Falsehoods from Toms River

Since Steve Sweeney and Vincent Prieto agreed on a plan that would redistribute $31 million (originally $46 million) of the $670 million New Jersey has been giving out as "Hold Harmless Aid," the most vocal opposition has come from Toms River.

For background, Toms River receives $68.3 million in state aid, even though SFRA's core formulas say it only needs $47.2 million.  That $21.1 million excess is one of the ten largest in New Jersey in total dollars and works out to $1300 per student.

The $21 million in excess aid, plus Toms Rivers' own acceptance of very low student spending, allow Toms River to tax at only 75% of Local Fair Share, with a $151 million 2017-18 tax levy on a Local Fair Share of $197.6 million.

Despite having over $46 million in untapped Local Fair Share, and a knowledge that most New Jersey school districts tax above Local Fair Share, the Toms River Board of Education opposes any redistribution.

As part of their campaign in defense of their own aid hoarding, the Toms River Board of Education and its administrators have been writing op-eds arguing tha aid cuts are "unfair" for many reasons, the following of which are chief:

And how in good conscience can these legislators propose taking $3.3 million dollars from Toms River Regional when we are still reeling from the effects of Superstorm Sandy and have $600 million in ratables that have yet to be recovered? The topic of property tax assessments highlights another known critical flaw of the school aid formula- it allows for districts to have significantly understated property tax assessment totals in the aid calculation, which matters greatly because a district’s ‘wealth’ is the basis for a large portion of a district’s school aid. For example, the property wealth calculation does not include Payments in Lieu of Taxes (‘Pilots’) and tax abatement programs, which excludes millions of dollars in property ratables, which could be material to the calculation of a district’s school aid. The same legislators are also aware that large school aid increases, some in the millions, would be given to several districts whose towns have not had property assessment revaluations in over 25 years! Having an understated property ratable figure provides large aid dollars for several districts, and since the pot of school aid is limited, it takes away significant amounts of school aid that would be spread to the rest of the districts in the State.

Where to begin?
1.  A Lack of a Reval has No Effect on State Aid

It is true that there are towns in New Jersey (all in Hudson, Middlesex, and Union Counties) that have not done revals since the 1980s, but it is completely erroneous to say that a town's lack of a property reval in any way affects its state aid.

This is because state aid is based on Equalized Valuation, not the official assessment.

Equalized Valuation, which is also used to apportion county taxes, is calculated based on the ratio of sales prices to official valuation.

If, on average, sale prices are 115% of official assessment, then Equalized Valuation equals 115% of the town's total official assessment. If sale prices are, on average, 200% of official assessment, then Equalized Valuation equals 200% of the town's total official assessment.  Since Equalized Valuation is the product of official assessment times the sales ratio, a lack of a reval does not affect it.

Ironically, by insisting that the state maintain a frozen aid distribution, the Toms River BOE and administration are effectively say that the state not do a "state aid reval" of its own.

2.  Toms River was Overaided Before Sandy, Loss of Ratables is Factored into State Aid

Toms River (and Brick) have repeatedly said that it is unfair to take aid away from them because they have not recovered from Hurricane Sandy.

First of all, Toms River was overaided before Sandy occurred. In 2011-12 Toms River got $9.8 million in Adjustment Aid.  In SFRA's first year of 2008-09, Toms River got $18.5 million in Adjustment Aid.

Now, post-Sandy Toms River is more overaided than it was before Sandy, but the loss of tax base that Toms River brings up is already built-into the calculation of Toms Rivers' Local Fair Share state aid.

Since Toms Rivers now has an Equalized Valuation of $15,167,528,438 versus the $16,065,236,923 it had previous to Sandy, Toms Rivers' Local Fair Share is reduced by about $6 million, approximated based on

Equalized Valuation alone.  I do not have data on a loss of Aggregate Income, but if it is lower than it was pre-Sandy, that would reduce Toms Rivers' Local Fair Share as well.

What causes Toms River to lose state aid is that Toms Rivers' enrollment has also declined, partly due to Sandy and that enrollment decline causes Toms Rivers' Adequacy Budget to fall.  However, as enrollment declines, so does staffing needs, Out Of District tuition, and a few other budget items, so Toms Rivers' expenses are lower.

