Thursday, January 28, 2016

Education Law Center Softens Opposition to Aid Redistribution (Barely)

The Education Law Center has come out with a new statement on Adjustment Aid and the prospect of some or all of its being redistributed.

(Adjustment Aid is aid districts get that is above what they economically and demographically need.  It is legalized aid hoarding and is unacceptable when there are 118 districts in NJ that get 50% or less of what SFRA recommends.)

The ELC appears to begrudingly accept some redistribution since the statement asks the state to not cut aid for Adjustment Aid districts that are below Adequacy but says nothing about maintaining aid levels for Adjustment Aid districts that are above Adequacy.  

From time to time, New Jersey lawmakers raise the prospect of altering the school funding formula by reducing hold harmless aid – called “adjustment aid” in the formula – in some districts and “redistributing” that aid to other underfunded districts. These proposals are a reaction to Governor Chris Christie’s continuing refusal to fund the state aid increases required by the School Funding Reform Act (SFRA), the landmark weighted student funding formula enacted by the Legislature on a bipartisan basis in 2008. 
“Districts across the state are experiencing the negative impact of Governor Christie’s decision to chronically underfund the SFRA formula,” said David Sciarra, Education Law Center Executive Director. “However, in the rush to find ‘dollars’ for our public schools, we urge lawmakers not to cut adjustment aid from those districts currently spending below their SFRA ’adequacy budget’.”  [my emphasis]
Although the ELC puts the words redistributing and dollars in quotes, like they are too disgusting to utter, this is a softening of their earlier stance against any redistribution.  As welcome as this is, their new stance is still highly limiting of the amount of money that would be freed up and would create a set of unfair unintended consequences for high-tax districts and perverse incentives for low-tax districts.  

Accompanying its statement on Adjustment Aid, the Education Law Center provides a list of districts getting Adjustment Aid, where districts are grouped according to being above Adequacy or below Adequacy.   According to the ELC, there are 71 below Adequacy districts getting Adjustment Aid and 106 above Adequacy districts getting Adjustment Aid.  

  • The above Adequacy Adjustment Aid districts get $174,024,179 in Adjustment Aid.
  • The below Adequacy Adjustment Aid districts get $381,745,553 in Adjustment Aid.

In an $8 billion K-12 aid distribution, Adjustment Aid going to above Adequacy districts is barely 2% of the total.  This is not enough to help many of NJ's neediest districts.

Thus, the ELC's redistribution scenario presents a practical problem in that it does not free up nearly enough aid for desperately underaided and desperately below Adequacy districts.  

If the only Adjustment Aid districts that the ELC would accept aid cuts to are above Adequacy, then there is only $174 million theoretically available (and surely these districts wouldn't lose all of that in one year.)

Redistributing part of the $174 million is better than nothing, but it wouldn't be enough to help NJ's most underaided districts.

And even more limiting is the fact that many of the Adjustment Aid districts that are above Adequacy undertax and therefore their surplus about Adequacy is less than the Adjustment Aid they get.  For instance, even though Pemberton gets $32 million in Adjustment Aid, it is only above Adequacy by $14 million.

This means that their Adjustment Aid amount is greater than the amount of spending they have above Adequacy. and thus could not lose all of their Adjustment Aid if they are to stay above Adequacy.

District(Nominal) Amount of Adjustment Aid 2015-16Spending Above Adequacy
Asbury Park$24,422,872$13,901,975
Beverly City$863,310$213,799
Lower Cape MayReg.$6,528,185$2,116,251
Manchester Twp$1,531,444$963,844
Middletown Twp$6,694,364$715,837
Morris School District$252,972$50,052
Mount Holly$1,059,003$488,442
Ocean Twp (Ocean)$5,948,204$1,889,703
Pemberton Twp$32,419,492$14,286,373
Tinton Falls$1,596,766$1,043,779
Union Beach$73,023$7,079
Washington Twp (Burlington)$283,400$103,281
West Morris Reg.$695,639$651,903
Wildwood City$3,567,304$87,993
Woodbine Boro$761,240$399,126

HOWEVER, due to undertaxing by above-Adequacy Adjustment Aid districts, the amount of Adjustment Aid available to redistribute is reduced by $80,968,203 ($80,968,203 = $125.6 million - $44.7 million), so from $174 million to only $93 million.

