Wednesday, December 20, 2017

Mila Jasey on State Aid & the Budget

For the past several months rumors have circulated that Mila Jasey is under serious consideration 
to be Phil Murphy's Commissioner of Education.

Whether or not Jasey is named as Commissioner of Education, she has been one of the most active legislators on education since she joined the Assembly in 2007.  She also might become the chair of the Assembly Education Committee.

This post looks at her record on state aid and the budget.


In her pre-politics life, Jasey was a public health nurse and homemaker in South Orange.  Her husband was a counsel for the Prudential before becoming an Essex County judge.  Her daughter, Rhena Jasey, went to Harvard and became a teacher in South Orange-Maplewood.  Rhena Jasey was a subject of the documentary "American Teacher."

Jasey was a member of the South Orange-Maplewood Board of Education from 1999-2007, including service as president.

During her service the South Orange-Maplewood Board of Education enforced a ban on all Christmas music (including secular Christmas songs like Rudolph the Red-Nosed Reindeer).  The rule was trivial in its educational impact, but the controversy around it consumed large amounts of Board attention, including litigation that nearly went to the US Supreme Court.  The district's ban on Christmas music became part of a conservative litany that there existed a "War on Christmas."

Jasey has represented District 27 in the Assembly since November 2007, when she replaced Mims Hackett.  Jasey has served as chair of the Committee on Higher Education since 2015.

Jasey's path from the BOE to the Assembly was helped by the Essex County Democratic organization and Senator Dick Codey.

In terms of contributions to her campaigns, the NJEA was Jasey's second largest contributor in the most recently election, giving $11,500.  PreK-Our-Way funder and port tycoon Brian Maher was her largest individual donor, giving $3500.

Voting Against SFRA

Jasey joined the Assembly in November 2007.  Despite her background as a BOE member in a school district whose state aid had been flat since the early 1990s, Jasey voted AGAINST the School Funding Reform Act of 2008.

Although District 27 is now entirely suburban, back in in 2008 it included Orange and parts of Newark, so Jasey's opposition may have been motivated by a desire to protect the Abbotts.  Nonetheless, after SFRA was passed and approved by the Supreme Court, Jasey has been committed to it.

During the Corzine years and Christie years Jasey consistently supported a Millionaires' Tax, which would help with school funding, but she also opposed Chapter 78, which saved the state billions that could then go into operating aid.

Jasey did vote for the 2% tax cap in 2010.  She also voted for the Transportation Trust Fund compromise in 2016.

Jasey has also voted for various anti-outsourcing bills that would prohibit localities from subcontracting workers and create tenure-like protections for non-teachers.  These bills have been opposed by the NJSBA because they would increase costs to districts.

For Unlimited Interdistrict Choice

As a legislator, one of Jasey's signature accomplishments was the 2010 law that expanded New Jersey's Interdistrict Choice program from pilot program that capped participation at one district per county to a full-fledged state policy with unlimited district and student participation.

Under this law, the state's costs increased exponentially, going from $9.8 million a year in 2010-11 to $20 million in 2011-12 to $33 million in 2012-13 to $49 million in 2013-14.

Although by 2013-14 regular state aid was frozen and every district in District 27 was underaided, Mila Jasey attacked the Christie administration's cap on Interdistrict Choice, calling the cap "ill-advised and short-sighted."

The decision of the DOE to cap the program by imposing a 5 percent growth limit is very troublesome to me, and I am disappointed by the decision,” said state Assemblywoman Mila Jasey (D-Essex). 
“It circumvents the intent of the Legislature to expand the program,” she said. “Even more troubling, it thwarts the ability of interested families to follow through on their decision as to how to best meet their children's needs in a public school setting.”
Although she accepted the necessity of capping Interdistrict Choice's growth, over the next few years, Jasey did very little publicly to advance state aid fairness, despite South Orange-Maplewood's and West Orange's own appeals for greater fairness in the distribution.

After Steve Sweeney began a high-profile fight in 2016 to increase school aid, redistribute Adjustment Aid, Mila Jasey stood aloof.

In 2016 Jasey, to the applause of PreK Our Way, authored legislation, with Vincent Prieto, that would dedicate an additional $110 million a year to PreK.  The funding source would be the "Property Tax Relief Fund," ie, the same income tax money that funds K-12 education.

When Jasey was asked where the $110 million would come from she answered "budgets reflect priorities and I believe that we have to take the education of our children, beginning with the youngest ones, a priority."  She did not actually say what else would be cut to make room for the additional $110 million per year.

In March 2016 Jasey, along with district-mate John McKeon, did sponsor a bill to increase K-12 state aid by $122 million to districts whose school tax rates exceeded 135% of the state average, a policy that would benefit her home district of South Orange-Maplewell as well as West Orange, but not many severely underaided districts whose tax rates happen to not be that high.

Although Sweeney's more comprehensive plan would have brought immediate and long-term relief, Jasey and McKeon contrasted their plan with Sweeney's by saying "unlike Senate President Sweeney's proposal, our plan could be put together within a year, not five.

Jasey also did not explain where the additional $122 million per year would come from.

Jasey has said that she favors some reduction of Adjustment Aid in some informal settings and in 2016 she implied that districts with increasing property wealth should see reductions:
Based on sometimes vague parameters - some of which were not meant to be factored into the equation - the use of adjustment aid has also failed to take into account the rise in property values within certain districts.  [ibid]
Anyway, The Jasey-McKeon K-12 state aid plan attracted no co-sponsors.

Very Nuanced, Inconsistent on Charters

Jasey has also been highly nuanced stance on charter schools.  A critic could say she has been inconsistent, but a supporter might say she has evolved.

Jasey was the primary sponsor in 2010-2011 of the law that allows private schools in "failing school districts" [sic] to convert to charter schools.  (Its title was A-2806)

Under this law, the state would pay charter tuition the first year after a conversion, with sending-districts paying thereafter.

Jasey was also the author of the charter school "authorizer bill" which would have been helpful to charters by improving oversight. Yet, Jasey also supported requiring local votes to allow a charter to open.

