Friday, May 11, 2018

ELC Demand for More Abbott Construction Debt Can Only Cut K-12 Operating Aid

David Sciarra of the Education Law Center has renewed his crusade to get the State of New Jersey to "promptly" borrow billions in order to pay for 100% of the costs of construction projects in the Abbott districts.

May 10, 2018 
All $2.9 billion in bond financing for school construction projects approved by the New Jersey Legislature in 2008 is now spent or committed, and lawmakers must promptly approve a new round of funding for urgently needed projects across the state.
Education Law Center Executive Director David Sciarra issued the call to action to replenish funds for school construction in testimony to the Legislature’s Joint Committee on the Public Schools on May 8.
The school construction program, which provides significant support to rebuild and upgrade New Jersey’s aging facilities infrastructure, was launched in 2002 to comply with rulings in the landmark Abbott v. Burke case ordering the state to fully finance needed improvements to dilapidated, overcrowded and unsafe school buildings in the state’s 31 urban districts, called “SDA districts.”
In establishing the Abbott school construction program, the Legislature included grants for projects in non-SDA districts – called “regular operating districts” (ROD) – and county vocational schools. The program is administered jointly by the NJ Department of Education (DOE), which reviews district-wide plans and project proposals, and the Schools Development Authority (SDA). The SDA issues bonds and finances projects and is also responsible for facilities construction in the SDA districts.
ELC’s testimony highlighted the following:

  • The SDA has $1.7 billion in outstanding bond financing available for SDA districts, but virtually all of the funding is allocated to current projects in the pipeline to be completed over the next few years. 
  • In a review of the SDA districts’ most recent long range facilities plans, the DOE identified the need for 381 major school construction projects – including renovations of 200 existing schools and construction of 102 new schools. 
  • The SDA has extremely limited funds remaining for emergent repairs and capital maintenance projects in the SDA districts. 

The funding for regular operating district grants and county vocational school facilities has been completely exhausted.

Although even Sciarra does not say how much money he wants New Jersey to borrow, if Sciarra's demand were to be heeded, it would increase New Jersey's already billion-dollar annual debt servicing costs and diminish K-12 operating aid and money for TPAF.


It's a little commented on fact, but New Jersey's debt servicing costs for SDA construction have grown from $15 million per year in FY2002 to a projected $1.067 billion for FY2019.

Source, NJ Treasury, Budgets In Brief
"Note, FY 2012 Appropriation was reduced because $367.6 million in debt service costs were appropriated from funds in the FY 2011 budget." This chart smooths out this movement.

During Christie's tenure alone, debt servicing costs increased from $403 million in the last Corzine budget to $918 million, a $515 million increase that was more than double the $200 million increase in K-12 operating aid that occurred during Christie's administration.

Since the money for construction debt also comes from income taxes, it was partly the sharp increase in construction debt servicing that prevented Christie from better funding pensions and K-12 operating aid.

Mea Culpa
"Given Out" would be more accurate as "bonded for."
Sciarra provided no specific cost estimate for his construction demands, but doing even doing a fraction of the construction that Sciarra calls would be extremely costly and increase construction debt servicing costs.

I cannot estimate the costs of the construction Sciarra wants, but school construction anywhere in NJ is very costly.

The cost of Phillipsburg's new high school was $127.5 million and the cost of some new elementary schools in Jersey City, Pemberton, and other Abbotts has been in the $50-$60 million range.  Thus, the new construction alone would cost in the high ten-figures, before one even considers repairs.

In the two previous rounds of construction bonding in 2000 and 2008, 30% of the total money was reserved for non-Abbotts and vo-techs. Were the legislature to give money to non-Abbotts again, the costs would be higher.

New Jersey Needs a Unitary Funding Law for Construction Aid

Aside from the caution NJ must exercise in taking on more debt when we are always ranked as the one of the country's most indebted states, what is troubling about Sciarra's demand is that the Abbott districts are not, as a class, NJ's poorest districts.  

Hoboken is, by far, NJ's richest K-12 district in tax base per student, with over twice the tax base per student of Millburn.  Long Branch, Jersey City, and Neptune Township have average tax bases per student, so it is unfair that they would get the state pay for 100% of their construction costs.  Asbury Park, Harrison, Jersey City also have substantial sections of their tax base "hidden" behind PILOT deals.

True, most of the Abbotts remain poor.  Of New Jersey's 10 poorest districts for 2018-19 in Local Fair Share per student, nine are Abbotts.  Of the 50 poorest districts in Local Fair Share per student, 23 are Abbotts.

