustment Aid called "The Facts on Hold Harmless Aid" that attempted to make Adjustment Aid look far more progressive than it is.

The introduction to this report began with a frequent ELC call to fully-fund SFRA without cutting any district's Adjustment Aid: 
“The goal of this policy brief is to clear up common misconceptions about hold harmless aid in the SFRA formula. Much of this aid is used to support the adequacy budgets of districts that are unable to, or restricted from, raising those funds themselves,” said Danielle Farrie, ELC Research Director and policy brief co-author. “It’s time to focus on the key task at hand – getting back on track to full funding of the SFRA to make sure all students receive the resources they need and a meaningful opportunity to succeed in school.”
Over the next year, the Education Law Center repeatedly reiterated its opposition to cutting Adjustment Aid for any district.
The ELC couldn't even use the term "over adequacy" without quotes, like it is not a real concept.

The ELC named Jersey City (!!!) specifically as a district it didn't want to see lose aid.


What the ELC ignored is that JC and many more under-Adequecy Adjustment Aid districts,  insufficient local taxes are the reason they are below Adequacy, and sustaining their Adjustment Aid is rewarding them for their refusal to tax themselves.  

And in February 2017 the Education Law Center mocked Kingsway Regional's new lawsuit to have Adjustment Aid declared unconstitutional, saying Kingsway Regional was "barking up the wrong tree."  After the NJ Supreme Court dismissed Kingsway's suit, the Education Law Center celebrated on Twitter.

Something has changed...

Perhaps Steve Sweeney's fight for aid fairness and the grassroots demands for justice have persuaded the ELC that Adjustment Aid is unjust and not defensible any longer, because now the ELC is accepting losses of Adjustment Aid from any district, as long as all below-Adequacy districts are required to make up for the lost state aid with local taxation.

From March 2017:

There is no mystery why districts are spending below T&E: they have gaps in state aid or local revenue or some combination of both. It’s important to recognize that about two-thirds of adjustment aid goes to districts that are spending below T&E because of shortfalls in local revenue. Therefore, if adjustment aid is simply reduced in these districts, children may be harmed if the aid reduction is not replaced with a commensurate increase in local revenue. 
Any formula modifications should address the three causes of spending below the T&E level: 1) increasing aid in districts with a “state aid gap;” 2) increasing local revenue in districts with a “local revenue gap;” and 3) increasing both in districts where the gap is a combination of the two. If Adjustment Aid is to be reduced in any of these districts, it must be coupled with a State mandate that local revenue be increased by, at a
minimum, the amount needed to replace the adjustment aid reduction. 
And just to be clear: the State has to require local revenue increases from year to year in districts below T&E with local revenue gaps. The decision to increase revenue to shrink that gap cannot be left to the discretion of local elected officials or to a “waiver” process before the Commissioner of Education.

The ELC even made this unprecedented statement recognizing that New Jersey has fiscal limits.
We understand the constraints on the State Budget and the many competing priorities facing the state. But quite frankly, an eighth straight year of diminished resources essential for children to learn and thrive is unthinkable. ELC stands ready to work with you to enact a fair and equitable budget for all students. 
I think what aid-losing districts do with their taxes is their democratic discretion, but whatever, any acceptance of cuts to Adjustment Aid from the Education Law Center is welcome and surprising news.

This also might signal a shift in the NJEA's position, since ELC stances can be interpreted as NJEA stances due to the NJEA's large financial support for the Education Law Center and its having two representatives on the ELC's board.

We have a long way to go, but the tide is turning!
----


Sunday, March 26, 2017

Why NJ Can't Wait Until the Next Governor to Change State Aid

NJEA President, Wendell Steinhauer

After it became public that Chris Christie, Steve Sweeney, and Vincent Prieto were having some private conversations about state aid reform - and had actually would have met on Wednesday, March 15th if a snowstorm hadn't intervened - NJEA President Wendell Steinhauer released an op-ed demanding that any changes to state aid wait until New Jersey's next governor takes power.

Here are the most important parts of "Leave School Funding to the Next Governor":


Now the same governor who robbed public schools of $8 billion over seven years wants to move at break-neck speed to blow up SFRA, which is New Jersey's best hope for restoring fairness and adequacy to school funding. 
Here's why that should not happen under this governor.....
The governor is now audaciously using his neglect of SFRA to say we need a new formula. We don't. We need a transition back to the sound funding formula we have.

That's not something the governor and legislative leaders should cook up in a back room over the next 100 days -- as the governor has suggested. ... 
New Jersey should follow a similarly thoughtful and deliberative process for reviewing the current aid formula and recommending reasonable adjustments. That should include an honest look at the adverse financial impact that charter schools have on host district schools and ways to alleviate that harm. It must also create a pathway back to implementation and full funding of SFRA. 
We should not abandon the notion of a formula, as Christie has proposed, or pit students and communities against each other in a fight over inadequate resources, as some other funding "reform" proposals being floated would do. Instead, we must live up to the promise of SFRA to provide every student in every community the resources needed for the thorough and efficient public education our constitution promises.

There are several parts of this I disagree with (and think are factually wrong), but I'll focus on Steinhauer's major point that we must wait until 2018 (at the earliest) to address school funding.



  1. The FY2018 budget process is not completed, so it is possible that a deal made now could mean help for certain districts 2017-18.
  2. If we wait until winter 2018 and the new governor  it's possible that new aid could be distributed fairly, but even if the new governor were inclined to accept some redistribution, it would already be too late for redistribution for the 2018-19 school year since the aid-losing districts would have so little time to prepare.
  3. There is no guarantee that Steve Sweeney will remain as Senate President after this year and his replacement might not prioritize state aid as much, might support Adjustment Aid, or might not understand the problems of SFRA as well.