$93 million is an inadequate amount to help NJ's neediest distrticts.  

The ten most underaided districts alone (Manchester Reg, Bound Brook, East Newark, Fairview, Freehold Boro, Guttenberg, Manville, Lodi, North Plainfield, Haledon)  have a combined deficit of $91 million.

The ELC's stance is also a philosophical problem because it rewards districts for not accepting their fair tax burdens and rewards districts for shirking their tax duties.  For instance, Jersey City would be exempt from cuts under the ELC's stance, even though Jersey City only pays a third of its Local Fair Share.  Toms River would be exempt as well even though it pays 65% of its LFS.  

Even Allenhurst, an ultra-ultra-high resource non-operating district that pays less than 1% of LFS, would not lose aid under the ELC's preferred scenario.  

The ELC correctly cites the tax cap as a problem because it prevents districts from raising taxes to reach their Local Fair Share.  This is a problem, even though Jersey City taxes $225 million below Local Fair Share, at its $114 million tax levy the most it can increase taxes in a year is $2.8 million.

However, the ELC does not call for a waiver for sub-Local Fair Share districts like it called for one for Newark.

  • "Increase the City of Newark’s local contribution, utilizing  waivers of the 2% annual property tax cap;"
So, this section of the ELC's new Adjustment Aid statement:

  • Is inaccurate by omission because it does not recognize that these districts are under Adequacy because of their own taxes being too low, not because the state isn't giving them enough money.

Also, by focusing on Adequacy there is no chance at all for more aid for an underaided but above Adequacy districts (like West Orange, which accepts an awful tax rate to stay above Adequacy) to get more aid.   

If below Adequacy Adjustment Aid districts are shielded from cuts, then they are rewarded for not paying their fair share for their schools.

And yet this is exactly what the ELC calls for:

To take one example: the Toms River Regional School District in Ocean County currently spends $43.7 million below the district’s SFRA adequacy budget. Under the 2% cap, the district could raise only $2.7 million more from local residents. The district receives $11.8 million in adjustment aid. It’s clear from these figures that adjustment aid is a crucial component in the Toms River school budget, as administrators and staff struggle to provide students with an adequate education.

Cutting adjustment aid in Toms River, Middle Township, Jersey City, Atlantic City and other districts spending below their SFRA budgets would lower spending even more and trigger cuts to teachers, programs and services needed for a thorough and efficient education.

Again, many of the below Adequacy Adjustment Aid districts tax significantly below their Local Fair Shares and can economically pay more than they are currently.

Why does the ELC miss this opportunity to call for a tax cap waiver?  Districts like Overaided districts like Toms River and Jersey City are going to need these waivers eventually anyway since their tax levies cannot keep up with budget growth and they are not entitled to more aid.  

Finally, it should be noted that the ELC uses the nominal amounts of Adjustment Aid given for 2015-16, even though these figures for Adjustment Aid are badly out of date and would not be the amounts districts would get if the SFRA formula were properly run.

This use of the out-of-date Adjustment Aid amounts significant because there are districts that get money labeled "Adjustment Aid" but who are actually underaided and whose Adjustment Aid should be converted into other streams of aid.  For instance Atlantic City receives $7.8 million labeled as "Adjustment Aid," but that Adjustment Aid is a relic of when Atlantic City had a high Equalized Valuation.  As for 2015-16, Atlantic City is badly underaided by $31.6 million and that Adjustment Aid should become Equalization Aid.  

Newark is another example; it gets $13 million in money labeled "Adjustment Aid," but is actually underaided by $131.6 million.  Likewise with Trenton; which gets $21 million labeled "Adjustment Aid," but is actually underaided by $30 million.  

No informed person want Atlantic City to lose aid.  Atlantic City's Adjustment Aid is fake and the ELC knows it, so is the ELC bringing them up the prospect of Atlantic City losing aid to scare people away from even considering cutting Adjustment Aid?

Overall, the ELC's new stance is equivalent to a cry "No matter what you do, don't make Toms River and Jersey City raise their taxes!"

Again, I feel the fairest means of redistribution is simply to use actual aid versus uncapped aid and to grant a tax waiver to districts that are taxing below Local Fair Share.

