Wednesday, September 28, 2016

NJ's #1 Aid Hoarder Endorses Phil Murphy

Sept 28th in Jersey City:
Phil Murphy is Only Against Insiders Who Don't Back Him
Steve Fulop of Jersey City has announced he will not run for governor of New Jersey and is supporting Phil Murphy.

Fulop has become New Jersey's most scandal-tarred Democratic elected official.

Fulop's withdrawal is taking place amidst a swirl of negative publicity around shady dealing around his 2012-13 employment by a car importer that wanted to pay lower rent at Port Newark and a $1 million donation from Vivek Garipalli, the CEO of a for-profit hospital chain that is notorious for price gouging.  There is the backround controversy around Steve Fulop's own "mini-Bridgegate" regarding when the Jersey City police blockaded a Port Authority facility for no honest reason.

Fulop's withdrawal also comes amid intensifying criticism of the fairness of Jersey City's state aid, as Jersey City receives $130 million more than SFRA recommends it get and related criticism over Jersey City's exploitation of New Jersey's law on tax abatements, including from the State Auditor.

(Figures in Millions)
The embarrassment over Fulop's cancellation of Jersey City's long-overdue tax reval in 2013 hasn't ended.  Jersey City's last reval was done in 1988.  It had (and has) New Jersey's most unfair property taxes, and yet Fulop cancelled the reval, lying about a reval being a "back door tax hike."

Jersey City has lost the lawsuit from the reval firm that Steve Fulop refused to pay and legal bills and reval costs now exceed $8.5 million too.
So, Phil Murphy claims to be against "political insiders," but that's only when political insiders don't back him.  When political insiders like Sharpe James and Steve Fulop back Murphy, no matter how much mud they have on them, he loves it.

In announcing his endorsement Fulop twice talked about doing "what was in the best interests of Jersey City."  One of those references was closely juxtapositioned with the word "education."

It's a given that Fulop had no reason to endorse Sweeney.  Steve Fulop has been insulted by George Norcross, who is Sweeney's patron. Ideologically, Fulop might feel that Murphy is closer, although the main differences between progressive and moderate Democrats is pensions and Fulop used to support pension reform too.

However, in light of how early this endorsement is, this political background should be considered:
    1. Phil Murphy has little interest in state aid fairness. (he says little about public education in general)  He has been extremely evasive when asked if he would redistribute state aid.  
      • A redistribution of state aid, like Senate President Steve Sweeney champions, would mean at least $100 million a year less for Jersey City.

    2. Phil Murphy has shown no interest in reforming how New Jersey's PILOT law operates.
      • Jersey City exploits the PILOT law to artificially depress its Equalized Valuation and thereby deprive Hudson County of taxes and sustain its school aid.
      • Steve Sweeney has a plank about PILOT reform in his state aid reform bill and is pro-PILOT reform.

Fulop's claim that Phil Murphy is his "friend," is not believable.  Murphy made an ethics complaint against Fulop last month for Fulop's spending mayoral money on his gubernatorial campaign.  In March, Fulop made a veiled insult of Murphy for being a Goldman Sachs career employee, whereas Steve Fulop had left Goldman to serve in the Marines.  Two weeks before withdrawing, Fulop said Murphy's campaign was "desperate and floundering."  Murphy swiped back at Fulop in an ad reminding voters that Murphy hasn't gotten any anonymous $1 million donations.  (like Fulop had from Vivek Garipalli.)

So Murphy and Fulop weren't friends before this but they are now. Fulop is the first major Democrat to endorse Murphy.  Up until now Murphy's biggest prize was an endorsement from the mayor of Paramus.

So the Murphy+Fulop "friendship" is something everyone who cares about equitable aid should be concerned with.

Senator Ray Lesniak said it best about Fulop's endorsement of Murphy,"Phil Murphy cut a deal with the devil."

New Jersey beware.

See Also:

Tuesday, September 27, 2016

The Economy and Abbott: What the NJPP Missed in NJ's Fiscal Disaster

The New Jersey Policy Perspective, a think-tank based in Trenton, has just put out a report "The Notorious Nine: How Key Decisions Sent New Jersey’s Financial Health Spiraling Down Over Two Decades," on the origins of NJ's fiscal disaster.

Written by Gordon MacInness, NJPP president,  and Sheila Reynertson, NJPP policy analyst, the report is a must-read.

According to the NJPP these are the nine decisions that have wrecked the state:
(the parenthetical statements are my clarifying additions)

  • 1. 1994-1996: Significant Income Tax Cuts Lead to Large Property Tax Increases  (ie, Whitman's 30% cut in income taxes)
  • 2. 1994 Pension Changes Shift Current Costs to Future Taxpayers  (ie Whitman's underfunding of pensions through actuarial gimmicks.)
  • 3. 1994 Retiree Health Benefits Fund Raid and Conversion Frees Up Cash for the Tax Cut But Puts Health Benefits on Shaky Foundation  (ie, more Whitman debt)
  • 4. Facing Growing Pension Hole in 1997, New Jersey Turns to Reckless Borrowing  (ie, Whitman's Pension Obligation Bonds)
  • 5. The New Jersey Supreme Court Opens the Floodgates to More Bad Borrowing  (NJ Supreme Court allows Contract Debt for Pension Obligations Bond)
  • 6. Pension Benefits are Increased Without the Means to Pay for Them  (ie, DiFrancesco's 9% increase in pensions and cuts in employee pension contributions)
  • 7. Long-Term Borrowing to Plug Short-Term Budget Holes Ramps Up  (ie, McGreevey's tobacco bonds)
  • 8. The New Jersey Supreme Court Keeps Blessing Dangerous Financial Practices – Until it is Too Late  (ie, NJ Supreme Court's deletion of the Debt Limitation Clause)

  • 9. Money for Long-Term Improvement of Key New Jersey Asset Grabbed to Cover Current Costs  (ie Christie's neglect of long-term infrastructure needs.)

Something I appreciated about the NJPP report is that it wasn't governor-centric, as so many other explanations of the pension crisis are (example 1, example 2, example 3) and recognized the that the legislature and NJ Supreme Court are also responsible for New Jersey's fiscal crisis.  The New Jersey Policy Perspective even offers some criticism of the 2001 increase in pension benefits/reduction in employee contributions, which is a bold thing for a labor-funded organization to do.

And yet, while it's an interesting, informative report, it is very conventional in claiming that NJ's economic crisis is the result of decisions at the government level.  It's biased in that it discusses the consequences for the pension-system of tax cuts, and ignores the consequences for the pension-system of spending increases in other areas of state government.

Yes, our policy makers have made some gigantic mistakes and done irresponsible things, but our fiscal crisis is also due to our economic stagnation and spending increases, not only tax cuts.

It's the Economy, Stupid!

New Jersey's Economy Outperformed the National
Economy From 1950-2000 Because of the Suburban Boom,
first of residents, then of businesses.  In other words,
Philadelphia and
New York City's losses were NJ's Gains.
What histories of our fiscal crisis never acknowledge is that NJ's Economic Growth has Slowed Dramatically Since 2001.

