Actual Aid Versus Uncapped Aid: A Tale of Gross Unfairness

If you want quick proof of how irrational and unfair New Jersey's aid distribution is all you should have to do is do a quick check of what percentage of a district's Uncapped Aid it actually receives.

Except you can't.  The DOE doesn't publicly release what a district's Uncapped Aid level is.  The DOE barely acknowledges that the concept exists.  The Uncapped Aid numbers aren't confidential and were publicly released during the Corzine Administration, but the Christie Administration prefers to ignore SFRA as much as possible and doesn't release Uncapped Aid numbers.  The Christie Administration does give each district's Uncapped Aid figure to each district, but there is no public release of the numbers. 

Nonetheless the Education Law Center (whose data is ok, even if I disagree with some of their priorities) does have the data and I'm posting it here for you.

http://tinyurl.com/pyzsvfr

The average NJ district only gets 85% of its Uncapped Aid, but there are 220 districts that get 100% or more of their Uncapped Aid.  There 117 districts that get 50% or less of their uncapped aid.

The most overaided district in percentage terms is  Cape May Point, which has $475 million in property valuation for only three students and yet gets $26,803 in state aid. Of larger districts, Ocean Township in Cape May County is the most overaided.  Ocean Township has $5.4 million in Equalized Valuation per student and yet gets $6.9 million for its 2,101 students, coming out to 562% of what Ocean Township is supposed to get.

In total dollars, Jersey City is the most overaided, getting $111.7 million of excess aid.  Pemberton is in distant second place, with $27 million in excess aid.

The most underaided district in percentage terms is Chesterfield Township in Burlington County which only get 11% of its uncapped aid.

Chesterfield Township is likely so underaided because has experienced huge population growth, growing from 348 students in 2006-2007 to 563 students in 2010-11 to 728 in 2014-15, a 109% increase in under a decade.  Despite that enormous population growth, Chesterfield's state aid has only increased from about $310,992 to about $403,000.  Chesterfield, which is only a K-6 district, also has $500,000 in Equalized Valuation per student, since it has to share a tax base with Northern Burlington Regional.  Chesterfield's $500,000 tax base means its Local Fair Share is very low, thereby pushing its Equalization Aid higher.

Chesterfield anticipates that population will exceed 800 students in the next two years meaning that Chesterfield will become even more underaided unless Christie and the legislature start to pay attention to districts whose budget needs are the most acute.

In absolute terms, the most underaided district is Newark, which should receive $131.7 million more than it receives.  In percentage terms, Newark gets 84% of its aid, which is at the state's average.

Paterson, Elizabeth, Union City, New Brunswick, and Plainfield are other Abbott districts in the bottom ten of gaps in absolute dollars.  This could set the premise of another Abbott lawsuit.

The Education Law Center has released these data but in the form of aid gaps per student, not in percentage terms or absolute dollars.

http://www.edlawcenter.org/assets/files/pdfs/Newsblasts/FY16%20SFRA%20Funding%20Gaps.pdf

The most underaided district in dollars per student is Manchester Regional, whose $10.2 million deficit for 958 students works out to a deficit that is over $10,700 per student.  Bound Brook has the second highest deficit per student, at  $9,100 per student.

See "Manchester Regional: NJ's Most Underaided and Most Divided School District"

The most overaided district per student is Asbury Park, which gets $9,995 more per student than it should.

For clarification about the tables I link to:

1. "Column D." "K-12 State Aid (the district's actual aid)"

This is how much aid districts are getting in reality. These figures are the same figures that appear publicly in the State Aid Summaries. They include all streams of operating aid. The total cost is $7,957,828,723. This does not include Pre-K or Extraordinary Aid.

2. "Column E." SFRA "Full" Funding (Includes Transporation, Security, Sped, Equalization, Choice, Adjustment Aid, PARCC Readiness, SEGA etc etc)

This is what districts would get if SFRA were "fully funded" with caps in place but preserving Adjustment Aid and off-formula aids like PARCC Readiness Aid, Per Pupil Growth Aid, and "Additional Adjustment Aid," Supplemental Enrollment Growth Aid (SEGA), and Under Adequacy Aid were folded into Additional Adjustment Aid. The total cost would be $8,986,791,801.

However, the "full funding" figures include caps and is thus a misnomer.  Under capped funding many districts would still not get what they are legally entitled to. If you calculate what West Orange would get ($1,355) per student to what a wealthy exurb like Marlboro would get ($2,489) per student the aid amounts are still irrational.  Guttenberg would get $5,858, Lakewood would get $4,797, Dover would get $8,343; all much much less than the Abbott districts that they are demographic peers of.