(See also:
"Jersey City's Property Reassessment Won't Change State Aid")

3.  PILOT Reform without Adjustment Aid Reform Does Nothing.

Toms River is correct that PILOTing is a distortion of state aid, since PILOTed property is "invisible" to the determination of Equalized Valuation and thereby Local Fair Share, but even if PILOTed property were included in the calculation of Local Fair Share, districts with a lot of PILOTed property (namely Jersey City) would not lose any state aid unless Adjustment Aid were also addressed.

If PILOTed property were included in the determination of Local Fair Share and no reform to Adjustment Aid were made, all that would happen is Jersey City's and Asbury Park would have some of their Equalization Aid converted into Adjustment Aid.

4.  Extra Aid for Low Spenders?

Toms River also makes an out-of-left field argument that it should be rewarded with extra state aid because it spends (and taxes) so little.

In terms of trying to justify their new aid proposal, can the same legislators explain how it is possible that aid increases would be given to districts who have total per pupil costs over $29,000 already (compared to $16,319 in Toms River Regional)? This highlights one of the critical flaws with the State Aid formula- it allows for unlimited per pupil costs, and gives no credit or consideration to districts with lower per pupil spending. The formula unjustly portrays lower-spending districts like Toms River Regional as not paying our ‘fair share’ in taxes when in fact we do pay our fair share. The reason we tax less is simple- we spend less! So before taking school aid from any district, per pupil costs should first be capped and no additional school aid should be given when that cap is exceeded.

What Toms River is doing here is attempting to redefine Local Fair Share to something other than the formula contained within SFRA.

Based on its Equalized Valuation and Aggregate Income, Toms Rivers's Local Fair Share at $197,593,919, compared to a 2017-18 tax levy of only $151,916,715.  This gives the Toms River schools an equalized school tax rate of only 0.9529 for 2017-18, which is significantly below New Jersey's 1.35 average.  

Given that Toms River has that $45.6 million in untapped Local Fair Share, it has the economic ability to compensate for the $21,140,413 in excess aid it might lose.  If Toms River made up for that lost $21 million in state aid its school tax rate would only become 1.08.

This is a twisted point to unpack:

So before taking school aid from any district, per pupil costs should first be capped and no additional school aid should be given when that cap is exceeded.

There are only a handful of districts spending $29,000 in New Jersey and all of them are losing state aid or seeing flat aid.  Lebanon Boro and New Hanover are high-spending districts that are gaining trivial amounts of aid ( $670 total and $3,598 total, respectively), so I can't figure out what Toms River is talking about here other than they want to distract from the issue of Adjustment Aid.

There are some very affluent districts who are gaining aid, such as Millburn, Princeton, Mountain Lakes, and Livingston, but these districts don't have spending that is anywhere near $29,000 per student.  If Toms River believes that affluent districts shouldn't get state aid, then that is a separate issue, but they are making an argument that is actually contrary to the principles that Toms Rivers' Republicanism usually stands for.

If Toms Rivers' implied demand that districts actually get extra state aid because they spend very little were implemented then it would have the perverse effect of equalizing spending between districts that make very different local tax efforts,  since the low tax/low spending districts would get extra state aid.  On what planet does cutting aid from districts that choose to tax themselves make sense?

If Toms Rivers' demand were granted, there would be a rush by Boards of Ed to slash their tax levies, slash their budgets, and receive extra state aid.

It makes no sense except in that it supports Toms Rivers' self-interest.

Finally, what is really missing from Toms Rivers' argument is any acknowledgement of how indebted and fiscally screwed New Jersey has become.

As I have posted many times on this blog, all of New Jersey's new

revenue is absorbed by the "PHD" expenses of Pensions, Healthcare, and Debt, even though New Jersey is still underfunding its pensions by $2.5 billion.

The amount of money New Jersey can plausibly gain by increasing taxes is $1-$1.5 billion and it would be irresponsible and imprudent to put all of that money into K-12 education.

Without redistribution there is no realistic budgetary pathway to fairness for underaided districts.

Sadly, even with complete redistribution of Adjustment Aid and the injection of another $500 million today's underaided districts will still not be brought to 100%.

Toms River is acting in its own self-interest nothing else.

Kim Guadagno's Circuit Breaker: Positives and Negatives

Kim Guadagno is making a property tax relief proposal she calls a "circuit breaker" the centerpiece of her campaign for governor.

Guadagno's proposal is that all New Jersey residents have the school portion of their property taxes capped at 5% of income, with taxes due in

excess of that now assumed by the state.