Yes, the economies of the United States as a whole has also had relatively low growth since the turn of the millennium, as bad as this is on the national level, New Jersey's economic slowdown has been more dramatic.

Source: BLS:

Prior to 2000, NJ's economic growth equaled or exceeded the national average.  For decades, NJ thrived from the suburbanization of middle class residents and then corporations from the struggling cities of Philadelphia and New York City.  During the eight years of Kean Administration, New Jersey added 50,000 jobs a year.

For decades New Jersey thrived because it was cheaper, cleaner, and better governed than our neighbors.  New York City's and Philadelphia's losses were our gains.  

In 1997 New Jersey was thriving and the NYTimes compared New Jersey's economy to the early 1990s recession years and observed:

New Jersey's economy has arrived at an uncertain, anxiety-producing place in the late 1990's: It's called prosperity.
The state has now recovered -- far in advance of New York and Connecticut -- almost all the jobs that were lost in the three-year-long recession of the late 1980's and early 1990's.
Its clout and image as a center of telecommunications research, one of the hottest areas of the national economy, has grown. The statewide unemployment rate has reached a seven-year-low.
At the turn of the 21st century, state demographers and economists predicted New Jersey's growth would continue at nearly nearly same it had over the previous decade.  The Whitman administration's FY2002 Budget (written in 2001) cited predictions that the population would rise from 8.12 million to 9.05 million by 2015, and the workforce would grow from 4.19 million to 4.8 million by 2015.

In reality, New Jersey's average employment average in 2016 is 3,953,972, which was LOWER than what it had been when the Whitman administration made that economic prediction.   New Jersey's population in 2016 is 8.87 million as well.

The New Jersey Policy Perspective mentions nothing about NJ's economic slowdown in its history of NJ's debt crisis, although policy-makers and journalists realized that something was off with NJ's economy.

By 2006, it was apparent to all that NJ's "recovery" from the 2001-2002 recession was actually very weak.

By January 2006, soon after Jon Corzine's inauguration, the New York Times summarized the old conventional wisdom:
FOR years, New Jersey has had this understanding: We are rich. We have great jobs. We are the medicine cabinet and the telecommunications nerve center of the world. We have hatched ideas and industries since Edison was recording sound onto tin-foil cylinders in Menlo Park.
And then pivoted to the new, 2006 reality:
But just as a new governor steps up, with visions of a state growing its way out of fiscal distress, comes some disquieting news: We are not as rich as we used to be. The highest-paying industries are expanding in other states and countries, while in New Jersey some are actually shrinking. The state's fastest-growing sectors employ motel clerks and nursing home aides... 
New Jersey had 20 percent of the nation's jobs in the pharmaceutical industry in 1990, yet slipped to 14 percent in 2004. What's more, the state's share of jobs in Internet service and data processing was cut nearly in half. 
In all, in the five highest-paying sectors -- which include financial activities and federal government jobs, in addition to high-tech businesses -- New Jersey lost 44,000 jobs from 1990 to 2004.  [my emphasis]
Now, ten years later, things have have only gotten worse.
— New Jersey’s $504 billion economy, measured by the Gross Domestic Product and adjusted for inflation, was the nation’s eighth biggest last year. It is driven by high-paying industries — finance, real estate, science and technical services. But the state’s economy has grown a meager 0.8 percent a year since 2000, about half the rate of the U.S., according to the U.S. Bureau of Economic Analysis.

Since 2002, New Jersey’s economy has outperformed the nation just twice — in 2008 when it grew by 0.4 percent while the U.S. contracted by 0.5 percent, and in 2012, when it grew by 2.5 percent compared with the U.S. rate of 2.1 percent.

New Jersey’s economy the past two years slowed, growing 0.9 percent in 2013 and 0.4 percent in 2014, according to the U.S. Bureau of Economic Analysis. By comparison, the nation’s economy grew 1.9 percent in 2013 and 2.2 percent in 2014 to a pace that was nearly six times faster.
Source: Bureau of Labor Statistics:
Note, the trendline was done visually. It is not
statistically based
A 0.8% growth rate is pretty bad, but adjusted for inflation, it is only 0.3% per year.  

In the early 2000s James Hughes had looked at NJ's economy and seen strength, but by the present, James Hughes sees something very different, "Our once great 20th century suburban job creation machine has really faltered in the 21st century.”


  • In January 1980, New Jersey had 3,359,742 jobs.
  • In January 1990 New Jersey had 3,848,483 jobs, or a gain of nearly 500,000 over the previous decade, a 15% gain!
  • In January 2000 New Jersey had 4,128,988 jobs, or a gain of almost 300,000 jobs over the previous decade, a 7% gain.
  • But by January 2016, New Jersey only had 4,354,804 jobs, or a gain of 230,000 over the previous sixteen years, a 5% gain in a timeframe that is six years longer than the previous two comparison points.  
Had New Jersey's employment grown in the 21st century at the pace it grew in the previous 25 years, New Jersey would have an additional 800,000 jobs.  Had New Jersey's employment grown post-2001 at the rate it grew in the 1990s, we'd have at least 200,000 more jobs.

As for GDP itself, between 1997 and 2001, when DiFrancesco and the legislature increased pension benefits, our GDP increased from $408 billion to $454 billion, or $34 billion in 2009 dollars. Between 2001 and 2015 - fourteen years - our GDP increased by only $54 billion, to $508 billion.  

The fact that there are economic causes to New Jersey's fiscal crisis doesn't make our leaders any less foolish and irresponsible, but if NJ's economy were still growing like it used to, we'd be in fiscal stress, not fiscal crisis.

Don't get me wrong, our leaders, especially Whitman and DiFrancesco, were idiots, but not complete idiots since they based their decisions on forecasts that were based on growth that had been the pace up until that point.  

Since what creates a fiscal crisis is the debt to GDP ratio and not the
Post 2000, Public Sector Job Growth
Has Been Disproportionate to
Private Sector Job Growth
raw amount of debt nor debt per person, the stagnation of our economy must be discussed in any honest, thorough history of the Fiscal Crisis.

The New Jersey Policy Perspective is quite aware of NJ's economic stagnation under Christie, but, unfortunately, it never connects our economic stagnation to the Debt Crisis.

(Abbott) Decisions, Decisions, Decisions: 

The NJPP's report is on decisions and undergoing economic stagnation is not a decision like cutting taxes and expanding benefits would be.

I suppose someone could counter-criticize my NJPP criticism for ignoring the strict conception of what the NJPP's report purports to be, so let me clearly describe an issue that directly has led to our debt disaster that unambiguously is a decision: ABBOTT.

The Abbott cases are a series of NJ Supreme Court decisions that

  1. Ordered the state to fund K-12 education in 31 "urban poor" districts above the level of the richest suburbs.
  2. Ordered 100% state construction funding for those urban poor districts. 
  3. Ordered the state to pay for two years of "free" PreK for every child living in an urban, poor district.

During the Abbott spending rampup, New Jersey budget watchers were aware the school funding was causing the state to decrease pension contributions.

