Tuesday, May 2, 2017

Loss Of Adjustment Aid Only Rarely Would Be Damaging

One line of argument against redistributing Adjustment Aid is that the loss of Adjustment Aid would be very hurtful to aid-losing districts.

For Sen. Jennifer Beck of Monmouth, an off-and-on reformer, issued this cautionary note after the May 2017 Senate Budget hearing:

Sen. Jennifer Beck, a Republican member of the [Budget] committee, cautioned against unintended consequences with the removal of Adjustment Aid. She said 157 of 181 districts receiving the Aid remain underfunded by the state [sic, this is a profoundly wrong statement], and abruptly taking away funding would hurt those communities. ....
“The Legislature needs to address the school funding disparity in this budget cycle, but we also must be cautious when considering the complexities of redistributing Adjustment Aid,” Beck, who is in a tough re-election battle, said in a statement after the hearing. “One thing that is certain is that our most underfunded districts cannot wait any longer for relief.”

Although there are some districts for whom the loss of Adjustment Aid would be very painful, on the whole, most districts getting Adjustment Aid either

  1. have Adjustment Aid as a small percentage of their budget.
  2. have Adjustment Aid as a small percentage of their Local Fair Share.
  3. are very high-spending as it is.

As we will see in greater detail below, there are only a handful of districts for whom the loss of Adjustment Aid would result in large budgetary impact who would not make up the lost revenue with local taxes.

(For this study I have attempted to be as accurate as possible and therefore subtracted aid excess that is the result of Interdistrict Choice money.  While the total amount of excess aid distributed for 2017-18 will be $696 million, $27 million of that amount is actually from Interdistrict Choice and therefore not subject to redistribution based on any proposal currently under discussion.  The 2017-18 Uncapped Aid figures are here.)

For the median district that is overaided, Adjustment Aid represents 10.2% of Local Fair Share.

There are 61 districts Adjustment Aid is not even 5% of the Local Fair Share.  Since the Adjustment Aid would be eliminated over five years, it's difficult to imagine why the loss of it should be difficult.

For another 38 districts for whom Adjustment Aid equals 5-10% of Local Fair Share.  For these districts there could be some difficulty adapting to reduced aid, but not enormous difficulty.

Hoboken (5% of budget but 2.4% of LFS, ), Upper Freehold (7.7% of LFS), Middleton (14% of budget but 3.8% of LFS), Weehawken (5% of budget but 3.1% of LFS), Hillsborough (6% of budget, 7.7% of LFS), and the Jersey Shore overfunded districts are among the districts who should not have a major problem adapting.

Then, admittedly, there are 105 districts for whom Adjustment Aid exceeds 10% of Local Fair Share, including 52 for whom it exceeds 20%. Asbury Park's $25.3 million of Adjustment Aid equals 184% of its Local Fair Share (39% of the budget), although Asbury Park is the outlier here.

Some readers may consider tax increases, even over five years, equal to 20% of Local Fair Share to be too onerous for voters to accept and therefore oppose cuts in Adjustment Aid because the reductions would force programming cuts.

It's true, if a district gets a large amount of Adjustment Aid, then losing that money would force cuts, but the complicating fact here is that these districts tend to already be very high-spending.  For them to lose significant money in Adjustment Aid would require cuts, but the cuts would be coming off of a level of spending that average and severely underfunded districts in New Jersey are nowhere near.

Let's look closely at the Budgetary Cost Per Pupil for the 52 districts for whom Adjustment Aid exceeds 20% of Local Fair Share.  (excluding non-operating districts)

My mistake. Brooklawn should NOT be on the list because its excess aid comes from Interdistrict Choice.
This strengthens my case.

These spending figures are almost always substantially above New Jersey's average.  The districts whose spending is the lowest Ocean Township (Ocean County) are districts who voluntarily keep their taxes very low.  Ocean Township's taxes are 66% of Local Fair Share.

Let's look at a few large, overfunded districts up-close:

  • Pemberton, a rural Abbott in the heart of the Pinelands, is overfunded by $25 million, for just 4300 students.

    Because of that excess, Pemberton now spends $20,000 per pupil, even though it only taxes at 57% of its Local Fair Share ($12 million against $21.5 million).

    Pemberton's excess aid is $25.7 million, which is far greater an amount than it could possibly make up with its own taxes, but as Pemberton loses its Adjustment Aid, it would be simply falling to the state's average and still be vastly better off than the dozens of high-FRL NJ districts now who now spend as little as $10,000 per student.  As an Abbott, Pemberton would retain 100% state funding for construction projects and two years of "free" state-funded PreK.

  • Brick is overfunded by $23 million for 8750 students.  Brick taxes at 77% of Local Fair Share, or $101 million compared to $131 million.   If it got a waiver and decided to make up for 100% of the lost aid through local taxes, Brick would still be under its Local Fair Share by $7 million.  
Lest I be accused of not acknowledging the impact of budget cuts on aid-losing districts, what also has to be considered is that even if Steve Sweeney's plan to redistribute all of Adjustment Aid and add another $500 million in school spending is implemented, it is not enough to bring every all of today's underaided districts up to 100%, because that would require $2.1 billion, not the $1.1 billion Sweeney is talking about.  So, even after the process of eliminating Adjustment Aid is complete, these aid-losing districts will be at 100% funding while there are many others that remain at 70%, 80% etc.

(See, Is Steve Sweeney Overselling His State Aid Proposal?)

So even if Sweeney's plan is implemented faithfully, there will still be a distribution of haves and have-nots.  Pemberton, Brick, Asbury Park etc will be at 100% funding, while Delran, Clifton,Cherry Hill, Chesterfield, Freehold Boro etc are still below 100% funding.

And most of New Jersey's poorest districts get no Adjustment Aid at all:

2014-15 Data

2014-15 Data

Central Avenue, East Orange.
At the risk of weakening my own case for redistribution, THERE ARE some overfunded districts for whom losing Adjustment Aid would be very difficult.  The district I would be the most worried about is East Orange.

East Orange is overfunded by $25 million, which is equivalent to 12% of East Orange's Total Operating Budget.  East Orange's school taxes are $20.7 million below Local Fair Share, so even if East Orange wanted to tax at its full Local Fair Share, cuts would still occur.

However, there is no way that East Orange could pay its full Local Fair Share because East Orange's municipal taxes are off-the-charts, at 3.5%, as part of an all-in tax rate of 4.6%.  Most New Jersey towns have municipal taxes at about a quarter of all-in taxes, but in East Orange municipal taxes  make up 72% of East Orange's total taxes.

I assume there is bloat in East Orange's municipal government, but much of that extreme tax burden is likely due to unavoidable need.

However, East Orange is an exception, and any painful cuts that other overaided districts will have to make as they lose Adjustment Aid has to be counterassessed against the deep existing budgetary deprivation existing in hundreds of underaided districts and the fact that even if Sweeney's plan is implemented, today's underaided districts will still not be at 100% funding.

For most districts that face losses of Adjustment Aid, the losses are manageable as long as there is some fix to the tax cap passed.

And when New Jersey's fiscal future is so grim, the elimination of Adjustment Aid is necessary.


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