At this time in 2011 Jasey said of charters:
Charter schools have an important role to play in the education of our state's children, but more clarification and accountability are necessary," said Assemblywoman Mila Jasey, (D-Essex), who also expressed concern about the Education Department's ability to provide proper oversight. "It is absolutely imperative that the application process be rigorous and that we review what charters are accomplishing in comparison to traditional public schools."  (source below) 

Her daughter Rhena actually left South Orange-Maplewood to teach at a high-profile charter school in the Bronx called The Equity Project.

Perhaps it was a personal ideological change, perhaps it was a response to Christie's aggressive charter school expansion policy, or perhaps it was heeding the NJEA, but, only four years later, in 2015, Jasey had become adversarial towards charters and sponsored a moratorium on charter school creation and expansion.

Jasey's demand for a charter school moratorium brought 100 protesters to her office in the normally placid suburb of Maplewood.  It also earned an angry rebuke from the Newark City Council, which voted 7-2 against a charter school moratorium, although the Newark School Advisory Board supported the moratorium.

In any case, that moratorium bill did not make it out of the Assembly Education committee.

For Prieto Until Late in the Game

Mila Jasey was a supporter of Vincent Prieto during the early stages of the Prieto-Coughlin leadership battle, but in August 2017 she switched to Coughlin along with the rest of the Essex Assembly Democratic delegation.


The above is only a state aid-focused history of Mila Jasey's positions on education, but it is also worth noting that she is strongly opposed to the PARCC exam. She also authored legislation to ban any standardized testing for students in grades K-2.

Source of Jasey quote

"N.J. charter school applications keep pouring in - State looks at 42 proposals in latest round"

Monday, December 11, 2017

Seven State Aid Predictions for the Murphy Era

New Jersey is only one month away from the inauguration of Phil Murphy as governor. 

Murphy has never held elective office before and he typically avoided talking about the details of state aid during most of the campaign.

Most of Murphy's opinions on the details of SFRA are unknown.  Murphy has said he supports "tweaks" to SFRA, but never explained what that means.

However, the stances of people in Murphy's circle, like Sheila Oliver, as well as constituencies within the Democratic Party, are known.

My predictions are based on what Democratic constituencies and Sheila Oliver have said.

Prediction 1: $200-$300 million in Adjustment Aid will be redistributed. 

Basis: Phil Murphy said this at a town hall in Maplewood, NJ and again in a televised forum with Tom Moran. It is budgetarily necessary as well.

  • Sub-conjecture: There will be some complex mechanism of cutting Adjustment Aid. The districts to lose Adjustment Aid will be ones who are above Adequacy and/or severely under Local Fair Share.
  • Basis for Belief: The Education Law Center, which is NJEA funded, only (with extreme reluctance) accepts the loss of Adjustment Aid to above Adequacy districts.  Politically it will be necessary to cut Jersey City's state aid, since it taxes at one-third of Local Fair Share, but is below Adequacy.  
A few Adjustment Aid districts do not have the capacity to pay higher taxes and East Orange is one of them (the EOPS is overaided by $22.5 million, but the town has a 4.638 all-in tax rate, so making up that money will local taxes would be impossible). East Orange is Sheila Oliver's home.

The Education Law Center only wants districts that are below Adequacy to receive additional state aid "State aid increases must be directed to under adequacy districts" but this is such an extreme stance and contrary to what the legislature will want that I don't see Murphy completely denying over-Adequacy districts.

On the other hand, I would not be surprised if under-Adequacy districts get larger percentage state aid increases, which is what SFRA already calls for.  Underaided districts that are nonetheless above Adequacy due to their own high taxes, like Cherry Hill and West Orange, may not receive very much new aid.

Prediction 2: The Distribution PILOT Revenue Will be Changed So that the Money is Apportioned in the Same Way Regular Taxes Are:

Basis: This is something Steve Sweeney wants to see happen, it is something many Republicans (like Mike Doherty) want to see happen, and there isn't anyone visibly opposing this change. Even Steve Fulop of Jersey City is willing to let the Jersey City public schools have 10% of PILOT revenue (instead of 25% of regular taxes)

NJ's Urban Mayors Association met in November 2017 and endorsed this.

At present, 95% of PILOT revenue is given to the municipality and 5% goes to the county.  The local public schools get 0%.

Prediction 3: There will be an Attempt to Reduce Local Fair Share for Districts with High Municipal Taxes:

Basis: It makes fiscal sense, it would satisfy the powerful urban constituency within the Democratic Party, and it an Education Law Center demand.

EG, here is the Education Law Center's demand "Lawmakers must consider providing relief for school districts facing municipal overburden. These districts have high tax rates, but low rates of local school funding due to the high costs of other municipal obligations."

I agree that some urban districts have municipal taxes that are too high to allow them to meet their Local Fair Shares. New Jersey's average municipal tax rate is 0.694, but Newark's muni rate is 1.642, Trenton's is
A town like East Orange cannot pay
its full Local Fair Share.
3.329, Paterson's is 2.578, Elizabeth's is 2.206. East Orange's muni rate is 3.353, which is one of the highest in New Jersey.

It isn't a surprise then that these districts have school taxes that are so far below Local Fair Share. Newark's tax levy is $45 million below LFS, Trenton's tax levy is $16 million below LFS, Paterson's is $51 million below LFS, Elizabeth's is $36 million below LFS, East Orange's is $20 million below LFS.

IMO, factoring in municipal tax rate into the calculation of Local Fair Share would create an incentive to have high muni tax rates.  A fairer solution would be to condition Local Fair Share on a place having a low-income, since that is outside the control of politicians.

Prediction 4: The state will increase its reimbursement of districts for their charter students.

Basis:   Sheila Oliver does not like the principle of "money following the child" and neither does the NJEA.

In August 2017  at a forum with Randi Weingarten of the AFT Oliver said:
Oliver reaffirmed her support for [traditional] public schools. 
“The expansion and growth of charter schools has hurt our public schools,” she said. “We will make sure that our public schools will be front and center on our agenda.” 
Oliver said that although she embraces all kinds of schools, funds should not be diverted away from public education. 
We can’t take funds out of district budgets to support them," she said.

If "we can't take funds out of district budgets to support" charters, then charters ought not to exist or districts should be double-funded for charter students.

Oliver has also said "What I am vehemently opposed to is using the money that goes to our public school system to support charters."