Don't Give Up on 2017-18 Yet (or 2018-19 either)

I agree with Steinhauer that Chris Christie has been a bad for New Jersey and state aid.  He's been a disaster in progressive terms for ignoring districts in acute financial need; he's been a disaster in conservative terms by making no attempt to update the Abbott list or pare back the most extreme Abbott privileges, like the lack of means-testing for PreK and 100% state construction funding.

Yet, it would be a huge mistake for New Jersey to miss this chance at reform.

Steinhauer is rejecting sight-unseen a proposal that doesn't even exist.  It's possible that Christie will follow his recent (post June 2016) history and dig his heels in for something like his "Fairness Formula," but if that's the case, why worry? since Sweeney, Prieto, and the legislature would never agree to that.

Christie cannot "blow up SFRA" unilaterally and Steinhauer knows it.

Although Christie has been at his worse on state aid since June 2016, previously Christie was more erratic, even good at times.  When Christie rebuilt school aid after the 2010 aid cuts he basically followed SFRA's principles.  In 2012 Christie's Department of Education actually endorsed halving Adjustment Aid for districts that are above Adequacy and for 2012-13 Christie actually did redistribute $40 million in Adjustment aid.  In the 2016 Education Adequacy Report, Christie's Department of Education recommended lowering the weights for at-risk students, but it did not remotely suggest that all districts have equal spending or equal state aid.

In 2016 Christie also came through for Freehold Boro and had his DOE agree to give $25 million for expansion costs, even though as a non-Abbott Freehold Boro had no legal standing to demand this money.

I'm not letting Christie off the hook.  His method of cuts in 2010 - in which every district lost aid equivalent to 5% of its budget regardless of it being overaided or underaided - is unforgivable.  Christie's refusal to redistribute aid for the 2016-17 and 2017-18 aid cycles is terrible too, since there was legislative support for doing so.


So Christie is terrible overall, but there are glimpses of common sense in his record too. Christie-Sweeney-Prieto process should be given a chance to produce something decent.  If they can't agree or their proposal is bad, reject it, but don't reject something that doesn't yet exist.


So what's Steinhauer's real worry?  And what should our worry be about waiting until 2018?

First, Steinhauer hates Steve Sweeney in the first place over Sweeney's support for pension reform, but second, his policy worry is that Christie will agree with Sweeney to cut Adjustment Aid and then pressure Vincent Prieto to go along.

 The NJEA is strongly against cutting Adjustment Aid, denouncing the concept as "divisive" and that would "pit students and communities against each other in a fight over inadequate resources."

The NJEA, rather than seeing the stark differences between Sweeney's proposal and Christie's "Fairness Formula," see's Sweeney's proposal as "the lesser of two evils."

[NJEA Vice President] Blistan criticized two competing school funding proposals, one from Gov. Christie and one from Senate President Steve Sweeney that purport to address problems with school funding. Both proposals would reduce funding to hundreds of thousands of students. While Christie’s proposal is more draconian, Sweeney’s would reduce aid to approximately 715,000 students across the state. Both proposals would pit communities against each other and reduce funding too. Blistan was adamant that “choosing the lesser of two evils is not acceptable here.” She urged legislators to support a proposal championed by Assembly Speaker Vincent Prieto that would preserve the existing formula while also studying it to determine where it could be more effective.

The NJEA also gives the Education Law Center a third of its funding too and has two members on the ELC's board, so the ELC's staunch opposition to cutting Adjustment Aid must also be interpretted as an NJEA stance.

So the NJEA is against reform too, even though it screws over the majority of NJEA affiliates and NJEA members who live in underaided districts.

Although it's difficult to make predictions for what Christie, Sweeney, & Prieto might actually agree on, we cannot afford to reject a proposal that hasn't even been made and that we are months away from even seeing.

Perhaps my optimism dies hard, but part of a deal could be an increase in K-12 aid for 2017-18 and that money could be channeled through a formula and go where it's needed most.

And even if there is no help for 2017-18, I want a fair framework in place for 2018-19.

Murphy with NJEA Leadership
2.  Phil Murphy is a Utopian, Not a Realist

Murphy rarely talks about state  and when he does, he shows no emotional feeling about how bad the crises are in many districts, even though Murphy strongly reacts against most of Christie's other misdeeds and accuses Christie of quite a bit Christie isn't responsible for.

Murphy also says inaccurate things about how SFRA even works, like a claim that it has extra weights for kids from single-parent families.  Like the NJEA, he also uses the misleading Capped Aid deficit, which is $1 billion instead of $2 billion.

In his August 2016 interview with Larry Mendte, Murphy refused two point-blank questions on whether or not he would redistribute aid and more recently in Murphy's endorsement of Steve Sweeney for the LD-3 Senate seat, he did not endorse Sweeney's Senate Presidency, nor did he mention state aid as something that he and Sweeney had in common.

I am pleased to endorse Senator Sweeney for re-election, and look forward to running together on a platform of growing our middle class and creating a new economy based on innovation, good-paying jobs, and fairness for workers — including equal pay for equal work.

Steve and I share many of the same goals for the years ahead: raising the minimum wage, repairing our dangerously outdated infrastructure, creating ‘green’ jobs in the alternative energy field, and fully funding Planned Parenthood and ending Chris Christie’s politically motivated war on women.

I look forward to working with Steve to make New Jersey a state that once again works for all of us.”
The fact that Murphy doesn't mention what has become Sweeney's signature issue is very revealing in my opinion.  Murphy could change, but so far, everything indicates that Murphy will defer to the NJEA on funding and preserve aid hoarding.

I'm sure that the most severely underaided districts would benefit under Murphy, but since NJ is not going to have the (at least) $2 billion it would take to fully fund SFRA, that means that NJ will still have a situation where districts get 150%, 200%, even 1000% of what they are supposed to get while others are significantly underfunded.

3.  Sweeney May Not Remain Senate President

We in the general public never really find out how someone becomes a legislative leader or how much longer someone will be in that post, but various NJ political websites like PolitickerNJ do speculate that Sweeney could be forced out of the Senate Presidency.