The New York Times wrote simply in 1992:

The protests [from middle income districts over lost aid to give more to the Abbotts] 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 valuation of NJ’s pension funds rose from $24 billion to $29 billion. Due to the Pension Reevaluation Act, New Jersey could legally reduce pension and post-retirement medical contributions by $770 million in FY 1993 and $570 million less thereafter, much of which could go to schools.

The NJPP does not acknowledge the strain the Abbott decision has been on state finances, but the spending increase for operating aid alone has been double the rate of inflation.

Most of the aid increase went to the Abbotts:

The New Jersey Policy Perspective would have the public believe that the sole reason pension contributions fell in the 1990s was because of Whitman's tax cuts, but there were spending increases that Whitman made too and education spending, including Abbott spending, was among the biggest.

The New Jersey Policy Perspective only discusses Abbott in the context of state-financed construction debt.

Specifically, the NJPP criticizes the Supreme Court's greenlighting of billions in "Contract Debt," ie, issue debt without voter approval in defiance of the Debt Limitation Clause of the NJ Constitution.

8. The New Jersey Supreme Court Keeps Blessing Dangerous Financial Practices – Until it is Too Late
The state Supreme Court wasn’t done unwinding the force of conservative constitutional financial mandates [ie, the Debt Limitation Clause] with its failure to take up the pension obligation bond. Twice before the case on Gov. McGreevey’s borrowings was heard, the Court was given clear chances to reaffirm the strict boundaries of the clause and twice it passed.

Faced with a 2002 case challenging the issuance of “appropriation” and “contract” bonds, which relied entirely on the good faith that future legislatures would appropriate whatever funds were required for repayment, the Court set aside the question with the exception of bonds to build schools in the 31 Abbott districts (that the Court had ordered in 1995 to receive 100 percent funding for facilities) and to cover up to 40 percent of non-Abbott district capital projects. Effectively, the Court ruled that the Debt Limitation Clause was trumped by the requirement that all children are entitled to a “thorough and efficient” education that includes adequate facilities.[40]

The Court’s decision to protect funding for school facilities was built on a foundation of sand. First, it asserted that school construction bonds were not an obligation of the state, but of the Economic Development Authority, and that bond buyers and credit agencies therefore would not expect the same security as a voter-approved general obligation bond. Second, it assumed that the meager assets of the Fund for the Support of Free Public Schools – which stood at about $100 million – would be sufficient to guarantee repayment of the $2.6 billion in bonds to cover the non-Abbott districts.
Since the NJPP is a liberal group, I was very pleased to see this acknowledgement that Abbott has had any costs (the Education Law Center acts as if Abbott money is pennies from heaven), but the fiscal problem wasn't so much that the NJ Supreme Court accepted Contract Bonding, it was that the NJ Supreme Court effectively ordered it.

This is the text of the Abbott V decision where the Supreme Court (written by Justice Alan Handler) ordered contract bonding (as the Whitman DOE had earlier proposed):

EFA [the Education Facilities Authority] then would issue its bonds in a public offering using the district bonds to secure the debt. EFA does not require statewide voter approval to issue bonds because they are not considered general obligation bonds of the State. Although the State is not obligated legally to provide debt service for bonds issued by the EFA, it essentially is obligated financially and morally because the State's credit rating would suffer severely if EFA defaulted on its obligations.

The NJ Supreme Court had originally estimated that Abbott construction would cost $1.8-$2.4 billion for K-12 space and $260 million for PreK space (see page 46-47), but as Abbott renovation and replacement costs were tabulated and ambitions swelled, the estimated cost for Abbott construction reached $6 billion by 2000.

The NJ Supreme Court only ordered construction money for the Abbotts, ie, "Special Needs Districts."  There was no order of relief for non-Abbotts.  The decisions to give $2.6 billion to non-Abbotts in 2000 was politically necessary though because the legislature would not have approved the debt if non-Abbotts got $0.

However, even that $6 billion amount was insufficient due to waste, and in 2008 the legislature approved another $2.9 billion in bonding for the Abbotts (and $1 billion for non-Abbotts).

The New Jersey Policy Perspective rightly condemns the "Pension Obligation Bonds" that Christie Whitman sold to fill in the unfunded liability that had mostly accumulated during her own governorship, but this statement is erroneous:

The pension obligation bond is three times larger than the next largest borrowing in New Jersey’s history. It also has the most expensive payback, because it carries a permanent interest rate of 7.65 percent and, unlike all other bonds issued by the state, cannot be refinanced to take advantage of lower interest rates.
The relative costs claim - "three times larger" - is not accurate according to the 2015 Debt Report.  The debt service costs of the Pension Obligation Bonds are now about $350 million a year and will grow to $500 million by 2020 before being retired in 2029. However, school facilities debt service costs are now around $1 billion per year.  That amount will stay high for many years and will not be completely retired until 2040.  As the state continually borrows more for Abbott construction money, NJ's school construction debt may never be retired.

From the Department of Treasury's FY2015 Debt Report:

Contrary to the NJPP's statement, Abbott construction debt is much larger than any non-pension, tax-supported debt obligation New Jersey has.

According to the Debt Report, of the $35 billion in "Aggregate Obligations Supported by General and Dedicated State Revenues," outstanding school facilities debt is $9,528,414,000.  (see page 12; the $35 billion is not all tax-supported.)

If you factor out state debt that is carried by revenue-generating agencies (eg, transportation) and only look at tax-supported debt, New Jersey taxpayers only owe $16 billion ($15,796,623,000 to be exact), so school construction debt is more than half of what New Jersey owes.(see page 11)

Many people would morally differentiate the Pension Obligation Bond debt from school construction debt because they believe that it was necessary (and overdue) for New Jersey taxpayers to pay for school construction in poor, urban districts.  Ok, point taken, but did the state have to fund 100% of construction?  Did the Abbott facilities have to be so lavish?  Could the state have setup better safeguards to protect taxpayer money?  Could the money from construction have come out of K-12 operating aid?

Many, Many Causes

What I've written here isn't a comprehensive look at the origins of the Pension Crisis, but it is a plea for people to recognize that our economic stagnation is a major cause of the crisis and there were spending-side causes as well as tax-cut causes.


See Also
This Wall Street Journal piece, "Why the Economy Doesn't Roar Anymore" is a good profile of secular stagnation, although it refers to "secular stagnation" as "ordinary growth." 

Wednesday, September 21, 2016

NJ Auditor's Report Finds Deep Flaws in State Aid


NJ's Auditor has come out with a report on school funding and admits what we already know: that state aid appropriations bear no relationship with SFRA recommendations, tax base, or current student demographics.

Funding is not based on current district data.
The SFRA formula distributes aid based on district enrollment and student demographics  (income, special education, language barriers, etc.), as well as other factors such as district  wealth and property values. In fiscal years 2015 and 2016, funding remained static for each district at the fiscal year 2014 funding level for SFRA formula aid categories (with the exception of School Choice and Preschool Aid). Changes in districts’ enrollments, student demographics, and other factors influencing aid were not considered.