The NJEA does not appear to want "money to follow the child" either.  If a child goes to a charter school, the NJEA wants at least a portion of that money to stay in the residential district.

The NJEA has been a little more vague though, but it has demanded some change.

“NJEA has consistently supported the proposal by Assembly Speaker Vincent Prieto to gather the appropriate stakeholders to develop a plan to transition back to the current funding formula. In addition, we have called for that group to study the funding mechanism for charter schools, as the current mechanism is causing drastic program cuts in the districts from which charters draw their students.
New Jersey should follow a similarly thoughtful and deliberative process for reviewing the current aid formula and recommending reasonable adjustments. That should include an honest look at the adverse financial impact that charter schools have on host district schools and ways to alleviate that harm.

Even the Christie administration has sent extra state aid to districts with growing charter school populations through a unilaterally-created aid stream called "Host District Stabilization Aid," a $27,653,005 expense for 2017-18.

If funds aren't leaving district budgets for charters, then the students have to be kept in districts or the state has to reimburse districts for their charter transfers.

It's also possible that we will see the Department of Education give money directly to charter schools rather than route that money through local school districts.  This might relieve some tension between traditional public schools and charters, but it would be a gimmick in terms of any real budgetary assistance since now school districts would have less money to begin with.

Prediction 5: SFRA will move away from the Census-weighting for Special Education Students in the Calculation of Equalization Aid.

Basis for Belief: It's superficially common sense. Even some politicians already want to do it.

It's a benign demand by the NJEA:

Blistan also highlighted the plan’s commitment to providing relief to districts that have been harmed by the current approach to special education funding. 'Districts should be not be punished for providing students with the special education resources they need. This approach will bring fairness to districts while continuing to meet the needs of students,' said Blistan, who is also a special education resource center teacher in Washington Township.
At present, NJ assumes that every district has 14.69% of its students classified, when everyone knows that classification rate would vary, like all populations vary.

The Department of Education opposed using Census weighting during the Corzine years and Christie years for seemingly sincere reasons, but that may change under Murphy.

Unfortunately, changing the calculation of Adequacy Budgets in Equalization Aid is meaningless as long as the overall distribution is out-of-whack and the state cannot come up with the additional money to fund it.

So this is like renovating the kitchen in a house that is falling into a sinkhole anyway.  

Prediction 6:  There will be a Loosening of the Tax Cap

Basis: Steve Sweeney's state aid reform commission proposed some amendment to the cap, presumably to allow aid-losing districts to tap their tax bases.

The NJSBA supports loosening the cap to allow automatic tax authority to districts with high Out of District tuition costs.

Prediction 7: The State will Expand PreK Disproportionately

Basis: It's something the Democrats all say they want to do and there are well-funded lobbies in place to support PreK expansion, with support from VIPs like Jim Florio and Tom Kean.  From 2011-2016 basically all Democrats in the legislature were more interested in PreK than K-12
In a Zero-Sum Budget Enrivonrment, PreK Expansion
Comes at the Expense of Everything

Although Steve Sweeney is more sensitive to New Jersey's tax stress and indebtedness than most other Democrats, PreK expansion is something he strongly supports nonetheless.

I say the PreK increases will be "disproportionate" because the increases will be much larger percentage-wise for PreK than K-12 education.  NJ's PreK funding was going to be $655 million for FY2018, but the legislative Democrats got it a $25 million increase, or 3.8%.  The legislature's (net) last-minute increase for K-12 aid and Extraordinary Aid was only $125 million, a 1.6% increase.

The Wild Cards

1.  The Republican tax plan.
If the SALT deduction is capped at $10,000 per taxpayer and the Mortgage Interest Deduction is capped at $500,000, real estate values in middle-class and affluent suburbs will decline by perhaps as much as 10%.  

If real estate values fall, then it would reduce those towns' Local Fair Shares and SFRA would, in theory, send them more Equalization Aid.

NJ already has a severe outmigration problem and its suburbs are already in decline, but the capping of the SALT deduction would likely accelerate those trends.

2. The Janus decision

Mark Janus, Illinois Child Care Specialist &
Petitioner in Janus v AFSCME
In June 2018 the United States Supreme Court is expected to rule that mandatory agency fees for public workers are unconstitutional as "compelled speech" and a violation of the principle of free association.

This means that NJ's public sector will become right-to-work and the 20-30% of teachers and other staff who are discontented with the NJEA can stop paying dues. At a 30% dropoff, that would mean a loss of $40 million out of the NJEA's $140 million budget. (see this for NEA affiliate financial resources)

Since NJEA dues will now be voluntary, the NJEA will have to invest more of its remaining money into membership retention and keep dues lower so that more members do not quit. At present NJEA state-dues are $897 per full-time teacher, plus a few hundred dollars more for the national organization, county organization, and local organization.

The NJEA will still be very powerful even if 30% of members leave, but it will not be colossus it is now and the Democrats may have more latitude to side with taxpayers and not the NJEA and other unions.

Saturday, December 2, 2017

How Maryland Does It: How Another Deep-Blue State Has Much Lower Property Taxes than New Jersey

Every once in a while I meet an advocate for school district consolidation in New Jersey who uses Maryland as a beacon state for us to emulate, since Maryland's schools are just as high-performing as New Jersey's, less segregated, and significantly lower spending (and taxing).

Indeed.  All of that is true.

If you could magically transport your typical New Jersey house to Maryland, your property taxes would fall from $8,477 to only $3,437.  Your other taxes would be lower too: Maryland's sales tax is 6% compared to our 6.875%.  Maryland's corporate tax is 8%, instead of 9%, too.

For state and local taxes combined, Maryland takes in less than New Jersey.  Maryland's taxes equal 10.9% of income, whereas New Jersey's taxes equal 12.2% of income.  To put it in terms of dollars per capita, Maryland's state and local taxes are only $5,920 per person.  New Jersey's are $6,926.  (see Table 2; corroboration E-1 to E-4)

Paradoxically, you get more for your taxes in Maryland for some services.  If your kids went to a public college they'll have less debt than their peers in NJ, since Maryland's public higher education system gets 42% more money per capita than New Jersey's.  Maryland lets people take out 529 profits tax-free. If you lose your job, Maryland's property tax "circuit breaker" will reduce your property taxes. You'll have the satisfaction of knowing that your state's bond rating is AAA, so you might feel more confident investing in Maryland too.

So how are Maryland's taxes so much lower?

The most obvious difference between Maryland and New Jersey is that Maryland has only 24 countywide districts whereas New Jersey has 586 town-based districts, but Maryland's school district consolidation versus New Jersey's fragmentation is just the tip of the iceberg as to why Maryland has lower property taxes than the Garden State.

The direct savings of Maryland's district consolidation - ie, less redundancy in administration - are minimal.  It is in the indirect savings created by Maryland's consolidation - ie, less intense interdistrict spending competition - that produce the real savings.

This blog post will look at two under-discussed, and more significant, reasons why Maryland's property taxes are lower than New Jersey's:
1.  Maryland localities have their own income taxes.
2.  Maryland spends 22% less per student.
    a.  That lower spending is across-the-board.
        i.  There are several structural and political reasons for that lower spending.
A subsequent post will look at a third major reason:
3.  Maryland gives more state aid to middle-class districts than New Jersey does.


The source of revenue doesn't make a district higher spending or lower spending, but technically speaking, one reason Maryland's property taxes are lower is because counties have a significant alternative source of revenue.

1.  Maryland Localities Have Their Own Income Taxes

Maryland's average property tax rate is only 1.05, compared to New Jersey's 2.40.  The Maryland jurisdiction with the highest property taxes, Baltimore City, only has a property tax rate of 2.248, which is below New Jersey's average.  The Maryland jurisdiction the lowest property tax rate is Talbot County, which has a rate of 0.547.

New Jersey's property tax average is 2.4.  Irvington, the New Jersey town with the highest all-in property taxes has a 4.9 rate, which is nearly five times Maryland's average. 

Maryland's 1.05 average property tax is a lower tax rate than even the richest towns in New Jersey have.  Millburn's tax rate is 1.8.  Princeton's is 2.0.  Madison's is 1.7.  Franklin Lakes's is 1.5.  Even Hoboken, with its $5.5 million in Adjustment Aid and proportionally small student population, still has a 1.3 tax rate.  The only NJ towns in NJ with property taxes lower than 1.05 are resort towns at the Jersey Shore and wealthy enclaves like Alpine and Harding.

Maryland's county income taxes range from 1.75% to 3.2%, with 3.0%
Source,  pg 28 
as the median.  Baltimore City, mentioned above for its high property tax, has a 3.2% income tax, so you would pay higher local taxes in Baltimore City than you would in most of New Jersey.

On average, Maryland localities get 34.8% of their taxes from income taxes, 53% from property taxes, and then 12% from "other taxes."  (ie, liquor stores)

Aside from Baltimore City, Maryland's property taxes are so much lower than New Jersey's that most New Jerseyans would come out ahead despite the local income tax.  A 3% median income tax is real money, but since Maryland's average property tax is $5,000 lower than New Jersey's, a family would have to make over $166,000 a year before it would pay higher Maryland local taxes than it would in New Jersey, assuming it lived in average-value houses.  Since families making over $166,000 in New Jersey probably live in more expensive-than-average houses anyway and pay higher than the $8,477 average in property taxes, the crossover income point would be higher than $166,000 per year, unless those

families had lived well below their means back in Jersey.
Above, a Montgomery County Liquor Store

Maryland's state income tax brackets are  higher for people at low-incomes, but lower at average to
above-average incomes.

Maryland taxes income $4,000-$100,000 at a 4.75% rate.  New Jersey has lower rates for low income filers, but NJ starts taxing at 5.525% at only $40,000 a year, then 6.37% at $75,000, and then at 8.97% $500,000.

Maryland's top bracket, 5.75%, kicks in at $250,000.  Because Maryland's second-highest and higher brackets are so much lower than NJ's, Maryland collects less in income taxes per capita than NJ ($1,297 p capita versus $1,361 per capita) and Maryland's system is less reliant on its top 1%.

In terms of all state taxes, Maryland captures less than New Jersey, $3,172 per capita versus New Jersey's $3,325 per capita. (see E-12)

How Maryland developed an income tax-based system whereas New Jersey developed a property tax-based system is complicated, but Maryland had a forty year head start on NJ in state income taxes, enacting its own income tax in 1937, whereas New Jersey held out until 1976.  Maryland also enacted a sales tax in 1947, whereas New Jersey didn't enact a sales tax until 1966.

2.  Maryland's Taxes are Lower Because School Spending is 22% Lower than New Jersey's

Maryland's property taxes are lower than New Jersey's because it has local income taxes, but another major factor is that Maryland's PreK-12 schools spend so 22% less per student than New Jersey's. New Jersey's spending is $21,243 per student, compared to Maryland's $16,985 per student, a difference of $4,258 per student.  (see Table F-1)

If New Jersey spent as much as Maryland on PreK-12 schools, we would save $5.9 billion.  At savings at that level, we would have no pension crisis, no NJTransit crisis, no underfunded higher ed, and have enough money left over to lower taxes.

Source, NEA Rankings & Estimates, Table F-1, 2016.

Maryland's spending is also significantly lower in terms of spending as a percentage of State GDP.

Source, Figure 3.  "Median" refers to the national median.

Maryland's lower school spending exists despite its cost of living being the same or higher than New Jersey's. 

There isn't a federal ranking of states by cost of living, but many independent organizations put out their own rankings. The Missouri Fed ranks Maryland's cost of living as higher than New Jersey's. The Council for Community and Economic Research agrees and ranks Maryland higher in cost of living too.

Some sources rank New Jersey's cost of living higher, but the difference in cost of living is not proportional to the difference in school spending.  For instance, the Tax Foundation says that $90.66 in Maryland would only buy $87.34 worth of the same goods and services in New Jersey.  That's a difference, but not something that accounts for a 22% difference in school spending. Giving the closeness in the two states' cost of living, New Jersey's high education spending is due to political-judicial preference, not economic necessity.

Some would consider lower school spending a negative tradeoff, but Maryland's education performance is as high as New Jersey's, despite much lower spending.   Since Maryland's schools perform about as well as New Jersey's (topping Education Week's rankings six years in a row), I would not consider the lower spending a tradeoff except in that Maryland offers less public PreK.

(It's worth pointing out that more Maryland children attend private school than New Jersey children.  Only 85% of Maryland children attend public school, versus 89% of NJ children (see Figure 5)

2a.  Maryland's Spending is Lower than NJ's Across the Board

Many people attribute Maryland's lower spending to having fewer school districts, and thus less administration.
  • Maryland has 24 school districts for 874,514 students, or one district per 36,438 students.
  • New Jersey has 590 school districts for 1,347,166 students, or one district per 2,283 students.
That's a huge difference and yes, Maryland's administrative spending is lower, but Maryland's spending is lower almost everywhere.

Source: Table 7

So Maryland's General Administration is $236 per student lower than New Jersey's.  Maryland's lower General Administrative spending would translate to savings of $328 million, which is a large amount, but only a fraction of the NJ/MD spending difference.

Attributing Maryland's lower taxes to district consolidation and administrative efficiency is correct, but highly incomplete.

The most financially significant difference between Maryland and New Jersey is that Maryland has fewer teachers.  NJ has 112,377 teachers, so a student:teacher ratio is 11.9:1, the second lowest in the US.

Maryland has 60,053 teachers, so a student:teacher ratio is 14.6:1, the 30th lowest in the US.

On top of Maryland having fewer teachers, it pays them less well, at an average salary of $66,456 versus New Jersey's $69,330.

I think the more significant relationship between having big districts is that those districts are socioeconomically diverse, and therefore there are no rich districts like in New Jersey to bid up salaries which middle-class districts end up struggling to match.  IE, Maryland does not have a "Millburn-Princeton Effect."

From an education point-of-view, Maryland's having fewer teachers and then giving those teachers lower salaries is a negative, but from a taxpayer point-of-view, having fewer teachers and lower salaries is a positive. 

i: there are many reasons for MD's lower spending

Why Maryland has lower school spending is a very complex matter, but I think the following are major reasons.

1.  Maryland's teacher unions are less powerful than New Jersey's.

Maryland only gave teacher unions the power to impose agency fees in 2013, and this law hasn't gone into effect statewide because there are counties where too few teachers want to actually join the union to trigger implementation.

New Jersey gave its teacher unions the power to impose agency fees wayyyyy back in 1979.

The newness of mandatory agency fees means that union fees in Maryland have not climbed as high as they have in New Jersey.  In 2014-15 the Maryland State Education Association had a budget of $21.6 million.  By contrast, the NJEA had a budget of $134.4 million.

It is perhaps due to the NJEA's superior power that New Jersey teachers have post-retirement healthcare coverage, which doesn't exist statewide in Maryland.  It is perhaps due to the NJEA's superior power that pensions in NJ are 100% a state obligation, versus a hybrid state-local obligation in Maryland.  It is perhaps due to the NJEA's superior power that NJ pours so much more into PreK-12 education aid than it does into higher education.

2.  Maryland has Far Fewer Students in Out-of-District Placement

New Jersey leads the nation in the percentage of special education students who are in out-of-district placement.  Maryland's placement rate is also above the national average, but barely half of New Jersey's.

According to the most recent data I could find, 0.9% of NJ students are in Out-of-District placement, the highest of all states, versus only 0.47% of Maryland students, which is itself the 6th highest of states.

I do not have data for Out-of-District placement total costs, but the spending difference must be in the hundreds of millions, both for tuition itself and transportation.

Maryland's having large districts may make feasible for districts to create specialized programs for kids that New Jersey's small districts cannot create, however, in Maryland the legal burden-of-proof is on the parents to prove that an in-district program is inadequate, whereas in New Jersey the legal burden-of-proof has been on the district to prove that a program is adequate.

In other words, in Maryland if there is a parent-district special education dispute, the special education program is assumed to be adequate, but in NJ if there is a dispute the special education program is assumed to be inadequate.  Thus, it is very hard for a New Jersey district to win a lawsuit against parents who want their child in a private-school setting.

When a New Jersey district loses special education litigation, the district pays the other side's legal fees, thereby incentivizing the district to accede to the parents' demands before litigation begins.

3.  Maryland does not have a "Princeton-Millburn Effect."

This is the large indirect benefit of having large, diverse districts.

Maryland has many rich towns, but it has no rich districts.  If Maryland's rich towns like Chevy Chase, Potomac, Bethesda, and Ocean City had independent school districts they would surely spend huge amounts of their own money on their own children, but all of those towns are subsumed into big, diverse countywide school districts and therefore they can't spend as much as what Princeton, Livingston, Franklin Lakes, Millburn etc can.

The highest-income school district in Maryland is Howard County, whose median income is $110,238.  That's pretty affluent, but but only 3.1x higher than Maryland's poorest school district, Somerset, whose median income is $35,154.  (see pg 96)

New Jersey has over 40 school districts with a higher median income than Howard County, and our ceiling is closer to $200,000 per year than $100,000.

By contrast, the richest K-12 school district in NJ (by income) is Millburn, whose income is $158,888, an amount that is 5.6x higher than Camden's $28,000.

The richest district in Maryland by tax base per student is Worchester County (on the Atlantic Ocean), but Worchester is only 4.1x richer than Maryland's poorest district by tax base, Caroline County.

Likewise, New Jersey's tax base differential is wider too.  Millburn's tax base per student is 18.6x higher than Camden's, but Millburn's tax base is nothing compared to microdistricts at the Jersey Shore.  Deal, which was cited in the Robinson v Cahill decision as an example of tax rate injustice, has a tax base per student that is 6.5x Millburn's and 121x than Camden's.

Even though Maryland and New Jersey are peers in income on a statewide basis, Maryland has no rich districts like New Jersey has.  One Maryland education expert I talked to said that Montgomery County had more salary competition against Washington, DC than it did against any other county in Maryland. 

In New Jersey, the existence of relatively small, affluent, high-spending districts like Princeton and Millburn has driven up overall education spending through what I will (semi-facetiously) call the "Princeton-Millburn Effect."

(Note: Millburn's spending has always been much lower than Princeton's, even though Millburn is wealthier.)

Residents of New Jersey's affluent districts have several reasons to accept higher taxes.
  1. First, high taxes in small towns give concentrated benefit to the children of that town, whereas in Maryland having big districts means that the benefits of high-spending are diffuse and that extra money may even go to high-poverty schools within that county.  
  2. Second, many people in high-income districts sincerely believe that high-spending = good schools and good schools= higher property values for that town, whereas in Maryland people would be less likely to believe this due to how large districts are and how diffuse any higher spending would be.
Since New Jersey has stronger interdistrict competition in teacher salaries and school services than NJ, affluent high-paying districts of New Jersey have bidded up salary scales statewide.

Indeed, even in the 1970s, New Jersey's property taxes were larger than all state revenue.  In 1990, before the Abbott II decision transformed NJ state aid, New Jersey's all-in property tax rate was 2.0, a figure I believe was the highest in the US.

The secondary Princeton-Millburn Effect is through compensatory state aid, since the existence of high-spending, affluent districts has forced the state to devote massive amounts of income tax revenue to state aid for the Abbott districts in order to equalize spending with affluent suburbs.  By 2006, 22 of the country's 30 highest spending districts in the United States were Abbotts and New Jersey had a U-shaped spending pattern, where poor, urban districts and affluent towns spent the most.  High-spending in the Abbotts added to other districts' upwards pressure on spending.

4.  In Maryland County Councils and Executives Set School Taxes, Not Boards of Education

Maryland school districts are "dependent districts," meaning they do not have their own taxing authority.

Maryland school districts get their money from the county governments they are part of.  The county council and executive determine how much money the school districts will have, not the Boards of Education.

County councils, I would think, would be more taxpayer-sensitive than Boards of Education are, who see their primary responsibility to do what is best for students, not taxpayers.

Part 2: State Aid

Maryland has lower taxes on its middle-class residents because Maryland's middle-class districts get more state aid than their equivalents do in New Jersey.

State aid is a highly complex subject in which interstate comparisons are tricky.  New Jersey has more streams of indirect aid than Maryland does and New Jersey state aid is badly off-formula.  Part 2 of this series addresses state aid.

Wednesday, November 15, 2017

They are Staying Away in Droves: How NJ's Outmigration Problem is Really a Lack of In-Migration

Demographically, New Jersey is a state in a long, steady slowdown.
  • In the 1990s New Jersey's population increased by 9%, or 684,162 people, or 68,000 a year. 
  • From 2000-2010 New Jersey's population increased by only 4.5%, or 377,544, or 37,000 a year.  
  • From 2010-2015, New Jersey only increased by 62,000 to 8,854,363, or barely 12,000 a year.  
  • From 2015 to 2016, New Jersey only gained 9,000 people.

Although NJ's growth is slightly positive, one thing is clear New Jersey's Era of Robust Population Growth - and thus Robust Economic Growth - IS OVER.

So how, despite tens of thousands of immigrants arriving in New Jersey and births exceeding deaths, did the population grow by barely 9,000?

Simple.  Because tens of thousands more people moved out of New Jersey than moved in.

New Jersey's Net Outmigration Rate is Among the Country's Worst

According to the Census's State-to-State Migration Flows, for the last five years, for every five New Jerseyans who left New Jersey, barely three people came from somewhere else in the United States to replace them.

New Jersey's net outmigration rate is higher than states with industrial contraction, like Kentucky, West Virginia, and Michigan.  It is higher than the highest poverty states, like Mississippi, New Mexico, and Alabama.  It is higher than the bitterly cold states of northern New England, the upper Midwest, and Great Plains.  It is higher than the states with the highest costs of living, like Hawaii, California, and Massachusetts.

In 2015-2016, the most recent year for which we have that authoritative Census data, 226,830 people left New Jersey and only 144,359 moved here from elsewhere in the United States. The resulting -82,471 person deficit between in-migration and out-migration is almost 1% of our population. The gap alone is equal to the population of Trenton.

(I am putting the Census data in the format I used it here.)

(the Census numbers include anyone over age 1 and are based on statistical sampling.)

The United Van Lines Survey has ranked NJ's net outmigration as the worst in the country for five years in a row, but the Census's more authoritative State-to-State Migration Flows for the last five years only has us at the third worst, with in-migrants equaling 63% of out-migrants, with only Alaska and New York worse off. 

When net domestic outmigration is calculated as percentage of population, we are in second to last place, behind only Alaska, which never had a diversified economy and is reeling from the decline in oil prices.

And no, immigration doesn't save us.

If you factor in international immigration New Jersey's demographic decline is the third worst in the country, after Illinois and Alaska.


The Causes and Implications are Hotly Contested

So what is causing our net outmigration and what are the implications?

On one side are groups like the New Jersey Business & Industry Association who say that our high tax burden is a major cause.  The NJBIA warns that net outmigration damages New Jersey through the loss of workers plus pulling billions in income out of our state.

Starting with a statement that 2 million people left New Jersey from 2005 to 2014, the NJBIA's 2016 report "Outmigration by the Numbers: How Do We Stop the Exodus?" argues:
The outmigration of New Jersey residents has had a substantial and continuing negative impact on the state’s economy. As New Jersey’s leave the state they not only take their income with them, but they take income taxes, sales taxes, property taxes and purchasing power with them as well. The $18 billion in net adjusted gross income that left the state between 2004 and 2013 resulted in lost household spending of $8.4 billion; total lost economic output of $11.4 billion; total labor income of $4 billion; and 75,000 lost jobs. ...

