Thursday, June 29, 2017

Falsehoods from Toms River

Since Steve Sweeney and Vincent Prieto agreed on a plan that would redistribute $31 million (originally $46 million) of the $670 million New Jersey has been giving out as "Hold Harmless Aid," the most vocal opposition has come from Toms River.

For background, Toms River receives $68.3 million in state aid, even though SFRA's core formulas say it only needs $47.2 million.  That $21.1 million excess is one of the ten largest in New Jersey in total dollars and works out to $1300 per student.

The $21 million in excess aid, plus Toms Rivers' own acceptance of very low student spending, allow Toms River to tax at only 75% of Local Fair Share, with a $151 million 2017-18 tax levy on a Local Fair Share of $197.6 million.

Despite having over $46 million in untapped Local Fair Share, and a knowledge that most New Jersey school districts tax above Local Fair Share, the Toms River Board of Education opposes any redistribution.

As part of their campaign in defense of their own aid hoarding, the Toms River Board of Education and its administrators have been writing op-eds arguing tha aid cuts are "unfair" for many reasons, the following of which are chief:
And how in good conscience can these legislators propose taking $3.3 million dollars from Toms River Regional when we are still reeling from the effects of Superstorm Sandy and have $600 million in ratables that have yet to be recovered? The topic of property tax assessments highlights another known critical flaw of the school aid formula- it allows for districts to have significantly understated property tax assessment totals in the aid calculation, which matters greatly because a district’s ‘wealth’ is the basis for a large portion of a district’s school aid. For example, the property wealth calculation does not include Payments in Lieu of Taxes (‘Pilots’) and tax abatement programs, which excludes millions of dollars in property ratables, which could be material to the calculation of a district’s school aid. The same legislators are also aware that large school aid increases, some in the millions, would be given to several districts whose towns have not had property assessment revaluations in over 25 years! Having an understated property ratable figure provides large aid dollars for several districts, and since the pot of school aid is limited, it takes away significant amounts of school aid that would be spread to the rest of the districts in the State.

Where to begin?
1.  A Lack of a Reval has No Effect on State Aid

It is true that there are towns in New Jersey (all in Hudson, Middlesex, and Union Counties) that have not done revals since the 1980s, but it is completely erroneous to say that a town's lack of a property reval in any way affects its state aid.

This is because state aid is based on Equalized Valuation, not the official assessment.

Equalized Valuation, which is also used to apportion county taxes, is calculated based on the ratio of sales prices to official valuation.

If, on average, sale prices are 115% of official assessment, then Equalized Valuation equals 115% of the town's total official assessment. If sale prices are, on average, 200% of official assessment, then Equalized Valuation equals 200% of the town's total official assessment.  Since Equalized Valuation is the product of official assessment times the sales ratio, a lack of a reval does not affect it.

Ironically, by insisting that the state maintain a frozen aid distribution, the Toms River BOE and administration are effectively say that the state not do a "state aid reval" of its own.

2.  Toms River was Overaided Before Sandy, Loss of Ratables is Factored into State Aid

Toms River (and Brick) have repeatedly said that it is unfair to take aid away from them because they have not recovered from Hurricane Sandy.

First of all, Toms River was overaided before Sandy occurred. In 2011-12 Toms River got $9.8 million in Adjustment Aid.  In SFRA's first year of 2008-09, Toms River got $18.5 million in Adjustment Aid.

Now, post-Sandy Toms River is more overaided than it was before Sandy, but the loss of tax base that Toms River brings up is already built-into the calculation of Toms Rivers' Local Fair Share state aid.

Since Toms Rivers now has an Equalized Valuation of $15,167,528,438 versus the $16,065,236,923 it had previous to Sandy, Toms Rivers' Local Fair Share is reduced by about $6 million, approximated based on
Equalized Valuation alone.  I do not have data on a loss of Aggregate Income, but if it is lower than it was pre-Sandy, that would reduce Toms Rivers' Local Fair Share as well.

What causes Toms River to lose state aid is that Toms Rivers' enrollment has also declined, partly due to Sandy and that enrollment decline causes Toms Rivers' Adequacy Budget to fall.  However, as enrollment declines, so does staffing needs, Out Of District tuition, and a few other budget items, so Toms Rivers' expenses are lower.

(See also:
"Jersey City's Property Reassessment Won't Change State Aid")

3.  PILOT Reform without Adjustment Aid Reform Does Nothing.

Toms River is correct that PILOTing is a distortion of state aid, since PILOTed property is "invisible" to the determination of Equalized Valuation and thereby Local Fair Share, but even if PILOTed property were included in the calculation of Local Fair Share, districts with a lot of PILOTed property (namely Jersey City) would not lose any state aid unless Adjustment Aid were also addressed.

If PILOTed property were included in the determination of Local Fair Share and no reform to Adjustment Aid were made, all that would happen is Jersey City's and Asbury Park would have some of their Equalization Aid converted into Adjustment Aid.

4.  Extra Aid for Low Spenders?

Toms River also makes an out-of-left field argument that it should be rewarded with extra state aid because it spends (and taxes) so little.

