Sunday, October 11, 2015

Can the Abbotts Raise Their Own Taxes?

This post is going to be about school tax rates in the Abbott districts and an attempt to evaluate if these tax rates should be seen as too low, appropriate, or too high.

This is an increasingly important topic because of the state's refusal/inability to sustain the very high education spending that became the norm in the Abbotts from 1996 to 2006.  This post explores the capacity that the Abbott districts themselves have to support education in their own communities.

I was inspired to write this by this blog post "State politicians deny millions to Plainfield schools" by David Rutherford, a member of the Plainfield Board of Education.

Ignoring the SFRA

Not surprisingly, Governor Christie has refused to follow the requirements of this act, passed right before he took office, leaving state funded districts in the red based on need. Plainfield is one of the most underfunded districts in New Jersey when it comes to state K-12 aid, according to data from the Educational Law Center. This year alone, the district would receive $22.1 million more if the SFRA was followed [referring to capped aid]. The total loss in funds since 2009 has been above $70 million, and the majority has come over the past four years.

As explained in the August business meeting, the Plainfield Public Schools are facing a projected $11,180,431 shortfall for the 2017 fiscal year, which begins in July 2016. While gross state under-funding is part of that story, districts have, for the most part, learned to operate under those constraints – however painfully they must do so. Unfortunately, the attack does not end there [section on charters]

Plainfield truly is underaided. The $22.1 million (capped) aid deficit David Rutherford referred to equals $2,367 per student. The uncapped aid deficit is twice as high and comes in at $4,106 a student, the largest deficit of the Abbotts. (for 2015-16)

However, what Rutherford doesn't talk about that the Plainfield schools aren't only underfunded by the state, they are underfunded by Plainfield itself.  Plainfield, like almost all the Abbotts, pays nowhere near its Local Fair Share.  Plainfield has not raised its school taxes for three years.

The deficit between Plainfield's actual Local Tax Levy and its Local Fair Share is $18.6 million, nearly equal to the state aid deficit itself and larger than the $11,180,431 budget shortfall that David Rutherford discusses.  $18.6 million divided by Plainfield's 9,220 students is over $2,000 a student.

So why doesn't Plainfield raise its taxes?  Is this a question of Plainfield not being able to raise its taxes or simply not being willing to?  How good a picture does Local Fair Share give of a district's ability to tax itself?

Calculating Local Fair Share

The State of New Jersey has a method of calculating what a district's tax that depends on both Total Income and Equalized Valuation.  (Equalized Valuation is the market valuation of the property in a town)  These values are used in conjuction with multipliers to calculate something called "Local Fair Share."

The formula for Local Fair Share isn't a perfect formula (as we will see below), but it gives an idea of what a  district's resources are.

The formula is:

  • Equalized Valuation x 0.014909959 x 50% + District Income x 0.052921406 x 50%

Since Plainfield's Equalized Valuation is $2,551,739,069 and its Total Income is $844,026,891 Plainfield's Local Fair Share is $41,356,707. (the DOE uses somewhat lagging numbers for Equalized Valuation and Total Income.  You may see different numbers elsewhere.)

This isn't a very high figure, hence the state gives Plainfield $122 million in operating aid (over $13,000 per student), but Plainfield's Local Fair Share isn't trivial either.  

Plainfield's actual Local Tax Levy is only $22.7 million, only 55% of what the state indicates Plainfield is economically capable of paying.

Plainfield is not alone among the Abbotts in paying significantly below its Local Fair Share.

Of the 31 Abbott districts only a single one, Burlington City, has school taxes above its Local Fair Share.

Of the 31 Abbott districts only three more, Phillipsburg, Salem City, and Garfield, even tax above the state's 80% average for taxes as a percentage of Local Fair Share.

Abbott DistrictPercentage of Local Fair Share PaidEqualized School Tax Rate
Asbury Park39%0.5601
Burlington City108%1.656
City of Orange50%0.7779
East Orange42%0.6947
Jersey City33%0.59
Long Branch70%0.7949
New Brunswick69%0.8715
Perth Amboy51%0.7455
Salem City82%1.172
Union City32%0.52
West New York35%0.6799

What gets tricky is a comparison between district underfunding (by not taxing at full Local Tax Levy) and state aid underfunding (by not getting full, uncapped SFRA Aid.)

Eight Abbotts are more underfunded by the district itself.  Eleven are more underaided by the state. Twelve are actually overaided by the state.  (Remember, I measure overaiding by comparing actual aid to uncapped aid.  This only includes Equalization Aid and the three Categorical Aids.)