The figures for "Fully funded SFRA" appear in the DOE's "Alternative Aid Scenarios."

3. "Column F."

SFRA Uncapped Aid (Transportation, Security, Sped, and Equalization)

This is how much aid districts should get from the four most rational and fair streams of aid, Equalization Aid, Transportation Aid, Security Aid, and Special Education Aid absent aid caps.

In other words, this uncapped aid is the real "full funding" of SFRA. These figures would be much more rational and internally fair. Guttenberg, Lakewood, and Dover would all get about double what they are getting now and they would receive as much as their Abbotts peers.

If excess aid streams like Adjustment Aid etc were preserved uncapped aid would cost New Jersey another $2 billion.  If redistribution were allowed and every district simply got 100% of its aid it would cost NJ another $1.37 billion.

It is impossible for NJ to come up with enough money right now to provide full capped aid to all districts, let alone uncapped aid.  However, to bring up the 117 districts that get less than 50% of their uncapped aid would only cost $120-130 million.  (the 117 underaided districts are usually not that large)  This is something the state can do.  

Are deeper teacher shortages in the future?

The NYTimes reports:

In California, the number of people entering teacher preparation programs dropped by more than 55 percent between 2008 and 2012, according to the California Commission on Teacher Credentialing. Nationally, the drop was 30 percent between 2010 and 2014, according to federal data. Alternative programs like Teach for America, which will place about 4,000 teachers in schools across the country this fall, have also experienced recruitment problems.

New Jersey, like every other state, has problems with teacher retention.

Dr. [Daniel] Katz says historically a third of teachers leave the profession before five years. In urban areas he says it’s even higher than 50 percent, with students in those urban areas frequently getting the blame for causing teacher burnout. But he says a recent Harvard University study faults working conditions and lack of support.

Tom Moran: " it's getting harder to swallow the idea that Fulop is a reformer."

Steve Fulop has no record on state education issues other than that he wants to keep all the $$$$$ flowing to Jersey City he can.

One can only guess what Fulop would do as governor based on how much  fairness and reform he has brought to Jersey City governance.

Fulop ran for mayor of Jersey City on a reformer's platform, saying "Recognizing the rich and colorful legacy of many of Jersey City's past mayors, I offer this one promise: We will be both honest and competent."

Tom Moran of the Star-Ledger disagrees:

Since Fulop became mayor less than two years ago, the list of political players who have benefited from city jobs and contracts reads like a pregame roster for a gubernatorial race.
Among those who have benefited, or saw family members benefit, are the following: Sen. Raymond Lesniak and former Assemblyman Joseph Cryan of Union County, along with a councilwoman from Edison; Assemblyman John McKeon of Essex County; Ralph Lamparello, the former head of the state bar association; Assemblyman Joseph Lagana of Bergen County, along with two county freeholders; Ed Farmer, a Democrat who is close to the party's state chairman, John Currie; Somerset County Democratic Chairwoman Peg Schaffer; and the powerhouse Democratic law firm Decotiis, Fitzpatrick and Cole.

Fulop also stopped a long-delayed property reevaluation of Jersey City.  This allows wealthy people to evade paying what they should in property taxes, New Jersey recommends that towns do reassessments when property assessment falls below 80% of market value.  Jersey City's ratio of property assessment to market value is 30.02% the lowest in Hudson County and one of the fifteen lowest in New Jersey.

I am not hopeful that Fulop would follow through with a redistribution of state aid if that would mean that anyone (even the relatively privileged) would pay more in property taxes.

Chris Christie has been indifferent to his own suburban base in state aid so Steve Fulop could conceivably be indifferent to his own urban base, but I do not like what I am seeing so far.

Additional Adjustment Aid: Real Money for Non-existent Students

One of the most unfair things in New Jersey's deeply unfair aid distribution is an obscure aid stream called "Additional Adjustment Aid."

Additional Adjustment Aid's calculation is very opaque but many of the districts that receive it are Interdistrict Choice districts that have lost Choice enrollment.

Interdistrict Choice is a program in which state taxpayers pay tuition for students to attend school outside of the district they live in. The formula for Choice Aid is simple:

Local Fair Share x # of Choice Students Enrolled = Choice Aid

The average Choice Aid payment is nearly $11,000 per Choice student.

Interdistrict Choice is supposed to be based on competition: if a district can't hold onto its students it is supposed to lose Choice money.

