Tuesday, October 30, 2018

How SFRA Fails the Middle Class (and How to Fix It)

This post will examine an important flaw in SFRA that has been underaddressed since SFRA was written in 2007-08, which is that that SFRA does not differentiate between middle-class districts and rich districts in that it directs the same amount of money to both New Jersey's richest districts and districts who are merely middle-class.

The inspiration for this post is Brick's complaint in the face of the loss of Adjustment Aid, which is that SFRA sees it as a "wealthy district."

Although Brick has said a lot of things about SFRA that are factually incorrect or are insultingly devoid of context, at least that one complaint that SFRA sees Brick as rich is correct.

SFRA Says: Rich? Middle-Class? What's the Difference?

The most important stream of state aid in SFRA is Equalization Aid, which is intended to "equalize" the budgets of low-income districts with wealthy districts.

The formula for Equalization Aid is:

Adequacy Budget - Local Fair Share = Equalization Aid

Where Equalization Aid is the difference between the Adequacy Budget and the Local Fair Share, so that if a district has an Adequacy Budget of $120 million and a Local Fair Share of $90 million, it would get $30 million in Equalization Aid, plus whatever moneys it is calculated through the Categorical Aids.

A facet of Equalization Aid that is often neglected is that if Local Fair Share exceeds the Adequacy Budget -- either by 1% or 1000% -- a district's Equalization Aid is $0.

The 260 districts ineligible for Equalization Aid range from Northvale in Bergen County, whose Local Fair Share is a mere .04% above its Adequacy Budget ($6,923,290 versus $6,920,435) to Avalon in Cape May, whose Local Fair Share is 1581% of its Adequacy Budget (The Local Fair Share is $59,986,223; the Adequacy Budget is $65,430).

In all, 44% of districts in New Jersey have  Local Fair Shares that exceed their Adequacy Budgets and so get $0 in Equalization Aid. 

The percentage of New Jersey districts who are "too wealthy" to get Equalization Aid has increased since SFRA was passed in 2008.  Back in 2008-09, only 31% of NJ districts were ineligible for Equalization Aid.

A district that doesn't receive Equalization Aid it will receive money from the three Categorical Aids: Special Education Aid, Security Aid, and Transportation Aid.  Special Education Aid and Security Aid depend on FRL-eligibility; Transportation Aid depends on miles driven.

Due to the existence of the three Categorical Aids, the minimum amount of state aid a district is supposed to receive is around $1,000 per student, with Fair Haven at the absolute bottom for its aid target, at $953 per student.

Brick is supposed to receive $1,516 per student, which is basically as much as wealthier towns including Bedminster ($1,491 pp), Tewksbury ($1,600 pp), Mahwah ($1,412 pp) Bernardsville ($1,350 pp), Saddle River ($1,764 pp) Stone Harbor ($1,563 pp), Spring Lake ($1,411 pp), and Holmdel ($1,361 pp).

New Jersey's richest large suburbs, Princeton and Millburn, get about as much as Brick.  Princeton is supposed to get $1,193 per student. Millburn is supposed to get $1,125 per student.

Those other districts that Brick is comparing itself to currently get less state aid than SFRA says they should get, therefore they are getting small increases over the next six years, whereas Brick is getting a cut.

Due to how these aid streams depend on factors that are only loosely correlated with district wealth, oftentimes a richer district will be due for more state aid than a poorer district.

For instance, Avalon has $1.7 million in Local Fair Share per student and has no need for even a cent of state aid, and yet it is supposed to receive $2,041 per student.  

In order to demonstrate how SFRA directs the same amount of state aid to New Jersey's wealthiest and middle-class districts, the following is a list of the 50 richest and 50 most-middle- districts who are not eligible for Equalization Aid, what their State Aid Targets are, and how much aid they are due under the Categorical Aids.