As Guadagno's campaign explains it:

This innovative program would cap the school portion of a homeowner’s property tax bill to 5% of their household income, ensuring no New Jersey family would have to leave our state due to untenable property taxes. For instance, if a household makes $100,000 in income annually, they would not pay more than 5%, or $5,000, towards the school portion of their property tax. Any amount owed in excess of the 5% circuit breaker threshold will be applied directly to the homeowner’s property tax bill as a credit. So if the same family making $100,000 a year has a school property tax bill of $6,000 annually, they would receive a $1,000 credit. The school districts would then receive increased state aid to cover the cost of the credit so no school districts lose funding. 

Under this program, a family making New Jersey’s median household income of $72,000 will save an average of $895 on their property taxes annually. This proposal will apply to primary residences only and be capped at $3,000 annually. While the Homestead and Senior Freeze programs will remain in effect. homeowners will only be able to qualify for one program at a time and be able to choose the relief program that best meets their needs.

The state reimbursement would be capped at $3,000, so it is possible that certain households who have high property:income ratios would still pay over 5% of income in school taxes, but for most non-renters, taxes would be capped at 5%.

Overall, Guadagno's proposal would make NJ school funding more income-tax based than property-tax based, since the "Property Tax Relief Fund" comes from income taxes, and so make school taxation more progressive.

Guadagno's own staff estimates the cost at $1.5 billion, which Guadagno says could come from "auditing Trenton," eliminating existing property-tax rebates, and economic growth.

Since Guadagno came out with her circuit-breaker in April 2017 most of the criticism of it has been that Guadagno has underexplained where the state money would come from, since Guadagno rules out any tax increases (although that criticism applies to Phil Murphy and his agenda.)

Anyway, this is a look at some of the positives and negatives of Guadagno's proposal that I feel haven't gotten any attention.

The Good Things

It hasn't been independently verified that the circuit breaker would cost $1.5 billion per year, but assuming that amount is indeed the cost and assuming that Guadagno actually could find that $1.5 billion, this proposal would deliver real tax relief to the most overburdened taxpayers in New Jersey.

If a governor poured another $1.5 billion into SFRA the tax relief would probably be extremely limited, since Boards of Education would spend a large portion of their new money and/or teacher contracts would gradually consume whatever new revenue exists too.  If the money actually were directly given to households, people would end up with more money in their pockets.

The Bad Things

The Circuit Breaker's Not Looking Good,
Even if Guadagno Could Fund It

Since, under Guadagno's proposal, the state pays taxes in excess of 5% of income, Boards of Education would likely lose restraint in tax levy increases, since now their most overtaxed non-renters are protected by the state.

Very few Board of Education members are economically conservative, but they are aware that their communities have residents who can barely afford their homes and weigh that fact in determining what the tax levy increase should be.

Under a state-funded circuit breaker, Boards of Education now have a blank check to be cashed on the state's bank account and that restraint is gone.

Although NJ has a tax cap, tax increases are still not limited to 2% due to health care and enrollment adjustments and an electorate can vote to increase taxes to whatever amount it wants.

This means that the costs of the circuit breaker would increase fairly rapidly from the initial $1.5 billion.

What if there is a recession?

If the state started to put at least $1.5 billion into this tax rebate program it would have less money available to fund school districts, as well as other obligations.  Guadagno does support reducing Adjustment Aid and making cost-savings reforms to PreK and Abbott construction, but still, New Jersey's 369 underaided school districts have a deficit of $2.1 billion for 2017-18, so redistribution alone is not enough to create budgetary adequacy.

Moreover, New Jersey will eventually face another recession and have a revenue crash.

Every state loses revenue in a recession, but New Jersey's revenue fall is always more than the average state's since our income distribution is so unequal and our income tax structure is so progressive.  In the Great Recession NJ's revenue fell by 19%, whereas the average state's only fell by 12%.

The permanence of New Jersey's ongoing debt crisis plus the inevitability of another recession means that sustaining the "circuit breaker" is an iffy proposition for the bankrupt Garden State.


Kim Guadagno deserves credit for coming up with an idea that actually would lower property taxes for many people, but it may be the Right Plan for the Wrong State, since New Jersey is broke anyway and New Jersey's Boards of Ed are likely to lose what little fiscal restraint they possess.

Jennifer Beck: Take Politics Out of State Aid (Unless Monmouth County Benefits)

Senator Jennifer Beck has again released misleading statements on state aid in an incoherent,

analytically incomplete op-ed where she defends Adjustment Aid, criticizes attempts to redistribute it from most districts, and yet says that the state should help districts that have had surging enrollment.  

There aren’t a lot of details being provided on [Sweeney's] plan, but estimates suggest that it could end up costing Monmouth County schools over $100 million in state school aid. This plan, if estimates are true, isn’t a fair or equitable solution to our school funding crisis.\ 

In New Jersey, we are supposed to fund our schools in a way that gives all of our children an opportunity to succeed. We all know the problems that exist under the current school funding program: 

It’s led to municipalities like Jersey City, which has the tax base to support their local schools but underfunds them by $255 million — while pocketing more than $418 million a year in state aid. 

It’s led to New Jersey underfunding schools where student enrollment has exploded. In fact, state aid for our schools has remained essentially flat since the School Funding Reform Act (SFRA) was enacted in 2008, leaving property taxpayers on the hook to pay more. For example, Freehold Borough is 527 students over capacity and Red Bank’s enrollment has grown by 267 in the last five years. But the state has not pulled its weight.
It’s led to a system where 421 school districts throughout the state overpay in property taxes to fund their schools. Property taxpayers are paying more than they need to because the state has failed to live up to its end of the deal. In Ocean Township, local taxpayers are paying $8 million more in property taxes for their schools than they are required to by the state....

While I am grateful to see that some of our [meaning Monmouth County's] underfunded schools would be among those that get more funding (because they need it), I noted that his area seems to be getting quite a bit more than Monmouth County and other counties. Politics can’t play any part of such an important process that impacts both our property taxes and our children’s education.

What Beck is saying is that she doesn't want "politics" to impact property taxes and education unless Monmouth County benefits.

Admittedly, Beck is correct that Monmouth County would be a net loser in any likely aid redistribution.

FIRST, for 2017-18, Monmouth County has 26 districts with a grand total of $99.7 in excess aid, but Beck omits multiple key facts on that, Monmouth County also has 28 underaided districts with a total deficit of $51.9 million.  These underaided districts include poorer districts including Freehold Boro, Red Bank Boro, and Long Branch,  plus some middle-income and affluent districts including Rumson-Fair Haven, Holmdel, and Freehold Township.

SECOND, half of the $99.7 million in excess aid in Monmouth County only goes to two districts, Asbury Park and Freehold Regional, each of whom has $25 million in excess aid.

Asbury Park's state aid exceeds $24,000 per student, of which nearly $11,300 per student in excess of SFRA's target.  Asbury Park's grotesque state aid amount has led to to PILOT virtually all of its new development, for a grand total of perhaps $1 billion in hidden PILOTed wealth.

THIRD, many of the aid-losing districts in Monmouth County are resort towns on the Atlantic Ocean that have gigantic tax bases relative to their student populations.

Belmar has $29,571 in Local Fair Share per student. Lake Como has $23,424 per student. Deal has $98,708. Allenhurst has an astronomical $1,706,505 per student.

Several of the non-resort towns have large tax bases too.  Tinton Falls has $19,550 per student in Local Fair Share.  Henry Hudson Regional has $23,262 per student. Middletown has $16,405 per student.  

FOURTH, more than $2 million of that excess is in Interdistrict Choice money that is not subject to redistribution.  This Choice money mostly goes to Deal, which gets $1.8 million alone.  (Monmouth County's total Choice Aid is over $3 million, but some of that goes to districts who are still underaided despite that infusion).

FIFTH, New Jersey is the country's most indebted state.  Thus, the state cannot increase K-12 aid very much and so budgeting is zero-sum.  The more aid hoarding that Jennifer Beck can preserve, the less new aid there is available to NJ's underaided districts, including Red Bank and Freehold Boros.

Beck also says she favors some redistribution, but says we should start with the statutorily overaided districts for whom the existing statute of SFRA allows aid reductions.  These are 46 districts who, despite Adjustment Aid, get more money than the SFRA dictates they should due to post-2008 enrollment loss.

Let’s start the reform with the 46 school districts that are overfunded in state dollars.

Ok, that's a good idea and is better than nothing, but barely.  These 46 districts only get $11 million total in extra aid.  

And silliest of all, Beck says at her conclusion what she had already said a few paragraphs previously:

Any school funding reform plan should be one where decisions aren’t based on politics, but rather on what is best for our students, parents, taxpayers and teachers.

Decisions aren't based on politics?

What on earth is Beck herself doing but appealing to the naked self-interest of Monmouth County itself?  