The SFRA formula aid has not been distributed per statute since fiscal year 2009. Starting in fiscal year 2010, the Appropriations Acts began superseding part, or all, of the formula.  Through fiscal year 2014, the methods followed for the annual calculations blended past and  current data from multiple years to determine funding, making the distribution convoluted. During fiscal years 2015 and 2016, no data from either year was applied to the formula to determine funding. Consequently, there were significant differences between actual funding and what the SFRA dictates.
I was encouraged to see that the report criticized Adjustment Aid, even though Adjustment Aid is part of SFRA:

Additionally, it should be noted that even though the SFRA formula aid was not distributed in accordance with statute, districts may have received Adjustment Aid. This aid is provided so districts do not receive less aid than their fiscal year 2009 amount. In addition, in fiscal year 2014, Additional Adjustment Aid was distributed per the Appropriations Act to ensure districts would not receive less than their fiscal year 2013 funding. Adjustment Aid and Additional Adjustment Aid can be contrary to the objective of the SFRA since funding may exceed the districts’ actual needs for their current student populations.

More originally, the report claims that SFRA's formula for Special Ed Aid, which assumes that every district in NJ has a 14% classification rate, does not work for scores of districts:

"Our review of districts with 100 or more special education students in fiscal years 2015 and 2016 found that 234 districts (59 percent) and 258 districts (64 percent), respectively, had an actual classification rate that deviated more than 10 percentage points from the statewide average classification rate of 14.78 percent. As a result, district funding is not commensurate with actual enrollment of classified students in many instances."

The report also found that every district getting PreK aid OVERestimated its enrollment.  The overestimates result in an extra payment of $32.9 MILLION.

Our review also noted that every district overestimated their projected enrollment in fiscal year 2015, resulting in overpayments to 32 districts totaling $25.7 million. In fiscal year 2016, 33 districts overestimated their projected enrollment, resulting in 30 districts being overpaid a total of $32.9 million. However, using actual enrollment data, we determined that seven and ten of the SDA districts in fiscal years 2015 and 2016 would still have been held harmless to their fiscal year 2009 funding, resulting in additional overpayments of $10.9 million and $28.2 million, respectively.

The report revealed something I did not know, which is that Abbott districts have been "held harmless" for PreK aid and not just K-12 aid.  This means that if an Abbott districts has fewer PreK students now than it had in 2008, it gets the same amount of money it got before.

The SDA [Abbott] school districts are held harmless to fiscal year 2009 thresholds. They will receive the greater of their calculated fiscal year 2015 or 2016 Preschool Education Aid, as explained above; the amount of aid they received in fiscal year 2009; or their fiscal year 2009 per pupil amount multiplied by their current year total projected enrollment. During our audit period, seven SDA districts were held harmless providing them with $11.8 million and $16.5 million in excess funding for fiscal years 2015 and 2016, respectively.  [my emphasis]
The report also demonstrates disparities in Pre-K aid that are rarely covered:

Districts can operate full-day, half-day, or a combination of both for their preschool programs. The [Early Childhood Program Aid] per pupil amounts are based on full-day preschool programs. Students attending half-day programs receive half of the per pupil amount for each enrolled student. We noted that the per pupil amounts for the 93 districts ranged from $2,036 to $27,663. This disproportionate funding creates educational inequities among the students being served by this aid. 
The DOE response is included.  The DOE concurs with all recommendations except the one for Specia Education.  The DOE says it is working to make Pre-K distributions match enrollment.

Thursday, September 15, 2016

Is Steve Sweeney Overselling His State Aid Proposal?

Readers know that I'm a fan of Steve Sweeney's "Formula4Success" proposal and, because of his stance on state aid, I'm a fan of Steve Sweeney himself.

I see Sweeney's proposal as the progressive, pragmatic, and fair plan for state aid that New Jersey needs. By combining $100 million annual boosts in K-12 education funding with at least $500 million in redistribution from overaided districts, Sweeney's plan could finally be the pathway to fair school funding that New Jersey has been waiting forty years for.  I also am thrilled that Sweeney's proposal will address the distortions of state aid that result from PILOTed property being "invisible" to the formula for state aid and amend the tax cap law too.

And yet, I worry that Steve Sweeney is slightly overselling his aid plan and that it won't bring every district up to 100% of its SFRA recommendation, nor will it end the disparities that vex the state.

To be brief, here's why:
1.  The amount of money being discussed is not enough.
2.  The aid targets may be for Capped Aid, not Uncapped Aid.

So, this is how Sweeney characterizes his plan:

That is why I joined with Senator Ruiz, Assemblywoman Joann Downey and Assemblyman Eric Houghtaling to introduce legislation to establish the State School Funding Fairness Commission.
By June, the panel will recommend revisions to the 2008 law to ensure that state aid is distributed on a fair and equitable basis to all districts, and that fast-growing school districts receive the additional funding they need to compensate for enrollment growth.
We have pledged to add $500 million in additional school aid over the next five years to guarantee that every school district receives 100 percent funding and that the commission’s recommendations are implemented.

I hate to say this, but something is wrong here. $500 million in new aid plus about about $500 million in redistributed aid is only about $1 billion.

According to data I received from the Department of Education, NJ's underaided districts have a deficit of $1,946,380,097 for 2016-17.  Since Steve Sweeney is unambiguously for redistribution, it's the net deficit that matters, which is only $1,378,606,184 (for non-vo-techs). (Hereinafter approximated at "$1.4 billion."  See the chart here to see the numbers)

So the total amount of excess aid is $567,773,913, but some of that is Interdistrict Choice money, which is not subject to redistribution under Sweeney's proposal.

However, that $1.4 billion deficit figure is a moving target since the DOE is supposed to make periodic inflation adjustments to districts' Base Per Pupil amounts, ie, their aid targets.  Although the Christie administration hasn't made these adjustments, the next Democratic Department of Education may do so.  As inflationary adjustments are made, the deficit will grow and the amount of Adjustment Aid to redistribute will (usually) shrink, since the Adequacy Budgets of Adjustment Aid districts will grow.

In any case, $568 million in excess aid, even with another $500 million thrown in, is less than $1.4 billion, even before inflationary increases are factored in and even before excesses from Interdistrict Choice are roped off from redistribution.

So what are Steve Sweeney and his coauthors talking about when they say "100 percent funding"?

The cap is 10% if the district is above Adequacy or
20% if the district is below Adequacy.
It appears they are talking about Capped Aid, with which NJ has a deficit of about $1 billion ($864 million according to Senator Ruiz) and Capped Aid full funding is not real full funding and the distribution of aid under full Capped Aid would still be unfair.

Capped Aid and Uncapped Aid are not aid streams like Equalization Aid, Special Education Aid, and Adjustment Aid are; Capped Aid and Uncapped Aid are aid amounts.

Capped Aid is just an incremental step on the way to Uncapped Aid.

Capped Aid's origins are in SFRA itself:

For the 2009-2010 school year and thereafter, total stabilized aid shall include Equalization aid, Special Education categorical aid, Security Aid, and Transportation aid. 
d. For the purposes of this section, “State aid growth limit” means 10% in the case of a district spending above adequacy and 20% in the case of a district spending below adequacy. 