However, Chris Christie, for purely political reasons, opposes letting any district lose money, no matter how overaided it is. Thus for the 2014-2015 aid distribution he decided that Choice districts that LOST Choice students would still get the same amount of money they got the year previous with the aid being rechanneled from Choice Aid into "Additional Adjustment Aid."

Since Choice districts are paid "Additional Adjustment Aid" for students who have left it is literally taxpayer payment for non-existent students. It means that while scores of non-Choice districts have to figure out how to educate growing student populations with the same amount of money Choice districts get to figure out how to spend the same amount of money on shrinking student populations. 

This undermines the integrity of Interdistrict Choice.  If Choice districts keep their Choice money, no matter what, they have little incentive to retain their Choice students.

The Department of Education makes no announcement of this policy.  No journalist covers it.  Taxpayer groups do not protest.  The Education Law Center, supposedly the guardian of low-resource districts, does not protest the diversion of money away from the state's neediest districts.

The announcement is buried in obscure legislative documents like this from 2015-2016:

The FY 2016 recommended budget provides little increase in direct K-12 State aid to school districts, with such funding increasing by 0.07 percent ($5.2 million) Statewide to $7.96 billion. The only school districts that would receive an increase in State aid under the proposal are 83 districts that participate in the interdistrict public school choice program that are projected to serve more students in that program in the 2015- 2016 school year than in the 2014-2015 school year. All other school districts will receive the same amount of total State aid in FY 2016 as was received in FY 2015; this includes 26 school choice districts that will receive additional adjustment aid to offset a decrease in school choice aid that resulted from the districts serving fewer students in the program.

And here's the version for 2014-2015:

Most school districts will receive the same amount of adjustment aid in FY 2015 as was received in FY 2014. The one exception is for the 19 school districts that participate in the interdistrict public school choice program. The districts are projected to experience a decrease in the number of school choice students enrolling in the districts’ schools in the 2014-2015 school year, and will receive less school choice aid in FY 2015 as a result. These districts will receive an increase in adjustment aid to fully offset the decrease in school choice aid. 

Additional Adjustment Aid is the most opaque of all the aid streams. The DOE doesn't release which districts are getting the aid, nor the total amount.

However, here are a few I've found through careful digging into the State Aid Summaries:

• The Morris School District is getting $316,000 in Additional Adjustment Aid for non-existent students.

• Cumberland Regional $138,000 for non-existent students.

The Christie Administration is even letting Choice districts even carry over their Additional Adjustment Aid into the next year.  

Hence:

• Englewood got $497,000 in Additional Adjustment Aid for 2014-2015 and now it is getting that same amount for 2015-2016.

• Hoboken (which is involved in every aid hoarding scheme) got $255,000 in Additional Adjustment Aid in 2014-2015 and is now keeping that money for 2015-2016.

This is especially infuriating because Englewood and Hoboken are resuming their increase in Choice students and getting even more money.  Englewood is getting another $331,380.  Hoboken is getting another $749,133.

I try not to blame Christie for everything but this is completely his unfair, irrational fault. The only mitigating circumstance that Christie has is that the NJ legislature rubberstamped this.

Again, why does this matter?  Why am I angry about other districts' "good fortune"?  It's because the state is broke and exactly 513 districts got exactly $0 in increase, often despite growing residential enrollments. When the state can only find another $2.2 million for Extraordinary Aid there is no justification for even a few million to "educate" students who are no longer in a district.

The Role of Abbott Funding in NJ’s Pension Crisis

When people in New Jersey talk about the pensions crisis the focus is always on who underfunded the pensions, never why. Surprisingly few people wonder about the paradox of how New Jersey, whose credit rating was once AAA, whose income is the second highest in the country, whose taxes are high, and whose pension generosity is average, could become so hopelessly indebted.

 When New Jerseyans look for whom to blame the state’s gigantic indebtedness on the villains are always our governors, as if the governors were the only people who controlled New Jersey’s fiscal policy. The explanation for the crisis is rarely deeper than “the governors raided the pension funds.”

The political series of events in the early 1990s that created the pension crisis is very complex, but at the same time the problem was simple: the pension system had fundamental problems that grew into disaster as the state taxed too little and spent too much.

This essay focuses on where New Jersey spent too much.  The Abbott decision is not the primary cause of pension underfunding, but neither is it unrelated.  Without pension underfunding, the massive Abbott spending rampup would have required tax increases that the public would not have tolerated.  The Republican tax cuts of 1992-1996 removed more money that could have gone to pensions than the Abbott mandate did, but those tax cuts did not last as long as the Abbott regime has lasted. Of items on the spending side of the ledger, the Supreme Court’s mandate for “Parity Plus Funding” in the Abbott districts plus two years of Pre-K and 100% state construction responsibility were and remain major contributors to pension underfunding.


1990

There may not have been any good time for New Jersey to embark on as expensive a program as Abbott, but 1990 was a particularly bad time to do it in New Jersey. New Jersey’s economy was already in recession, a federal Social Security tax increase had kicked in, the state had a $600 million deficit that year and a forecast of a $1 billion deficit for the next year.

The deficit was mostly due to the recession, but there was a structural deficit due to pension costs.

Source
https://tinyurl.com/yc9obxdr

The pension system at the time was fully funded, but costs were increasing by 10% a year.  Analysts even then were calling the pension system a "ticking time bomb."  During the previous eight years state government costs in Jersey had doubled, but pension costs had tripled, and COLA costs had quadrupled. Policy makers had realized that in creating a teacher pension system paid by the state but determined by salaries agreed to by local school districts the state had given local districts a blank check.  The locally determined/state funded hybrid pension system incentivized school districts and unions to agree to salary guides that backloaded pay because high pay at the end of a career would translate into salary savings for the school district, but a high pension paid for by state taxpayers.


New Jersey’s governor in 1990 was a former Congressman named Jim Florio. In Congress he had distinguished himself on environmental issues as the author of the Superfund law, but one thing that helped him win the governorship was an oft-repeated statement that the saw “no need for new taxes.”

But in addition to the recession, New Jersey's budget problems were exacerbated by the Abbott II decision of June 5th, 1990. In lofty language, Chief Justice Robert Wilentz said of urban poor students:

The students of Newark and Trenton are no less citizens than their friends in Millburn and Princeton. They are entitled to be treated equally, to begin at the same starting line. Today the disadvantaged are doubly mistreated: first, by the accident of their environment and, second, by the disadvantage added by an inadequate education. The State has compounded the wrong and must right it.

The urban districts were indeed less well-funded than the richest suburban districts, but contrary to popular belief, the future Abbott districts were actually only slightly below the state's average.   Nonetheless, many expected (and wanted) the New Jersey Supreme Court to order more money for urban poor districts, hopefully bringing them up to the 60th percentile in spending.

But the New Jersey Supreme Court went farther than most anticipated with the “Parity Plus Doctrine;”

Obviously, we are no more able to identify what these disadvantaged students need in concrete educational terms than are the experts. What they don't need is more disadvantage, in the form of a school district that does not even approach the funding level that supports advantaged students. They need more, and the law entitles them to more.

Wilentz’ Parity Plus Doctrine meant that the children of the low-resource urban districts (and only low-resource urban districts) had a Constitutional right to the same school spending that children in the richest 108 suburbs got, plus additional money for supplemental programs. The consequence of the “Parity Plus” doctrine was that the state had to find at least $440 million to the Abbott districts within four years at a time when the state’s budget was only $12 billion and the recession was deepening.

Jim Florio praised the Abbott decision as "a clear cut victory for the children of our state," but he knew that it would be politically impossible (and unfair) to give new money to only the Abbott districts, so he thus crafted a proposal to direct over $1 billion in new state aid to the Abbotts plus another 330 districts. The Abbott districts and the other districts to gain aid represented a 75% majority of New Jersey students and, critically, their Assemblymen and Senators represented a majority of the New Jersey legislature.

Despite his statements about seeing “no need” for a tax increase, Florio persuaded the legislature to pass a $2.8 billion tax increase for Abbott plus other programs, the largest proportional tax increase in American state history. Florio and the legislature doubled the top tax rate to 7.0%, increased other rates, added a penny to the sales tax, and created new taxes on everything from trucks to telephone bills to toilet paper.

But new money from taxes wasn’t enough.

If the “Parity Plus Doctrine” was ever going to be affordable the state not only had to give more money to the Abbotts, but it had to reduce and restrain spending in the suburbs whose spending the state now had to match in the Abbotts. Two more mechanisms to both free up money for the Abbotts and restrain suburban spending were necessary.

• Require all school districts to now pay for the pensions, retiree health care, and Social Security costs of their employees, but give new state aid to compensate for those costs to all but “wealthy” school districts. 150 “affluent” school districts would be completely on their own for retiree benefits while another 70 would be partially on their own. 
• Eliminate almost all state aid from the 220 “affluent” districts and give it to the poorer districts. 

Florio passed this far-reaching and expensive reforms and tax increases in a legislative blitz of less than one month.

The State Says "No"

The result of these unprecedented tax and education finance changes was the most ferocious tax and interest group rebellion in New Jersey’s or even any state’s modern history.

Taxpayers were incensed. A group “Hands Across New Jersey” sprung up to protest the tax hikes and change New Jersey’s constitution to allow recalls and voter-initiated referenda. The leader of the “Hands Across New Jersey,” John Budzash of Howell Township, said he was personally unaffected by Florio’s income tax hikes, but his opposition to them was on principle: “It’s ridiculous to try to take money away from people that work and earn their money and give it to people that don’t.”

No less furious was the NJEA. The teachers were adamantly against making local school districts

One Chart Says It All.
Source, Dept of Education

assume responsibility for retiree benefits because they knew that school districts would harden their opposition to raises if they later had to pay pensions on them. As the president of the NJEA said, "If you have to pay the pensions and you want to keep the cost of pensions down, you keep down the salaries." The NJEA did not believe the Florio administration’s assurances that their pensions would be protected if school districts were unable to make their contributions.

Finally, suburban school districts were irate at the near-complete loss of state aid and the new pension mandate, realizing that taxes would double in five years. Faced with inevitable cuts, one superintendent warned “Excellent school systems in the state will become mediocre.” Another said ''Anything that makes our district unique will be put on the chopping block.” When the Florio administration promised to set up a “blue ribbon panel” to help suburban districts deal with their losses of aid Livingston's superintendent said "It's like shooting someone in the kneecap and then appointing a committee to help that person learn to walk with crutches." Since pension costs were increasing by 10% a year, suburban residents felt like Jim Florio was thrusting a ticking time bomb into their arms.

Additionally, Florio’s list of “wealthy” districts slated to lose aid included many districts and many individuals that had never been considered “wealthy” before. Working class towns like Belleville, Hackensack, and Clifton were even slated to lose at least some aid.

As one South Orange resident wrote in the local newspaper:

Yes, I am for equal education, but how many people must I be responsible for? I happen to be a single parent who resides in the so-called “wealthy” village of South Orange. But, we moved into South Orange before the divorce and my family and I are still here because of lots of hard work. Now, as it might happen, when the taxes go up, we might have to move. You ask, how do I feel? I am furious. Furious enough to write. 

...Yes, we will be destroyed. We are being destroyed very slowly but it is happening. Maybe not the wealthy, but we, the blue collar workers won’t be around…. I know where I fit in. I work too hard, I am tired and I am scared. I don’t want to lose my home, uproot my family and have them change schools and friends. I don’t want to change my lifestyle because I must be responsible for other people.

To the residents of many middle class New Jerseyans whose communities faced huge tax increases or cuts, the transformation in state aid and pensions was no “clear cut victory” for their children. The advocates for Abbott may have seen themselves as Robin Hoods, but Robin Hood stole from the rich and in the eyes of the state Jim Florio stole from the middle class.

Jim Florio’s approval rating plummeted to 18%. “Florio Free in ‘93” bumper stickers appeared everywhere. Despite near-immediate backpedaling from the Democratic party, hundreds of Democrats who had nothing to do with Abbott or Florio were voted out of office. Bill Bradley barely won reelection to the Senate in 1990 against an underfinanced and obscure county freeholder named Christine Todd Whitman. The NJEA endorsed scores of Republican candidates in the legislative elections.

The Democrats and Jim Florio went into a rapid retreat before 1990 even ended. $360 million originally intended for education was redirected to tax relief. The aid cuts to suburban schools were suspended. The plan to have local school districts pay for retiree benefits was suspended. The suspension and later cancellation of aid cuts to the suburbs and offloading pension responsibility was doubly costly in the long-run. First, the state lost the offset it needed to pay for Abbott; second, by removing a constraint from suburban spending the suburbs could spend more than they would have otherwise. Since the funding for the Abbott districts was judicially tied to spending in the suburbs, when wealthy districts approved large budget increases it automatically meant large percentage increases in the Abbotts.

All of Florio's retreat wasn't enough to save the legislative Democrats and hundreds of Democratic office holders at the county and local level.  In 1991 Republicans won veto-proof control of the legislature.

Pension Responsibility Dropped

Despite the tax rebellion and the reversal of his plans to financially support the “Parity Plus Doctrine,” Florio, the Education Law Center, and the NJ Supreme Court were still determined to increase state aid for the Abbotts. Florio had become notorious for his “$2.8 billion tax increase” but the tax increase hadn’t created that much revenue and the state still had a deficit. The Republicans, for their part, were still determined to undo Jim Florio’s sales tax increase, a $600 million annual loss. For a solution to the budget crunch and to avert severe cuts to middle-income school districts, Florio and the legislature turned to reducing the state's annual pension contribution.

The New York Times wrote simply:

The protests [from middle income districts over lost aid] quickly dissipated when education officials announced plans for the extra infusion of $341 million, which would be made possible by reducing the state's contribution to public employee pension funds.

The reduction of state contributions was made legal by the Pension Reevaluation Act of 1992. The Pension Reevaluation Act changed the actuarial valuation of NJ's pension assets and increased the expected rate of return from 7.0% to 8.75%. Overnight, the value of NJ’s pension funds rose from $24 billion to $29 billion. Due to PRA, New Jersey could legally spend $770 million less in FY1993 and FY1994 (combined) on pensions and $570 million less thereafter, much of which could go to schools.

It should be noted that pension reevaluation had been considered before and many states reevaluated their pensions in the same way. The Pension Reevaluation Act’s reassessments turned out to be correct given that they preceded the booming 1990s stock market and economy.

Most of the public sector unions accepted pension reevaluation, however, there was one group from the AFL-CIO that sued the state and denounced pension reevaluation "They'll want to balance the budget with our pension monies."

It was under Christine Todd Whitman that the state totally committed to "buy now, pay later."   Whitman kicked the last leg out of Florio’s strategy to pay for Abbott and the rest of government by cutting income taxes by 30%.

The top two brackets remained higher than they were pre-Florio, but the tax cuts cost NJ hundreds of millions of dollars a year and that could have gone into the pensions. Whitman also stopped pre-funding retiree health costs too in the "Pension Reform Act of 1994."

Despite the tax rebellion and the absence of any offsets to fund Abbott, over the next decade the New Jersey Supreme Court repeatedly overruled the legislature on state aid laws, ignored warnings about pensions being underfunded, and added new mandates for Abbott funding, such as two years of “free” Pre-K and 100% facilities funding (which eventually cost $8.9 billion). Flush with money from the booming 1990s economy, Whitman sent a tidal wave of money to the Abbotts. From 1989-90 to 1995-96, state aid for the Abbotts increased from $1 billion to $1.8 billion. By 1997 the Supreme Court’s Parity Plus mandate was reached and the Abbotts equaled or exceeded spending in NJ’s richest districts.

Source, DOE Public Data for 1996-97 onward, OPRA request data from 1989-1996. http://pension360.org/chart-a-history-of-new-jerseys-pension-payments/ and WSJ for pension data.

From 1996-1997 to 2000-2001 the state increased Abbott aid from $1.8 to $2.5 billion. Even the early 2000s recession put no dent in Abbott funding, with funding increasing even more rapidly as the Pre-K mandate kicked in, reaching $4.1 billion a year 2004-2005 and $5 billion now. From the early 1990s to 2010, the percentage of state education aid going to the Abbotts rose from 28% to 61% even as their share of the state student population fell from 25% to 20%.

And in 2000 the legislature authorized $8.6 in bonding for (mostly) Abbott construction, the largest bond offering in NJ history.  ($8.6 billion = $11.83 billion in 2015 dollars)

As the state put more and more money into the Abbotts it put less and less into pension system. In 1990 New Jersey had put $750 million into the pension system. From 1994-1996 the state only put in $200-250 million. The PRA’s assumptions turned out to be correct, so even the lower funding should not have been fatal to the pension system, but then in 1997 and 1998 the state started to ignore actuarial recommendations and put in less than $100 million per year.  Even after the stock market bubble burst in 2001, Gov. Donald Di Francesco increased pension generosity by 9% (retroactively to retirees). Starting in 2001 the state began a multiyear streak of contributing nothing while it massively increased Abbott funding.  It is not a coincidence that the big rampup of Abbott spending in the early 2000s were the worst years for pension contributions.

Ultimately, when the state couldn’t offload pension obligations onto local districts it dropped them altogether. 

 

The Impossible Compromise

Abbott was implemented after a four-way compromise between the taxpayers, suburban districts, the NJEA, and the Education Law Center. 

The compromise was supposed to be that taxes stayed moderate, the suburbs kept their aid, pension costs remained a state responsibility, and the Abbotts saw massive increases in aid. But the state drastically reduced its pension contributions and then abandoned contributions altogether.