Friday, January 22, 2016

GE Leaves Connecticut and the Parallels for NJ

Connecticut’s political class is at war with itself now over what is responsible for General Electric’s decision to move its corporate headquarters from Fairfield, Connecticut to Boston, Massachusetts' South Seaport.  Republicans emphasize that Connecticut's high taxes pushed GE out, but Democrats argue that it was Boston's economic ecosystem that pulled GE away.

Although this is a blog about New Jersey education aid, as we will see, the Nutmeg State's saga with GE has many parallels for the Garden State too.

Connecticut, like New Jersey, has a pension system that is less than 50% funded. Connecticut's mean income is very high, but its economy has been stagnant for decades and has been growing by less than 1% a year.  The Tax Foundation ranks Connecticut as having the country's 44th worst taxes, just a few notches above New Jersey, which comes in 50th.  Governing Magazine ranks Connecticut as the country's most indebted state per capita.  Moody's ranks Connecticut's indebtedness second worst.  Connecticut the country's second most indebted.  Connecticut also has zero or negative population growth and is losing its young especially.

Connecticut is also a suburban state, without a large, prosperous city.

To respond to Connecticut's huge projected deficit, Gov. Daniel Malloy proposed in the spring of 2015 $1.5 billion in tax increases for the next two years, of which $700 million came from increased taxes on corporations.  This tax increase came only four years after Daniel Malloy passed another $1.5 billion tax increase in 2011.

The business tax increases are complex, but, included an increase in the sales tax on data processing from 1% to 3%, a reduction in tax credits, and a change to Connecticut's tax accounting rules to require something called "Combined Reporting."

Combined Reporting (also called "Unitary Reporting") is a policy that prevents corporations from using subsidiaries to shift profits from high tax states to low tax states.  In a sense, Combined Reporting closes a loophole, but corporations also say that it is unfair because it taxes businesses on income genuinely earned in other states.

Whatever the merits of Combined Reporting, GE derived little revenue from Connecticut subsidiaries and paid next to nothing in Connecticut state taxes.   Since Connecticut has a 9% corporate income tax (tied with NJ for the 6th highest in the US) and it did not have a "Throwback Rule," the imposition of Combined Reporting was tantamount to a large tax increase for many multistate Connecticut companies.

You can argue til the cows come home that Combined Reporting is fair and budgetarily necessary, but GE did not care and immediately announced that it was considering moving to a state with a "more pro-business environment."

In a press release:

FAIRFIELD, CT – June 1, 2015 – Reports that Connecticut officials intend to raise taxes by another $750 million dollars [for one year] are truly discouraging . Retroactively raising taxes again on Connecticut’s residents, businesses and services makes businesses, including our own, and citizens seriously consider whether it makes any sense to continue to be located in this state. The Connecticut economy continues to struggle as other states offer more opportunities and a better environment for business growth. It is essential that Governor Malloy and legislative leaders find a more prudent and responsible path forward for Connecticut and its citizens in their current budget negotiations.
GE executives presumably did not want to be in a location whose top income tax bracket to was 6.99%, either, but they were silent in public on this.

Gov. Malloy scaled back his tax increases by over $200 million, agreed to delay by one year the Combined Reporting imposition, cancelled the data processing tax, and agreed to give GE very large tax write-offs, but GE elected to leave anyway.

Republicans said that GE was concerned about the long-term tax picture and thus Connecticut's special offers to GE were not enough to keep the company in Fairfield.

Much later (in Dec 2016) Dannel Malloy confirmed that GE was worried about out-of-control CT pension costs:

The governor acknowledged that when he tried to convince General Electric officials to keep their headquarters in Connecticut, company leaders expressed concern over the rapidly escalating pension bill. GE announced in January 2015 that it would move its headquarters from Fairfield to Boston. 

As Republican state rep John Frey said “They just wanted the taxes that were imposed to go away. They didn’t go away entirely. They were hoping that that the root cause – unfunded pensions – would be addressed, and they weren’t. Their confidence in Connecticut government was shaken.”

Connecticut Democrats explain the relocation by saying it is about a reorientation in corporate strategy where GE is moving away from finance and towards technology and that therefore Boston, with its unmatched constellation of top-flight universities, was a superior place to be located than suburban Connecticut. Liberals and many neutral commentators also state that it would be advantageous to GE to be 15 minutes from Logan Airport and a flight anywhere in the world.