As you can see, the districts who are disqualified from getting Equalization Aid range from ultra-wealthy microdistricts at the Jersey Shore to districts who are middle class

The 50 Highest-Wealth Districts Not Getting Equalization AidThe 50 Most Middle-Wealth Districts Not Getting Equalization Aid
DistrictLocal Fair Share Per StudentState Aid Target Per StudentDistrictLocal Fair Share Per StudentState Aid Target Per Student
AVALON BORO$1,935,039$2,041SADDLE BROOK$15,906$1,144
STONE HARBOR BORO$1,146,454$1,563LYNDHURST$15,767$1,161
ALLENHURST$1,006,527$3,492ROCKAWAY TWP$15,690$1,395
CAPE MAY POINT$671,226$1,501CRANFORD$15,685$1,023
SEA ISLE CITY$451,956$1,997FREEHOLD TWP$15,666$1,259
LOCH ARBOUR$433,996$1,315RANDOLPH TWP$15,577$1,347
LONGPORT$277,117$1,297LINCOLN PARK$15,527$1,392
SPRING LAKE BORO$166,397$1,411LAFAYETTE$15,431$1,381
SEA GIRT BORO$153,326$1,033BLOOMINGDALE$15,391$1,314
ALPINE BORO$151,537$1,400LEBANON TWP$15,380$1,644
BAY HEAD BORO$148,283$1,013BRICK$15,376$1,516
OCEANPORT BORO (SEA BRIGHT)$140,099$1,082CALIFON$15,335$1,253
LAVALLETTE BORO$135,130$1,362FREDON$15,332$1,410
SADDLE RIVER BORO$121,136$1,764SPARTA$15,286$1,516
NORTH WILDWOOD CITY$105,581$1,349POINT PLEASANT$15,253$1,154
SEASIDE PARK BORO$101,558$1,811RUTHERFORD BORO$15,213$1,029
INTERLAKEN$98,874$2,577HOPE TWP$15,174$1,488
DEAL BORO$93,959$1,071SOUTH ORANGE-MAPLEWOOD$15,161$1,191
CAPE MAY CITY$92,527$1,191GLEN RIDGE$15,108$1,029
MARGATE CITY$90,812$1,282SOUTHAMPTON TWP$15,072$1,567
HOBOKEN CITY$79,106$1,207GLEN ROCK$14,965$996
HARDING TOWNSHIP$70,489$1,741HILLSDALE BORO$14,819$1,064
OCEAN CITY$65,703$1,127MANSFIELD TWP$14,801$1,435
WILDWOOD CREST BORO$62,655$1,170FRANKLIN TWP$14,781$1,380
WEST WILDWOOD$62,484$1,533RINGWOOD BORO$14,776$1,457
AVON BORO$56,337$1,355MOUNT LAUREL$14,716$1,405
FRANKLIN LAKES BORO$45,511$1,185FRENCHTOWN$14,693$1,039
BRIGANTINE CITY$45,091$1,789METUCHEN$14,668$1,027
ESSEX FELLS$44,064$999WASHINGTON TWP (Morris)$14,600$1,545
BEDMINSTER TWP$40,784$1,491MEDFORD TWP$14,267$1,351
WEST CAPE MAY BORO$39,498$1,034HAMPTON$14,234$1,499
MENDHAM TWP$38,043$1,563HAINESPORT$14,144$1,135
CARLSTADT BORO$37,112$1,101HADDONFIELD$14,067$961
SOMERSET HILLS REG.$36,993$1,325SPRINGFIELD TWP$13,985$1,384
COLTS NECK TWP$36,596$1,836WENONAH$13,530$972
SOUTHERN REGIONAL$36,285$1,458VOORHEES$13,447$1,234
MILLBURN TWP$35,462$1,125NORTHVALE$13,443$996
TEWKSBURY TWP$34,964$1,600EVESHAM$13,411$1,221
BELMAR BORO$32,268$1,523LINWOOD$13,050$1,029
Notice that the State Aid Targets are Nearly the Same, Despite Vast Differences in Wealth.

So Brick has a valid complaint. SFRA _does_ see it as a rich district, since it is only owed $1,516 per student, which is not essentially different from what much richer districts are getting, like Spring Lake getting $1,411 per student, Mendham getting $1563 per student, Colts Neck getting $1836 per student.