Policy makers have been slow to realize that a tidal wave of pension debt is hitting New Jersey. The full actuarial contribution NJ should be making for pensions is at least $5 billion and the unfunded liability is $83 billion. Annual payouts are $9.65 billion and rising. Even if the funds meet their investment benchmarks, the pension funds will “zero out” starting in 2021 and the teachers’ own fund will zero-out in 2027. No version of a “Millionaire’s Tax” brings in anywhere near enough money even for the actuarial payment. The debts are on the verge of unpayable.

The Abbott decision represented as far as any American state has come in attempting to give (some) poor children opportunity equal to wealthier children. NJ’s urban districts did need more aid than they were getting in 1990 and Jim Florio tried honestly to deal with the costs of Abbott funding and preexisting issues in pensions, but the fierce counterreaction showed that the state was not ready to accept higher taxes and the teachers were not willing to give up future wage growth in order to have a sustainable pension system.

Arguing over the relative roles of the Whitman tax cuts and Abbott funding in creating the pension disaster is a moot argument because the Whitman tax cuts have already been reversed and income tax rates in New Jersey are higher now than they were under Florio. The high funding levels of the Abbott districts do still exist and the Supreme Court remains blind to the state’s fiscal reality as well as the non-results of Abbott funding. In 2011, even after revenues had fallen by billions and the ticking of the pension time bomb was audible again, the Supreme Court blocked the cuts to the Abbotts, while allowing cuts to all other districts. Christie accepted the decision and the state reverted to making negligible pension contributions.

Implementation of the Abbott decision is not the sole reason New Jersey has pension problems, nor even the primary reason, but it is a major reason. The Abbott decisions was more or less of a factor at different times, but the early 2000s, when pension payments were $0 and Abbott funding increased enormously, were a time when Abbott and pension underfunding are the most clearly linked. New Jersey’s governors have been irresponsible, but so has the whole political establishment, including the NJ Supreme Court, the legislature, and special interest groups.

At this point New Jersey's pension debts are so enormous that allowing the Abbott districts to have more modest levels of funding would not be sufficient to balance the pension system, but just because something doesn’t completely solve a problem doesn’t mean that it isn’t, unfortunately, necessary.  If New Jersey is ever going to put its house in order cuts to the Abbott districts must be made.

See Also:

• The Abbott List Has Always Been Unfair
• The NJ Supreme Court and the Evisceration of the Debt Limitation Clause
• New Jersey Underfunds Higher Education

"Why NJ's School Funding Reform Act of 2008 failed and where we go from here"

Newsworks ran my op-ed on the unfundability of SFRA.

The op-ed says what everyone who follows NJ's budget should know but doesn't seem to realize.

... SFRA was a method of distributing new aid and not a redistribution of the existing aid stream. In order to prevent any redistribution of aid -- especially from Abbott districts -- SFRA contained a provision for something titled "Adjustment Aid." Adjustment Aid guarantees that any district for whom the new SFRA aid calculations give less aid than it got under the previous funding law that it would be "held harmless" and could keep their old aid and even receive aid growth at 2 percent that first year.

If New Jersey had experienced economic and revenue growth after 2008 and the state could pour an additional $2 billion a year into SFRA, New Jersey's school districts might finally have fairness based on needs and resources, but the reality is that SFRA was signed at New Jersey's peak employment. The recession hit the next year and Jon Corzine himself and later Chris Christie slashed over $1 billion in funding from New Jersey's public schools.

And now even though the recession has been over for over five years, New Jersey has no chance of fully funding SFRA now and the ideology of the next governor is irrelevant.
The reason for this is plain: the Pension Crisis. New Jersey's unfunded pension liabilities verge on being unpayable - $82.7 billion as of mid-2014. For FY 2013, New Jersey's pension funds paid out $9.1 billion in pension benefits but only received $4.6 billion in contributions from the state, localities, and active employees. The $4.5 billion gap means that the pension funds are rapidly depleting and will start to "zero-out" within a decade. According to Moody's, even if the pension funds hit their 7.9 percent investment goal (which they didn't in 2014), the Judicial Retirement System will go broke in 2021, then the Police and Firemen's Retirement System and the state portion of PERS in 2024, and then the biggest fund, the Teachers' Pension and Annuity Fund (TPAF) will go broke in 2027.