In terms of trying to justify their new aid proposal, can the same legislators explain how it is possible that aid increases would be given to districts who have total per pupil costs over $29,000 already (compared to $16,319 in Toms River Regional)? This highlights one of the critical flaws with the State Aid formula- it allows for unlimited per pupil costs, and gives no credit or consideration to districts with lower per pupil spending. The formula unjustly portrays lower-spending districts like Toms River Regional as not paying our ‘fair share’ in taxes when in fact we do pay our fair share. The reason we tax less is simple- we spend less! So before taking school aid from any district, per pupil costs should first be capped and no additional school aid should be given when that cap is exceeded.
What Toms River is doing here is attempting to redefine Local Fair Share to something other than the formula contained within SFRA.

Based on its Equalized Valuation and Aggregate Income, Toms Rivers's Local Fair Share at $197,593,919, compared to a 2017-18 tax levy of only $151,916,715.  This gives the Toms River schools an equalized school tax rate of only 0.9529 for 2017-18, which is significantly below New Jersey's 1.35 average.  

Given that Toms River has that $45.6 million in untapped Local Fair Share, it has the economic ability to compensate for the $21,140,413 in excess aid it might lose.  If Toms River made up for that lost $21 million in state aid its school tax rate would only become 1.08.

This is a twisted point to unpack:

So before taking school aid from any district, per pupil costs should first be capped and no additional school aid should be given when that cap is exceeded.

There are only a handful of districts spending $29,000 in New Jersey and all of them are losing state aid or seeing flat aid.  Lebanon Boro and New Hanover are high-spending districts that are gaining trivial amounts of aid ( $670 total and $3,598 total, respectively), so I can't figure out what Toms River is talking about here other than they want to distract from the issue of Adjustment Aid.

There are some very affluent districts who are gaining aid, such as Millburn, Princeton, Mountain Lakes, and Livingston, but these districts don't have spending that is anywhere near $29,000 per student.  If Toms River believes that affluent districts shouldn't get state aid, then that is a separate issue, but they are making an argument that is actually contrary to the principles that Toms Rivers' Republicanism usually stands for.

If Toms Rivers' implied demand that districts actually get extra state aid because they spend very little were implemented then it would have the perverse effect of equalizing spending between districts that make very different local tax efforts,  since the low tax/low spending districts would get extra state aid.  On what planet does cutting aid from districts that choose to tax themselves make sense?

If Toms Rivers' demand were granted, there would be a rush by Boards of Ed to slash their tax levies, slash their budgets, and receive extra state aid.

It makes no sense except in that it supports Toms Rivers' self-interest.

Finally, what is really missing from Toms Rivers' argument is any acknowledgement of how indebted and fiscally screwed New Jersey has become.

As I have posted many times on this blog, all of New Jersey's new
revenue is absorbed by the "PHD" expenses of Pensions, Healthcare, and Debt, even though New Jersey is still underfunding its pensions by $2.5 billion.

The amount of money New Jersey can plausibly gain by increasing taxes is $1-$1.5 billion and it would be irresponsible and imprudent to put all of that money into K-12 education.

Without redistribution there is no realistic budgetary pathway to fairness for underaided districts.

Sadly, even with complete redistribution of Adjustment Aid and the injection of another $500 million today's underaided districts will still not be brought to 100%.

Toms River is acting in its own self-interest nothing else.

Thursday, June 15, 2017

Kim Guadagno's Circuit Breaker: Positives and Negatives

Kim Guadagno is making a property tax relief proposal she calls a "circuit breaker" the centerpiece of her campaign for governor.

Guadagno's proposal is that all New Jersey residents have the school portion of their property taxes capped at 5% of income, with taxes due in
excess of that now assumed by the state.

As Guadagno's campaign explains it:

This innovative program would cap the school portion of a homeowner’s property tax bill to 5% of their household income, ensuring no New Jersey family would have to leave our state due to untenable property taxes. For instance, if a household makes $100,000 in income annually, they would not pay more than 5%, or $5,000, towards the school portion of their property tax. Any amount owed in excess of the 5% circuit breaker threshold will be applied directly to the homeowner’s property tax bill as a credit. So if the same family making $100,000 a year has a school property tax bill of $6,000 annually, they would receive a $1,000 credit. The school districts would then receive increased state aid to cover the cost of the credit so no school districts lose funding. 
Under this program, a family making New Jersey’s median household income of $72,000 will save an average of $895 on their property taxes annually. This proposal will apply to primary residences only and be capped at $3,000 annually. While the Homestead and Senior Freeze programs will remain in effect. homeowners will only be able to qualify for one program at a time and be able to choose the relief program that best meets their needs.
The state reimbursement would be capped at $3,000, so it is possible that certain households who have high property:income ratios would still pay over 5% of income in school taxes, but for most non-renters, taxes would be capped at 5%.

Overall, Guadagno's proposal would make NJ school funding more income-tax based than property-tax based, since the "Property Tax Relief Fund" comes from income taxes, and so make school taxation more progressive.

Guadagno's own staff estimates the cost at $1.5 billion, which Guadagno says could come from "auditing Trenton," eliminating existing property-tax rebates, and economic growth.

Since Guadagno came out with her circuit-breaker in April 2017 most of the criticism of it has been that Guadagno has underexplained where the state money would come from, since Guadagno rules out any tax increases (although that criticism applies to Phil Murphy and his agenda.)

Anyway, this is a look at some of the positives and negatives of Guadagno's proposal that I feel haven't gotten any attention.