The NJEA is openly vowing that it will do everything in its power to defeat Steve Sweeney for the Senate, or failing that, as Senate President:

“We’re looking for a new governor and a new Senate president,”

For the last two years Steve Sweeney has been, without peer, the state's #1 champion for fair aid.  Our movement has no money behind it, nor any institutional support like from the NJ Policy Perspective.  The NJ School Boards Association is neutral and the Garden State Coalition of Schools is ineffective.  The Superintendents Association, led by Patrick Fletcher and Ken Greene, has been very vocal, but other than them, it's just Steve Sweeney.

It's possible that the next Senate President could also be in support of reform.  Paul Sarlo is sometimes spoken of as a Sweeney successor and Sarlo is quite good on aid.

By the same token , Vincent Prieto could be forced out too and be replaced by someone with whom Steve Fulop doesn't have "significant clout" too.

And although Phil Murphy is the frontrunner and has bottomless money plus affability, he might be defeated too and a strong reformer like Jack Ciattarelli could be elected. 

HOWEVER, there is no guarantee that either of the next Senate and Assembly leaders will support aid reform and might instead be perfectly content to allow Jersey City, Hoboken, Asbury Park's etc aid hoarding to continue forever.  They might be inclined to go along with the NJEA and double-fund districts for charter students as well, which would subtract from the aid available to other districts.

And even if the next leaders do favor reform, they might not prioritize it.

Chris Christie has already said that he has burned Steinhauer's editorial.  Let's hope that he, Sweeney, and Prieto can work out a fair plan because right now that's the only hope we've got.  

Friday, March 17, 2017

Ocean City Represents Jersey Shore Aid Hoarding

Ocean City, Cape May:
Huge Tax Base + Substantial
State Aid
= Life is Good
Across New Jersey, hundreds of districts are struggling with budget cuts they never would have imagined having to make only a few years ago, but unable to prevent those cuts due to tapped out taxpayers.

From the largest districts, like Newark, which faces a $30 million deficit and Paterson, which faces a $20 million deficit, to medium-sized districts like Egg Harbor Township, which faces a $6.6 million deficit and the loss of other 40 staff members, to small Chesterfield, which faces a $500,000 deficit on a Total Operating Budget that is only $9.6 million.

Yet, there are some notable exceptions to this rule of sacrifice and austerity and this blog post is about one of those exceptions, Ocean City.

Like the rest of the state, Ocean City isn't getting any aid increase, but it only needs to increase taxes by 0.1%, or $5 per household, to avoid any cuts at all.  Whereas New Jersey's average school equalized tax rate is 1.3, Ocean City's is only .215.

The lack of a real tax increase isn't because of any kind of managerial genius by Ocean City's business office, it's because Ocean City was able to save over $2 million from the previous year and Ocean City's tax base is absolutely enormous relative to its (falling) student population.  A .1% tax increase for Ocean City brings in $1.2 million. 

Ocean City's example of budgetary abundance amidst an "ocean" of deprivation isn't alone.  There are many other districts at the Jersey Shore like it.  Avalon, Stone Harbor, Cape May Point, Allenhurt, Sea Isle City, Longport, Long Beach Island, Beach Haven, Seaside Park, Spring Lake, Lavallette, Bay Head, Sea Girt, Cape May City, Deal, Margate, Interlaken, and North Wildwood all possess over $60,000 in Local Fair Share per student.

Although a great deal of attention is (rightfully and necessarily) focused on Jersey City, Hoboken, and Asbury Park as aid hoarders, Jersey Shore districts ought to get some scrutiny too.

Like Hoboken, these Jersey Shore districts tend to have poorer students, but their enrollments are so small and their tax bases so gigantic, that these districts have no need for any state aid whatsoever, let alone their Adjustment Aid.

Ocean City's Equalized Valuation per student actually exceeds Hoboken's and dwarfs that of any affluent suburb, such as Millburn.

For 2016-17, Ocean City's Equalized Valuation was $11.6 billion, the sixth highest in New Jersey, but it only had 1,447 students.  Hoboken, by contrast "only" had $13.3 billion in Equalized Valuation for 2,600 students.  Ocean City's school tax rate is thus only 0.2, meaning the average homeowner with a $500,000 property only pays $1,000 in school taxes.   Yet that minute, 0.215 tax rate produces over $15,000 per student in local taxes.

Despite that enormous tax base, Ocean City receives $3,787,076 in state aid, or $2,617 per student.

With that large local tax contribution plus state aid, Ocean City's student spending is $17,869 per pupil, although unlike an Abbott its students are not particularly poor (they are 19% FRL-eligible, 2% ELL).

The example of Ocean City also underscores how misleading the Education Law Center's 2015 policy brief on Adjustment Aid was, "The Facts On Hold Harmless Aid."

That report took the (out-of-date) DFGs and used "low-DFG = low-wealth,"middle-DFG = middle-wealth" when the DFG classifications are socioeconomic, not tax base.

According to Danielle Farrie of the Education Law Center, a district like Ocean City would be "middle wealth," since its in DFG DE but, as you can see, calling Ocean City "middle wealth" is totally irrelevant when it comes to state aid.  Ocean City has very few students relative to its tax base and even if they were all in poverty, there is no justification for $3,787,076 in state aid while New Jersey is in fiscal crisis and so many hundreds of districts are budgetarily desperate and/or overtaxed.
Sen. Jeff Van Drew
(Democrat, Dist. 1):
Are other places in NJ
in budget crisis?
What a pity.  

What's more, Ocean City's DFG DE classification makes no sense based on its current student demographics.  As mentioned above, Ocean City is only 19% FRL eligible and 2% ESL.

So Ocean City represents the problems of Adjustment Aid, but also the problems of SFRA, since a district like Ocean City has no need for any state aid and the state is bankrupt.