SFRA also contains a section here ordering the Commission to "adjust" (ie, cut) a district's aid if it somehow exceeded the State Aid Growth Limit.

a. Notwithstanding any provision of this Act to the contrary, the total stabilized aid for each district shall not be increased by more than the district’s State aid growth limit. In the event that total stabilized aid exceeds the prebudget year total by a rate greater than the State aid growth limit, the commissioner shall adjust the components of total stabilized aid so that they total exactly the prebudget year total increased by the State aid growth limit.

So, if a district was getting $50 million pre-SFRA (ie, 2007-08) and SFRA said it should get $90 million (ie, $90 million is its Uncapped Aid),the biggest boost the district would get is 10% or 20% of what it got previously, so $5 or $10 million, depending on whether or not the budget was above or below Adequacy.

So calling "Capped Aid" "100 percent funding" is inaccurate.

SFRA never envisioned that districts would lose aid in the Great Recession, so the calculation of Capped Aid is now very opaque, but the basic point is that Capped Aid is tied to what a district got in the past and its own spending relative to Adequacy, not what a district's economic-demographic needs are at the present.

(See Also:
"The Long Wait for Full Funding Under Capped Aid")

Steve Sweeney knows the difference between Capped Aid and Uncapped Aid and his proposal has always contained a clause to correct the unfairness of Capped Aid, but Capped Aid targets appear on the Formula4Success website. (see Edison for example)

If a district is brought up to its Capped Aid the gain is often just trivial.  For Edison to gain only $2.5 million over five years is pathetic.  Edison has a $226 million operating budget, so $2.5 million is 1% of that.  Edison already increases taxes by $5-$10 million per year, so what does an additional $2.5 million do?  

$2.5 million is only $160 per student for Edison.  

What's even more annoying is that since SFRA sets increases according to a percentage of what a district got previously, and not a set amount per student, a high-aid/moderately underaided district would gain more than a low-aid/severely underaided district.

Compare Newark and Red Bank Boro.  Red Bank Boro is underaided by almost $5000 per student.  Newark is underaided by $1800 per student, but Newark would gain the full $1800 (since its existing aid is $14,700 per student) whereas Red Bank Boro would gain not even $400 per student, since its existing aid is only $2100 per student.  

People have brought up the problems of Capped Aid versus Uncapped Aid and the legislation may have been changed to directly the Commissioners to consider Uncapped Aid needs.  

Originally the legislation said:

2. a. It shall be the duty of the commission to study: (1) the adjustment aid and State aid growth limit provisions of the “School Funding Reform Act of 2008” (SFRA), P.L.2007, c.260 (C.18A:7F-43 et al.), to determine recommendations for revising those provisions in order to bring all school districts to their adequacy budgets as calculated pursuant to section 9 of that act over a period of five school years; 

     (1)   the impact of the adjustment aid and State aid growth limit provisions of the “School Funding Reform Act of 2008” (SFRA), P.L.2007, c.260 (C.18A:7F-43 et al.), on the fairness of the school funding formula, to make recommendations for revising those provisions in order to provide full funding of the “School Funding Reform Act of 2008” over a five-year period, and to bring fair and equitable funding to all school districts for enrollment growth over a multi-year period;

"Fair and equitable manner" can mean absolutely anything, but it is an addition to the text and the Commissioners could read it to prioritize districts with the largest deficits relative to Uncapped Aid.

And even if Sweeney's plan is affirmed by the legislature in 2017 and Christie signs it, an additional problem with Sweeney's approach is that it depends on NJ's next governor being pro-reform.

Chris Christie has proven that a governor can ignore the state's funding law if he doesn't like it and the state's revenue is adequate.  If NJ's next governor doesn't like redistribution, wants to do something outside of SFRA, such as give extra aid to charterized districts, or conflates being below Adequacy with being underaided, he can ignore NJ's new state aid law and allow more aid hoarding.

NJ's overaided districts have been passive so far in the face of losing state aid, but once it actually begins to happen and their taxes increase way beyond inflation, they'll howl.

Steve Sweeney or a pro-reform Republican like Jack Ciattarelli may be NJ's next governor, but the governor could also be Phil Murphy or Steve Fulop.

State aid is not a priority for Phil Murphy and Steve Fulop.  They rarely comment on aid to begin with, but when they do, their views are uninformed.  Phil Murphy says he wants to "implement that formula," but is evasive on the subject of redistributing state aid, has made billions in non-education promises, takes inaccurate cheap shots at Chris Christie, and does not recognize that fully funding SFRA without redistribution would cost $2 billion a year.  Steve Fulop is even worse.  He has never admitted the unfairness of Jersey City's state aid level and his strenuous opposition to a tax reval for Jersey City indicates a contempt to fair taxation altogether.

Yet, Steve Sweeney is still just a politician and he has exaggerated what his plan would do.  I still support Sweeney's plan and like Steve Sweeney very much, but aid-activists should clarify with Steve Sweeney about the need to focus on Uncapped Aid, not Capped Aid.  Journalists should also investigate what the true costs to fully fund SFRA would be.

Tuesday, September 13, 2016

Republicans Propose Amendment on School Funding

Crazy!  The Republicans are saying the legislature should determine school funding, not the NJ Supreme Court.  (additions to the NJ Constitution are underlined)

Amend Article VIII, Section IV, paragraph 1, to read as follows:
1. The Legislature shall provide for the maintenance and support of a thorough and efficient system of free public schools for the instruction of all the children in the State between the ages of five and 18 years. Maintenance and support shall be provided through the enactment, from time to time, of laws prescribing the components of a thorough and efficient system of free public schools. These laws shall also provide for the funding of a system of free public schools in the manner and to the extent the Legislature determines to be appropriate, including, but not limited to, the amount of funds to be provided by the State and by the local school districts, the purposes for which these funds are to be expended, the formulas pursuant to which these funds are to be allocated, and the manner and means by which these funds are to be raised; but nothing herein contained shall be construed as requiring any minimum or establishing any maximum amount of funds to be provided by the State, or in any way restricting, limiting, or otherwise affecting the right of the Legislature to regulate the funding of a thorough and efficient system of free public schools in the manner and to the extent the Legislature determines to be appropriate.
2. When this proposed amendment to the Constitution is finally agreed to, pursuant to Article IX, paragraph 1 of the Constitution, it shall be submitted to the people at the next general election occurring more than three months after the final agreement and shall be published at least once in at least one newspaper of each county designated by the President of the Senate and the Speaker of the General Assembly and the Secretary of State, not less than three months prior to the general election.

