Monday, October 24, 2016

Vincent Prieto Proposal for SFRA II

For years, the loudest silence on state aid has been from Assembly Speaker Vincent Prieto.

Aside from vocational education, Prieto leaves education legislation to other people.  His references to state aid fairness have been nonexistent.

Although most of the legislature, frankly, ignores state aid, Prieto's indifference to state aid is hard to accept because his own District 32 in Hudson and Bergen counties is savagely underaided.

Red indicates Abbott.


So Vincent Prieto's entry into the state aid battle is welcome after years of neglect, but that doesn't mean that Prieto's ideas actually are good ones.

As Prieto wrote with Assemblywoman Marlene Caride in the Star-Ledger on October 24th:
We also recognize New Jersey has not properly funded its schools. It's a longstanding problem that should have been resolved years ago, but remains festering due to economic struggles and political ideology. 
The status quo is unacceptable, but the ideas proposed by Gov. Chris Christie and another approved by the Senate are unacceptable options. 
That brings us to the Joint Legislative Committee on Public School Funding Reform, our proposal to fairly fund schools in our state free of politics and ideology.
Free from politics and ideology?  Excuse me?  How is that possible? There isn't a single person in the edusphere who isn't ideological and the subject of state aid is no exception to that tendency.  Some people worry more about taxes than others; some people worry more about inequity; some people want teachers to be much higher paid.  Everyone with an opinion on state aid is ideological to some degree.  

Anyway, here is the proposal for "SFRA II"
This commission would be modeled after the [PJP - Professional Judgment Panel] 2006 committee that devised the current school funding formula, the first school funding plan deemed constitutional by the New Jersey Supreme Court in nearly 30 years.
The main problem has been the state's failure to fund it. The provisions have been ignored and overridden.

We believe this is still the model, but it's been 10 years, so we can now take a look back at what was right and wrong with that formula....
The committee will review the School Funding Reform Act of 2008 and formulate proposals that address problems and issues that have arisen since the enactment of the law, including issues associated with changes in the demographics and fiscal conditions of districts that have impacted the ability of local communities to support the education of their students.
The 2006 committee availed itself of the expertise of numerous stakeholders. We would expect this committee to do no less. The legislation would create a public school funding reform working group comprised of 12 members from expert education organizations across the state. This working group would serve in an advisory capacity and as a resource for committee deliberations.
No part of the school funding formula or the processes associated with the formula would be off limits. We expect the committee to look at all problems and issues that have arisen in the past 10 years, as well as demographic changes and changes in the fiscal conditions of school districts.
We want a realistic proposal that can be fairly funded annually.
One particular area that we hope will get special attention is preschool opportunities — a proven indicator of future educational success. We also hope the committee will focus attention on funding for special education.

Ok. I'm not enamored of the SFRA PJP committee>legislative amendment process.  According to Chris Cerf, the legislature arbitrarily increased the Professional Judgment Panels' recommendation for weights for at-risk students and created "Adjustment Aid" out of nowhere.

Although Prieto doesn't rule out cutting or eliminating Adjustment Aid, any formula that Prieto's "Joint Legislative Committee on Public School Funding Reform" comes up with will primarily rely on new money for K-12 education and if the next governor decides to prioritize things other than K-12 education or there is a recession, Prieto's "SFRA II" will fail just like the original SFRA did.

Prieto's suggestion that the state put more money into Pre-K education may or may not have merit, but budgeting is a zero-sum game and putting more money into Pre-K would subtract from money for K-12, higher ed, pensions, senior tax rebates etc etc etc.  If Pre-K is provided by public schools themselves, in the long run, Pre-K even increases the state's pension liabilities since Pre-K teachers are pension-eligible public employees.

Pre-K itself is incredibly expensive, around $13,500 per student.  To provide Pre-K to the 50,000 students who are statutorily eligible for it under SFRA would cost nearly $700 million.
Source:
http://bit.ly/2eCFTWE

Although Vincent Prieto has said he would "love a millionaire's tax," increasing rates on high incomes is enough. In 2014, raising the 8.97% top rate to 10.75% on income over $1 million would only have brought in $565 million.  A 2015 version that would also have raised business taxes by 15% would only have brought in $1.1 billion.

$565 million isn't enough.  $1.1 billion would be a good deal more helpful, but it would make our corporate taxes the country's second highest (after Iowa's 12% top rate).  Since New Jersey's other taxes are the highest in the country or among the highest, making our corporate taxes #2 is insane.



The state's debt and pension payments alone increase by nearly $1 billion a year, in some years increasing faster than the state's revenue growth, so the hope we might "grow our way" out of the budget mess is far-fetched.