Democrats can cite GE itself, which had spent most of 2015 protesting planned tax increases in Connecticut, for not mentioning taxes at all in its final relocation announcement.

GE perhaps did not want to public draw attention to the fact that it paid no Connecticut business taxes, so in its relocation announcement, GE praised Boston's diverse, educated workforce as the primary motivation to relocate:
“Today, GE is a $130 billion high-tech global industrial company, one that is leading the digital transformation of industry. We want to be at the center of an ecosystem that shares our aspirations. Greater Boston is home to 55 colleges and universities. Massachusetts spends more on research & development than any other region in the world, and Boston attracts a diverse, technologically-fluent workforce focused on solving challenges for the world. We are excited to bring our headquarters to this dynamic and creative city. ”
Both Republicans and Democrats are correct in my opinion, since there are two decisions that GE made here. The first decision was to leave Connecticut in the first place.  CEO Jeffrey Immelt said that GE had been considering a move for three years, but did not initiate a formal review until June, when the tax increases were proposed.  The second decision was to relocate to Boston. The first could be caused by Connecticut's terrible tax burden, the second could be caused by Boston's many workforce advantages.

Some might diminish the tax motivations of the move because Massachusetts is a "high tax" state, but this belief about Massachusetts is false.

It is a myth that Massachusetts is "Taxachusetts."  Massachusetts had high taxes a generation ago, but today Massachusetts' taxes are AVERAGE.

Massachusetts is ranked by the Tax Foundation as only having the 25th highest taxes in the country. Indeed, Massachusetts' personal income tax is a flat 5.1%, which is the 13th lowest in the USA. Massachusetts' 8% corporate income tax is higher than average, but still a full percentage point lower than Connecticut's (or New Jersey's).

Massachusetts has Combined Reporting, but at a lower corporate tax rate (8% instead of 9%) and the $145 million in city and Massachusetts tax incentives made Boston advantageous in terms of taxes.

Also, Massachusetts' pension system is over 70% funded.  That isn't great, but it is much better than Connecticut's ratio and thus GE could have some confidence that there would not be another round of huge tax increases in another four years.  By contrast, even after Connecticut's latest round of tax increases, there is still a $1.7 billion deficit forecast for the next two year budget cycle.

The New Jersey Connection

There are a several aspects of GE’s departure from Connecticut that are relevant to New Jersey aside from the overriding fact that New Jersey also has an impossible pension crisis.

First, New Jersey also has lost some high-profile businesses to Massachusetts either entirely or in part. Sanofi Aventis reduced its Bridgewater presence in favor of Cambridge, Massachusetts. Bristol-Meyers Squibb also moved from New Jersey to Cambridge. Other New Jersey pharmaceuticals companies like Johnson & Johnson, Novartis, and Pfizer have passed up opportunities to open new centers in New Jersey in favor of Massachusetts.

Some New Jerseyans might argue that the "Second Massachusetts Miracle" disproves the conservative contention that high taxes kill jobs and that therefore New Jersey can and should increase its own taxes.

The New Jersey Policy Perspective provides an example of this argument:
... state corporate income taxes represent a tiny share of business costs and are far from being the main driver of business location and investment decisions. Total state and local taxes paid by corporations averageless than three percent of corporate expenses, with state corporate income taxes representing less than 10 percent of that three percent, on average. It is highly unlikely that combined reporting would have enough impact on corporate bottom lines to affect decisions about whether to invest in New Jersey. Corporate executives typically rank taxes low on their list of site selection factors, well below the availability of a high-quality workforce and transportation infrastructure – assets that are harder to pay for when states are deprived of revenue through corporate tax avoidance.
Indeed, the conservative contention is wrong as a blanket statement, but Massachusetts is not a high-tax state anymore and Massachusetts' university-industrial complex and urban (ie, Boston) advantages cannot be duplicated.  In other words, a business pays a lot to be located in Boston, but they get back a lot too.

Some New Jerseyans might compare New Jersey to New York State, which does indeed have very high taxes and yet is dramatically outperforming New Jersey, but this is a specious comparison because three-quarters of the growth New York State is concentrated in New York City.

The rest of New York State is not doing well.  Upstate New York's economic problems are well-known and population loss continues, but even Long Island's economy is anemic and highly dependent on New York City commuters. 