Thursday, September 8, 2016

New Phillipsburg Palace Opens, 100% State Funded

The new state-funded $127.5 million Phillipsburg High School is opening and it's a palace of a high school.
Even the Nurse's Suite is Beautiful

The building boasts a three-story academic wing, 50 general classrooms, six special education classrooms, 12 small group instruction rooms, three health classrooms, 12 science-related classrooms, three business labs, three computer labs and media center.
Off the 1,000-seat auditorium are the vocal and instrumental music rooms, offering ease of access to the stage. The food court-style cafeteria seats 700 and offers a patio for senior privilege, like the courtyard in the old high school, now revamped as Phillipsburg Middle School. 
The gleaming new successor to The Pit at the old school is a 2,400-seat gym that can be partitioned into five teaching stations for physical education. There's also an 8,900-square-foot auxiliary gym and a fitness center outfitted with gear supporting the "Fit for Life" curriculum, which introduces each freshman to exercise as a lifelong lifestyle.
Four athletic team rooms will be used in rotation for seasonal sports, and are in addition to separate male and female athletic trainer rooms. 
There is a greenhouse attached to the building for agriculture and horticulture classes. An
The Chorus Room
Industrial Technology wing houses computer-aided design and drafting, materials and energy transportation. A TV/radio studio supports the school's media communications curriculum....
The food lab offers gas and electric ranges and ovens, and the pottery/ceramics room has two kilns and one glazing room, all powered by electricity.
Classroom technology also includes computer-linked smart-boards and built-in sound systems to amplify the voices of teachers and students alike so no one misses a thing. 
"This facility, it's a cliche but it certainly applies here, when you say state-of-the-art facility," Phillipsburg schools Superintendent George Chando said during Wednesday's tour. "This is evidence of what a state-of-the-art facility looks like as far as a new high school."
Phillipsburg is only 31% FRL eligible, but at-risk students are going to have their own space too.

For at-risk students, the state-funded School-Based Youth Services Program is housed in a room offering pool tables, ping pong and foosball. Carrying the latest in Stateliner gear, the school store is one of the first things visitors will see after entering through the community entrance for events in the auditorium, cafeteria or gymnasium. That is also the way in to the nurse's office, just past security.

Oh no, the at-risk kids in my town don't have any pool tables, ping pong, foosball.

Laura Waters of NJLeftBehind also wrote about Phillipsburg's new high school.

In her excellent piece she compared Phillipsburg to Belleville, a non-Abbott.

At Phillipsburg High School, for example, 31% of students are eligible for free and reduced lunch, well below other non-Abbott districts that don’t have the fiscal advantages of Abbotts, like state-funded school buildings. For example, at Belleville High School located in a non-Abbott Essex County district, 53.5% of students qualify for free and reduced lunch. 
In Phillipsburg, the average property tax bill is $4,130 because the state picks up so much of the cost of local education. In far poorer Belleville (with slightly lower enrollment), the average property tax bill is $8,585. (See Jeff Bennett for a thorough drill-down, including disparities between Abbotts and poor non-Abbotts for a category called “fair share.”) The state contributes $37,683,171 to Phillipsburg and $26,503,551 to Belleville. Residents of Phillipsburg also get free pre-school, one of the Abbott requirements that N.J. maintains even in rapidly-gentrifying districts like Jersey City and Hoboken. 
And here’s the killer: Phillipsburg is able to spend $16,847 per pupil. In Belleville it's a paltry $11,528
There will be no greenhouses, TV studios, or free pre-school in the far-needier school district of Belleville

From the Unuseable
Section of one of
Belleville's Schools.
Indeed, and Belleville needs $60-$80 million in repairs.  Belleville isn't talking about building a new school, just repairs.

Belleville's facilities problems are difficult to even read about.  There is an elementary school from 1924 whose third floor is totally unuseable.  The middle school is from 1914.  Several of Belleville's schools even lack elevators, making them badly non-compliant with the ADA.  One of Belleville's schools has permanent construction scaffolding up at the entrance so that children aren't hit by falling masonry.

And due to the state's massive overinvestment in the Abbotts and the Education Law Center's attitude that NJ has bottomless wealth, Belleville doesn't stand a chance of getting more than a few million in desperately needed help.

The new Phillipsburg High School is technically only 98.5% state funded because, against the protests of local officials, the state said that localities had to pay for sidewalks and a traffic light since those were not part of the school itself.

Finally, technically Phillipsburg's new high school isn't 100% state-funded since Phillipsburg was made to pay for a traffic light and sidewalks at the driveway of the school.
Despite getting a free $127.5  million high school, Phillipsburg Town Council President Todd Tersigni whined about the cost of the traffic light:

"I would really hope the state of New Jersey would help out in this, because it's all about the kids. It's
Phillipsburg got a 100% State Funded, $127.5
Million High School, but Phillipsburg TC President
Todd Tersigni Thinks It's Unjust That Phillipsburg
Pays for a Traffic Light
all about what's good for the kids.  Whatever it takes."

Todd Tersigni's moral universe obviously ends at Phillipsburg.  He has no idea how privileged in state aid Phillipsburg is or else he evidently thinks kids in poor non-Abbotts should just sprint through traffic to decrepit schools.  

Phillipsburg isn't a typical Abbott.  It's very white and is less than 50% FRL-eligible overall.

However, in the pure selfishness, greed, and blindness to its own privilege, Phillipsburg is very typical indeed.  


See More on Abbott Construction

Thursday, September 1, 2016

The NJ Supreme Court and the Evisceration of the Debt Limitation Clause

Is there any subject in school which American kids are lied to as much as civics?

The "Three Ring Circus":
Real Government Ain't Schoolhouse Rock
Back in many iterations of civics I took in school, I was told that a myth that the legislative branch wrote the law, the executive branch implemented the law, and the judicial branch stepped in to settle disputes over what the law meant.

I remember my 4th grade teacher, Mrs. Eisenberg, telling us the legislature had the "power of the purse" and then jangling coins in front of the class.  With a vivid memory like that, it never occurred to me that judges might control taxes after all.

I was told a constitution could only be changed by an (often cumbersome) amendment process and that a court itself didn't have the power to amend a constitution.

Oh innocent me!

When it comes to lawmaking, few state Supreme courts can match the NJ Supreme Court, who has seized the "power of the purse" and whose judicial "independence" ought to be considered judicial supremacy.

Anyway, I thought I'd provide this handy guide to how the NJ Supreme Court has rewritten the NJ Constitution without the hassle of the legislature or voters having to get involved. (see here for the official text that the NJ Supreme Court cites in its lawmaking.)

The Education Clause 
(Article VIII, Section IV, Paragraph 1)

Original Text:
The Legislature shall provide for the maintenance and support of a thorough and efficient system of free public schools for the instruction of all the children in the State between the ages of five and eighteen years.

Note: The language "thorough and efficient system of schools" appears in several other states' constitutions, including Pennsylvania's, Minnesota's, Maryland's, and Illinois'. This language has not be interpreted in other states as extravagantly as it has been interpreted in New Jersey.

The "thorough and efficient" clause first appeared in NJ's third Constitution, which was approved in 1875.

From those three words "thorough and efficient" the NJ Supreme Court has constructed 21 Abbott decisions, hundreds of pages of legal verbiage, required school spending tens of billions in excess of what NJ's legislature would have given, and helped make NJ the country's third most indebted state.

The Education Clause has never been officially changed, but I think this is a fair reading of what it really means nowadays.

Abbottized Text:
1. The Legislature shall provide for the maintenance and support of a thorough and efficient system of free public schools  [funded in excess of DFG I and J districts]
for the instruction of all the children in the State [districts that were classified as DFG A or B and Urban in the 1980s] between the ages of five three and eighteen years.