Lakewood: An Underaided School District

Lakewood is one of New Jersey's most demographically unique communities. Whereas in all other NJ communities private schoolers are a small minority whom the Board of Education barely deals with, in Lakewood an overwhelming majority of students are private schoolers and private school parents control the Board of Education. While Lakewood's unique demographics present some one-of-a-kind problems for the schools there, in its severe state aid underfunding Lakewood is like many other districts in New Jersey.

The point of this blog post isn't to defend everything that happens in Lakewood. Indeed, some things that the Lakewood BOE appears to do, like placing Jewish special needs students in (semi-)sectarian private schools, are not defensible. Some anger at the Lakewood Board of Education is justified, but this anger should be tempered by the knowledge that Lakewood is one of New Jersey's most underaided districts.

Taxes

One accusation that has surfaced is that since Lakewood's Board of Education consists of majority private school parents that the parents are anti-tax and are willing to let the public schools "starve."

A fact to note is that Lakewood's equalized school taxes are comparable to the school taxes in neighboring and peer-size districts in South Jersey.

District Name	Lakewood	Jackson	Toms River	Brick	Howell
Equalized Tax Rate	1.1082	1.2623	.66-.96	0.9495	1.1838

Indeed, Lakewood's equalized school tax rate is higher than that of Summit, Millburn, and Princeton, three districts in New Jersey that are never accused of shortchanging public education.

State Aid and Funding

Despite its equalized tax rate being similar to its neighboring districts, Lakewood's schools are much less well funded.

District Name	Lakewood	Jackson	Toms River	Brick	Howell
Per Pupil Spending	$11,682	$13,415	$12,065	$13,157	$14,558

Compared to nearby Abbott districts, all of which except Asbury Park have LOWER FRL-eligible rates, Lakewood's schools are even comparatively more underfunded.

District Name	Keansburg	Long Branch	Neptune Township	Asbury Park
Per Pupil Spending	$21,389	$15,148	$15,638	$28,229

Why are Lakewood's schools so badly funded? Most people immediately attribute primarily this to high private school transportation expenses in Lakewood, but a large part of the reason is Lakewood's relative lack of state aid:

District Name	Lakewood	Jackson	Toms River	Brick	Howell
Property Wealth Per Student	$1,188,155	$727,547	$947,427	$1,121,383	$928,944
Median Income (2010)	$35,634	$86,327	$71,934	$52,092	$68,069
State Aid Per Student	$4,023	$5,553	$4,150	$3,836	$5,051
FRL Eligible	86%	21%	28%	31%	17%

Lakewood has, by far, the highest percentage of students who are FRL-eligible of its neighboring, large districts but it receives the second lowest amount of aid per student from the state.

One ostensible reason for the low state aid is that Lakewood nominally has a high property valuation per (public school) student and this increases Lakewood's Local Fair Share and thus decreases the amount of Equalization Aid that Lakewood should receive. SFRA isn't followed anyway, but even if it were followed the same usage of property wealth to calculate Equalization Aid that works for other school districts in New Jersey does not work for Lakewood.

Most districts in NJ that have high property wealth per student have valuable industrial property, commercial property, or retail property, none of which requires anything from the school system. Lakewood is completely different because the only reason it has high-ratables is because it has thousands of houses full of private school children who inflate Lakewood's Local Fair Share but then require a variety of services from the public school system.

As Lakewood's longtime BOE attorney Michael Inzelbuch said, "The law never imagined a Lakewood."

But even property wealth is only half of the calculation of Local Fair Share and income is the other half.  Not only is Lakewood's median family income lower than its non-Abbott peers, it is even lower than many Abbotts.

Lakewood's $35,600 median household income is the same as Newark's and lower than Keansburg, Long Branch, and Neptune Township, all of which are Abbott districts. Asbury Park's household income is a little lower than Lakewood's, but then again, Asbury Park gets $24,000 per student in state aid plus Pre-K. In other words,

Finally, Lakewood is simply underaided even by SFRA's flawed recommendation for it.  Lakewood's uncapped state aid is $40.3 million, but it only receives $24.5 million.  Lakewood's per student aid deficit is $2558, the largest deficit in Ocean County.

Lakewood's underaiding doesn't excuse inefficient private transportation bus routes or overuse of expensive private school placements for children with special needs, but critics of Lakewood should consider Lakewood's underaiding in any descriptions of Lakewood's budget problems.  Lakewood isn't the most underaided district in New Jersey, but it is emblematic of the irrational, off-formula, and unfair distribution of aid in our state.

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See a 2016-17 Update on the "Origins of Lakewood's Budget Disaster."