High-growth can exist with high-taxes, but only if other conditions are met, such as a "creative and dynamic" city and a highly-educated, tech savvy workforce.  New Jersey lacks the former completely and does not possess the latter in comparison to  high-growth places like Boston, New York City, and parts of California.  New Jersey is losing the young, educated, innovative people that corporations want to employ.

Second, the imposition of Combined Reporting is also highly relevant to New Jersey because there are progressive groups who are calling for New Jersey to impose Combined Reporting too.
Under combined reporting New Jersey could collect a substantial amount of revenue it is legally owed. Combined reporting could boost corporate tax collections by 10 to 20 percent, bringing in hundreds of millions of dollars that would help preserve education, health care and other services that boost the state’s economy.
The New Jersey Policy Perspective estimates that Combined Reporting could bring in $235-$470 million in revenue annually.

The CWA echoes the NJPP's call for Combined Reporting (plus other tax hikes, including a 1.5% corporate tax surcharge that would give NJ the second highest corporate taxes in the US after Iowa and the highest among Combined Reporting states.)

However, the NJPP's estimate assumes that higher corporate taxes won't drive away a single business. Even if New Jersey corporations are bluffing on leaving the state, a governor doesn't know that with total confidence and NJ corporations could use the threat of relocation to extort large tax concessions for themselves, as GE did from Connecticut before GE left anyway.   

Also, New Jersey (like Connecticut) has a structural budget deficit primarily due to pension payments.  Connecticut's 2011 $1.5 billion tax increase was followed only four years later by another $1.5 billion increase and there is no end in sight to Connecticut's budget problems.  If New Jersey were to raise taxes it would only temporarily close the budget gap.

The liberal contention that educated workforce = strong economic growth and therefore we should tax ourselves to long-term prosperity has some significant exceptions.  New Jersey and Connecticut, even if they are behind Massachusetts, both have highly educated populations and prestigious colleges that other states would love to have, and yet, as we have seen, their economies have lagged the national average for years.

Conservatives don't have it right either about having low taxes = a great economy either.  New Jersey needs to invest more in education and infrastructure, but that investment should be in research-centered higher education more than the exceptionally high Pre-K and K-12 spending called for in SFRA to satisfy the benighted NJ Supreme Court's Abbott obsession. Maybe it's time to finish the Hudson-Bergen Light Rail to help Hudson County and Bergen County become the kind of exciting urban environments where Millennials want to live and where economic growth is happening?

In conclusion, Connecticut's economic stagnation and budgetary problems belie the claim that New Jersey's problems are all due to Chris Christie and that the state would somehow be doing significantly better if we had a Democratic governor.  GE's departure from Connecticut - which was at least partly due to taxes combined with a desire to be in an exciting, dynamic city - should also give anyone caution that New Jersey can use tax increases solely to get itself out of its budget crisis. At least some businesses will leave and take their taxes and spending with them.

And fully funding SFRA, which the Education Law Center glibly demands in order to deflect proposals that Adjustment Aid be eliminated, is preposterous.  

Real pension reform (ie, reductions to current retirees) is necessary.


See Also: Gutting Pension Reform = Gutting State Aid

Wednesday, January 20, 2016

Sweeney Says that Property Taxes will be a Priority, Says "Adjustment Aid" Should be Eliminated!

The Asbury Park Press has now written an article about their interview with Steve Sweeney.

In the article Steven Sweeney says "property taxes will be a priority" and says that he and Jennifer Beck are working on a more equitable distribution of state aid by eliminating the "hold harmless" provisions in SFRA, ie, eliminate "Adjustment Aid."

Sweeney, D-Gloucester, told the Asbury Park Press editorial board that lowering the property tax burden requires good decisions about sharing services by counties, municipalities and school districts and that the state’s affordability issues are broader than property taxes.

But he said that property taxes, which rose by a statewide average of 2.4 percent last year, the fastest growth since 2011, will be a priority.

“I absolutely intend to. Look, I have never not focused on that,” Sweeney said. “But my point is you have to do a lot of these things. Look, (exempting more seniors’ income from taxation) will help seniors be here some more, too. We have to fix property taxes. There’s no argument on that.”

“Property taxes are right up there. They’re right at the top, and fixing the school funding formula or at least redistributing the aid will assist in that,” Sweeney said.