Under any appropriate construction financing law, low-income Abbotts would have the state pay for the large majority of construction costs, but is 100% state funding appropriate? Especially when the state aid targets for operating aid for the Abbott districts are so high?  Shouldn't all districts at least have some skin in the game?  

And even if 23 of the 50 poorest districts in New Jersey are Abbotts, what about the 27 non-Abbotts in the lowest-tax base fifty?  Is it right that Freehold Boro should have to put up with extreme crowdedness for years to get permission to override its voters on local construction bonding, because they had no hope that the state would contribute?  (eventually the state agreed to contribute 85%) 

And how is it appropriate to target precious state construction aid at the Abbotts when not all Abbotts have had enrollment growth?  Since 2009-10, Asbury Park, Keansburg, Neptune Twp, Burlington City, East Orange, Salem City, Pemberton Twp, Pleasantville, and Millville have lost residential enrollment.  Several other Abbotts, like Paterson, Jersey City, Newark, and Camden have lost enrollment in the traditional public school, with the growth in residential enrollment coming in the charter sector that does not benefit from SDA funding.

It is because of the shift of student to charter schools that brand-new, $54 million PS 26 in Jersey City opened at only half of its capacity in 2017.

Getting reform of Adjustment Aid has been difficult enough, but if we reformers are fortunate enough to win the battle over Adjustment Aid, we can set our sights on getting fairness in school construction aid too.  


See Also:

Saturday, May 5, 2018

Most of 2018's Severely Underaided Districts Were Underaided in 2008

One persistent myth about New Jersey state aid is that SFRA was "fully funded" in 2008-09.

This myth contains the kernel of truth that SFRA was funded at Capped Aid that year, but it is essentially untrue because Capped Aid is not real full funding, and the deficit for 2008-09 against Uncapped Aid was $1.05 billion. 

The idea that SFRA was fully funded in 2008-09 (implicitly) denies the existence of the State Aid Growth Limits that reduce a district's aid growth to 10% or 20% of what it got previously.  The "SFRA was fully funded its first year" concept does not take into account that "statutory full funding" and "real full funding" are not the same amount.

The notion that SFRA was fully funded in 2008-09 is dangerous because it undermines the case for redistributing Adjustment Aid, since if someone believes that SFRA was fully funded its first year under Jon Corzine, then that person is liable to believe that SFRA can be fully funded once again, if only we have a governor who is committed to it.

Although there are some severely underaided districts of 2017-18 who truly fully funded back in 2008-09, the large majority of today's most underaided districts were also underaided in 2008-09.

Here is the evidence:
The following are New Jersey's most underaided districtsfor 2017-18, with their deficits per student in 2008-09, and then the inflationary adjustment to September 2017 dollars.

District2017-18 Deficit2008-09 Deficit2008-09 Deficit in 2017 Dollars
CLAYTON BORO-$4,752-$1,441-$1,625
UNION COUNTY VOCATIONAL-$4,780-$3,071-$3,464
HAMMONTON TOWN-$4,937-$739-$834
JAMESBURG BORO-$4,961-$2,452-$2,767
LAWNSIDE BORO-$5,006-$3,621-$4,085
DUNELLEN BORO-$5,025-$3,279-$3,699
WHARTON BORO-$5,049-$2,584-$2,915
BAYONNE CITY-$5,150-$3,409-$3,845
WOODLYNNE BORO-$5,239-$6,887-$7,769
NORTH PLAINFIELD BORO-$5,338-$1,917-$2,162
LODI BOROUGH-$5,411-$4,803-$5,418
RIDGEFIELD PARK TWP-$5,431-$3,470-$3,915
DOVER TOWN-$5,560-$2,775-$3,130
ELMWOOD PARK-$5,578-$3,800-$4,287
KEARNY TOWN-$5,634-$3,089-$3,484
HALEDON BORO-$5,676-$3,514-$3,964
PROSPECT PARK BORO-$5,902-$3,344-$3,773
MANVILLE BORO-$6,110-$3,117-$3,516
GUTTENBERG TOWN-$6,285-$2,883-$3,252
LINDENWOLD BORO-$6,439-$617-$696
EAST NEWARK BORO-$6,960-$625-$706
PASSAIC COUNTY VOCATIONAL-$7,200-$5,546-$6,257
FAIRVIEW BORO-$7,361-$3,509-$3,959
FREEHOLD BORO-$7,675-$2,859-$3,225
PASSAIC CO MANCHESTER REG-$8,586-$5,299-$5,978
BOUND BROOK BORO-$9,546-$4,288-$4,838
Source, Department of Education & NJ Enrollment Files, calculations done by me.  Data is available here.

As you can see in the above table, deficits did get significantly worse under Christie and yes, a handful of today's most underaided districts were properly funded in 2008-09, but the majority of 2017-18's most underaided districts began the SFRA era significantly or severely underaided.

The same reality of pre-Christie underaiding is clear if you go by underaiding in percentage terms too.

2017-18 Funding Ratio2008-09 Funding Ratio
WOODLAND PARK (West Paterson)33%42%
ROBBINSVILLE (Washington Twp)32%23%

Implicit to the myth that SFRA was fully funded under Jon Corzine is the myth Chris Christie was the first governor to underfund state aid.

The Education Law Center is the biggest culprit in spreading the myth that funding was fair and full before Christie, for instance, headlining a recent press release "Governor Murphy begins to fill the school funding hole left by his predecessor," (notice that 'predecessor' is in the singular) and then writing:

The [Murphy] proposed budget does not fully fund districts in the first year, a recognition of the extraordinary funding gaps created by former Governor Chris Christie’s combination of aid cuts and flat funding over the last eight years.
The bottom line: Governor Murphy’s budget begins to tackle the enormous deficits left by his predecessor [sic], putting New Jersey back on the road to fair funding for all schoolchildren.
Governor Murphy’s budget is a breath of fresh air after years of disinvestment in New Jersey students and schools."

The Education Law Center's faith in Phil Murphy is an opinion, but only the statement "Governor Murphy begins to fill the school funding hole left by his predecessorS" (plural!) would be factually accurate.

We Cannot Ignore the *Why* of Christie's Flat-Funding

It is true that Christie flat-funded K-12 operating aid, but K-12 operating aid is not the only money New Jersey spends on education, since the State of New Jersey pays teachers' FICA taxes, post-retirement health care, and (theoretically) the Teachers Pension and Annuity Fund.

If you factor in those three aid streams listed above, plus the TPAF portion of the Whitman-Era Pension Obligation Bonds, the School Construction debt service, plus other aid streams that are not debt-related, Christie actually increased education spending by $2.9 billion, which exceeds inflation and the growth of the rest of NJ's budget.  

Were Christie able to put just two thirds of that $2.9 billion increase for non-operating aid into operating aid, all districts would be at least fully funded at Uncapped Aid, without the need to redistribute Adjustment Aid.


Spending on the four major debt streams --TPAF, post-retirement medical, POBs, and school construction debt service -- increased by $3.1 billion from Corzine's last budget (2009-10) to Christie's last budget (2017-18).  Granted, Corzine had to reduce the FY2010 TPAF payment because of the start of the Great Recession, but if you went back one year to FY2009, the TPAF payment was only $693.3 million, so no matter what year you start your evaluation from, it's the same basic story of large increases for education spending but not K-12 operating aid.

If in 2010 Christie had renewed the Corzine-era income taxes on high-earners he could have kept a few hundred million more in K-12 operating aid, but most districts would not have been anywhere near full-funding and fiscal conditions would have still tightened towards the end of the second term as increased debt payments devoured more and more of New Jersey's revenue.

If Christie had renewed Corzine's "Millionaire's Taxes," it's likely that not all of that money would have gone into K-12 operating aid either, since pensions and property-tax rebates would have had strong claims on that money.

Had Christie also not signed Chapter 78 and fought off Burgos v. New Jersey (over the pace of the pensions rampup) and Berg v. Christie (over the constitutionality of suspending COLAs), it's likely that K-12 operating aid would have been cut again.

So it seems like the "woulda coulda" hypothetical comparison between Christie and a hypothetical second-term for Corzine is a wash.  Personally I think Christie should have put even more into TPAF to forestall the depletion of the pension funds.

Anyway, Because spending on education-related debt streams must increase throughout the 2020s, it is not possible for Phil Murphy to fully fund education without redistribution, or, to be honest, even with redistribution.  Without redistributing Adjustment Aid, I do not think Murphy would even be able to reach Capped Aid in FY2022.

And back to my original point, SFRA was never fully funded.  CEIFA was increasingly underfunded.

New Jersey is never going to be able to appropriately fund every district without redistribution.


*  Atlantic City is the recipient of over $30 million in Commercial Valuation Stabilization Aid that is outside of SFRA and is not included in the data that the Department of Education lists publicly or sends to me.