State Aid and School Property Taxes

I've written several posts for this blog looking at inequality in school taxes across New Jersey, with a focus on the relationship between a district's having a surplus of state aid or a deficit of state aid and that district's taxes.  

The post will show, as common sense would predict, that being underaided does lead a school district to have heavier taxes, but with the critical qualification that high taxes appear only when school districts actually need state aid and the inclusion of high-wealth districts in the underaided vs overaided comparison is misleading.

Specifically, a seemingly surprising fact about statea id is that overaided districts in general and underaided districts in general actually pay, at their medians, the same percentage of their Local Fair Shares.  

But I think in the past by comparing all overaided districts to all underaided districts I've overlooked an important facet of New Jersey state aid, which is that (literally) over 200 districts in New Jersey have Local Fair Shares that are so far in excess of their Adequacy Budgets that those districts will never, ever need to tax at their full Local Fair Shares anyway.  

Setting a threshold definition for "affluent" and/or "high-tax base" is arbitrary, but I'll use eligibility for Equalization Aid as the threshold in this analysis, since it aligns with a de facto threshold in the School Funding Reform Act.  

Of the 260 districts in New Jersey who are ineligible for Equalization Aid in 2018-19:

• 88 are overaided.
• Eight (8) got exactly 100% of their SFRA recommendation.
• 164 are underaided.

So 164 of New Jersey's 370 underaided districts don't need state state aid anyway, hence their taxes are often going to be low.

Some districts who are ineligible for Equalization Aid aremiddle-class or diverse and are barely ineligible (eg, Brick, South Orange-Maplewood, Northvale), but this category includes some of New Jersey's most famously affluent towns.

• For 2018-19, Princeton is underaided by -$147 pp, but its Local Fair Share is $122 million while its tax levy was only $76million, hence Princeont is a low-tax/high-spending district despite being underaided.
• For 2018-19, Millburn is underaided by -$472 pp, but its Local Fair Share is $174 million while its tax levy was only $84 million, hence Millburn is a low-tax/high-spending district despite being underaided.
• For 2018-19, Summit is underaided by -$424 pp, but its Local Fair Share is $118 million while its tax levy was only $64million, hence Summit is a low-tax/high-spending district despite being underaided.

Not all districts who are ineligible for Equalization Aid are affluent, which is why I add "or high tax base."  For instance, Secaucus's residents don't have high incomes, but Secaucus has a huge amount of non-residential property and so it is a low-tax, high-spending district.

• For 2018-19, Secaucus is underaided by -$560 pp, but its Local Fair Share is $52 million while its tax levy was only $35 million, hence Secaucus is a low-tax/high-spending district despite being underaided.

Anyway, if you only compare underaided districts and overaided districts who really need state aid (ie, are eligible for Equalization Aid), the underaided districts have much higher taxes.  

This effect is due to several factors, which can overlap:

• underaided districts are desperately trying to compensate for the lack of state aid by taxing themselves heavily.  This is clearest when an underaided districts is low-spending anyway (eg Chesterfield, Kingsway)
• an underaided district has had a loss of tax base and yet keeps it tax levy constant.  The taxes have become high because of the denominator effect and the state aid deficit grows because state aid is based on tax base.  (eg, Atlantic City, Manville, Bound Brook)
• the district needs to compensate for the lack of state aid, but overcompensates and wants to have high spending (eg, West Orange, which is underaided by $2,071 per student, but taxes itself at $5,817 per student above Local Fair Share)

Anyway, if you look at the New Jersey districts with the heaviest taxes, the large majority are underaided, sometimes severely so.

Atlantic City's tax levy includes money paid by its casinos through a unique PILOT agreement.
Manchester Regional has a unique hybrid EV/Enrollment tax apportionment scheme that erases most of North Haledon's tax base.
Winfield's Equalized Valuation is artificially low due to the town being legally tax exempt.

Anyway, the point of this post is to examine the relationship between state aid and local school tax burden.

As you can see, the common sense prediction that insufficient state aid would lead to heavier taxes is correct, but there is an important qualifier that the difference in taxes between the underaided and overaided appears when you look at districts who actually require state aid.

The fact that hundreds of districts in New Jersey are ineligible for Equalization Aid should not be treated as a detail of SFRA, but an important reality of New Jersey school finance and perhaps a major flaw of SFRA, in terms of districts who now get more state aid than they need through the three Categorical Aids and districts who are marginally about the Equalization Aid cutoff and get too little state aid.

In 2018-19 there were 124 districts in New Jersey whose Local Fair Share exceeded 150% of their Adequacy Budgets.  If these districts were fully funded under SFRA, they would get $186 million. 

In the era of New Jersey's fiscal crisis and severe underfunding of K-12 opex aid for districts who need it and underfunding of municipal aid, other local aid, and direct tax rebates, is that $186 million too much for New Jersey to afford when those districts can afford to do without any aid?