Tuesday, February 28, 2017

The Two Faces of Steve Fulop

On February 22nd, Steve Fulop testified at the Senate State Aid Hearing in Newark and said that Jersey City could not lose state aid because only the Waterfront was doing well.

Saying proposals to reduce Jersey City's $420 million in operating aid
"only takes into account the affluent waterfront section of the [Jersey City] and ignores primarily minority portions of the Jersey City that are significantly less well off."

Fulop said, with a straight face apparently, that redistribution was:
“clearly an attack on poorer, primarily African American, Latino and minority districts,” Fulop said, claiming that a change would shift funding into primarily white school districts in the suburbs.

However, this claim by Fulop flies in the face of Jersey City's economic reality, which is indeed of a powerful, broad boom.

Even if you only look at Jersey City's official, non-PILOTed tax base, the last few years have seen extraordinary growth, with Jersey City's taxable real estate rising from 1.1% of New Jersey's total to about 2.25% of New Jersey's total

Note: Equalized Valuation does not take into account Jersey City's PILOTed properties. 

Fulop's claim also is belied by Fulop's own boasting of Jersey City's economic growth.

For instance, this is a statement Fulop's press secretary made on the context of casinos in Jersey City:

Our residential and commercial development has served as the economic engine for our region. That is a fact that is indisputable...We will continue that booming growth, but we must ensure that the first deciding factor in our decisions is based on residents first, and we reserve the right to reject any proposal that isn't in the residents' best interest."

During the last few years, Fulop (sometimes speaking through his press secretary) has made many equivalent statements.  Every time Jersey City's credit rating is upgraded, Fulop will send out a boastful press release.

Anyway, now Fulop is giving a series of "State of the City" addresses throughout Jersey City where Fulop directly contradicts the claim he made at the Senate State Aid hearing where he said that only the waterfront is thriving.

At his Journal Square speech, Fulop pointed out the obvious, which is that Journal Square is booming too.
Fulop, speaking in the auditorium at School 7 on Laidlaw Avenue, said Journal Square's "long road to recovery" is coming to an end. Citing the three-tower Journal Squared project, where the first 53-story tower will begin welcoming residents this year, Fulop said Journal Square's "best years are right around the corner." 
"From the top of the hill, the new Journal Square skyline will serve as a reminder that development in Jersey City is spreading west, and that our expansive skyline will soon rival that of any major city in the country,

YET more than the fact that parts of Jersey City other than the waterfront are indeed doing well is the critical fact that Jersey City is a single-entity from the point of view of taxation.  Even if Fulop's State Senate testimony were honest and only the waterfront were doing well, the waterfront would make up a gigantic share of Jersey City's total valuation.

The point remains, even if sections of Jersey City remain poor, on $25.7 billion in Equalized Valuation, Jersey City has the capacity to pay MUCH more than $116 million for its school system.  


See Also
"Bullshit, Lies, and Hypocrisy from Steve Fulop"

Sunday, February 26, 2017

John Wisniewski State Aid Plan, the Good, the Bad, and the Insufficient

Wisniewski's Aid Plan:
The Ends Don't Quite Meet

Gubernatorial candidate John Wisniewski has just come out with a plan on state aid that he claims will bring every district up to 100% funding entirely through higher spending, without redistribution.

As usual, there's some good news and bad news in this.

The good news is that Wisniewski is talking about state aid at all, which is an issue he has generally ignored on the campaign so far.  It is also laudable that Wisniewski actually has come out with a set of specifics on where the new revenue will actually come from, which is a major contrast to Phil Murphy, who frankly has a vapid "I'll fully fund the formula" line.

Although John Wisniewski is not the only Democratic candidate with a plan on state aid (Sen. Ray Lesniak supports Steve Sweeney's approach), Wisniewski at least is putting the most original thought into aid.

That being said, Wisniewski's plan comes up short.

The fastest way to immediately provide property tax relief in New Jersey is to fully fund our public schools.John Wisniewski is prepared to close the educational funding gap by taking the following actions: 
Restore the estate tax.  We must overturn the “deal” made between the Legislature and Gov. Christie last year that began the phase out and eventual elimination of the estate tax.  John Wisniewski voted against eliminating the estate tax because New Jersey is already underfunding education and we cannot afford tax breaks that benefit an estimated 3,500 super wealthy families at the expense of 1.4 million students.  Restoring the estate tax will generate an estimated $150 million within the first year and will eventually put as much as one billion in revenue back into the State budget. 
Freeze corporate welfare.  John Wisniewski will enact an immediate freeze and review of all corporate business tax incentive programs.  Gov. Christie has abused these giveaways as he has doled out $7.4 billion in corporate welfare to his wealthy friends and political cronies — without generating any measurable economic activity.  Simply freezing these giveaways will free up an estimated $800 million annually. 
Wisniewski will sign a millionaire’s tax.  Adjusting New Jersey’s highest marginal tax rate will generate $500-600 million annually.  Education is an investment in our future that pays dividends.  It is not unreasonable to ask New Jersey’s wealthiest residents to help fully fund education and provide property tax relief. 
Overturn Gov. Christie’s $300 million State House renovation.  New Jersey has to tighten its belt and this extravagance must wait or be bid out for much less money.Our next governor must think about New Jersey’s next generation, not the next election.  John Wisniewski will fully fund K-12 education.
First of all, even if we accept all of Wisniewski's assumptions on how much money would come in from these tax increases, the total is woefully insufficient to fund even the K-12 portion of SFRA.

If we accept Wisniewski's own numbers of $150 million from a restored estate tax, $800 million from eliminating tax incentives (which I'm highly doubtful on), and $600 million from a higher income tax and you assume no rich person or business leaves New Jersey and Wisniewski can put every cent into K-12 education, it doesn't add up to 100% funding.

$150+$800+$600 = $1.55 billion.

The cumulative deficit for the 379 underaided districts for 2016-17 is $1.93 billion.

That cumulative deficit will grow since the underaided districts are the ones with growing populations and/or falling tax bases.

Is repairing the Statehouse really an
Wisniewski also says we can use $300 million from cancelling the State House renovation, but even if you agree with him that the renovation is a "extravagance," the $300 million is non-existent since the state was planning to bond that money through the EDA.

Is Wisniewski seriously saying NJ should start bonding money for K-12 operating aid?  Because his proposal to use the $300 million intended for the Statehouse Renovation is tantamount to this.   No state can stay solvent by using one-time revenue shots to fund recurring costs like K-12 spending.  

I agree with Wisniewski's proposals to increase taxes on incomes above $1 million and commend him for stating that this would only bring in $500-$600 million annually.

I also agree with Wisniewski's proposal to restore the estate tax, although I think he would find it politically difficult to restore it at the previous threshold of $675,000 since that was the country's lowest. Assuming Wisniewski could/would only restore the estate tax to $1 or $2 million, New Jersey would not recover the full amount lost.

However, by putting all of the estate tax revenue into K-12 aid (it previously went into the General Fund), Wisniewski would be taking money from one pocket and putting it into another. Since items paid out of the General Fund include non-discretionary spending categories like the Executive branch, non-TPAF pensions, and Corrections, taking this money out of the General Fund would put a lot of pressure on higher ed funding, which is technically discretionary.  But this conflicts with Wisniewski's plan to make public college "free" for students from families making under $125,000 a year.

The biggest gap in Wisniewski's proposals is his plan to fund K-12 aid by eliminating tax incentives.

If Wisniewski actually followed through on this, there would be no immediate savings since NJ cannot rescind tax credits already granted.  The theoretical savings would come from not giving out any new tax incentives, but even that assumes that the business would still relocate to New Jersey or remain in New Jersey without the incentives.
  • If the XYZ Corporation is currently located in New York and says it would locate 500 jobs to New Jersey if it gets a $20 million (cumulative) tax credit, and John Wisniewski says no to a tax credit, New Jersey hasn't gained $20 million since the XYZ Corporation still won't be paying anything to the NJ Treasury!  The business will stay put where it is in New York State or go to another state that will gladly give it a tax credit.
  • If the 321 Corporation is located in New Jersey and says it will relocate to Georgia if it doesn't get a $20 million tax subsidy, Wisniewski says no, and then the 321 Corporation really does relocate to Georgia, New Jersey still loses at least that $20 million, since the 321 Corporation no pays zero New Jersey taxes, plus tens of millions of more in spending power by the corporation itself and its employees.
  • If Big Rebuild developers propose converting a vacant office building in downtown Paterson into apartments if they get a $5 million tax subsidy and Wisniewski says no, the NJ Treasury hasn't gained either since that renovation project probably wouldn't happen without a subsidy.

So Wisniewski is blowing hot air when he says that eliminating tax incentives is a budgetary salvation for New Jersey.

The Forgotten Piece:
A major missing piece of Wisniewski's proposal is any reform of how PILOTs distort state aid.

So I'm glad that John Wisniewski has come up with a plan of sorts.  I hope this encourages Phil Murphy and Jim Johnson to come up with anything too.  I hope this encourages Ray Lesniak to talk about his support for Steve Sweeney's much more mathematically-literate plan.

BUT John Wisniewski has got to go back to the drawing board.

See Also:

Wednesday, February 22, 2017

Bullshit, Lies, and Hypocrisy from Steve Fulop

Steve Fulop has finally spoken on state aid and what he has said is complete bullshit, saying state aid redistribution is:

“clearly an attack on poorer, primarily African American, Latino and minority districts,” Fulop said, claiming that a change would shift funding into primarily white school districts in the suburbs.

And that any claim that Jersey City can pay substantially more than $116 million towards its public schools (which is 19% of their budget)

"only takes into account the affluent waterfront section of the [Jersey City] and ignores primarily minority portions of the Jersey City that are significantly less well off."

From the point of view of taxes and state aid, it is irrelevant if only one section of Jersey City is thriving because Jersey City IS A SINGLE ENTITY FROM THE POINT OF VIEW OF TAXES.

Even if only 15% of Jersey City's residences are worth more than $1 million, they would comprise approximately half of the residential valuation, with other high-value properties filling in the great large majority.

On top of that, Jersey City has above average amounts of commercial and industrial property.   Whereas the average town in New Jersey is 84% residential in valuation, Jersey City is only 62% residential.  Although officially Jersey City's property is "only" 25.3% commercial, it has billions of dollars in off-the-books PILOTed property that is disproportionally commercial.  (see "Property Type Extremes")

Jersey City's taxes are only the 16th highest.
If Jersey City had an up-to-date property valuation, Jersey City's low-income sections would pay a tiny portion of its school taxes.

Moreover, most towns in New Jersey have no $1 million residences at all and don't have any section that can be called "booming."  Jersey City alone is alone responsible for 10% of the increase in New Jersey's total Equalized Valuation.  From 2015 to 2016 alone, Jersey City's Equalized Valuation rose by $4 billion - from $21.7 billion to $25.7 billion.

Also, property values in many other parts of Jersey City are outperforming the state average.  Fulop's own $850,000 townhouse is in the Heights, not the waterfront anyway.

Fulop even says redistribution is wrong because it would hurt "minority districts":

“It is clearly an attack on poorer, primarily African American, Latino and minority districts,” Fulop said, claiming that a change would shift funding into primarily white school districts in the suburbs.

Fulop also said redistribution would help the suburbs "at the expense of the most needy children."  He warned that Newark would lose money, but that is a lie based on out-of-date information because Newark is now actually underaided by $90 million.

This is blatantly, blatantly, blatantly wrong.  Fulop is a liar.

First of all, many of the districts who would lose state aid are heavily white rural towns and Jersey Shore districts.  Pemberton is New Jersey's second most overaided district, with a $25.8 million excess and it is majority white.  

Second of all, the towns who would gain the most state aid are heavily Latino.  Dover is 82% Latino. Lakewood is 80% Latino.  Red Bank Boro is 77% Latino.  Fairview is 75% Latino.  Freehold Boro is 74% Latino.  All would gain millions if SFRA were fairly funded.

Even "money is everything" advocate Bruce Baker, when he took a break from his anti-charter school screeds, acknowledged that New Jersey's most underaided districts have very high Latino populations.  

All of those districts are severely underaided and would gain, so this is no "attack" on primarily poorer, African-American, Latino, and minority districts."

Fulop claimed also that Jersey City should not lose state aid because 70% of the students in the public schools are FRL-eligible.  That is true about the percentage, but what it ignores is that SFRA already gives out a $5,000 per student bonus for FRL-eligible students and Jersey City has proportionally very few students.  Whereas the average town in New Jersey has 17% of its population enrolled in the public schools, in Jersey City it is 11%.

Finally, any appeal to identity politics where Fulop bases his objection to the fact that Latinos and blacks in Jersey City might end up paying higher school taxes is staggeringly hypocritical of Fulop because Fulop himself spent years opposing a desperately-needed property tax reval and strenuously fought against a property tax reval which would have lightened the tax burden on Jersey City's Latino and black sections.  Jersey City's last tax reval was done in 1988, so Jersey City was literally a city "where poor blacks subsidized rich whites."

So, if anyone is looking at who is opposing state aid reform, as I have repeatedly said, the most powerful opponent is Steve Fulop.  

If you are wondering why Vincent Prieto OPPOSES state aid redistribution despite representing the most severely underfunded legislative district in New Jersey, it's about his relationship with Steve Fulop.


Wednesday, February 15, 2017

Education Law Center Insults Kingsway Regional

The Kingsway Regional School District is one of New Jersey's most underaided and underfunded districts.

Kingsway Regional receives students from East Greenwich Township, Logan Township, South Harrison Township, Swedesboro and Woolwich Township, a rapidly growing area of New Jersey. Whereas SFRA says that Kingsway Regional should be receiving $19,476,369, the state only gives it $8,866,900, a $10.6 million deficit.

Kingsway thus only receives 45% of the aid SFRA says it needs. Since it has nearly 2600 students, its deficit per student is -$4325, which is one of the forty worst in New Jersey.

Kingsway Regional's taxes are over $525,000 in excess of Local Fair Share, but Kingsway's Total Budgetary Cost Per Pupil is only $10,362, which is one of the ten lowest in New Jersey. Although most of the other districts among the lowest-spending are demographically poorer than Kingsway, most of the other lowest-spending districts are K-8s, so Kingsway's budgetary distress should be seen as exceptional.

Kingsway Regional is one of the most active districts on state aid reform. They launched a petition that got 2600 signatures, have launced a letter-writing campaign, successfully gotten their legislators in favor of reform (including Senate President Steve Sweeney).

In addition to all this effort, Kingsway is suing the State of New Jersey for fair funding with a demand that Adjustment Aid be eliminated.

And to this basic demand for Justice the Education Law Center SHOUTS NO as part of its staunch defense of aid hoarding (aka "Adjustment Aid.").

Rather than even respecting Kingsway's anger, the Education Law Center mocks Kingsway, comparing it to a dog.

And then virtually celebrating the (technical) rejection of Kingsway's case by the NJ Supreme Court:

I've said before the Education Law Center and its chief David Sciarra were reactionaries, but I didn't realize they were such assholes.

Tuesday, February 14, 2017

SFRA Was Never Fully Funded

One of the most pernicious myths about the School Funding Reform Act is that it was fully funded in its first year, 2008-2009.

This myth is spread by the Education Law Center
NJ’s weighted student funding formula – codified as the School Funding Reform Act (SFRA) – stands as a national model of state public school finance. But the formula has not been fully funded since its first year in law (2008-09), and was cut in 2010-11 by Governor Chris Christie.

Including from Paul Tractenberg himself:

Tractenberg said the current state funding formula under the School Funding Reform Act has only been fully funded once under Christie. That's the real problem that should be addressed, he said.

and picked up by many journalists.

Example, Meir Rinde of NJSpotlight

The formula was run and funded for one year. Then the recession hit, Christie was elected, and he cut education aid overall by $1 billion (though half of that was eventually restored to Abbott districts).

“The school funding formula that is written into law has only been fully funded once in the last seven years.”
And even the state legislature:
WHEREAS, While the SFRA was used to distribute State school aid for the 2008-2009 school year, since then the SFRA has not been fully funded and its provisions which lay out a constitutional pathway for the distribution of State school aid have been ignored and overridden;
However, SFRA was never fully funded in a real sense because in that first year districts were only funded at their Capped Aid levels.

It's rarely explained, but SFRA contains a cap in the amount of aid an underaided district can gain in a single year, either a 10% boost if the district is above Adequacy or a 20% boost if the district is below Adequacy.

From the statute itself:
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. 

Due to the existence of these caps, there is a difference between the statutory full funding of SFRA and the real full funding of SFRA, which would be funding every district at uncapped aid.

In 2008-09, yes, every district was funded at its Capped Aid level, but there was a $1 billion funding deficit between actual aid and uncapped aid, which, again, is the real demographic-economic aid level for districts.

I got these data from the Department of Education via an OPRA request and have put the Actual Aid vs Capped Aid data online.

Let's look at Clifton as an example of how the State Aid Growth Limits (aka "caps") reduce a district's aid:

SFRA's formulas looked at Clifton's enrollment and tax capacity and determined Clifton should get $55,999,000, which would have been $5300 per student.

But what did Clifton actually get in 2008-2009, the year SFRA was "fully funded"?


Which is only $2,600 per student.

$27 million is actually 40% higher than Clifton's 2007-08 aid of $19 million, so I admit I don't know quite was going on here, but I know 

$27,374,845  $55,999,000.

And there are 278 districts that were, like Clifton, not fully funded in 2008-09, despite so many groups and journalists saying they were.

These are just the largest deficits in absolute terms:

The data I received from the DOE had errors for certain districts which I have removed from this graph, and yet reappear in the original source material:

River Edge was the most underaided in NJ in percentage terms, getting only 19% of its uncapped aid. Northvale, Clinton, and Chesterfield also in the bottom four.

In that year Manchester Regional was the most underaided in per student terms, with a $5,300 per student deficit.

Overall, in that year there were 44 districts who got less than 50% of their uncapped aid, which is better than now, when 141 districts get less than 50% of their uncapped aid, but still, this means that many districts were still underaided even when SFRA was statutorily followed.

So, again, in 2008-2009, SFRA was fully funded in a statutory sense, but not a real sense.

The total cumulative deficit for the 279 underaided districts that year was $1.05 billion (not counting vo-techs).

Adjustment Aid was $850,612,518 ($948 million with inflation) that year so the net deficit appears to have been smaller then than now (It is now $1.4 billion in 2016 dollars, counting vo-techs), but when so many districts were still in 2008-09 substantially underaided, it's wildly inaccurate to say that "SFRA was fully funded in its first year."

Here's the bottom line:

New Jersey, going back to the 1970s, has always struggled to fully fund its aid formula.

Since the Great Depression, New Jersey's fiscal situation has never been worse, nor its economy more slowly growing.

New Jersey did not fully fund SFRA in 2008-09, and our oncoming pension depletion, stagnant economic growth, and the high spending targets of SFRA make fully funding SFRA now unrealistic unless the Democrats were to pass tax increases much larger than they have ever hinted at.


See Also:

Tuesday, February 7, 2017

2017-18 Looks Like Another Bad Year for State Aid

State Aid is Zero-Sum.
Accept It

Gentle Reader, we do not know if Christie will allow any state aid redistribution, will flat-fund all districts yet again, or even attempt to implement his so-called "Fairness Formula."

But one thing we can rule out is any significant increase in state aid as indications mount that it will be another bad year budgetarily for New Jersey.

The State Treasury created the FY2017 budget with an expectation that revenue would increase by 3.6% (which is $1 billion), but 3.6% isn't happening.

In December 2016, the Treasury said that revenues were only up by 2.1%.

In January 2017, things are worse, with the Treasury saying that revenues are only up by 1.7%.

These numbers are for FY2017 and FY2018 could be better (especially if people start taking more capital gains), but we are below where we forecasted ourselves being at this time last winter.  Persistently low revenue also makes Fitch and Moody's more likely to follow S&P in downgrading our debt, which will mean higher borrowing costs for New Jersey.

And even in good years, growth in the PHD costs of Pensions, Healthcare, and Debt exceed or equal New Jersey's revenue growth.

On top of low revenues so far, the tax cuts for the Transportation Trust Fund will start to eat into revenue and the state must reserve more money to make quarterly pension payments.

I'll let real experts ascribe causation to NJ's bad revenues and forecast FY2018, but I know this: Things Look Bad and the NJEA/Education Law Center's demand "Just Fund the Formula" is more ridiculous than ever.
Adjusted for Inflation, New Jersey's Quarter Revenues are
Still Lower than They Were Pre-Recession
Source: Pew Fiscal 50

And for anyone who thinks this mess is entirely Christie's fault and things will get better after we have a new governor and higher taxes, look at Connecticut, whose FY2018 deficit is yet again 8% of state revenue. ($1.5 billion out of $19 billion)

What this means we have to fight even harder for redistribution because fairness isn't going to come through new spending.

Sorry everyone, but ZERO-SUM RULES.  We have no choice but to redistribute state aid.


See Also