How to Make School Funding More Generous to Middle Class Districts 

My preferred solution to NJ's school funding and tax problems is to have countywide school property taxes that would then be distributed to districts on a strictly equal-funding-per-student basis.  I believe that this would foster equity in taxation and require all districts, from ultra-high tax base Jersey Shore microdistricts to affluent suburbs to the Abbotts to should equal burdens for education.

Having a countywide school tax would eliminate the cost escalation that comes from the "Millburn-Princeton Effect," where districts compete against each other and therefore drive school spending ever higher.

I'm not naive, I realize this is an impossibility.

(see "Two Cheers for County Taxes!" and "How Maryland Does It")

Working Within the Fragmented System We Have

Working within New Jersey's byzantine system of local-state school funding, the first thing New Jersey could do to direct more state aid to middle-class districts is to change the multipliers in the formula for Local Fair Share so that the product of the formula will be lower.

This is the current 2018-19 version of the Local Fair Share formula:

(Equalized Valuation x 0.013828828) / 2 + (District Income x 0.046200477) / 2

The Local Fair Share formula basically means that the state expects a school district to pay property taxes equal to 0.69% of its Equalized Valuation plus 2.3% of its Aggregate Income.

New Jersey's total Local Fair Share for 2018-19 was $17.2 billion.  The statewide Equalized Valuation for the pre-budget year was $1.24 trillion, so the formula produces an average tax rate of 1.38%.

In no other state would a 1.38% school tax rate be considered "fair."    


So, any measure to direct more state aid to middle-class districts would lower the Equalized Valuation multiplier and the District Income multiplier so that the product of the formula is lower.  If the weights were lowered by 30% each, New Jersey's expected school property tax rate would become 1%.

This step would also direct additional state aid to low-income districts because their Local Fair Shares would fall as well.  For instance, Newark's Local Fair Share would fall from $186 million to $132 million, which would coincidentally align with Newark's real school tax levy of $132.9 million.

Lowering Local Fair Share would not direct additional state aid to truly wealthy districts, since their Local Fair Shares would still exceed their Adequacy Budgets.

The question for New Jersey would then become "how do we pay for lowering Local Fair Share?" since if districts are relieved of the obligation to pay a 1.38% school tax rate, the state would have to step in and replace that lost money.

I can think of several "pay fors."
1.  Eliminate all state aid, including TPAF payments, for districts whose Local Fair Shares exceed their Adequacy Budget by some percentage.

I cannot estimate how much money this would save, since it would depend on an arbitrary cutoff point, but the amount would be substantial if it also included TPAF money and Social Security money.

2.  Have the Abbotts Pay for Some Construction.
The state needs to insist that the Abbott districts pay for a share of their construction.  In FY2019, New Jersey's school construction debt payment is $1.07 billion, about 70% of which went to school construction projects in the Abbotts.  Thus, even a 10-20% obligation for the Abbott districts would produce large savings.

3.  End "Free" PreK for Affluent Children in the Abbotts
The state could also discontinue "free" PreK for affluent children in the Abbott districts.  Currently there are thousands of affluent children getting state-funded PreK in Hoboken and Jersey City.  Since those districts get a combined $80 million in PreK money, discontinuing free PreK for the children of Gold Coast and any other affluent children living in the Abbott bubble would free up tens of millions per year.

If New Jersey reconsidered providing "free" PreK to three year olds it would save hundreds of millions.

4.  Lower the At-Risk Weights for High-FRL Districts
Finally, I would change the formula for calculating an Adequacy Budget so that it produces a lower Adequecy Budget for high-FRL districts.

This will require some additional explanation.

New Jersey's state aid formula  is relatively unique in that it uses "exponential weighting" to calculate the Adequacy Budget of a district, where there is one weight for a district whose FRL-eligibility is 0-40%, a higher weight if the FRL eligibility is 40-60%, and a higher weight still if the FRL-eligibility is >60%.