The Good Things

It hasn't been independently verified that the circuit breaker would cost $1.5 billion per year, but assuming that amount is indeed the cost and assuming that Guadagno actually could find that $1.5 billion, this proposal would deliver real tax relief to the most overburdened taxpayers in New Jersey.

If a governor poured another $1.5 billion into SFRA the tax relief would probably be extremely limited, since Boards of Education would spend a large portion of their new money and/or teacher contracts would gradually consume whatever new revenue exists too.  If the money actually were directly given to households, people would end up with more money in their pockets.

The Bad Things

The Circuit Breaker's Not Looking Good,
Even if Guadagno Could Fund It
Since, under Guadagno's proposal, the state pays taxes in excess of 5% of income, Boards of Education would likely lose restraint in tax levy increases, since now their most overtaxed non-renters are protected by the state.

Very few Board of Education members are economically conservative, but they are aware that their communities have residents who can barely afford their homes and weigh that fact in determining what the tax levy increase should be.

Under a state-funded circuit breaker, Boards of Education now have a blank check to be cashed on the state's bank account and that restraint is gone.

Although NJ has a tax cap, tax increases are still not limited to 2% due to health care and enrollment adjustments and an electorate can vote to increase taxes to whatever amount it wants.

This means that the costs of the circuit breaker would increase fairly rapidly from the initial $1.5 billion.

What if there is a recession?

If the state started to put at least $1.5 billion into this tax rebate program it would have less money available to fund school districts, as well as other obligations.  Guadagno does support reducing Adjustment Aid and making cost-savings reforms to PreK and Abbott construction, but still, New Jersey's 369 underaided school districts have a deficit of $2.1 billion for 2017-18, so redistribution alone is not enough to create budgetary adequacy.

Moreover, New Jersey will eventually face another recession and have a revenue crash.

Every state loses revenue in a recession, but New Jersey's revenue fall is always more than the average state's since our income distribution is so unequal and our income tax structure is so progressive.  In the Great Recession NJ's revenue fell by 19%, whereas the average state's only fell by 12%.

The permanence of New Jersey's ongoing debt crisis plus the inevitability of another recession means that sustaining the "circuit breaker" is an iffy proposition for the bankrupt Garden State.

Kim Guadagno deserves credit for coming up with an idea that actually would lower property taxes for many people, but it may be the Right Plan for the Wrong State, since New Jersey is broke anyway and New Jersey's Boards of Ed are likely to lose what little fiscal restraint they possess.

Tuesday, June 13, 2017

Jennifer Beck: Take Politics Out of State Aid (Unless Monmouth County Benefits)

Senator Jennifer Beck has again released misleading statements on state aid in an incoherent,
analytically incomplete op-ed where she defends Adjustment Aid, criticizes attempts to redistribute it from most districts, and yet says that the state should help districts that have had surging enrollment.  

There aren’t a lot of details being provided on [Sweeney's] plan, but estimates suggest that it could end up costing Monmouth County schools over $100 million in state school aid. This plan, if estimates are true, isn’t a fair or equitable solution to our school funding crisis.\ 
In New Jersey, we are supposed to fund our schools in a way that gives all of our children an opportunity to succeed. We all know the problems that exist under the current school funding program: 
It’s led to municipalities like Jersey City, which has the tax base to support their local schools but underfunds them by $255 million — while pocketing more than $418 million a year in state aid. 
It’s led to New Jersey underfunding schools where student enrollment has exploded. In fact, state aid for our schools has remained essentially flat since the School Funding Reform Act (SFRA) was enacted in 2008, leaving property taxpayers on the hook to pay more. For example, Freehold Borough is 527 students over capacity and Red Bank’s enrollment has grown by 267 in the last five years. But the state has not pulled its weight.
It’s led to a system where 421 school districts throughout the state overpay in property taxes to fund their schools. Property taxpayers are paying more than they need to because the state has failed to live up to its end of the deal. In Ocean Township, local taxpayers are paying $8 million more in property taxes for their schools than they are required to by the state....
While I am grateful to see that some of our [meaning Monmouth County's] underfunded schools would be among those that get more funding (because they need it), I noted that his area seems to be getting quite a bit more than Monmouth County and other counties. Politics can’t play any part of such an important process that impacts both our property taxes and our children’s education.

What Beck is saying is that she doesn't want "politics" to impact property taxes and education unless Monmouth County benefits.

Admittedly, Beck is correct that Monmouth County would be a net loser in any likely aid redistribution.

FIRST, for 2017-18, Monmouth County has 26 districts with a grand total of $99.7 in excess aid, but Beck omits multiple key facts on that, Monmouth County also has 28 underaided districts with a total deficit of $51.9 million.  These underaided districts include poorer districts including Freehold Boro, Red Bank Boro, and Long Branch,  plus some middle-income and affluent districts including Rumson-Fair Haven, Holmdel, and Freehold Township.

SECOND, half of the $99.7 million in excess aid in Monmouth County only goes to two districts, Asbury Park and Freehold Regional, each of whom has $25 million in excess aid.

Asbury Park's state aid exceeds $24,000 per student, of which nearly $11,300 per student in excess of SFRA's target.  Asbury Park's grotesque state aid amount has led to to PILOT virtually all of its new development, for a grand total of perhaps $1 billion in hidden PILOTed wealth.

THIRD, many of the aid-losing districts in Monmouth County are resort towns on the Atlantic Ocean that have gigantic tax bases relative to their student populations.

Belmar has $29,571 in Local Fair Share per student. Lake Como has $23,424 per student. Deal has $98,708. Allenhurst has an astronomical $1,706,505 per student.

Several of the non-resort towns have large tax bases too.  Tinton Falls has $19,550 per student in Local Fair Share.  Henry Hudson Regional has $23,262 per student. Middletown has $16,405 per student.  

FOURTH, more than $2 million of that excess is in Interdistrict Choice money that is not subject to redistribution.  This Choice money mostly goes to Deal, which gets $1.8 million alone.  (Monmouth County's total Choice Aid is over $3 million, but some of that goes to districts who are still underaided despite that infusion).

FIFTH, New Jersey is the country's most indebted state.  Thus, the state cannot increase K-12 aid very much and so budgeting is zero-sum.  The more aid hoarding that Jennifer Beck can preserve, the less new aid there is available to NJ's underaided districts, including Red Bank and Freehold Boros.

Beck also says she favors some redistribution, but says we should start with the statutorily overaided districts for whom the existing statute of SFRA allows aid reductions.  These are 46 districts who, despite Adjustment Aid, get more money than the SFRA dictates they should due to post-2008 enrollment loss.

Let’s start the reform with the 46 school districts that are overfunded in state dollars.

Ok, that's a good idea and is better than nothing, but barely.  These 46 districts only get $11 million total in extra aid.  

And silliest of all, Beck says at her conclusion what she had already said a few paragraphs previously:

Any school funding reform plan should be one where decisions aren’t based on politics, but rather on what is best for our students, parents, taxpayers and teachers.
Decisions aren't based on politics?

What on earth is Beck herself doing but appealing to the naked self-interest of Monmouth County itself?  

Although SFRA is complex, Sweeney's plan is quite simple: to give each district in New Jersey 100% of its recommended funding, no more, no less.  

That's not politics, that's justice according the old definition of equal treatment under law.  

Wednesday, June 7, 2017

The 2017 Election: Optimism, Pessimism, and Hopelessness on State Aid

Well, the ballots have been counted and Phil Murphy and Kim Guadagno are the winners of their respective parties nominations.

Here are the reasons I'm optimistic about what the election means for state aid, the reasons why I'm pessimistic, and the reasons why I fundamentally have no long-term hope at all.

Phil Murphy:

The Good Stuff about Murphy:

He promises to "fully fund" SFRA and employs fully funding SFRA as a key means of restraining property tax increases.  Murphy said at a town hall event in Maplewood that he would "pull" $200-$300 million in Adjustment Aid and told the NJEA that SFRA need to be "tweaked and updated."

Although Murphy is strongly allied with the NJEA, with pressure from the legislative Democrats, Murphy could be induced to make a bigger redistributive move.

The Bad Stuff about Murphy:

Murphy repeatedly has given SFRA's deficit at only $1 billion a year, when the real deficit, against Uncapped Aid, is $2.1 billion for 2017-18 ($2 billion for 377 underaided districts after the June 2017 tweaks) and that amount grows annually by at least $100 million a year.  In 2008-09, the deficit was only $1 billion.

If Murphy feels the state can only put in an additional $1 billion into SFRA I accept it, but another $1 billion in isn't even close to enough to fully fund SFRA in real terms, so saying that another $1 billion = full funding is dishonest.

If Murphy keeps the State Aid Growth Limits intact, then the most severely underaided districts will gain very little.  (see "The Skews of Capped Aid")

Murphy also called himself a "barbell guy" at a town hall in Penn's Grove, meaning his priorities in education are PreK and higher ed.

Murphy's implied vow to eliminate tax incentives as a means to fully fund SFRA is not feasible.  The amount NJ pays out in tax incentives was only $347 million for 2016 (see A20), not the $1 or $2 billion it would take to fully fund SFRA.  Also, not every business is bluffing when it says it won't operate in NJ without tax incentives and if a business is not in NJ the Treasury cannot tax its employees anyway.  Many tax incentives go to renovation projects that have wide public support (eg, Bell Labs > Bell.Works, the Hahne's conversion in Newark).

Kim Guadagno:

The Good Stuff about Guadagno:

Kim Guadagno borrowed from Jack Ciattarelli's platform and thus actually has a comprehensive state aid reform package. Guadagno now realizes state aid is important and says "We need a new school funding formula and we need it now, too."

Guadagno supports redistributing Adjustment Aid, making the Abbotts pay for a percentage of their construction costs, and means-testing PreK.

If Guadagno had a means of paying for her "circuit breaker" (in which school taxes would be capped at 5% of income up to $3,000), it would mitigate taxes for lower income New Jerseyans.

The Bad Stuff about Guadagno:

Guadagno has ruled out any tax increases.  Assuming the Democrats control the legislature, no additional pension reforms will be allowed, so the state's fiscal crisis will worsen.

Guadagno has also been the lieutenant governor for eight years and she has done nothing to address school funding inequality.  Guadagno has even appeared at many ribbon cuttings for 100% state-funded Abbott construction projects, so I think Guadagno's conversion to state aid reform is unconvincing.

In a debate Guadagno cited kids in Phillipsburg learning algebra in trailers, when Phillipsburg is an Abbott and students there now have very luxurious facilities.

The Hopelessness:

New Jersey in 2027

No matter who wins, the structural budget forces that consume hundreds of millions more per year will still exist and still push out other spending.

This chart is based on the slower pathway to the full ARC that Chris Christie wanted. 

So if Phil Murphy were to raise taxes by $1.5 billion (as he told the Star-Ledger), within a few years that additional money would be consumed by new, structural spending increases.

It's not a recipe for fiscal sustainability, let alone fair and sufficient state aid.

Phil Murphy, like every other governor, has talked about accelerating economic growth, but a governor's control over an economy is limited, particularly in the short term. Connecticut, under Dannel Malloy, has passed all of the policies that Phil Murphy wants in NJ other than marijuana legalization and a state bank, and that has not rescued Connecticut's economy.  Connecticut's economy is actually worse-off than New Jersey's.

Given the certain continuation of New Jersey's fiscal crisis, the redistribution of state aid is more necessary than ever.

Sunday, June 4, 2017

Funding SFRA is Necessary but not Sufficient to Ease NJ Taxes

In the last few months, when addressing New Jersey's sky-high property taxes, candidates from both parties have converged on the solution of putting more money into SFRA:

Addressing Schools _ and Taxes _ Key in Governor's Race 
TRENTON, N.J. (AP) — All the candidates running to replace New Jersey Gov. Chris Christie agree that addressing the state's high property taxes is a priority, although any fixes will be closely linked to K-12 education in the state.... 
Decisions made by the governor about education affect not only kids in the classroom, but also the real estate taxes that their parents pay. 
New Jersey's property taxes are the highest in the nation and one of the key drivers of that is spending on schools. That has led to a 2 percent cap on property tax increases, but also to debate over whether the state's school funding formula needs to be overhauled.... 
On the Democratic side, all four of the leading candidates have pledged to fully fund the school aid formula. [sic] They have also all called for ending the requirement that the Common Core-aligned PARCC test be used as a graduation requirement. 
Democrat Phil Murphy, the former Goldman Sachs executive and Obama administration ambassador to Germany, and state Assemblyman John Wisniewski have both called for eliminating the test completely. Murphy was endorsed by the state's largest teachers' union, the New Jersey Education Association. 
Murphy, Democrat Jim Johnson, a former Clinton administration official, and Democratic Assemblyman John Wisniewski have also called for universal pre-kindergarten a part of their platform. Democratic State Sen. Ray Lesniak says that he would prioritize establishing programs for prenatal to 3-year-olds in low-income districts and that universal pre-K would come after that. 
GOP Lt. Gov. Kim Guadagno has called for capping [school] property taxes at 5 percent of income, which she describes as a first step that would provide immediate relief to tax-burned residents. Assemblyman Jack Ciattarelli calls Guadagno's so-called "circuit-breaker" plan "disingenuous" and said that it ignores the mandated funding formula.
Guadagno says that she wants to reform the "antiquated" school funding formula, while also increasing aid for special education while also auditing all of the state's school districts. 
Ciattarelli wants to reform the school funding formula by redirecting what he describes as "excess aid" sent to districts like Jersey City. 
Both Republican front-runners want to redirect pre-K money so that it is available for students based on income levels.

As an activist for adequate budget resources for New Jersey school districts and equal tax burdens, I'm glad that school funding is getting attention, but as someone who also wants New Jersey's all-in tax burden to normalize with the rest of the Northeast, concentrating on SFRA cannot be the only pathway to take.

Full and/or fair funding of SFRA is important, but New Jersey's tax burden will not ease without efforts to restrain and lower the cost of government.

The problem for New Jersey is that our property tax burden is so enormous ($28.35 billion) that fully
Click To Enlarge,
Source, "Additional School Funding Scenario"
funding SFRA - even if the state had the money - would do little to nothing for most towns because the amounts under discussion - either $1 billion or $2 billion - is so small compared to the statewide tax levy.

Moreover, much of the money districts would gain would likely be spent on the school programs and increasing staff salaries and not used to offset taxes.

Also, although fully funding or fairly funding SFRA would offer significant tax relief to some communities, SFRA is not really a tax relief law so much as a law that seeks to ensure communities with high rates of "at-risk" students spend more money than middle-class communities.  It is not a law that would actually produce "low" property taxes (compared to the national average) for any New Jersey community.

This post looks at SFRA's deficit in comparison with New Jersey's statewide, all-in property tax levy and examines how concentrated new money under SFRA might might be.

Had SFRA been followed for 2016-17, half of the $1 billion aid increase (at Capped Aid) would only go to sixteen districts comprising 14% of New Jersey's total population.  (see pie chart above)

1.  Local "Fair" Share is Still an Unfair Rate Compared to Any Other State

First, I need to point out how extraordinarily high New Jersey's Local Fair Share threshold is compared to the national average even for all-in taxes:

This is the 2017-18 formula for Local Fair Share:
  • (0.014009 x Equalized Valuation + 0.047823 x Aggregate Income)/2
I know that formula looks complex, but it is just arithmetic and what it says is that New Jersey school districts are expected to tax themselves at 0.7%  (.07 ≈ 1.4% / 2) of their property valuation plus 2.4% (2.4% ≈ 4.78% / 2 ) of their Aggregate Income.

For 2016-17, New Jersey's total Local Fair Share was $16,723,321,766. Since our total Equalized Valuation was $1.2 trillion ($1,208,762,819,428 to be exact), even SFRA's Local Fair Share equates to a 1.38% tax rate.

That 1.38 school tax rate, even if it were the only property taxes New Jerseyans paid, would be the 15th highest rate in the United States!  The amount would be almost $4,000 per household too, which would leave New Jersey's taxes in the top ten in dollars per household


No community is required to pay its full Local Fair Share, but still, since the amount is so high, it shows that the design of SFRA is not a design for low or even moderate school property taxes overall.

2.  Even if There Were a Miracle and We Fully Funded SFRA, the Money is a Small Percentage of New Jersey's All-In Property Tax Burden

New Jersey's all-in property tax burden for 2016 was $28,353,988,495.

Of that $28.35 billion burden, $5.1 billion was for county taxes, $14.9 billion was for school taxes, and $8.4 billion was for municipal taxes.

The gubernatorial candidates are unclear about how much money they actually want to put into school funding.

Jim Johnson and Phil Murphy consistently and repeatedly cite New Jersey's deficit against Capped Aid, which is $1 billion a year.  John Wisniewski gives a $1.55 billion deficit.  I have not listened enough to Lesniak on state aid, but he did say at the second Democratic debate that he wanted to get rid of the Enrollment Caps, so he is the most likely to understand that the real deficit is $2 billion.

The Republican candidates, Kim Guadagno and Jack Ciattarelli, want to fairly fund SFRA and change SFRA.  They do not  not "fully" fund SFRA in the same sense that the Democratic candidates purport to want to do, so estimating how much new money the Republicans would put into SFRA is even more conjectural.

Anyway, since the real deficit for SFRA for 2016-17 (against Uncapped Aid) was $1.93 billion and our all-in tax burden is $28.35 billion, if New Jersey's next governor put in $1 billion that would only reduce New Jersey's taxes by 3.5%!  If New Jersey's next governor put in $2 billion that would only reduce New Jersey's taxes by 7%!!

Even if every cent of that $1 billion went into offsetting property taxes and not new spending, New Jersey's taxes would still be the country's highest!  Even if every cent of $2 billion went into offsetting property taxes New Jersey's taxes would be the country's second highest!!

Moreover, the candidates are only talking about a gradual phase-in of new spending, so, after five years, the $1 billion or $2 billion would be an even smaller percentage of New Jersey's all-in property tax burden than it is now.

I cannot calculate what the tax reductions would theoretically be for every town in NJ because it would be too time-consuming for me to pull together the SFRA deficit data and all-in taxes, but these are what the tax reductions would be for 30 largest towns in New Jersey if every currently-underaided district got its Uncapped Aid and every dollar of new aid went to offsetting taxes, not new spending.

For Spreadsheet, see

If SFRA were funded at Uncapped Aid levels and all new money that districts got went into tax reduction, some communities, like New Brunswick (-51.5%), Bayonne (-30.5%), Clifton (-17%), Paterson (-23%), and Newark (-32%) would get significant tax reductions.

But at Uncapped Aid, the reductions are not large for middle-class communities in percentage terms.  Edison would get a 3.3% tax reduction.  Cherry Hill would get a 7.1% tax reduction.  Franklin Township would get a 2.4% tax reduction.  Union Township would get a 4.2% tax reduction.  Wayne would get a 1.7% tax reduction.

You might notice that most of the towns with the biggest reductions of taxes are Abbott districts.  This, again, is because SFRA is not intended to be a broad-based distribution of state aid.  SFRA, by design, targets nearly all of the state's money at poor districts and the Aid Caps give more money to districts who already get a large amount of aid, so if SFRA were gradually funded with the Aid Caps intact, non-Abbotts would get trivial increases that would almost surely be consumed by spending.

(As you, Dear Reader, might know, several of the towns here, such as Jersey City, Brick, and Toms River, are overaided.  Since frontrunner Phil Murphy opposes redistribution, I have assumed that they will have constant aid and used that in the chart.)

If we look at districts who are the most underaided (in percentage terms), the tax reductions are not consistent.

Clifton, for instance, would be able to lower its taxes by $48 million, or 17%. Woodbridge would be able to lower its taxes by $54.5 million, also 17%. Chesterfield could lower taxes by $3.8 million, or 19%.  Ridgefield Park could lower its taxes by 32.5%.  Bound Brook could theoretically reduce taxes by 69%.

On the other hand, Passaic Valley would theoretically get a 1.1% reduction. South Orange-Maplewood would get a 3.7% reduction.  Monroe a 3.3% reduction.  North Arlington a 9.7% rededuction.

Note: These Reductions are for UNCAPPED AID, even though no gubernatorial candidate in either party is committed to full funding at Uncapped Aid.

The reductions in property taxes would tend to be larger for districts who are the most underaided in dollars per student (since they would tend to be the most underaided in dollars per resident too), but my point is to show how little tax relief SFRA actually offers most districts, so I'm focusing on one category of severely underaided districts.

3.  Boards of Education Will Spend Much of Their New Money

Most of New Jersey's most underaided districts are also officially below Adequacy or feel that their spending is too low even if they are technically above Adequacy (eg, Cherry Hill and South Orange-Maplewood are above-Adequacy districts with chronic budget cuts.).

So, if a district gained money from the state, it's a near-certainty that much of that money would go towards new spending, not tax reduction.  I would not be shocked if the NJEA wrote something into any aid reform that requires new spending and limits a district's ability to cut taxes.

Also, once new  teacher contracts are negotiated, unions will put more pressure on Boards of Education to agree to larger settlements since they now know that their Board of Education has more money to spend.

4.  No Gubernatorial Candidate is Purporting to Fully Fund SFRA at Uncapped Aid Anyway

Of the gubernatorial candidates, I'm not certain that any one of them other than Jack Ciattarelli and Ray Lesniak understand that there is a difference between Capped Aid and Uncapped Aid.  Jim Johnson and Phil Murphy are particularly egregious in insisting the deficit is only $1 billion.

What frontrunner Phil Murphy is saying he will eliminate corporate tax incentives (yeah right) and pump another $1 billion into state aid over a number of years. I assume Murphy would accept changes to the State Aid Growth Limits and use a new mechanism to determine new aid, but still, we are not talking any real relief from state aid since $1 billion is so tiny compared to what New Jersey's all-in property tax burden will be in four years, so few districts will see the bulk of that money, and much of the money will be spent anyway.

To Lower Taxes, New Jersey Must Address the Cost of Government for Everything, but Especially for Education

Articles about why New Jersey property taxes are high seldom get into just how high New Jersey's education spending is, but it is consistently the 2nd or 3rd highest in the country in dollars per student and it is even the 2nd highest in the country in terms of spending as a percentage of GDP.

According to the far-left Education Law Center itself, New Jersey spends 4.6% of GDP on education, a full point over the national median of 3.6% of GDP.

This tax effort translates into one of the country's lowest student:teacher ratios and among the highest paid teachers.

According to the NEA, the average New Jersey teacher makes $68,238. not counting pensions and other benefits, the fifth highest in the US, behind New York, Massachusetts, California, and Connecticut.  Even when you account for differences in local salary conditions, New Jersey teachers only drop into 7th place.

What puts New Jersey's school spending and taxes above its peers in high salaries is how many more teachers we have.

The national average for student:teacher ratio is 15.8:1, but NJ's ratio is the third lowest, at 11.9:1, after Vermont and New Hampshire.  

The four states who have higher teacher salaries than New Jersey have fewer teachers.  New York has a 12.7:1 student:teacher ratio, Massachusetts has a 13.3:1 ratio, California as a 22.5:1 student:teacher ratio (!!!), and Connecticut has a 13.1:1 student teacher ratio.

Hence, high salaries x many teachers = extremely high spending.

The same pattern exists for other public employees.

New Jersey police officers are the second highest paid in the United States.  We are not the highest in police officers per capita, but are in second place in the Northeast.  New Jersey firefighters are the country's best paid.

Municipal Consolidation Won't Bring In Big Savings

The closest that the candidates come to in addressing New Jersey's high cost of government is calling for (voluntary) municipal consolidation and shared services.

This is based on the premise that New Jersey has an inordinate number of local units, but this is only true in terms of units per land area.  In per capita terms, the number of local units New Jersey has is only average.

And when it comes to spending per resident, New Jersey's large municipalities spend the same amount as New Jersey's small municipalities, so I am unpersuaded that consolidation and shared services would save that much money anyway.

Fair State Aid Is Necessary But Not Sufficient

So it's good that the gubernatorial candidates are focusing on state aid a _a_ solution to New Jersey's property tax crisis, but fairly funding SFRA would only even out some tax disparities, it would not produce low or even moderate taxes for anyone.

To begin to address New Jersey's tax burden, policy makers have to look at the spending side, especially public sector staffing, salaries, and benefits, as well.

---Extra Note---

What is Capped Aid?  What is Uncapped Aid?

SFRA contains two concepts of "full funding."  The first concept is Capped Aid, which is funding by SFRA's currently statute.  Under Capped Aid, districts gain 10% if they are above Adequacy or 20% if they are below Adequacy from the year previous, with 2007-08 as the base year.  This means that if a district is receiving $20 million, but SFRA says it needs $50 million, the most money it can gain is 20% of $20 million, or $4 million.

The second concept of full funding is the real thing, ie, Uncapped Aid.  That would entail the hypothetical district getting the full $50 million.

For New Jersey to fund SFRA at Capped Aid would require an additional $1 billion.  For New Jersey to fund SFRA at Uncapped Aid (without redistribution) would cost $1.93 billion for 2016-17.

There are several significant flaws in the design of the Aid Caps, chiefly that they are a percentage of the aid a district already receives.  This percentage-determined mechanism means that districts who already receive a lot of state aid, but are modestly underaided, receive the biggest boosts.

Saturday, June 3, 2017

Education Law Center Lies About Sweeney Plan, Distorts Reality

The Education Law Center has yet again released a misleading screed warning of the "suffering" that will take place if redistribution of Adjustment Aid is allowed and "some students to benefit at the expense of others.”

Few details about the plan have been released, but it is clear that the loss of adjustment aid – designed to prevent steep drops in local budgets as districts transitioned to a new funding formula – would trigger deep and recurring cuts in teachers, support staff and programs essential to provide students with a “thorough and efficient,” or “T&E,” education under the SFRA and state constitution. 
To evaluate Senate President Sweeney’s plan, Education Law Center estimated the impact of a 20% loss of adjustment aid in year one of the proposed funding cut, and the full amount of the aid loss over the five-year period in which adjustment aid would be phased out entirely. ELC also analyzed the impact of the aid loss on a district’s adequacy budget under the SFRA, that is, the spending level required to provide a T&E education to the unique student population in each district.

The Education Law Center also includes a chart purporting to show how far below Adequacy districts will become as a result of losing their Adjustment Aid.

As usual, the Education Law Center completely ignores a district's responsibility and ability to pay for a share of its school system.

In the chart that shows estimates for how far below Adequacy district would become after losing Adjustment Aid, the Education Law Center assumes that the district will keep its tax levy constant despite the loss of aid.  

Hence, the Education Law Center assumes a district will lose all of its Adjustment Aid and then not even attempt to make up for the lost money through local taxes, "Because we are unable to accurately project changes to districts' adequacy budgets and local levy, year 5 estimates also use the FY18 projected adequacy budget and calculate spending by subtracting all adjustment aid from the prebudget year spending." 

This is ridiculous.  At the very least, the Education Law Center should have projected Year 5 by assuming 2% annual increases.

The Education Law Center does acknowledge in the introduction that districts could increase taxes by 2%, but pooh-poohs it.

Jersey City students are the biggest losers, experiencing an aid cut of $31.8 million in year one, followed by four consecutive years of cuts for a total of $158.8 million over five years. The district is currently spending $94 million below its adequacy budget. With a state-imposed 2% property tax cap, it would take decades to replace the lost adjustment aid with local dollars.

Here the Education Law Center's mendacity goes deeper because it ignores that Steve Sweeney's proposal has always included a provision to change the tax cap.  For instance, this is the langauge from an early version of Sweeney's bill:

[The Commission shall study] the tax levy growth limitation as established and calculated pursuant to section 3 of P.L.2007, c.62 (C.18A:7F-38) and its impact on the ability of school districts to adequately fund operating expenses;
Furthermore, the Education Law Center fails to acknowledge how large the Local Fair Shares are of aid-losing districts in order to give readers a sense of economic proportion.

Jersey City's Local Fair Share is $370 million for 2017-18, and that amount is constantly increasing.  So for Jersey City to make up even $31 million a year in lost aid is not an insurmountable financial hardship.

The Education Law Center's report ignores that all districts in NJ can already exceed the tax cap if they get affirmative votes from their electorates.

The report pretends that being above or below Adequacy is a binary categorization, so that all under Adequacy districts are alike.  Hence, Adjustment Aid districts like Salem City that is only $25 per student below Adequacy and Haddon Heights that is $29 per student below Adequacy are the same as Freehold Boro and Bound Brook, which are $8243 and $9836 per student below Adequacy, respectively.

-$25 ≠ -$9836

Also, if an Adjustment Aid district is below Adequacy, it is due to insufficient local taxation, not insufficient state aid.  Bound Brook, Freehold Boro, and numerous other under Adequacy districts overtax their residents and are under Adequacy due to a lack of state aid.

And for Jersey City, there is the problem-within-a-problem of the fact that Jersey City has PILOTed a third of its tax base, an amount that is $11.6 billion.

What About the Fiscal Crisis?

I can't believe this isn't a self-evident reason to redistribute aid, but New Jersey has a fiscal crisis and there is no place for New Jersey to get the money to fully fund SFRA without redistributing Adjustment Aid.  

The Education Law Center puts all of the blame on Christie, saying "It’s simply [sic] wrong to rely on Adjustment Aid to get New Jersey out of the school funding hole dug by Governor Christie."

Ok.  I think the hole was dug by the New Jersey Supreme Court, Governors Whitman-Christie, and our post-2001 economic stagnation, but even so, the missing context is that Chris Christie actually is increasing "education spending," but all the new money is going into various forms of debt:

The Education Law Center would undoubtedly support raising taxes on the rich, but  I have said repeatedly on this blog, the amount of money that the state would gain from a millionaire's tax is only $615 million

And New Jersey is still significantly underfunding its pensions.  For FY2018 despite a record payment, the underfunding will equal $2.5 billion, even though New Jersey uses a very optimistic 7.65% Discount Rate.

Although a Democratic governor would raise taxes and put some of that into K-12 education, how much more does the Education Law Center want from the state?

New Jersey already has one of the highest GDPs per person, but by the Education Law Center's own analysis, we already put the second highest percentage of our GDP into education.  According to the National Education Association, we have the country's third lowest student:teacher ratio.

The Education Law Center does not acknowledge how bad New Jersey's budget forecast is, as New Jersey's pension payments and healthcare costs must increase by hundreds of millions per year too, so it's foolish to think that more than a small fraction of new revenue will go into K-12 operating aid.

And for health care (all-in, public sector):


So, given New Jersey's enormous debts, limited ability to increase revenue through higher taxes, there is no way for New Jersey to fairly fund its schools without redistributing Adjustment Aid.

The Education Law Center is the reactionary.  Sweeney and his allies are the progressives.


See Also: