Sunday, March 31, 2019

2020 Education Adequacy Report Drives Big Changes to NJ State Aid


An important development in New Jersey state aid that hasn't gotten any media attention so far is the release of the Department of Education's "2020 Education Adequacy Report."

The composition of a triennial Education Adequacy Report is a requirement from the 2009 Abbott XX decision, in which the Supreme Court deemed the School Funding Reform Act to be constitutional.

The Education Adequacy Report does not acknowledge the underfunded, off-formula reality of SFRA, but instead writes as if SFRA were a fully-funded, operating state aid law that actually delivered 100% of every district's state aid.  The Education Adequacy Report also evaluates SFRA in isolation from the rest of the NJ budget and NJ's other education spending and fiscal policies (eg, TPAF, the tax cap, health benefits, construction debt service, charter schools).

While SFRA has several points of controversy, the Education Adequacy Report is very narrowly focused on only seven state aid issues.

  1. The Base Cost Per Pupil for K-12 students
  2. The Preschool Per Pupil Aid Amount
  3. The extra weights for at-risk students and vo-tech students.
  4. The cost coefficients for Security Aid and Transportation Aid.
  5. The state average classification rate for students getting Special Education.
  6. The excess cost for Special Education pupils.
  7. Extraordinary Special Education thresholds.
Despite New Jersey's aid distribution being wildly off-formula anyway, the Education Adequacy Report is important because by increasing New Jersey's statewide Adequacy Budget, it determines the size of the total deficit for underaided districts, the surplus for overaided districts, and even where a district falls if it is on the cusp of being overaided or underaided.

By determining the shape of the statewide deficit and the weights used for at-risk students, Education Adequacy Report determines how deep underfunding is for districts with more at-risk students versus districts whose students are more solidly middle class.

Increases to the Statewide Adequacy Budget (And Deficit)

The most important change from the 2020 Education Adequacy Report is the $566 per pupil increase to the Base Per Pupil amount, a 5% increase.

That $566 per student increase, which is inflated downstream in the SFRA formulas by the extra weighting for at-risk students, produced a massive increase in the statewide Adequacy Budget by $1.3 billion, from $23.3 billion in 2018-19 to $24.7 billion in 2019-20, a 5.6% increase.

This Adequacy Budget increase has occurred despite New Jersey having slight K-12 enrollment loss, from 1,342,749 students in 2016-17 to 1,345,127 in 2018-19 down to a projected 1,341,450 for 2019-20.

It is because of the large increase in NJ's Adequacy Budget that New Jersey's state aid deficit grew from $1.75 billion to $1.8 billion in 2019-20 despite the addition of $206 million in new aid (+2.43%) and $90 million in redistributed aid.

The Local Fair Share Formula Increases (Yet Again)

The calculation of the Local Fair Share multipliers is one of the most opaque parts of SFRA, but the multipliers depend on the gap between available Equalization Aid and NJ's statewide Adequacy Budget and are tweaked annually.

However, in years that an Education Adequacy Report comes out the multipliers show a large change because of how the EAR itself drives increases to the statewide Adequacy Budget.

The Local Fair Share weights are governed by this section of SFRA:
the property value rate shall be determined such that Equalization Aid equals the Statewide available Equalization Aid for all districts determined according to this act had each school district's local share equaled the product of the property value rate and the district's Equalized Valuation ... 
the income rate shall be determined such that Equalization Aid equals the Statewide available Equalization Aid for all districts determined according to this act had each school district's local share equaled the product of the income rate and the district's income.
(See pages 14 and 15 of SFRA.

The above section underscores a rarely-made, but correct, point about SFRA which is that the usual description of Equalization Aid, which is Equalization Aid = Adequacy Budget - Local Fair Share is not true in a practical sense.

What is correct in a practical sense is something like this:

Local Fair Share = Adequacy Budget - Available Equalization Aid

As the gap between New Jersey's statewide Adequacy Budget and Available Equalization Aid grows, so must the Local Fair Share.

Hence, we have increases to the Local Fair Share multipliers as I will demonstrate below.

Anyway, back in 2008-09, the Local Fair Share formula was:

= (Equalized Valuation x 0.0092690802)/2 + (Aggregate Income x 0.04546684)/2 = 

Which is just a complex way of saying:

0.46% of Equalized Valuation + 2.27% of Aggregate Income:

Statewide, that would equate to about a 1.15% tax rate.  In 2008-09, less than 184 (31%) of school districts were ineligible for Equalization Aid (1)

By 2018-19 the formula for Local Fair Share formula's multipliers had grown to:

0.69% of Equalized Valuation + 2.3% of Aggregate Income

However, now that the Education Adequacy Report has increased NJ's Adequacy target, the formula for Local Fair Share for 2019-20 has grown to:

= (Equalized Valuation x 0.014523812)/2 + (Aggregate Income x 0.049819447)/2 =

Which is:

0.73% of Equalized Valuation + 2.49% of Aggregate Income!

NJ's Local Fair Share target equates to a statewide 1.46% weighted average, or a 1.5% median!!

Thus, between 2018-19 to 2019-20 New Jersey's total Local Fair Share increased from $17.2 billion to $18.7 billion (+8.7%), even though if the Local Fair Share formula had been kept constant Local Fair Share would have only increased by 3-4% along with the growth of Equalized Valuation and Aggregate Income.

Now New Jersey has 272 districts who are ineligible for Equalization Aid, including many districts who are middle-class and/or diverse.  This is a huge problem because it means that SFRA recommends essentially the same amount of state aid for Lawrence Township as it does for Princeton, the same amount for state aid for Brick as it does Mantoloking; the same amount of state aid for South Orange-Maplewood as it does Millburn.

The increase in NJ's total Local Fair Share due to the increase in the LFS multipliers makes the increase in the statewide deficit smaller than it would be if SFRA didn't simultaneously demand more from local school districts, but again, it is still not a large enough increase to prevent an increase in the statewide deficit.  

PreK Costs Increase Too 

The Education Adequacy Report also makes inflationary adjustments to the cost of PreK, which also drives up large increases in New Jersey's appropriation for existing PreK programs and significantly reduces New Jersey's ability to expand PreK.

It is due to this cost increase that NJ's PreK appropriation for existing PreK is larger than the appropriation for new PreK spaces.

In his FY2020 Budget, Phil Murphy proposed a $68 million increase for PreK, but only $25 million of that is for new seats.  The rest of the amount, $43 million, is for existing programs, mostly in the Abbotts.

Conclusion:

New Jersey is not even close to fully or fairly funding SFRA, so the Education Adequacy Report isn't a fully-relevant document.  However, the inflationary increases in the report underscore how full funding of SFRA is a moving target that New Jersey may never catch no matter what it does, and certainly will not catch if Adjustment Aid is kept permanent.

Also, the constant increase in the Local Fair Share weights are responsible for SFRA evolving into a formula that deprives middle-income districts of Equalization Aid and increasingly fails to distinguish middle-class from truly rich.

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See Also:



(1)  I do not have the exact number of ineligible districts in 2008-09, but in that year there were 184 districts who did not receive Equalization Aid.  Some districts not receiving Equalization Aid must have been underaided and thus would have been eligible for it, so the actual number of ineligible districts must be lower than 184, hence the preceding phrase, "less than."


Tuesday, March 19, 2019

2019-20 State Aid Gets Fairer, but Deficit Grows


For 2019-20 school year Phil Murphy proposed to increase overall K-12 opex aid by $206 million and redistribute another $90 million of Adjustment Aid, for an all-in increase of $296 million for underaided districts, with the bulk of that new money going to districts who are severely underaided.

However, despite the increase in state aid, the deficit for the underaided districts rose from $1.75 billion to $1.78 billion.

Although $296 million increase is very large and appreciated by the recipient districts, since the deficit constantly grows, the increase is only sufficient to prevent further backsliding into
deeper deficit, as New Jersey struggles to advance against a strong headwind of inflation and then enrollment growth and tax base erosion that is disproportionately in districts who are already underaided.

Indeed, inflation's contribution to the growth of the funding target in 2019-20 is particularly large due to the FY2020 Education Adequacy Report and the $566 per student increase in the base cost per student.

This post is a first look at state aid disparities in 2019-20 and emphasize that SFRA funding targets are dynamic.  In 2018-19 it would have cost $9,562,210,757 to fully fund SFRA, but in 2019-20 it would cost $9,801,544,588 to fully fund SFRA.  The increase in costs is disproportionately in underaided districts, hence the constant growth of their aid deficit.    


Note, the deficits reflected above would be the _net_ deficit if every district was funded at exactly 100% (implying that
all Adjustment Aid were eliminated).  The more meaningful deficit is that for the underaided districts, which is $1.787 billion for 2019-20.

Thus, the number of underaided districts slightly grew, and so did the deficit itself, which rose from $1.75 billion to $1.8 billion.

Despite the size of the $90 million reduction in surplus aid (ie, "Adjustment Aid"), the total amount of excess aid is only falling by $10 million, from $651.9 million to $641.7 million aid surplus, which simultaneously grew due to continued enrollment loss, tax base growth, and the DOE's changes to the formula for Local Fair Share.  The stability of Adjustment Aid is due to continuing enrollment loss and tax base growth, although the contribution of tax base growth is disproportionately from Jersey City alone.   (discussion below).

Lakewood, despite being overaided in 2018-19, gained $14.9 million in SFRA-non compliant aid, which the DOE is listing in its normal state aid releases.  Lakewood's increase also appears to increase the statewide amount of excess aid.

This blog post is based on state aid information from the Department of Education which I received after an OPRA request.  The calculations of state aid deficits, percentage overaiding/underaiding, dollars per student overaiding/underaiding and tax stress are done by me.  The 2019-20 State Aid Disparities information is available online here.

The Big Picture

Statewide, the median district has a deficit of $383 per student and gets 86% of its Uncapped Aid.  The median deficit is smaller than in 2018-19, when it was $417 per student and the median percentage is slightly better than 2018-19, when it was 86%.

There are 383 underaided districts, with a total deficit of $1.8 billion and 209 overaided districts with a total surplus of $641 million.

There are zero districts who get exactly 100% of their state aid, which is a contrast from 2018-19, when 16 districts got 100%. The slippage of any districts getting 100% is the reason there are apparent increases in the number of overaided and underaided districts.  (the lack of 100% funded districts is due to S2)

The Underaided

There are 96 districts who are underaided by more than $2,000 per student for 2019-20, versus 109 districts with deficits over $2,000 per student in 2018-19.  In 2019-20 there will be 30 districts are underaided by more than $4,000 per student, versus 35 in 2018-19.

So this is incremental reduction in severe underaiding.

The district with the largest state aid deficit is Atlantic City, whose deficit is -$56 million, or -$8,534 per student.  (this deficit includes AC's $20 million in "Commercial Valuation Stabilization Aid,"  

After Atlantic City, the districts with the biggest deficits are:

DistrictDeficit in Dollars PPDistrictDeficit in Dollars PP
BRIDGETON CITY-$4,488FREEHOLD BORO-$5,694
PLAINFIELD-$4,552DOVER TOWN-$5,809
EGG HARBOR CITY-$4,603ATLANTIC CO VOC-$5,942
DUNELLEN BORO-$4,850LINDENWOLD-$6,075
WOODLYNNE-$4,868PASSAIC VOC.-$6,115
HALEDON BORO-$4,992FAIRVIEW-$6,268
PROSPECT PARK-$5,085HI NELLA-$6,562
ROSELLE BORO-$5,283BOUND BROOK-$6,776
NORTH PLAINFIELD-$5,308CUMBERLAND VOC.-$8,181
MANCHESTER REG-$5,689ATLANTIC CITY*-$8,534

These deficits are unacceptable, and yet an improvement from 2018-19, when there were 109
Bound Brook, NJ.
Still one of NJ's most underaided school districts.
districts who were underaided by at least $2,000 per student and 35 who are underaided by at least $4,000 per student or more. 

Bound Brook also shows improvement. The -$6,776 deficit is huge, but it is smaller than in 2017-18, when Bound Brook's deficit was -$9,546 per student or 2016-17 when Bound Brook's deficit was -$9,836.

The reason the increase for Bound Brook hasn't been larger is significant loss of tax base there and corresponding increase in the Uncapped Aid target.  Although tax base erosion is the rarest cause of severe underaiding

In order to demonstrate the decline in severe underaiding, the following table shows the most underaided districts starting with 2016-17, the rock bottom year of state aid injustice, and how Steve Sweeney's fight for fairness (now supported by Phil Murphy) has brought results, although equity is still years away (and perhaps unattainable).


DistrictDeficit Per Pupil in 2016-17Gain in Dollars Per Student for 2017-18Gain in Dollars Per Student for 2018-19Gain in Dollars Per Student for 2019-20Deficit Per Pupil in 2019-20 (projected)
Dover-$6,558$417$776$868-$5,809
Guttenberg-$6,645$511$1,337$392-$2,626
Ridgefield Park-$6,740$491$1,764$290-$1,942
Atlantic City-$7,270$816$700TBDTBD
Hi Nella-$7,302$427$817$981-$6,562
Atlantic Co Voc-Tech-$7,529$733$2,213$888-$5,942
Passaic Co Voc-Tech-$7,551$520$1,302$914-$6,115
Fairview Boro-$7,625$630$1,951$937-$6,268
Freehold Boro-$8,243$0$1,890$851-$5,694
Manchester Reg-$8,698$653$1,830$850-$5,689
East Newark-$8,716$397$514$464-$3,106
Bound Brook-$9,836$865$2,289$1,013-$6,776
Because state aid is dynamic, 2016-17 deficit + new aid will not equal the 19-20 deficit.

Although I consider deficits in dollars-per-student more significant than percentage deficits, something encouraging about 2019-20 is that there will be only three districts who get less than 50% of their Uncapped Aid: North Brunswick and Cumberland Co Vocational at 48%, and Woodbridge at 46%.

Since in 2016-17 Chesterfield only got 9% of its Uncapped Aid, let it also be marked as an improvement too that the bottom has risen from 9% to 46%.



There are also only 55 districts getting 60% of their Uncapped Aid.  In 2018-19 there were 151.

HOWEVER, some districts are becoming more underaided, especially ones who already receive high percentages of their state aid, but whose state aid targets are so high that even getting 80% of their state aid translates into a large deficit.  For a district already getting a high percentage of its state aid, the gain under S2 will be proportionally small.

This scenario is true of many of the Abbotts.  Paterson, Elizabeth, and Newark all gained state aid, but saw their state aid deficits increase.  (A future post will examine the Abbotts in detail)

The Biggest Gainers

Newark grabbed headlines for gaining $24.7 million, but Newark is a district of 52,000 students, and that only is $469 per student.

Lakewood gained the most in percentage terms at 64%, but Lakewood is sui generis and much of that money will not go to support public education.  Atlantic City gained the second most in percentage terms at 39%, but Atlantic City also seemingly lost $12 million in Commercial Valuation Aid and its net increase is small.

Of normal districts, the biggest gain in percentage terms was Woodbridge, at 22% (+$7.4 million), but that is $531 per student.

The real biggest gainers, in dollars per student are:


CUMBERLAND VOC.$1,222
HI NELLA$981
FAIRVIEW$937
PASSAIC COUNTY VOC.$914
ATLANTIC CO VOC.$888
DOVER$868
FREEHOLD BORO$851
PLAINFIELD CITY$841
LINDENWOLD$799
NORTH PLAINFIELD$793
ROSELLE BORO$789
BRIDGETON$768
PROSPECT PARK$760
HALEDON BORO$746
WOODLYNNE$727


The Overaided Districts

There are 209 districts who are receiving more state aid than the SFRA formula says they should
Asbury Park
AP Lost $3 million in Adjustment Aid
But Actually Became MORE Overaided
Due to Tax Base Growth, Enrollment
Loss, and the increase in the LFS formula.
receive, with a total surplus of $641 million.

Of those districts:
  • 130 are overaided by more than $1,000 per student.
  • 75 are overaided by more than $2,000 per student.
  • 37 are overaided by more than $3,000 per student.
  • 13 are overaided by more than $4,000 per student.
Asbury Park, as always, is the most overaided district in New Jersey, with a surplus of $11,026 per student.   (Asbury Park's state aid +186% of its SFRA target)  Asbury Park's excess aid alone is more than the $9324 per student that its high-FRL, severely underaided neighbor Freehold Boro will receive.

In percentage terms, Washington Township in Burlington County is the most overaided, getting $435,110 more for its 55 students than SFRA recommends, or 545% of its SFRA target.

Many Overaided Districts Became More Overaided

Despite the loss of $90 million in Adjustment Aid (13%), a large number of overaided districts became more overaided, the most important of which is Jersey City.

The following 15 districts had the largest Adjustment Aid totals in New Jersey.  Altogether they represent 60% of the 2018-19 total.

As you can see, six of the fifteen districts with the most Adjustment Aid gained Adjustment Aid for 2019-20, despite the 13% Adjustment Aid cuts they experienced.


2018-19 Adjustment Aid2019-20 Adjustment AidAdjustment Aid Gain or Loss
JERSEY CITY$170,778,034$182,106,881$11,328,847
PEMBERTON$25,259,032$17,725,530-$7,533,502
EAST ORANGE$24,391,436$18,288,196-$6,103,240
FREEHOLD REGIONAL$24,090,617$25,302,050$1,211,433
ASBURY PARK$23,563,095$22,933,389-$629,706
BRICK$21,331,456$18,349,599-$2,981,857
TOMS RIVER REG.$17,581,822$18,607,945$1,026,123
JACKSON TWP$15,963,963$15,372,258-$591,705
MANALAPAN-ENGLISHTOWN REG$12,175,534$10,297,786-$1,877,748
NEPTUNE TWP$11,424,541$10,939,598-$484,943
OLD BRIDGE$11,126,695$13,123,877$1,997,182
VERNON$9,970,059$9,406,636-$563,423
HOWELL$9,715,911$11,012,370$1,296,459
HOPATCONG$8,229,916$7,308,000-$921,916
WASHINGTON (Gloucester)$8,164,374$9,737,141$1,572,767

The causes of the increases are different for each district, but the usual factors are enrollment loss and tax base growth, plus the tweaking of the Local Fair Share multipliers.

Jersey City merits special discussion here:
Jersey City's Local Fair Share grew from $399 million to $474 million (+$75 million).  Although Jersey City's Adequacy Budget grew from $590 million to $622 million (+$32 million), which all-else-being-equal would increase Jersey City's Equalization Aid, the increase in Local Fair Share was so much larger than the increase in the Adequacy Budget and then the cut of $27 million in Adjustment Aid that Jersey City's state aid surplus actually grew by the $11 million you see above.  (See Note 1)

Aside from the usual enrollment loss and/or tax base growth, the Murphy administration also increased the Local Fair Share multipliers by 6% and that drive increases in Local Fair Share that were larger than the increases for Adequacy Budgets.

The 2018-19 Local Fair Share formula was:

(Equalized Valuation x 0.013828828) / 2 + (Aggregate Income x 0.046200477) / 2

Which looks complex, but was really 0.69% of Equalized Valuation plus 2.3% of Income.

But this is the formula for 2019-20

(Equalized Valuation x 0.014523812) / 2 + (Aggregate Income x 0.049819447) / 2 

Which is really 0.73% of Equalized Valuation plus 2.5% of Income.

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(1)  This refers to Jersey City's Adequacy Budget for Equalization Aid.

See Also: