Thursday, June 29, 2017

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.

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