Although SFRA is complex, Sweeney's plan is quite simple: to give each district in New Jersey 100% of its recommended funding, no more, no less.  

That's not politics, that's justice according the old definition of equal treatment under law.  

---

See Also

• How Overaided Districts Would GAIN if SFRA isn't Changed

The 2017 Election: Optimism, Pessimism, and Hopelessness on State Aid

Well, the ballots have been counted and Phil Murphy and Kim Guadagno are the winners of their respective parties nominations.

Here are the reasons I'm optimistic about what the election means for state aid, the reasons why I'm pessimistic, and the reasons why I fundamentally have no long-term hope at all.

Phil Murphy:

The Good Stuff about Murphy:

He promises to "fully fund" SFRA and employs fully funding SFRA as a key means of restraining property tax increases.  Murphy said at a town hall event in Maplewood that he would "pull" $200-$300 million in Adjustment Aid and told the NJEA that SFRA need to be "tweaked and updated."


The Bad Stuff about Murphy:

Murphy repeatedly has given SFRA's deficit at only $1 billion a year, when the real deficit, against Uncapped Aid, is $2.1 billion for 2017-18 ($2 billion for 377 underaided districts after the June 2017 tweaks) and that amount grows annually by at least $100 million a year.  In 2008-09, the deficit was only $1 billion.

If Murphy feels the state can only put in an additional $1 billion into SFRA I accept it, but another $1 billion in isn't even close to enough to fully fund SFRA in real terms, so saying that another $1 billion = full funding is dishonest.

If Murphy keeps the State Aid Growth Limits intact, then the most severely underaided districts will gain very little.  (see "The Skews of Capped Aid")

Murphy also called himself a "barbell guy" at a town hall in Penn's Grove, meaning his priorities in education are PreK and higher ed.

Murphy's implied vow to eliminate tax incentives as a means to fully fund SFRA is not feasible.  The amount NJ pays out in tax incentives was only $347 million for 2016 (see A20), not the $1 or $2 billion it would take to fully fund SFRA.  Also, not every business is bluffing when it says it won't operate in NJ without tax incentives and if a business is not in NJ the Treasury cannot tax its employees anyway.  Many tax incentives go to renovation projects that have wide public support (eg, Bell Labs > Bell.Works, the Hahne's conversion in Newark).

Kim Guadagno:

The Good Stuff about Guadagno:

Kim Guadagno borrowed from Jack Ciattarelli's platform and thus actually has a comprehensive state aid reform package. Guadagno now realizes state aid is important and says "We need a new school funding formula and we need it now, too."

Guadagno supports redistributing Adjustment Aid, making the Abbotts pay for a percentage of their construction costs, and means-testing PreK.

If Guadagno had a means of paying for her "circuit breaker" (in which school taxes would be capped at 5% of income up to $3,000), it would mitigate taxes for lower income New Jerseyans.

The Bad Stuff about Guadagno:

Guadagno has ruled out any tax increases.  Assuming the Democrats control the legislature, no additional pension reforms will be allowed, so the state's fiscal crisis will worsen.

Guadagno has also been the lieutenant governor for eight years and she has done nothing to address school funding inequality.  Guadagno has even appeared at many ribbon cuttings for 100% state-funded Abbott construction projects, so I think Guadagno's conversion to state aid reform is unconvincing.

In a debate Guadagno cited kids in Phillipsburg learning algebra in trailers, when Phillipsburg is an Abbott and students there now have very luxurious facilities.

The Hopelessness:

New Jersey in 2027

No matter who wins, the structural budget forces that consume hundreds of millions more per year will still exist and still push out other spending.

This chart is based on the slower pathway to the full ARC that Chris Christie wanted. 

So if Phil Murphy were to raise taxes by $1.5 billion (as he told the Star-Ledger), within a few years that additional money would be consumed by new, structural spending increases.

It's not a recipe for fiscal sustainability, let alone fair and sufficient state aid.

Phil Murphy, like every other governor, has talked about accelerating economic growth, but a governor's control over an economy is limited, particularly in the short term. Connecticut, under Dannel Malloy, has passed all of the policies that Phil Murphy wants in NJ other than marijuana legalization and a state bank, and that has not rescued Connecticut's economy.  Connecticut's economy is actually worse-off than New Jersey's.

Given the certain continuation of New Jersey's fiscal crisis, the redistribution of state aid is more necessary than ever.