More than 14,000 New Jerseyans signed an Asbury Park Press petition calling on state lawmakers to reduce property taxes, for long the No. 1 issue in the state, according to opinion polls.

Sweeney said he’s been talking with Sen. Jennifer Beck, R-Monmouth, about a more equitable school funding plan. One change he envisions: eliminating the so-called “hold harmless” provision that protects some districts from having their aid cuts — even if enrollments decline. [my note: "Hold Harmless aid is Adjustment Aid. It also should be noted that Adjustment Aid protects districts from aid losses even if the district's wealth increases enormously.]
Sweeney, however, acknowledges how difficult state aid reform is politically.
The challenge in making that change is that the change costs districts funds their hometown lawmakers won’t endorse. Hoboken could be cut by $1.8 million, Phillipsburg by $4 million, Jersey City by $48 million.

“This is one of those issues that it’s going to be very hard to get 21 and 41,” Sweeney said, referring to the number of votes a bill needs to pass the Senate and Assembly, “but there’s a fairness issue. Our school funding formula worked. One of the big problems was the hold-harmless clause.”
Sweeney of course is correct about the difficulty of getting legislative majorities for aid reform, but there are some non-legislative opponents of reform he doesn't address.  The Education Law Center has come out staunchly in favor of Adjustment Aid as well.  The ELC's report on Adjustment Aid, is highly misleading, as I've written about here and here.
Click for a higher resolution.

Again, Steve Sweeney is the only Democratic gubernatorial  talking about property taxes and state aid fairness.  Sen. Ray Lesniak, in listing "10 Traits Needed By NJ's Next Governor," didn't mention anything even remotely relating to taxes.  Phil Murphy, whose "New Way for NJ" has a nine-part agenda and whose "New Start New Jersey" has a separate, overlapping agenda, also doesn't even mention anything relating to taxes.  Mayor Steven Fulop, also skips mentioning taxes, and since he cancelled Jersey City's tax reassessment, opposes even the basic principle of fair taxation.

Sweeney, even recently, has proposed very expensive measures like expanded Pre-K and fully funding pensions (which is economic suicide), but through his support for state aid reform, he recognizes that the problem with New Jersey's property taxes isn't just the level, but the unevenness.  Sweeney also doesn't indicate that he thinks NJ's other taxes have reached crisis levels.

(As a minor note, I do not think the numbers Sweeney and Michael Symons give for overaiding are correct.  The APP gives $1.8 million in excess for Hoboken, $4 million for Phillipsburg, and $48 million for Jersey City.

According to data from the Department of Education, those districts are overaided by $4.8 million, $2.6 million, and $111 million, respectively.)

Anyway, reforming state aid is a very heavy political lift, but I am grateful to Steve Sweeney (and Jennifer Beck) for trying.

Tuesday, January 19, 2016

Steve Sweeney Again Acknowledges Need to Redistribute Aid

Steven Sweeney did an interview with the Asbury Park Press editorial page today.

The APP is sow far only sharing the interview via Twitter (specifically reporter Mike Davis' feed), so I'm only getting tantalizing bits of what Sweeney said, but the Twitter feed does indicate that Sweeney is supporting the redistribution of state aid!!!

Sweeney talking ins and outs of school funding: "If you take $ from a dist that's over 100% funded, the call is 'You're raising my taxes.'"
Sweeney: We're working on legislation to address overfunding of school districts, working with @jenbecknj
"You deal with the supt's, asking 'Why is this district getting more than what's seen as adequate funding while I'm less than half?'"
Sweeney tells APP's edit board issue of equitable school funding will be addressed by Legislature. Says he's working with Sen. Beck on it. 
Sweeney: "There's going to be winners & losers. If you're a loser you're not going to be happy. But we have to look at fairness of funding."

I think that compared to Steve Fulop and Phil Murphy, Sweeney is the gubernatorial candidate with political courage. I don't agree with Sweeney's constitutional amendment on pensions nor Pre-K fixation, but I respect Sweeney for having the guts to address New Jersey's toughest issues.

I await more news about the legislation Sweeney is referring to.  As of now I've read nothing.

Update:  More information is available from the Asbury Park Press!

My blog follow up.

Thursday, January 14, 2016

Debt and the Inevitability of State Aid Cuts for NJ

Recently I found an important state report on New Jersey's debt.

The report is sobering for everyone and should be a wakeup call to anyone who believes that New Jersey's current level of K-12 aid is sustainable.

First, this is a graph, produced in the report itself, on debt service costs for school construction bonds, of which over 70% has gone to the Abbotts.

As you can see, school construction debt service costs are expected to rise significantly over the next few years.  Given our stagnant revenue and the intense pressure to put more money into pensions, the increased bond servicing costs from (mostly Abbott) school construction will cut into Pre-K money and K-12 operating aid.

Add caption
The bigger pressure on K-12 aid will come from the need to put more money into the pension system.

Source, NJSpotlight,

More significantly, New Jersey is already one of the US's most indebted states by multiple measures of indebtedness.

The state Treasury Department took figures from Moody's and demonstrated that New Jersey is one of America's most indebted states.

It's shocking that New Jersey has more tax-supported debt than much larger states like Pennsylvania, Virginia, Florida, Georgia, and Texas but that is the reality.

Anyway, anyone who thinks NJ is ever going to fully fund SFRA is woefully ignorant of New Jersey's economic climate, other pressing needs, and deep debt.

SFRA is never going to be fully funded and the only hope badly underaided and underfunded districts have is more money through redistribution.

Monday, January 4, 2016

New Jersey's Convoluted Law on Private School Transportation

One of the most bizarre laws in New Jersey's complex of unfunded mandates is the law on when public school districts have to pay for a portion of private school transportation.

The law is complex, but it is tied to the law for bussing regular public school kids.

The law for public school bussing is that if a K-8 general education child lives more than 2.0 miles from his or her school, the district must bus him or her.  If a child in grades 9-12  lives more than 2.5 miles from his or her school the district must bus him or her.

The law on private school bussing is basically such that if a school district has sending zones that trigger any mandatory public school bussing, it must also provide busses or cash payments for transportation to K-8 private school children who live more than 2.0 miles from their school and 9-12  private school children who live more than 2.5 miles from their school.  

Note: The private school must be non-profit.

The cash payment is known as "Aid in Lieu of Transportation" and is $884.  The amount is supposed to increase with inflation, but the legislature has frozen the payment at $884 for several years.  If transportation costs per student are less than $884 districts are supposed to provide a bus; if costs per student exceed $884 districts are supposed to provide the payment.
(update, the aid-in-lieu payment was increased to $1,000 per qualifying student for 2017-18)

The only discretion a district has regarding private school transportation is whether or not to provide courtesy bussing if the private children live closer than 2.0 or 2.5 miles from their schools.  .Lakewood is the only district I know of that provides courtesy bussing to private school students.

The law on private school transportation is very convoluted because when it was passed in 1967 the United States Supreme Court would not allow public money to go to parents who might spend it on religious (usually parochial) school tuition, but would allow public money to go to peripheral expenses, such as transportation.

At the time, the Supreme Court's doctrine was contained in a 5-4 decision known as Everson v BOE, in which the United States Supreme Court majority decided that transportation was so removed from "religious indoctrination" (as critics called parochial schools) that it was Constitutionally allowable.

Coincidentally, (Everson v BOE) arose out of New Jersey:
New Jersey cannot consistently with the 'establishment of religion' clause of the First Amendment contribute tax-raised funds to the support of an institution which teaches the tenets and faith of any church. On the other hand, other language of the amendment commands that New Jersey cannot hamper its citizens in the free exercise of their own religion. Consequently, it cannot exclude individual Catholics, Lutherans, Mohammedans, Baptists, Jews, Methodists, Non-believers, Presbyterians, or the members of any other faith, because of their faith, or lack of it, from receiving the benefits of public welfare legislation.
While we do not mean to intimate that a state could not provide transportation only to children attending public schools, we must be careful, in protecting the citizens of New Jersey against state-established churches, to be sure that we do not inadvertently prohibit New Jersey from extending its general State law benefits to all its citizens without regard to their religious belief [330 U.S. 1, 17]
Measured by these standards we cannot say that the First Amendment prohibits New Jersey from spending taxraised funds to pay the bus fares of parochial school pupils as a part of a general program under which it pays the fares of pupils attending public and other schools. 
It is undoubtedly true that children are helped to get to church schools. There is even a possibility that some of the children might not be sent to the church schools if the parents were compelled to pay their children's bus fares out of their own pockets when transportation to a public school would have been paid for by the State. The same possibility exists where the state requires a local transit company to provide reduced fares to school children including those attending parochial schools, or where a municipally owned transportation system undertakes to carry all school children free of charge. 
Moreover, state-paid policemen, detailed to protect children going to and from church schools from the very real hazards of traffic, would serve much the same purpose and accomplish much the same result as state provisions intended to guarantee free transportation of a kind which the state deems to be best for the school children's welfare. And parents might refuse to risk their children to the serious danger of traffic accidents going to and from parochial schools, the approaches to which were not protected by policemen. Similarly, parents might be reluctant to permit their children to attend schools which the state had cut off from such general government services as ordinary police and fire protection, connections for sewage disposal, public [330 U.S. 1, 18] highways and sidewalks. 
Of course, cutting off church schools from these services, so separate and so indisputably marked off from the religious function, would make it far more difficult for the schools to operate. But such is obviously not the purpose of the First Amendment. That Amendment requires the state to be a neutral in its relations with groups of religious believers and non-believers; it does not require the state to be their adversary. State power is no more to be used so as to handicap religions, than it is to favor them.