My term of art "districts classified as DFG A or B and Urban in the 1980s" means "Abbott districts."

There is a myth that the Abbott districts are NJ's poorest.  Instead, the Abbott list is the overlap of districts who were classified as DFG A or B in the 1980s with districts who were also "urban municipalities" according to a (politicized) Department of Community Affairs listing.  Scores of poor districts were excluded and a handful of non-poor districts, like Pemberton and Hoboken, were included.

I'm being tongue in cheek here about the NJ Supreme Court requiring that the Abbott list be permanently based on 1980s economic conditions.  It is the fault of NJ legislature and governors that the Abbott list has never been updated.

Although many people might contend that two years of Pre-K is educationally justified and worth the cost, it is a long constitutional stretch for the NJ Supreme Court to mandate Pre-K since the plain wording of the NJ Constitution says that the state is only obligated to provide a "thorough and efficient system of schools" for children age five to eighteen.

Anyway, the Supreme Court's changes to the Education Clause were additions.  The Supreme Court's changes to the Debt Limitation Clause is a deletion.

The Debt Limitation Clause 
(Article VIII, Section 2, Paragraph 3a)

3. a. The Legislature shall not, in any manner, create in any fiscal year a debt or debts, liability or liabilities of the State, which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, unless the same shall be authorized by a law for some single object or work distinctly specified therein. Regardless of any limitation relating to taxation in this Constitution, such law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged.
Except as hereinafter provided, no such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon. [my emphasis]

Note: The simple version of this is that NJ's voters must approve debt issuance greater than 1% of NJ's budget. Another way of putting it is "one  Legislature may not incur debts [that] subsequent Legislatures would be obligated to pay, without prior approval by public referendum."

A version of this clause first appeared in the NJ Constitution of 1844, after the Panic of 1837, during which nine of NJ's "sister states" had defaulted. The idea behind the Debt Limitation Clause if that voters had to approve the debt and a method of paying the debt off, NJ would stay responsible and not overborrow.

Shorter Justice Alan Handler:
"An Abbott district's unwillingness to tax itself is
the same as its inability."
The Debt Limitation clause was respected strictly until after WWII, when it began to be eroded by debt for public authorities and one round of unapproved bonding for colleges, however, public authorities (like the Turnpike Authority) and colleges have their own revenue sources, so the repayment was not from tax dollars.

The most egregious violation of the Debt Limitation Clause has been through the bonding for (mostly Abbott) construction in the wake of 1997 and 1998's Abbott IV and Abbott V decisions, in which the NJ Supreme Court ordered 100% state funded construction for the Abbotts.

In the Abbott IV decision, Justice Alan B. Handler considered the truly bad facilities conditions of the Abbotts, but ignored their spectrum of tax base strength and tax stress, ignored non-Abbotts, ignored the massive operating aid the Abbotts were already receiving and then ordered state taxpayers to pay for every cent of Abbott construction, without a sliding scale of local responsibility.  
The State must, as part of its obligation under the education clause, provide facilities for children in the special needs districts that will be sufficient to enable those students to achieve the substantive standards that now define a thorough and efficient education. The quality of the facilities cannot depend on the district's willingness or ability to raise taxes or to incur debt.
Again, notice that Handler doesn't distinguish between willingness and ability to pay; from Handler's opinions, if an Abbott district is unwilling to pay, it is the same as if it were unable to pay.


My problem with the NJ Supreme Court's argument is that the same deplorable conditions existed in non-Abbotts and not all Abbott schools were in this kind of terrible state.   The 100% state funding requirement is unfair to poor districts who are not Abbotts.  By not requiring the Abbotts to make any kind of copay, there is an incentive towards great waste, since the Abbotts are not spending their own money.

Over the two years after Abbott V came out the DOE did a more comprehensive survey of Abbott facilities, the cost of Abbott construction had grown to $6 billion, with another $2.6 billion thrown in for non-Abbotts to make legislative passage possible.  ($8.6 billion = $12 billion in 2016 dollars.)

Obeying the Supreme Court's dictate, in 2000 the Whitman Administration and legislature approved the "Education Facilities Construction Financing Act."  The $8.6 billion bond was NJ's largest single debt offering ever.

As the Star-Ledger reported:

The cost of rebuilding New Jersey's aging and overcrowded public schools could reach $11.5 billion - twice Gov. Christie Whitman's original projection - over the next seven years, state Treasurer Roland Machold estimated yesterday as lawmakers held their first public hearing on the plan. 
Machold said the program to rebuild hundreds of schools will cost taxpayers at least $500 million a year, but the Senate sponsor of the construction legislation, Sen. William Gormley (R-Atlantic), said he thinks the cost is likely to be even higher. He wants lawmakers to plan on spending up to $750 million a year on school construction. 
Either estimate would make school construction a dominant element in state budgets for years to come. It would amount to a 10 percent boost in state school aid, which already accounts for one-third of state spending. Even at $500 million per year, it would outstrip the state's annual spending on highway and mass transit construction, state colleges or welfare.

Lawmakers plan to issue billions of dollars in bonds to pay for the work, but there is no clear consensus on how to raise the $500 million to $750 million it will take to make the annual payments on those bonds.  [my emphasis]  (1)
NJ's state aid at the time was only $5 billion, so the Supreme Court had set in motion construction debt that would consume a tenth of NJ's aid distribution.

The bond issuance was highly controversial and many Republicans objected.

As the Star-Ledger reported:

"Abbott vs. Burke is wrongly decided from the beginning," [Assembly Speaker Jack] Collins said. "This just perpetuates that wrongness."
Collins argued that some of the so-called special-needs districts have prospered since the court case began three decades ago, and he says it is unfair to other needy communities to give the 30 districts special state funding treatment.
"This is illogical. It is wrong," Collins said at yesterday's hearing. "Ninety percent is a number that literally would make dollars available for other districts or for other state projects."  (2)
Collins reasonably said that the state should only pay for 90% of the costs of Abbott school construction, but then-Commissioner David Hespe objected, saying a 90% copay would cause the whole of Abbott to be re-litigated.

Despite the fact that the NJ Constitution says that the legislature cannot issue large debt "in any manner" without voter approval, the obsolescence of the Abbott list even in the 1990s, the legislature bowed to the NJ Supreme Court and approved the bond issuance.

The opposition then came from Mayor Steve Lonegan of Bogota, who was incensed by the debt issuance and organized a group "StopTheDebt" to challenge school construction bonding and (other debts issued) that was taking place without voter approval.

In the Lonegan I decision, Chief Justice Deborah Poritz declared for a 5-1 Supreme Court:

  1. School bonding debt was "sui generis" because the Education Clause, supported by the School Funding Clause, of the NJ Constitution superseded the Debt Limitation Clause.  
  2. The school construction bonding was labeled "contract debt" and bond buyers knew repayment was subject to the appropriations process.

    "Although there is doubtless a strong likelihood that payment of the bonds will in fact be met by legislative appropriations, we find nothing in the statute compelling the State to make such payments as a matter of law."