Abbott DistrictLocal Fair ShareLocal Tax LevyLocal Tax Deficit/SurplusUncapped SFRA AidActual K-12 AidState Aid Deficit/SurplusIf there is an aid deficit, who underfunds more? The state or district?
Asbury Park$16,502,549$6,505,623-$9,996,926$31,939,334$55,407,010$23,467,676
City of Orange$21,661,608$10,874,799-$10,786,809$89,507,314$73,454,820-$16,052,494State
East Orange$44,660,845$18,950,050-$25,710,795$164,678,754$178,156,410$13,477,656
Jersey City$335,745,966$109,961,901-$225,784,065$306,778,250$418,471,290$111,693,040
Long Branch$51,681,518$36,131,331-$15,550,187$51,022,360$42,188,021-$8,834,339District
New Brunswick$39,399,366$27,326,591-$12,072,775$160,599,731$122,777,268-$37,822,463State
Perth Amboy$43,047,549$21,762,553-$21,284,996$164,333,572$159,990,923-$4,342,649District
Salem City$2,904,245$2,392,321-$511,924$16,072,250$16,384,640$312,390
Union City$48,593,609$15,418,637-$33,174,972$217,764,457$177,818,679-$39,945,778State
West New York$42,681,660$14,860,598-$27,821,062$117,351,194$93,312,984-$24,038,210District

Municipal Taxes

The twist with the Abbotts is that their municipal taxes tend to be high.

This means that even though the Abbotts get a lot of state education aid, living in an Abbott district is usually not a great ride tax-wise because most of the Abbotts have high municipal taxes.  A flaw of SFRA's formula for Local Fair Share is that it makes no attempt to consider municipal tax burdens.  

The Abbotts show a lot of variation in all-in equalized tax rates, ranging from a high of 4.151 in Bridgeton to 1.403 in Hoboken, but in general, the Abbott districts tend to have higher all-in equalized tax rates.

(unfortunately I don't have data on municipal local fair share)

Abbott DistrictEqualized Tax RateAverage Residential Tax Bill
Asbury Park City2.05$4,642
Bridgeton City4.532$3,128
Burlington City3.252$4,579
Camden City2.761$1,485
City of Orange4.12$7,793
East Orange4.2$8,444
Elizabeth City3.349$8,809
Gloucester City3.339$3,809
Jersey City2.237$6,799
Long Branch1.948$7,861
Neptune Township2.112$5,886
New Brunswick2.204$6,598
Passaic City3.273$7,046
Perth Amboy2.97$7,046
Salem City4.867$3,758
Union City3.094$7,456
Vineland City2.317$3,732
West New York2.781$6,708

Please notice the tax bills and how they would be fairly high in relation to residential income. 

The average tax bill in Plainfield is $8,136.  The average tax bill in Summit is $16,623.  Summit's median household income is over $60,000 a year higher than Plainfield's.

To give another example, Paterson's average residential tax bill is $8,852.  Millburn's average residential tax bill is $21,706.  If you think that that is unfair, consider that Paterson only had a median household income of $34,086 in 2010 and Millburn's median income was $165,603. A Millburn resident has a lot more money to pay that tax bill.

Municipal aid is supposed to equalize for low tax bases but municipal aid in New Jersey is not as progressively distributed as education aid is. (and education aid is not consistently distributed progressively either.)

If you moved from a middle-class town to a typical Abbott your tax bill would be lower, but only because your property is worth less, not because of lavish state aid enables a lower tax rate. The money the state gives Abbott districts has to be spent on education after all.  It does offset school property taxes, but other taxes remain high.

As usual, where the unfairness lies is in how New Jersey fiscally brutalizes poor non-Abbotts.  Poor non-Abbotts have the same problems with paying for municipal government that Abbotts have but inadequate help with paying for their schools.  The residents of most Abbott districts pay fairly high property taxes but they get a lot for their money, including well-equiped and staffed schools and two years of state-funded Pre-K.

Selected High-Need Non-Abbott DistrictEqualized Tax RateAverage Residential Tax Bill
Freehold Boro2.616$6,173
Red Bank Boro2.107$7,361
North Bergen2.79$7,127
Bound Brook3.18$7,797
Prospect Park4.489$9,625
East Newark3.042$6,968
Elmwood Park2.659$8,893

By contrast, the above non-Abbotts have overall tax burdens that are just as bad as the Abbotts but they get much less for their money.  Districts like the ones above are the ones where I think we should direct additional money.

Although Plainfield is indeed underaided by over $4,000 a student by the state (using uncapped aid) and another $2000 a student by itself, its spending is still very high compared to all of the above districts.  For 2015-16 Plainfield's spending is still $16,242 per student.  The districts above wish their spending was that high.  East Newark spends below $10,000 a student.  Belleville is barely above $10,000 a student.

So can the (ungentrified) Abbotts raise their own taxes?  I think they are going to have to raise their taxes just to be in a moral position to demand more money from the state government.  Plainfield's three year streak of not raising school taxes is something Grover Norquist would like.  Right now demanding more state aid but refusing to raise their own taxes is just demanding tax increases on other people or aid cuts to other districts.

The Abbotts are also going to have to raise their taxes because if SFRA were followed (Yeah Right!) the Abbotts would not gain as much as they did in the Big Abbott decade of 1996-2006 and some would be flat-funded.

The fact that the Abbotts will not be able to increase taxes enough to keep up their budgets without cuts just underscores however how we are leaving the Abbott Era.

The Abbotts still dominate the actual distribution of aid, but the year is coming soon when they no longer outspend most middle-income and many affluent districts.  The Abbott grip on the state aid distribution is as tight as ever, but the middle-income and affluent districts that can raise their own taxes will do so and soon outspend the Abbotts again.

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