Hence, in 1967 under Richard J. Hughes, New Jersey was allowed to support private schools, but had to do it in a very indirect, convoluted way.

In the decades after Everson until the 1990s  the SCOTUS  restricted the ability of states and districts to funding private schools due to Establishment Clause issues, but the SCOTUS never overturned Everson.

(It should be noted that in NJ there are other public subsidies for private education, including textbooks, nursing, and now security, but these subsidies come from state taxpayers and are automatically "passed through" by local school districts to private schools within their boundaries.

The only public subsidies for private schools that come from local taxdollars are for transportation.)

The convoluted nature of New Jersey's transportation law creates numerous bizarre and often unfair consequences.

If a child lives in a bussing town and attends a private school a few miles away, he or she gets money. If a child lives in the same town, but attends a private school in the town that is under 2.0 miles from his or her home, she or he gets nothing.

Most medium-sized and large districts do have to pay for bussing but compact districts - like Glen Ridge and Verona - don't.

(Note. Only the scenario is real.  These are not photos of real Newark Academy students.)
Even if a town is compact and only a few streets are more than 2.0 or 2.5 miles from the school, bussing is triggered for all private school children (whose schools meet the remoteness threshold).  For instance, in Cedar Grove only a few streets are more than 2.5 miles from Cedar Grove High School, but even though only a handful of kids in Cedar Grove qualify for mandated bussing, all private school kids there living more than 2.0/2.5 miles from their schools get bussing.

Constitutionally, the Bussing Law Can Now Be Changed

Anyway, the Supreme Court changed its interpretation of the Constitution on the provision of public money to private and religious schools in 2002 in another 5-4 decision, Zelman v. Simmons-Harris.  Zelman allowed vouchers to be used at religious schools if the following tests were met.

  • the program must have a valid secular purpose
  • aid must go to parents and not to the schools
  • a broad class of beneficiaries must be covered
  • the program must be neutral with respect to religion
  • there must be adequate nonreligious options
Zelman's affirmative verdict for public money going to private (even religious) schools means that New Jersey could reform its convoluted law on private school subsidies if it wanted to and set up a simple parental subsidy program.  Unless the NJ Supreme Court takes an extremely activist path, there should not be a state constitutional problem in doing this since the NJ Constitution has no anti-"sectarian" "Blaine Amendment." (The Blaine Amendment's origin is obviously anti-Catholic, btw)

Furthermore, in a 2011 case, Arizona Christian School Tuition Organization v. Winn, the US Supreme Court differentiated tax credits from government spending and so said that taxpayers lacked the standing to object to tax credit programs that benefit private, even religious, schools.

Finally The NJ Constitution also has a paragraph expressively allowing transportation to "any school."
3. The Legislature may, within reasonable limitations as to distance to be prescribed, provide for the transportation of children within the ages of five to eighteen years inclusive to and from any school.

Given the NJEA's power, I doubt reform will happen, but the US Supreme Court attitude that once stifled consistent district-to-district and school-to-school assistance to private schools is no longer in effect.  At this point maybe it's time to reform one of the most byzantine and unfair education laws on the books in New Jersey?