Ocean City and the rest of Cape May's aid hoarding is also a political problem for reform, since Ocean City's State Senator, Jeff Van Drew, is anti-reform and was one of six Senators to vote against Steve Sweeney's state aid reform proposal, saying, “I believe there is a huge potential in the direction that the new commission would go not to hold them harmless anymore. It would be a very significant blow."

Based on Van Drew's opposition, it's likely Cape May's Assemblymembers are anti-reform too.

Ocean City also represents the wrongness of the Education Law Center's defense of Adjustment Aid.

Adjustment Aid rarely goes to genuinely needy districts.  It is privilege, not equity.

Update: Hoboken's budget picture is also excellent.







Tuesday, March 14, 2017

Estimating Local Fair Share for 2017-18


Update: Local Fair Share, Capped Aid, and Uncapped Aid are now available

The following is moot.



After the Department of Education came out with 2017-18 state aid proposals I made an OPRA request of the Department of Education for 2017-18 Uncapped Aid and Local Fair Share.

I wanted Uncapped Aid so I could see what the total deficit is for the underaided districts, see what districts are the most underaided, see the total surplus for the overaided districts, and see what districts are the most overaided.

I wanted Local Fair Share so I could see whose taxes are the heaviest, whose taxes are the lightest, and what the median district in New Jersey pays.

I did not request Adequacy Budgets because spending relative to Adequacy is also determined by local tax effort and a focus on whose spending is above and below Adequacy can distract from state aid fairness.  Also, Adequacy Budgets are embedded into the calculation of Uncapped Aid anyway.

To my disappointment, the Department of Education said it did not calculate Local Fair Share and Uncapped Aid for 2017-18.  They did not give a reason, but my conjecture is that it was Christie who made the final decision not to bother with even the hypothetical operation of SFRA.

Nevertheless, the Department of Education did send me the components of Local Fair Share, which are Equalized Valuation (from the previous fiscal year, so 2016) and Aggregate Income (from three  years previous, so 2014).

The formula for Local Fair Share changes year to year, but by plugging in Equalized Valuation and Aggregate Income figures into the 2016-17 formula, I can ESTIMATE 2017-18 Local Fair Share and compare district tax bases.

This is the (first) formula for Local Fair Share used in 2016-17:

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

To see more about changes in Equalized Valuation between FY2016 and FY2017, please see this post of mine.

As usual, I've put the data online here.  2016-17 data, to which I make comparisons, is available here.

Yet again, these amounts are ESTIMATES - especially the year to year comparisons - since I have no idea what the multipliers should be in the 2017-18.



On the other hand, the relational comparisons between different towns should be very solid, since I am applying the same multipliers to every district for 2017-18.  If these calculations show that Hoboken's Local Fair Share is New Jersey's third highest at $195 million, I'd be surprised if the DOE's calculations give any different ranking, even if the exact Local Fair Share turns out to be something other than $195 million.

Hopefully the legislature will pressure Department of Education to simply run the formula so that the public may have a more informed conversation about state aid.

Anyway here goes:

  • Jersey City's Local Fair Share would increase by another $20 million to $353 million.  This is powered by a $4 billion increase in the Equalized Valuation  (to $25.7 bil) and a $502 million increase in the Aggregate Income (to $8 bil).

    Jersey City's Local Fair Share appears to be now 76% larger than the next largest district's, which is Edison at $200 million.  For 2016-17 Jersey City's Local Fair Share was "only" 60% larger than Edison's.
  • Hoboken's gained $1.8 billion in Equalized Valuation and $357 million in Aggregate Income.  Whatever the exact  Local Fair Share formula ends up being, Hoboken's Local Fair Share would likely be around  $195 million and be the third largest in New Jersey, after Jersey City and slightly behind Edison.  This year Hoboken's Local Fair Share surpasses Toms River's.

    Hoboken's 2016-17 tax levy was only $42 million, so for 2017-18 Hoboken's taxes will be barely a fifth of Local Fair Share

    For the last year pro-reformers in the legislature have pushed to eliminate Adjustment Aid, but there are certain low-student population districts such as Hoboken, some wealthy enclaves like Alpine and Harding, and many Jersey Shore resort towns who have no need for any state aid whatsoever.  
  • There is also increases in other Hudson County towns, powered by non-Hoboken/non-Jersey City Hudson County's $5 billion increase in Equalized Valuation.  West New York's would be $4 million larger, driven by 10% increases in Equalized Valuation and Aggregate Income.

    Union City, Bayonne, North Bergen, Harrison, Kearny, and others would have small increases (the small increases might be smoothed away if the DOE actually ran the formula)
  • Asbury Park's Local Fair Share would actually shrank (by a tiny amount). That's outrageous, since Asbury Park is undergoing a building boom. Asbury Park is just as much an example of the exploitation of the PILOT law as Jersey City is.  
  • Atlantic City's Local Fair Share fell by another $13 million, from $65 million to $52 million.  This is due to the loss of another $2 billion in Equalized Valuation and $8 million in Aggregate Income.

    Atlantic City's school tax levy for 2016-17 was $82 million, so Atlatic City's taxes may be 157% of Local Fair Share.

  • Manchester Regional's taxes are likely the state's highest again.  My estimate is that Manchester Regional's Local Fair Share is only $4.9 million, so the $10.9 million (which falls disproportionately on Prospect Park and Haledon due to Manchester Regional's unique tax-apportionment scheme) is absolutely brutal.
  •  
  • Newark's Local Fair Share may have grown slightly, by $6 million, from $161 million to $167 million. (Newark's actual tax levy is $123 million)
  • Paterson's Local Fair Share may have grown slightly too, by $3 million, from $85 million to $88 million (Paterson's actual tax levy is only $41.5 million)

Again, the above figures are only ESTIMATES, but I hope this post generates discussion, particularly regarding Hoboken and Jersey City's state aid and the acute tax crisis in Atlantic City.