Prieto is also wrong about why Congress hasn't reopened the base closing process.  Congress hasn't reopened that because it doesn't like the idea of an empowered committee, it hasn't reopened that because it doesn't want to close any more based. Period.

Anyway, I'm glad that Prieto is finally talking about state aid and not ruling out redistribution, but I wish it were something that put redistribution front and center and addressing other problems, such as the state aid growth limits and PILOTing.

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See Also:









Wednesday, October 19, 2016

Biggest Real Estate Gains, Losses, in NJ


This post looks at what towns in New Jersey have seen the biggest gains and losses in their real estate markets in the past four years.

The measurement of real estate value used here is "Equalized Valuation." Equalized Valuation is simply the market value of all taxable real estate in a town.  Equalized Valuation is calculated annually and is used to apportion county taxes and regional school districts.  If one town has 15% of a county's total Equalized Valuation, it pays 15% of county taxes.  If one town has 60% of a regional district's total Equalized Valuation, it (usually) pays 60% of the school levy.

Equalized Valuation is supposed to be used to distribute state school aid, but New Jersey's school funding law (SFRA) is non-operating, so from the point of view of state aid, Equalized Valuation has no bearing.

Equalized Valuation is calculated by taking the average ratio of sales prices to properties' official, assessed price.  If, on average, properties sell for 15% above their assessments, the town's Equalized Valuation is 115% of its official aggregate assessment.  If, on average, properties sell for 90% of assessment, the town's Equalized Valuation is 90% of its aggregate, official assessment.

(In terms of county taxes and state aid, PILOTed properties are the same as tax exempt property because they don't contribute to Equalized Valuation.)

As usual, I've made the data (obtained via an OPRA request to the Treasury Department), available online.



Overall NJ Real Estate is a Stalled Asset

The total value NJ's real estate is barely moving.   In the last four years, the median town's market valuation has only increased by 2.1%.  This lags inflation, which was 3.64% from 2013 to 2016.

The weighted average, however, is an increase of 4.3%, as NJ's total Equalized Valuation increased from $1,159,890,947,281 to $1,209,186,432,406.  That is powered by the gains in the mega-Valuation cities of Jersey City and Hoboken, both of whom are in the top five for total Equalized Valuation and thus have "heavier" weights than 99% of other NJ towns.

South Jersey is Hurting

As always, the average masks great diversity.

Atlantic City and its environs have collapsed, pulling down the state's total. Atlantic County alone has lost $9 billion in Equalized Valuation, from falling from $45.1 billion to $34.9 billion.   Salem, Sussex, Sussex, Cumberland, and Gloucester have also lost Valuation.  Warren's growth has been trivial.

The towns that have lost the most are mostly in South Jersey, although Paterson, Irvington, East Orange and a few other northern cities also appear among the biggest losers.



Click to Enlarge

The Hudson River Shore is Booming


Click to Enlarge

On the other hand, Hudson County has boomed, from $57 billion to $71 billion.  Jersey City alone gained $7 billion, which is 15% of the state's total gain.  Jersey City's $25.7 billion in Equalized Valuation is almost equal to the total Equalized Valuations of Sussex and Warren counties.
Over 14% of NJ's Growth in Equalized Valuation ($7.1 billion
out of $49.3 billion) has been in
Jersey City alone.

The booms in Hoboken, Jersey City, and Weehawken are old news though.  What's interesting about this cycle is that North Bergen, West New York, Harrison, Guttenberg, and Union City have had extremely strong gains.  Would I call North Bergen, West New York, Harrison, Guttenberg, and Union City extensions of the "Gold Coast"?

No.  But they are getting there.   

Kearny and North Arlington did well too, although that could be from increases from non-residential property, such as logistics.

Atlantic City has lost $15 billion
in Equalized Valuation.


Bergen County also gained $9 billion, from $161 billion to $170 billion, with its southern section doing well, including Fairview. Monmouth has gained $7 billion.  

Implications for State Aid

The formula for Local Fair Share in NJ for 2016-17 is

(Equalized Valuation x 0.013156218 + Aggregate Income x 0.046185507)/2

So, for every $100 million in Equalized Valuation a district gains, its Local Fair Share would be increased by $657,810.  Since Equalized Valuation and Aggregate Income usually move in tandem, the actual increase to Local Fair Share would probably be greater than this.

Looking at the towns that have lost the most Equalized Valuation, it's easy to understand why state aid redistribution is so important to Senate President Steve Sweeney.

Sweeney's own District 3 is suffering.  Greenwich, Paulsboro, West Deptford, Penns Grove, and Carney's point are all represented by Sweeney and experiencing increases in their school tax rates caused by declining real estate value combined with increasing taxes.