It is commonly believed that most people leaving New Jersey are headed for the warmer climates of Florida and North Carolina. While these two states are in the top five, the No. 1 outmigration state is Pennsylvania and the No. 2 state is New York; certainly an indicator that weather is not driving location decision-making alone. Rather, this pattern reflects that while people leaving the state would like to lower their tax burden, they want to do so while staying relatively close to family and friends.
On the other side is the New Jersey Policy Perspective, which through writer Sheila Reynertsen, say the causes are everything other than high taxes and that there are no economic implications.  Reynertsen, in fact, will not use the word 'outmigration' without putting it is quotes, as if it were not a real thing.  (eg,  "Setting the Record Straight on New Jersey ‘Outmigration’")

Although it was undeniable that NJ's population growth was already slowing down, writing in June 2016 Reynertsen attached great importance to the fact that NJ's growth was positive due to immigration and births exceeding deaths.
"The 'Exodus' is More Like a Trickle"
New Jersey’s Population, Number of Wealthy Residents and Income Are All Growing – Not Shrinking 
Proponents of cutting taxes for the wealthy have framed the so-called “exodus” of New Jersey residents and income as a serious crisis that policymakers ignore at the state’s economic peril. They do so, in part, by ignoring the fact that New Jersey’s population and income are actually growing, not shrinking – leaving policymakers and the public to ponder solutions to problems that don’t actually exist. 
The claim of business lobbying groups that New Jersey 'lost more than 2 million residents' between 2005 and 2014 is simply untrue. 
In fact, the 2,090,786 people who left the state over that time were replaced by 1,408,718 who moved here from other states and 596,279 who did so from abroad. So if you only look at people who moved, New Jersey – the nation’s most densely populated state – 'lost' 85,789 people over the decade. That comes to less than 9,000 a year, less than a tenth of a percent in a state with nearly 9 million residents. 
And, that count doesn’t include New Jerseyans who were born here and stayed here; if you also factor in growing families, the state’s population has consistently grown over the same decade, to 8.9 million in 2014 from 8.7 million in 2005.

I think the New Jersey Business & Industry Association may too closely juxtapose net outmigration and high taxes and does not admit that wage income stays in a state when people leave, but the New Jersey Policy Perspective is significantly off-base because it denies that outmigration is legitimate concern at all.

Net outmigration may be a symptom of our economic problems, and not the underlying disease, but it is a phenomenon NJ cannot afford to ignore because Population Growth ≈ Economic Growth and without Economic Growth, New Jersey's debt burdens will become unsustainable.
NJ Needs Faster Economic Growth
to Pay its Debts, to Grow its Economy,
NJ Needs Population Growth.

Although economies also grow due to productivity growth, the lack of population growth is echoed in New Jersey's stagnant economy, since the workforce barely grows.  According to the Pew Fiscal 50 from 2007 to 2017,  total personal income only grew by 1% a year, the 10th worst rate in the United States.

NJ's jobs problem isn't only one of quantity too, it's of quality as well. Since the end of the Recession, New Jersey now has approximately 100,000 fewer jobs paying above-average wages and 135,000 more jobs paying below-average wages.

However, anxiety about our net outmigration is based on comparing the number of out-migrants we lose to the low number of in-migrants.  If you compare the number of out-migrants we have lose to our population and then to what the average state loses, New Jersey is average.

As the title of this blog post says, the problem isn't people leaving New Jersey. The problem is people not coming here in the first place.  


New Jersey: A Product Finding Few Takers

What gets the most attention is people leaving New Jersey.  This gets a lot of attention because a move from New Jersey is a discernible action.

We all know people who have quit the Garden State and some of us wish we could do that too, but New Jersey's net outmigration rate is so extreme due of too few people moving here, not too many people moving out.

In terms of move-out rate (as in move-outs compared to our population), New Jersey was at -2% per year for 2011-12 to 2015-16, which is actually only the 17th highest in the United States, so actually better than the median.

However, in terms of domestic move-in rate, New Jersey is an abysmal +1.15% a year.  That's just ahead of California, New York, and Michigan for worst in the nation.

If you factor in the 314,495 immigrants who came to New Jersey in the last five years, New Jersey's ranking is only the 9th worst in the United States.  (not graphed.)

So, the New Jersey Policy Perspective is right that the departure of people from New Jersey should not be called an "exodus," BUT since the people leaving New Jersey are not replaced by many people coming into NJ - from either the US or abroad - New Jersey faces a demographic headwind that cannot be ignored.

The New Jersey Business and Industry Association also says that out-migration cost $18 billion but this should not be taken literally, although I think the claim has much truth to it.

First, the following is the data from the IRS (with additional years included by me) that the NJBIA used to calculate the $18 billion cumulative net loss from 2004-05 to 2013-14.  (The years in italics were not used by the NJBIA, but I want to include them to provide historical context for our income outflow has increased.)

# of Tax Returns, In-Migrants# of Tax Returns, Out-MigrantsIn-Migrant Returns as a % of Out-Migrant ReturnsAdjusted Gross Income of In-Migrants (in '000s)Adjusted Gross Income of Out-Migrants (in '000s)In-migrants Income as a % of Out-migrants

Sheila Reynertsen of the New Jersey Policy Persepective disagrees that there is any significant income loss:
....the vast majority of income counted by the IRS as “lost” due to out-migration does not depart the state, as the report notes. When most residents leave New Jersey, either for a job in another state or to retire, they don’t actually take their income with them. Instead, that income usually stays with its employer in New Jersey, and is earned by other residents already in the state or by those who move in. Of course, some income, like investment income for example, does move with an individual, but this represents only a small share of the total income “lost.” And by no means does it justify the exaggerated arguments about economic harm caused by out-migration.

Reynertsen is right only that wage income normally stays in New Jersey when people leave, but wage income is only 75% of NJ's total income.

The other 25% of NJ's income is investments, royalties, capital gains, annuities, pensions, and business profits that can usually leave when an individual moves.  25% of such huge income figures is itself a huge amount.

From the NJ Treasury's Statistics of Income breaks down NJ's income as follows.

Also, sometimes wage income can be taken out of New Jersey if the out-migrant became a commuter from another state, has a work-from-home arrangement, or the business itself moves.

So the NJBIA should not claim that all the income of out-migrants leaves NJ.  25% of their income would be a better guess.

But a quarter of $18 billion is $4.25 billion - and that's a substantial amount (~1.2% of NJ's total AGI).  Factoring in commuters, work-from-homes, and transferred employees would add to that total of lost income, the amount of lost income should be considered higher.

What should be noted is that there is a trend of diminishing in-migrant income relative to out-migrants:

  • From 1992-1993 to 2003-2004, in-migrants had 82.1% of the income of out-migrants.
  • From 2004-2005 to 2014-2015, in-migrants only had 73.5% of the income of out-migrants, with the last two cycles being the worst yet, with in-migrants barely having 65% of out-migrants' incomes.
Taxes and Net Outmigration

Some writers cited by Sheila Reynsertsen of the NJPP say there is neglible connection between taxes and interstate moves, but looking at comparative tax burdens there is a correlation between having high taxes and having high-outmigration.

In order to nullilfy the weather-advantage many low-tax states have, and exclude outlier Alaska, I am only including states in the Northeast and Midwest below.

(there is also a correlation between outmigration and the Tax Foundation's Business Tax Climate rankings, but it is not as clear)

Source for Tax Burden Rankings,

Since high tax states often have colder weather and higher costs of living than low-tax states, there are certainly factors at play other than tax burdens, but still, a correlation exists.

Gallup also found a correlation between the percentage of people who want to leave a state and its tax burden.

Approximately a quarter (26%) of residents who live in states with the lowest tax burden say they would like to leave their state. And this rate generally holds for residents in the second and third quintiles. However, there is a three-percentage-point increase to 31% among fourth-quintile states and an even greater jump to 36% among the fifth quintile. Even after controlling for various demographic characteristics including age, gender, race and ethnicity, and education, there is still a strong relationship between total state tax burden and desire to leave one's current state of residence.
Gallup also found that New Jersey and Connecticut were the two states that had the most residents wanting to get out, at 46% each.

What might be a bigger factor in low-tax states tending to have net in-migration is that their economies are growing more quickly and that economic growth pulls other Americans (and immigrants) in who aren't consciously looking for low taxes.  As people move to low-tax states just for the jobs, they form households, spend money, and so create a feedback loop of population growth and economic growth feeding into each other.

There are certainly several factors that lead to a state having high-growth or slow-growth, but taxes seem to be one of them by the correlation between slower-growth in high-tax states and faster growth in low-tax states.

California is an important exception to the tendency of high-tax states to have slower growth, but even California has significant net-outmigration (the 7th highest in the US and the highest of any warm-weather state), so California's high taxes, combined with extremely high housing costs, may be preventing California from thriving even more.

"Low Taxes for Whom?"

This theory that economic growth itself is what is pulling people into low-tax states is bolstered by the fact that some high-growth, low-tax states have very regressive tax systems that impose significant taxes on low-income people

Low-income residents of states with low, but regressive, tax systems would pay more in taxes there than they would in high-tax systems like New Jersey.  For instance, a low-income person in Washington State would pay 16.8% of his income in taxes, in Florida 12.9%, and in Texas 12.5%.  By contrast, someone in the bottom 20% of income in NJ would pay only 10.7% of income, in Connecticut 10.5%, and in New York 10.4%.

And yet low-income people are moving to Washington State, Florida, and Texas anyway despite those states having high taxes on low-income people, so it seems they are being pulled in not by low taxes for themselves, but job opportunities and/or lower cost of housing.


New Jersey is Losing its Young

One valuable contribution the NJBIA makes is pointing out that the biggest generational cohort to depart New Jersey is actually Millennials, not retirees.

The departure of Millennials starts with college, in which New Jersey leads the nation in terms of the percentage of students going out of state and the absolute net deficit of students going out of state. 

Source,  NCES.

Even after age 22 when traditional students are done with college, NJ young people in their mid-20s are disproportionately likely to leave.


The immediate economic effects of the net migration of Millennials is that NJ's employers have fewer people to potentially hire, the Treasury has fewer people to tax, and eventually fewer babies are born here.

Partly due to falling fertility rates, but also because so many Millennials have left New Jersey altogether, 20,000 fewer babies are born in NJ now than were born in 1990.

NJ's public school enrollment actually peaked in 2006.  

Since the smaller cohorts born in the 1990s will soon be in the prime of their child-bearing years, the trend of declining births should accelerate after 2020.  


Net out-migration and population loss aren't entirely due to taxes, but NJEA-funded groups like the New Jersey Policy Perspective doesn't like to acknowledge that taxes have any role at all.

When confronted with the fact that New Jersey actually lost residents 2015-16, the NJPP's Vice President, Jon Whiten, cited the diminished appeal of auto-centric suburbia as the main reason:
"My gut says that much of the stagnation we continue to see is driven by a combination of factors," said Jon Whiten, Vice President of New Jersey Policy Perspective. "Among them would certainly be the broad trend away from sprawl and unchecked suburban development, which was New Jersey's stock in trade for some time." 
Whiten noted since the recession, counties on the outskirts of the New York metropolitan area have struggled mightily to retain tax ratables and residents while those with access to public transit have thrived. 

There is some truth in Whiten's statement and Whiten suggests there are other factors, but completely auto-centric exurban parts of low-tax states, particularly Texas, are thriving.

For instance, the Census is non-partisan and says "Southern Cities are Growing Quickly," but what the fastest growing cities also have in common is low taxes.  

Delaware is the fastest growing state in the Northeast and it's completely auto-centric and boring too.  Could having low taxes be an advantage?  Hmm.  

Some public-transit cities like Boston, Washington DC, San Francisco, and New York City are doing great, but Chicago is doing very badly and Philadelphia is lagging national jobs growth.  

"Suburbia" in general isn't in trouble.  High-cost suburbia is.

Anyway, whatever the causes are, we are screwed.

Net outmigration, combined with declining number of young people even entering the labor force, will create a demographic headwind for New Jersey that will further stifle economic growth.

The combination of a demographic headwind from net outmigration, fewer natives entering the workforce and the inexorable devouring of the budget by debt payments, will create a vicious spiral that the state cannot solve without a federal rescue and/or default.

Connecticut and Illinois, our peers in high indebtedness and brutal property taxes, are already at the tipping point, with accelerating outmigration.

Since 2010 Connecticut's net outmigration has tripled from -12,000 in to -37,000.   Illinois' net outmigration was high to begin with, but it has doubled, from -73,000 to -141,000.  Each state's revenue falls quarterly. CT's revenue peaked in Q3 of 2013. IL's revenue peaked in Q1 of 2014. Connecticut only passed a budget a few weeks ago, but new revenue estimates already put it in the red by over $300 million (for the biennium).

Although net out-migration may be more a symptom of New Jersey's profound problems rather than the disease itself, and outmigration is due to factors other than high taxes, I cannot believe that increasing taxes even more won't have a accumulating negative effect on our population and economic growth.