    I.e., the debt was not backed by the "full faith and credit" of New Jersey, i.e., the debt was not "General Obligation" bonds.  There is no "legal right to compel" repayment.

The legal argument the NJ Supreme Court's decision was rooted not on the NJ Constitution, but the NJ Supreme Court's own case law.

And not in some hoary old precedent that a consensus had crystalized around, but the Abbott V decision of 1998.

we uphold the Act because of reliance by the State on our prior case law, including Abbott v. Burke, 153 N.J. 480, 710 A.2d 450 (1998) (Abbott V), and for the separate and distinct reason that EFCFA was enacted by the Legislature in furtherance of the mandate found in Article VIII, Section IV, paragraph 1 (the Education Provision) of the New Jersey Constitution.

In other words, there's pure self-referential reasoning here.  The NJ Supreme Court decided the Debt Limitation Clause didn't apply because of what the NJ Supreme Court already decided in 1998.

The Supreme Court's Constitutional escape clause was that it was technically legal for NJ to default on school construction debt, and therefore it wasn't really debt.  

Lonegan claimed the "contract debt" concept was "subterfuge employed solely to avoid and contravene the Debt Limitation Clause of our Constitution" but the Supreme Court ignored that.

Post-Lonegan, this was the state of the Debt Limitation Clause:

3. a. The Legislature shall not, in any manner, create in any fiscal year a debt or debts, liability or liabilities of the State, which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, unless the same shall be authorized by a law for some single object or work distinctly specified therein. Regardless of any limitation relating to taxation in this Constitution, such law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged.
Except as hereinafter provided, no such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon.
The most extraordinary deletion is "in any manner," since I would think "in any manner" means "no debt without voter approval," no matter what.


The NJ Supreme Court originally thought Abbott construction would cost $1.8 billion, but even the $6 billion for Abbott construction paid for by the 2000 bonds was inadequate due to systematic waste, exposed by the Inspector General.

The NJ Supreme Court thus ordered a second bond issuance in 2008 for $3.9 billion (of which $2.9 was earmarked for the Abbotts.)  ($3.9 bil = $4.3 bil in 2016 dollars)

As you can see, school construction debt is now nearly $1 billion a year.

Source, 2015 Debt Report

And NJ is one of the US' most indebted states by any measure.

Of course all this bonding has created splendid facilities in Abbott districts:

And poor non-Abbotts were left behind.

East Newark's elementary school is from the 1890s and East Newark is a very poor DFG A town, but the state has ignored East Newark since East Newark is a non-Abbott.

East Newark's School is from the 1890s

The 2008 Constitutional Amendment on Debt Was a Joke

By 2008 NJ was one of the country's most indebted states. Of the state's $32 billion in debt, only $2.8 billion had been approved by the voters as the Constitution required. (The $32 bil doesn't count pension and retiree health care debt.)

In that year the legislature let the voters vote on a amendment that would superficially prohibit the future issuance of Contract Debt. The amendment was primarily authored by Leonard Lance, who promoted it as a way to rein in debt:

"Over the past couple of decades Trenton politicians have used a loophole to avoid the constitutional provision that all state borrowing must be approved by the voters. The Trenton politicians set up what amounts to dummy corporations (state authorities) to do the borrowing for them. Under this system total state debt has ballooned to nearly $40 million. This debt load is unsustainable."

Lance was right about the debt load being unsustainable, but it wasn't "Trenton politicians" who exclusively loaded up NJ on debt.  It was "Trenton Judges," like Alan Handler who forced this massive debt on the taxpayers, plus Abbott district and Department of Education bureaucrats.

But the Democrats only allowed the amendment to go to the voters after they had subtly gutted it.

Yes, the 2008 amendment reads as follows and would seemingly prohibit Contract Debt even for Abbott construction.

b. On and after the date on which this subparagraph b. becomes part of the Constitution, the Legislature shall not enact any law that, in any manner, creates or authorizes the creation of a debt or liability of an autonomous public corporate entity, established either as an instrumentality of the State or otherwise exercising public and essential governmental functions, which debt or liability has a pledge of an annual appropriation as the ways and means to pay the interest of such debt or liability as it falls due and pay and discharge the principal of such debt, unless a law authorizing the creation of that debt for some single object or work distinctly specified therein shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon. Voter approval shall not be required for any such law providing that the ways and means to pay the interest of and to pay and discharge the principal of such debt or liability shall be subject to appropriations of an independent non-State source of revenue paid by third persons for the use of the single object or work thereof, or from a source of State revenue otherwise required to be appropriated pursuant to another provision of this Constitution. [my emphasis]

Since the legislature's approval of this amendment was simultaneous with its approval of the $3.9 billion round of Abbott Contract Debt, and the NJ Supreme Court would reason that since the legislature passed Contract Debt for school construction at the same time it authorized an amendment prohibiting future Contract Debt, that the legislature's intent was to allow Abbott Contract Debt.

This means that the voters in 2008 had no choice but to constitutionalize Abbott Contract Debt: if the voters rejected the amendment, the Lonegan I NJ Supreme Court decision allowing Abbott Contract Debt would stand; if the voters passed the amendment Contract Debt would still be allowed since the amendment was passed at the same time that the legislature authorized other contract debt!

I remember voting for the debt constitutional amendment that year, but it never occurred to me that this amendment wouldn't actually disallow what was one of the biggest issuances of NJ debt.

The 2008 amendment was meaningless. The kind of borrowing for operating expenses that Jim McGreevey had done had already been disallowed by the Supreme Court anyway.
[update, this rationale is why Christie's $300 million bonding for statehouse renovations is legal.]

It's Our Fault

I've criticized the madness and despotism of the NJ Supreme Court repeatedly on this blog, but I have to admit, it's also our fault.

NJ's voters have had many chances to reform Abbott in the last quarter century but we haven't seriously tried to and we've elected politicians who support Abbott.  Steve Lonegan himself has ran for governor, but not even gotten the Republican nomination.

In my opinion, the acceptance of fiscally disastrous policies like Abbott isn't because we support Abbott, but because the true costs of Abbott have been obscured from us.  In the 1990s NJ dramatically cut pension contributions, diverted the pension money into education aid and other spending, and enjoyed a period of moderate taxes despite huge increases in spending.  Highly-informed voters didn't like the borrowing, but there was no urgency to fix anything among most people.

Our politicians and judges deserve a lot of blame for NJ's fiscal calamity, but ultimately, it's our fault. Representative democracy depends on voters understanding the issues and understanding where politicians stand on them.  It's easy to do a Leonard Lance and blame "Trenton politicians" for our mess, but we are the ones who elected and reelected them.

People don't get the laws they want, but they get the democracy they deserve.

Update, this is a history of NJ's school construction debt servicing.  A major reason that K-12 opex aid was flat-funded in the Christie years and municipal aid has been flat-funded continuing into the Murphy years.


More Abbott History:

Sources for Star-Ledger Quotes

(1) "Bottom line on schools may double - Hearing told the tab could hit $11.5 billion"

(2) "Help for poor schools draws fire - Assembly Republicans want to limit spending ordered by Supreme Court"

(3) "New Jersey voters to decide on two statewide ballot questions"