Chris Christie has kept state aid frozen since 2013-14.  It's unclear what he is going to do in his last budget for FY2018, but regardless, New Jersey's next governor is going to have a lot of mess to clean up as our budgetary crisis and inflexible state aid meet the reality that many districts have gotten poorer and/or larger and need resources currently given to districts that have gotten richer and/or smaller.

Redistribution is Needed Now!!

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See Also 2016 Equalized Valuations Out



Saturday, October 15, 2016

The Long Wait for Full Funding under Capped Aid

When SFRA was passed in January 2008 the designers of the law realized that they were essentially Abbottizing all poor and working class districts in New Jersey, and thus setting extremely ambitious targets for school funding that the State of New Jersey would not be able to reach in a single year.  

Thus, the framers of SFRA created "state aid growth limits," or "caps," for how much new aid a district could gain in a year.  The caps allowed the State to gradually ramp up aid for districts that were hitherto fiscally neglected.  The caps meant that SFRA could be sold to the public as something that could be paid for with new revenue and would not require a tax increase.

The legislative text describing the State Aid Growth Limits is below:

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 Commissioner 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.

The problem with the State Aid Growth Limits is twofold:

1.  The caps are set in terms of percentages, not dollars per student.

2.   Getting a 10% aid increase of a 20% aid increase is dependent on a district being above or below Adequacy, when spending relative to Adequacy is determined in part by local tax effort, not just state aid.

1.  The Percentage Problem

Since the caps are defined in terms of percentages and not dollars per student, a low-aid, severely underaided district would get less new aid than a high-aid, moderately underaided district.  In other words, if districts are getting 10% increases, a deeply underaided district already getting $1,000 per student would only gain is $100; whereas a slightly underaided district already getting $5,000 per student would gain $500 per student.

For instance, if SFRA were funded at its statutory level and the aid caps are followed, Newark's aid would jump by $116 million ($2,300 per student), to $858 million. By contrast Atlantic City, would only gain $2.5 million, or $370 per student.

Newark would get much more than Atlantic City because Newark already gets a lot of aid and Atlantic City gets very little ($19 million in regular aid).

That's not fair but that's SFRA.


2.  The Adequacy Budget Problem

This is SFRA's definition of Adequacy.

(1) For purposes of determining if a school district or county vocational school district is spending above or below adequacy and its applicable State aid growth limit, the district’s spending shall equal the sum for the prebudget year of its equalization aid calculated pursuant to section 11 of this act, special education categorical aid calculated pursuant to section 13 of this act, security categorical aid calculated pursuant to section 14 of this act, and general fund local levy.   [my emphasis]

Since the "general fund local levy" is included in the Adequacy Budget, a district that overtaxes itself and is thus above Adequacy is therefore penalized.

SFRA's caps were a problem in the first place, but since Christie cut aid in 2010 and has flat-funded districts since 2013, SFRA's aid caps even more unfair than they were back in 2007-2008 when they were devised, since districts are even deeper below their uncapped aid levels now than they were.

Let's look at two large, badly underaided, but above Adequacy suburbs, Cherry Hill and West Orange.

For 2016-17 Cherry Hill will get $13,110,005 in state aid, but its uncapped aid is $39,946,051.

Necessitated by underaiding, Cherry Hill's Local Tax Levy exceeds its Local Fair Share by $34 million ($159 million versus $125 million.)

It's unclear to me what Cherry Hill's Capped Aid is. Data I got last February directly from the DOE gave it at $14.2 million, but newer data on the DOE's website in "Additional School Funding Scenarios" gives Cherry Hill's capped aid at $16.5 million, a figure that I believe is based on Cherry Hill's 2008-09 aid.

Let's use the higher $16.5 million amount.  

Again, Cherry Hill's taxes are so high that it actually is above Adequacy, so its increases would be only 10% per year.

10% of $16.5 million is $1.65 million.  That's not even 1% of Cherry Hill's $191 million Total Operating Budget.  Cherry Hill already increases its taxes by $4-$5 million per year, so increases in the $1.65 million ballpark are nice, but only small offsets of Cherry Hill's steadily increasing tax burden.

But what's significant is that assuming Cherry Hill raises its taxes enough to stay above Adequacy, it would take Cherry Hill 11 years to get to what its 2016-17 full funding should have been.

And since inflation will erode the value of money and Cherry Hill's Uncapped Aid target will rise, the wait for true, full funding will be even longer, perhaps 20 years.


But Cherry Hill does much better than West Orange, another overtaxed, yet badly underaided district who is nevertheless above Adequacy.  West Orange would have a 14 year wait to full funding (again neglecting inflation).


For a district that is below Adequacy the annual boosts would be 20%, but for some severely underaided districts such as Bayonne, Red Bank, and Clifton, the wait to full funding is still 6-7 years.


By contrast, a high-aid district that gets more than 80% of its uncapped aid, like Newark, would reach full funding in a single year since Newark would qualify for a 20% increase and 20% would be more than enough to bring Newark up to its full, uncapped aid.  At that point, Newark would be fully funded and theoretically flat-funded for several years.

According to the DOE's "Additional School Funding Scenarios," other already high-aid, but modestly underaided districts, would have the biggest gains. Paterson's aid would jump by $57 million ($2,050 per student), to $458 million in a single year. Trenton's aid would increase by $33 million in a single year ($2,350 per student).

As I mentioned before, even a district as underaided as Atlantic City would gain little under capped. Atlantic City would only gain $2.5 million, or $371 per student. Red Bank Boro would gain $538,000 or $380 per student.

Bound Brook, NJ's most underaided district in terms of its dollars per student deficit, would only gain $1.54 million for 1,744 students, or $883 per student.

Freehold Boro would gain $1.8 million, or $1,100 per student. Bayonne would also gain $1,100 per student. Manchester Regional would only get $1,300 per student.

Bayonne, Bound Brook, Atlantic City would get gradually larger boosts as 10% or 20% is calculated based on larger previous-year aid totals, but if New Jersey cannot escape its chronic fiscal problems, the larger aid boosts are doubtful.

Conclusion


Given New Jersey's chronic budgetary crisis, some aid growth caps are necessary, but it would make
Steve Sweeney Understands
The Problem Here
more sense if the caps were a flat amount in dollars per student and not based on what the previous year's aid was.

If there has to be some prioritization and some districts are given bigger increases than others, let the prioritization be based on the severity of underaiding, not being above or below Adequacy, since spending relative to Adequacy depends on local tax effort, not just state aid.

As depressing as the state's dire fiscal situation is and the aid caps are, Steve Sweeney's state aid reform commission bill always included a clause on evaluating the fairness of the state aid growth caps.  As long as there is one powerful legislator who understands the unfairness of the growth caps there is some hope, but those of us who care about aid fairness have to speak up and support.

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Wednesday, October 5, 2016

2016 Equalized Valuations Out

The Division of Taxation has come out with new Equalized Valuations for all towns in NJ.  These Equalized Valuations are for use in FY 2017, though are calculated in 2016.

("Equalized Valuation" is the market value of a town. It is computed annually and is used to apportion county taxes. It is supposed to be used to distribute state aid, but NJ's school funding law (SFRA) is non-operating.)

The state's total Equalized Valuation increased by 3.7%, from $1.166 trillion to $1.2 trillion, but, as usual, the increases in Equalized Valuation were very uneven.

Of that $43 billion increase, $11 billion (more than 25%) was in Hudson County alone.

As usual, Jersey City and Hoboken continued their stratospheric appreciations.

Jersey City's Equalized Valuation rose from $21.7 billion to $25.7 billion.  Jersey City's Equalized Valuation is now more than 2% of NJ's total.

Hoboken's Equalized Valuation rose from $13.3 billion to $15.13 billion. Last year Hoboken was in a tie for the fourth highest in NJ with Newark, but now Hoboken is in undisputed fourth place and is within $100 million of Toms River, the current third place occupant.

Hoboken's school tax rate will surely fall even farther below the 0.3% it has now.

Jersey City's school tax rate will fall below 0.5%.  If NJ distributed Equalization Aid under a formula, Jersey City would lose at least $30 million due to its increase in tax base.

Newark, Trenton, Elizabeth, Paterson, and Camden were more or less stable this year.

Atlantic City continues its collapse.  AC's EV was once the highest in NJ, but it is down another $2 billion and is now only $6.4 billion.  When new state aid figures come out in February 2017 Atlantic City will be ranked as even more exceptionally underaided.  Atlantic County as a whole lost over $5 billion in Equalized Valuation, so the whole region is hurting.




Update: 


If Jersey City's PILOTed property were an independent city, it would be in the top ten for New Jersey.

Here are the top EVs in NJ for tax year 2017.
1. Jersey City (taxable) $25.7 bil
2. Edison $15.8 billion
3. Toms River $15.167 billion
4. Hoboken $15.128 billion
5. Newark $13.8 billion
6. Ocean City $12 bil
7.  Jersey City PILOTed $11.6 billion
8. Middletown $10.6 billion
9. Woodbridge $10.5 billion

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See Also:
Divergent Fates of NJ's Big Cities

Two Cheers for County Taxes