Please ask your legislators to demand that the Department of Education do these calculations for real.

At the very least, we have to know  what the total deficit is for the underaided districts.  For 2016-17 it was $1.93 billion, which is far beyond any realistic tax increase.  This deficit number is a critical point in the argument for why redistribution is necessary.

----

See Also:

Thursday, March 9, 2017

Jersey City's Tax Abatements Hurt Jersey City Too


The March 8th Jersey City City Council meeting was one of the most "festive" in recent memory as over 20 Jersey Cityans came to the meeting to throw a party in honor of the 70th PILOT of Steve Fulop's term.  (see this for a video story)

March 8th Protest, Jersey City
The party featured hats, balloons, brightly painted signs that said "Builders:70, Children:0," and even an "Abatement Cake of Shame." Along with the mock giddiness, there was a real message: Steve Fulop was ripping off the school system.

In response to protest, Jersey City's City Council members made several defenses of their pro-abatement policy, such as that development would not occur in the poorer sections of Jersey City without abatements and that the abatements were usually only for five years only.

I don't necessarily disagree with those arguments, but Councilwoman (and Fulop ally) Candice Osborne made an argument that Jersey City actually came out ahead in tax abatement deals. Osborne even said she had a "mathematical model" to prove it.  (See 2:49:30)

When it comes to the funding for schools. I have gone though the numbers multiple times and I've said this many times...The math to me makes sense for both the people getting the abatement as well as traditional taxpayers - because of the state aid. 
I have a model. I would love for someone to tell me I'm wrong. Point out where I'm wrong. When I look at it, it makes sense for us to give the abatements. Financially.

Though Osborne never got around to explaining her "mathematical model" at that meeting, on other occasions she and other Jersey City politicians have made the argument that PILOTs are a net-positive for Jersey City, so I know what the argument is supposed to be.  The argument is that 95% share of the PILOT fee for municipality means that municipality would have more money than it would through through normal taxation, even though the PILOT fee is less than normal taxes would be.

But this is such an incomplete look at Jersey City's taxation that it's wrong because Jersey Cityans have to make up for all of the lost school and 36% of the lost county taxes.

Unless the abatement fee exceeds 86.1% of what a development would pay under regular taxation or the abatement truly is a "but for" component of financing for the development, Jersey City's taxpayers are net losers in any abatement deal, even under the state aid status quo.  (the math is below)

And since Jersey City's PILOTed buildings only pay 60% of regular taxes ($127.8 mil out of $212 mil), they are coming out behind.

Here's why: 

Based on what other Jersey City politicians have said, this is what Osborne's argument probably is.  

In Jersey City under normal taxation, the municipality gets 49.1% of the money, the school board gets 25.8%, and Hudson County gets 25.1%.  

Under (long-term) PILOT fees, however, the municipality gets 95% of revenue, the school board gets 0%, and Hudson County gets 5%.

Since the municipality gets such a higher percentage of PILOT fees than regular taxes, it's possible to structure a PILOT deal so that the municipality alone comes out with more money than it would otherwise have.

Since Jersey City's municipal government "only" gets 49.1% of regular taxes, if the PILOT fee exceeds 51.7% of regular taxation, the municipal government comes out ahead, since 95% of 51.7% equals Jersey City's normal 49.1% share of taxation.

(Jersey City's county taxes would also be offset slightly by the 5% to the county, but I have not considered that here.)


But municipal taxes aren't the only taxes that Jersey City taxpayers pay.

Like everyone else, they pay school taxes and county taxes.

And since the school district and Hudson County get so much less money than they would under normal taxation, other Jersey City taxpayers have to take up the slack.

The direct and clearer loss to Jersey City taxpayers is through the complete loss of school taxes, but, as we will see, there is also a substantial loss of County taxes that Jersey Cityans have to make up for.  

FIRST, for school taxes, since the Jersey City BOE gets 25.8% of total taxation, the combined municipal+school tax share in Jersey City is 74.9% (49.1% + 25.8%).

So, before we even consider the loss of county taxes, the threshold that a PILOT fee would have to clear to be net positive is 78.9% (74.9 = 95% of 78.9)

78.9% of regular taxes is much higher than Jersey City's average PILOT arrangement, and even this raw calculation excludes the impact of the new residents, students, or workers at the PILOTed property.  I assume the marginal costs to the municipal government are low, but the costs aren't zero either. I don't know how many K-12 kids would be in a residential PILOTed building, but likewise, it isn't zero.

SECOND, even that 78.9% amount excludes the loss of Hudson County taxes, for which other Jersey City taxpayers have to make up 36% of the losses.

This is a more complex assessment, but what Osborne is ignoring is that Jersey City taxpayers pay 36% of Hudson County taxes (based on JC's having $25.7 billion in Equalized Valuation against $71.4 billion for all of Hudson County).

So any exclusion of property from county taxation has to be made up for by other Hudson County taxpayers and 36% of Hudson County's money comes from Jersey City anyway.  True, people elsewhere in Hudson County pay the majority of Hudson County taxes, but Jersey City's share is substantial and must be factored into any assessment of the net-fiscal benefits of PILOTs.

In other words, for every $1 million in taxes that Hudson County loses to PILOTing, Jersey Cityans themselves would make up for $360,000 of that loss.

The Jersey City City Council evidently thinks that ripping off Hudson County is good for it because instead of sending 25.1% of tax revenue to Hudson County it only has to send 5% of PILOT revenue, but  36% of the 20.1% of lost county taxes is paid for by Jersey City anyway.

Since 36% of 20.1% is 7.2%, it's necessary to add another 7.2% to the 78.9% municipal+school break-even point, bringing us up to an 86.1% break-even threshold.

An Example

To give an example, if a property would pay $5 million in taxes, normally Jersey City municipality would get $2,455,000, the school district would get $1,290,000, and Hudson County would get $1,255,000.

So, of this amount, Jersey City taxpayers would directly get $3,745,000 offset from their school and municipal taxes.

Jersey City doesn't get the whole benefit of the $1,255,000 offset to Hudson County taxes, but it gets 36% of that, or $451,800.

$3,745,000+$451,800 = $4,196,800.

Now let's compare this to the same property but has a PILOT deal that requires it to pay 85% of regular taxes, or $4,250,000, which is extremely close to the 86.1% break-even point.

Of that $4,250,000 amount, the municipality gets 95%, or $4,037,500 and Hudson County gets 5%, or $212,500. The offset to Jersey City's county taxes is 36% of that $212,500 PILOT fee, or $76,500, so Jersey City's net benefit is $4,114,000

That's a substantial amount, but $4,114,000 is less than the $4,196,800 benefit it would have gotten from full taxation.  

So even at 85% of regular taxation and neglecting the costs of new residents/workers/students, Jersey City loses.

Jersey City Thinks that Since Hudson County is Hurt More than Jersey City, that Jersey City Isn't Hurting Itself Too

Right now Jersey City's PILOTs are (estimated) 14% of Hudson County's official Equalized Valuation ($11.6 billion out of the $71.4 billion total), so every Jersey City taxpayer's county taxes are 14% higher than they would otherwise be due to so much Jersey City property being PILOTed.)

Does Osborne consider this?  14% is not a trivial increase.  It means $50 million in higher county taxes for everyone in Hudson County, a significant share of which comes from Jersey City itself.



The Exceptions to PILOTs Hurting Taxpayers

The only time I think a PILOT would be a real fiscal benefit to a town is if the abatement is a truly a "but-for" component of financing. If a development honestly wouldn't get built without the tax abatement, then the PILOT deal would be a net positive, since the PILOT fee of the new, larger building would likely exceed the taxes paid by the existing, smaller building.

HOWEVER, even this "but-for" argument is time-sensitive. Perhaps a development project wouldn't "pencil" now, but perhaps it would in five years? Journal Square might have been economically marginal for developers a few years ago, but is it now? I think not.  Although a but-for PILOTed development might accelerate growth, it's possible that that growth would arrive without abatements if the neighborhood had a few years.

Also, there might be non-quantifiable benefits in granting a PILOT if it enables some kind of historical preservation, superior architectural quality, or other services from the developer.

So, unless the abatement truly is a but-for factor, or if the building is an architectural treasure, Jersey City's PILOT addiction causes other Jersey City taxpayers to pay higher taxes than they would otherwise or not get any positive externality either.

The Spectre of State Aid Redistribution

If SFRA is followed, the flat aid will last forever,
not just for a few years. (The chart refers to 2015 because
I'm recycling this graph from a previous post.)
HOWEVER, the above calculations don't factor in state aid and fact that even if Adjustment Aid is preserved, Jersey City will not gain any state aid for decades and therefore have to pay for an increasing share of its school budget through local taxation.

The Jersey City Public Schools have a Total Operating Budget is $570 million (for K12).

 Since education inflation is 2-3% a year, the school budget should increase by $11-$17 million per year to avoid cuts.

Since Jersey City is already overaided, it will never gain state aid, so that whole $11-$17 million increase has to come from Jersey City's own taxpayers.  Since Jersey City's school levy is only $114 million, that means that Jersey City has to accept 10-15% tax increases, even though over a third of Jersey City's property won't pay a cent since the property is PILOTed.

Also, there is the likelihood that Jersey City will lose its Adjustment Aid.

In the scenario of lost Adjustment Aid, Jersey City's City Council might support PILOTing because they think that a PILOTed property is "invisible" to the formula for Equalization Aid, but this is only half right.

Only a non-residential PILOTed property is invisible to the formula for Equalization Aid; a residential PILOTed building is only "half-invisible" to the formula for Equalization Aid, since Local Fair Share is based partly on Aggregate Income and the incomes of PILOT residents count towards Aggregate Income.

So, let's say that a PILOTed luxury residential building has 1,000 adults living there. Can you make a guess what  Aggregate Income would be? It could be $100 million.

Since the formula for Local Fair Share requires towns to pay 2.3% of income in school taxes, that means that for every $100 million of income by PILOT residents, Jersey City's Local Fair Share increases by $2.3 million. (FYI: for formula for Local Fair Share in 2016-17 2.3% of Aggregate Income plus .65% of Equalization Valuation).

Lost State Aid = High School Taxes for the Owners of Non-PILOTed Property

Right now Jersey City gets about 150% of its recommended SFRA funding, but if the state started to give Jersey City only 100% of funding, it would lose state aid every time it PILOTs a building. The loss of state aid would not be as great as the loss would be if the project were unPILOTed, but at least an unPILOTed building would pay school taxes and a PILOTed building right now pays $0.

Jersey City's Boom is Real
See:
http://bit.ly/2dw1M9u
Candice Osborne evidently believes that Jersey City's state aid will never be redistributed, despite its undeniable increase in wealth.  Given gubernatorial frontrunner Phil Murphy's refusal to even mention Adjustment Aid, she might be correct, although also on March 8th Osborne and the whole Jersey City City Council unanimously voted to spend $75,000 to hire a law firm to defend Adjustment Aid, something they never thought necessary before.

March 8th, Clifton Protest
On the Same Day Osborne Acted as if Jersey
City's state aid would never be cut, 300 Clifton
Students Demanded Justice.

Whatever Murphy wants, Chris Christie is still the governor for another nine months and Christie is open to eliminating Adjustment Aid. The only thing standing between Jersey City and the elimination of Adjustment Aid might be Vincent Prieto, the NJEA, (and Christie's own overreach.)

And awareness of the savage inequalities of New Jersey's aid distribution has never been higher.  At the same time that Jersey City was odiously hiring a law firm to keep its Adjustment Aid, students in Clifton were demanding state aid justice.  Kingsway Regional's lawsuit to have Adjustment Aid declared unconstitutional also continues.

Jersey City's Board of Ed Must Raise Taxes Too

I have respect for the tax abatement protesters at last night's meeting, but technically, tax abatements hurt the taxpayers, not the school system.

This is because a Board of Education sets a tax levy, not a tax rate, and whatever tax levy it sets it automatically gets.

So if Jersey City never PILOTed anything it wouldn't mean that the Board of Ed had a cent of additional money unless the Board of Ed made the decision to increase taxes beyond 2% a year, which it hasn't done, despite the gigantic increase in Jersey City's non-PILOTed tax base.

If none of Jersey City's development was PILOTed, what would happen is that everyone else's taxes would be offset.  Non-PILOTed development anywhere doesn't automatically have any fiscal benefit to the schools.

So I'm glad to hear about the protest at the City Council meeting, but for the school system to have more money, people have to protest at the Board of Ed too and demand a higher tax levy.

(See, "Why Jersey City's new unPILOTed Skyscraper Will Help Taxpayers, Not Necessarily the Public Schools")

---

See Also:






Why Jersey City's Lawsuit Against Redistribution is a Good Sign

Mayor Steve Fulop and the Jersey City City Council have announced that Jersey City is going to hire
Up Until Now, Fulop has relied on Vincent Prieto
to block state aid redistribution.
a law firm to fight off any attempt to redistribute Jersey City's $420 million in state aid.

Before I get into why this is a good sign, let's have some backstory about Steve Fulop and state aid.

After state aid redistribution became a possibility in early 2016, Steve Fulop refused to discuss the subject in a serious way.




Fulop showed his immaturity in a series of petty attacks on Jack Ciattarelli, where when Ciattarelli said that Jersey City's economic growth indicated that its state aid needed to be redistributed, Fulop returned fire by bragging about Jersey City's economic growth.

“It’s easy for local policy makers to achieve tax reductions when the state subsidizes their services,” said the Assemblyman. “The fact is, fiscally speaking, we’re experiencing a very painful squeeze or crowding out effect with our state budget. Overly generous property tax abatements are one of the reasons why. These abatement are not only an exploitation of our state school funding formula, they are an injustice to property owners in places like Jersey City. In trying to solve the state’s problems, we need policy makers at all levels of government to take these issues seriously. In that respect, the statement issued by the Fulop camp is an embarrassment and a disservice – a disservice to the taxpayers of this state who fund Fulop’s school system.”

To which Fulop responded in a way that proved Ciattarelli's point:

“Jersey City had a tax reduction last year and just today we will adopt a budget without a tax increase. Jersey City has led the state in job creation just as we had a credit upgrade last year.

After that, Fulop switched tacks to refusing to say anything in public about state aid, but using his control over Assembly Speaker Vincent Prieto to block reform.

His comments at this point were few and far between. By September 2016, according to Jersey Journal reporter Terrence McDonald, "Mayor Steve Fulop has declined several times to comment on Christie's and Sweeney's plans" other than to say it was a " long road" to reform becoming a reality and then another ignorant statement on how SFRA works "Urban education is very complex. I don't think in certain areas parents and cities have the same means to pay as in some of the suburban areas."

Which of course is an untruth regarding Jersey City. For 2016-17 Jersey City's school tax rate was 0.47, less than half of New Jersey's 1.3 average, so certainly Jersey City can pay more than that.

Over the next few months Fulop was again silent, but he used his clout with Assembly Speaker Vincent Prieto to block state aid reform.  (even though Prieto actually represents several of New Jersey's most underaided districts)

Yet by February 2017 state aid reform had enough momentum that Fulop decided he had to say something and what he said was bullshit, claiming state aid redistribution was “clearly an attack on poorer, primarily African American, Latino and minority districts.” Fulop also gave a two-faced argument where he claimed that only Jersey City's waterfront is doing well (even though Jersey City is a single-entity from the point of view of taxation), even though Fulop constantly claims to Jersey City audiences that the whole city is thriving.

Anyway, after Steve Sweeney tore apart Fulop's arguments and Fulop's distortions were exposed again Fulop decided that what Jersey City needed to do was hire a law firm for $75,000 to fight off the redistribution of Adjustment Aid.

As Fulop spokesperson Jennifer Morrill said: "Our plan is to continue to fight for Jersey City students and residents every step of the way."

Or in other words, "if it's good for Jersey City, then screw everyone else."

Public Opposition is a Good Sign!

While many people are angry about Jersey City's litigation and blatant indifference to the fate of the rest of New Jersey, I think the litigation itself is a good sign.

Fulop never took state aid reform seriously prior to this winter.  Presumably he knew Prieto would block it.

But now that Fulop is actually speaking out against redistribution and wasting $75,000 of Jersey City's money on a law firm it means that Fulop has a fear of redistribution that he didn't have before.

We in the public have never been privy to what conversations Steve Fulop and Vincent Prieto have.  All we know is that Fulop is against state aid redistribution and he boasts "I have significant clout with the Speaker."

But if Fulop is now hiring a law firm, that means that either his control over Vincent Prieto is loosening or Prieto has told him that he isn't going to be able to block state aid redistribution much longer.

So while it's infuriating that Fulop and the City Council have this unbelievably self-interested mentality (they all purport to be progressives), the fact that they finally feel they have to fight for Adjustment Aid means that they finally take seriously the prospect of its elimination.

Jersey City City Council:
If It's Good for Jersey City,
Then Screw Everyone Else




Friday, March 3, 2017

New Jersey=Debtors' Prison: The 2017-18 Budget

Note, this post was accurate at the time it was written regarding flat-funding for K-12 operating aid.  In June 2017 Steve Sweeney pushed through a deal that did increase K-12 aid by $100 million, PreK by $25 million, and Extraordinary Aid by another $25 million.   See this update on disparities for a look after Sweeney's last-minute changes.

Everything in this post I say about categories of debt getting the lion's share of new money remains still accurate. 


The Garden State
For 2017-18 K-12 state operating aid for school districts is increasing by a measly $3,140,585, all of which is going for Interdistrict Choice and Host District Stabilization Aid for Newark.

Of New Jersey's 577 school districts, only 91 are receiving any aid increase at all.

Even New Jersey's most savagely underaided districts, like Manchester Regional, Freehold Boro, East Newark, Chesterfield are gaining nothing.  Bound Brook, who was the most underaided school district for 2016-17, is getting a $6,387 boost, which is for perhaps another Interdistrict Choice student.

Atlantic City, which had lost another $2 billion in Equalized Valuation, gained nothing other than $60,881 for Interdistrict Choice.  This is a contrast to last year, when Atlantic City gained $32 million last year for "Commercial Valuation Stabilization Aid."

Since state aid for 2016-17 was $8,031,337,333, the increase is an imperceptible 4 one-thousandths of a percent.  2016-17 was a bad year too, but at least in that year K-12 aid increased by $90 million.

Yet there is more to this story than just the headline aid increase of $3,140,585 and that untold story is large increases for New Jersey's debt.


  • TPAF funding is increasing by $411 million.  
  • Post-retirement medical funding for teachers is increasing by $69.9 million.
  • Debt Service on Christie Whitman's Pension Obligation Bonds is increasing by $15.4 million.
  • Debt service aid (which goes directly to districts) is increasing by $17.4 million.  

State Debt Servicing, which is for the bonds the Economic Development Authority floated for (mostly Abbott) construction is increasing by $20.5 million from $898.3 million to $918.8 million.

New Jersey's expenses for teachers Social Security is actually falling.  Perhaps this is due the 2016-17 budget cuts meaning that there are now fewer teachers?

Because TPAF and other education debt expenses increased so much, education spending (broadly defined as opex aid and other education-related expenses) is now 39% of the state budget versus only 31% of the budget in 2001. (FY2018 = $13.8 billion out of $35.5 billion)

Click to Enlarge.
Source, pg 41
http://www.nj.gov/treasury/omb/publications/18bib/BIB.pdf


And for comparison's sake, here is where the increase for 2016-17 went.  (the graph refers to "proposed increases," but these proposed increases actually were implemented.)

As you can see, it's the same story.






Thursday, March 2, 2017

Jersey City PILOTed Property is Worth $11.6 Billion

FYI, this article by Terrence McDonald of the Jersey Journal about Jersey City PILOTs is worth reading for several reasons, but I wanted to point out something from the conclusion of the article:

Last year Jersey City's PILOT program took in $127,800,476 from tax-abated properties. If all these properties were taxed conventionally, the total would be $211,967,791.
None of This Pays Any
School Taxes
(The relevance of this to state aid is that PILOTed property is "invisible" to the formula for Equalization Aid, thereby sustaining an artificially high state aid package for Jersey City.)

The State of New Jersey has no comprehensive database on how much property towns have in PILOT status, but the publication of  what Jersey City's PILOTed properties would pay if they were subject normal taxation allows one to calculate what the PILOTed properties are worth.

Jersey City's all-in tax rate is only 1.826%.

If Jersey City's PILOTed properties would pay $211,967,791 in taxes, that means that their full valuation is $11.6 BILLION.

$211,967,791 / .01826 = $11,608,312,760.10

This is up substantially from 2015, when Jersey City's PILOTed properties were only worth $8.6 billion.

$11.6 billion is a gigantic amount, it is equal to 45% of Jersey City's $25.7 billion in taxable property.

If Jersey City's PILOTed properties were an independent city, their Equalized Valuation would be the seventh largest in New Jersey.

Here are the top Equalized Valuations in New Jersey:

  1. Jersey City's (taxable) $25.7 billion
  2. Edison $15.8 billion
  3. Toms River $15.167 billion
  4. Hoboken $15.128 billion
  5. Newark $13.8 billion
  6. Ocean City $12 billion
  7. Jersey City's PILOTed $11.6 billion
  8. Middletown $10.6 billion
  9. Woodbridge $10.5 billion

At Jersey City's tiny 0.471% (Equalized) school tax rate, those PILOTed properties should be paying $54,675,153.10.

The $11.6 billion is also equal to 16% of Hudson County's $71 billion in Equalized Valuation.  At Hudson County's 0.458% tax rate, that means that that PILOTed property should be paying $53 million in county taxes.

Hence, the distortion of Hudson County's taxation cannot be ignored any more than the distortion of school taxes and school aid can be.

This means that taxpayers in Hudson County's several severely underaided school districts - like Bayonne, Guttenberg, East Newark, North Bergen, and Kearny - are victimized twice by Jersey City; first as state taxpayers who must subsidize Jersey City's schools, second as Hudson County taxpayers who must subsidize Jersey City's county services.

As Jersey City blogger CivicParent has documented, when Steve Fulop of Jersey City campaigned in 2013 for mayor, he attacked the incumbent (Jerramiah Healy) for granting PILOTs, saying PILOTs "robbed the schools."

If elected, Fulop swore he would share PILOT revenue with the Board of Education.

HOWEVER, after he won the election, Fulop immediately forgot that promise.

Although there has been an attempt to reduce downtown tax abatements - Fulop should get credit for not PILOTing the supertall skyscraper 99 Hudson Street - since Fulop became mayor Jersey City has given out 70 PILOT agreements, presumably worth billions.

Although the primary thrust of Steve Sweeney's state aid reform fight is to eliminate Adjustment Aid, Sweeney's effort to end the distortion of state aid that results from PILOTing cannot be ignored either.


----
See Also