"Linear weighting" would pay out extra state aid if a district has more at-risk students, but not increase the weighting as the at-risk concentration increases, would save tens of millions of dollars too.  (see page 92 for more explanation)

NJ Needs to Redistribute Adjustment Aid, but SFRA is Not a Middle-Class Friendly Law

The point of this blog is to argue that Adjustment Aid must be redistributed and every district should have 100% of what our school funding law recommends.  If Justice is "Equal Treatment Under Law," then NJ's status quo is indefensibly unjust when the law applies differently to different districts based on historical enrollment, historical tax base, or inclusion in the Abbott lawsuits.

But that being said, the core formulas of SFRA itself are not above criticism and changing the calculation of Local Fair Share and Adequacy Budget can help relieve New Jersey's middle class squeeze.



Tuesday, October 16, 2018

Brick, Toms River, and their State Aid

Since the beginning of Steve Sweeney's efforts to redistribute Adjustment Aid, Toms River and Brick have been two of the most vocal opponents of reform.

The two districts have launched petitions for their Adjustment Aid, initiated lobbying, and now commenced a lawsuit, for which Brick's BOE has already authorized $10,000 and Toms River has authorized $5,000.

Brick and Toms River have depicted the prospect of "only" being funded at 100% as "decimating"
The day of reckoning we have been describing for the last four years is here," [Toms River] Superintendent David M. Healy said. "This year’s state aid losses as well as the future projections will unequivocally devastate this school district in terms of programs, services, staff, class sizes, property taxes, facilities and our ability to provide a thorough and efficient education to our children."
"[Loss of Adjustment Aid] will certainly start decimating our district, starting now."

Brick's Democratic mayor, John Ducey, has just endorsed Chris Christie's already-dead equal funding proposal:

"Why is a kid in another district worth more than a kid here in Brick Township?" Brick Mayor John G. Ducey said Tuesday. "They're not. Every kid should be equally funded. It's just a total abomination of our constitution here in New Jersey."

This blog post will look at Brick and Toms Rivers' tax capacity, loss of enrollment, and then pivot to agreeing with Brick that SFRA itself is not fair to middle-income districts in New Jersey.


Despite the aid cuts of 2018-19, Brick and Toms River are substantially advantaged by the state aid status quo.

Whereas the median district is underaided by $417 per student, Brick is overaided by $2,525 per student and Toms River by $1,157 per student.

Brick's 2018-19 state aid surplus is $21,331,456. Toms Rivers' surplus is $17,581,822.

The deficit for the underaided districts is $1.75 billion.

In 2017-18 and before, Brick and Toms River were more advantaged than in 2018-19. Brick's surplus was $2,703 per student and Toms Rivers' was $1,376 per student.

Brick and Toms River Have Low School Taxes

First, Brick and Toms River both have school tax rates that are much lower than the state average.

Whereas New Jersey's average school tax rate is 1.2, Brick and Toms River have tax rates that are approximately 1%, 1.0666% for Brick and 0.9244% for Toms River.

For Brick, the 2018-19 school tax levy is 82.6% of its Local Fair Share. For Toms River, the 2018-19 school tax levy is 78.5% of its Local Fair Share.

The median district in NJ pays 98.5% of its Local Fair Share.

2018-19 Local Fair Share 2018-19 Local Tax Levy Tax Deficit 2018-19 Adjustment Aid
Brick $129,909,386 $107,261,323 ($22,648,063) $21,331,456
Toms River $197,787,405 $155,329,012 ($42,458,393) $17,581,822

Again, the amount of state aid that Brick and Toms River are projected to lose over the next six years is not even equal to the deficit in each district's tax capacity.

Counting municipal and county taxes, neither Brick nor Toms River has high all-in taxes.  Brick's all-in tax rate is 2.058%.  Toms Rivers' is 1.895%.  The state average all-in property tax rate is 2.4%.

Although Brick and Toms River would be rightly concerned about the tax cap, based on the experience of other towns in NJ who exist with higher school taxes, Brick and Toms River are able to pay for a larger percentage of their local schools than they currently do.

Loss of Enrollment, Loss of Equalized Valuation

Both Brick and Toms River have had substantial enrollment loss in last 15-20 years, losing 24% and 15% of their enrollments, respectively.  Although Hurricane Sandy was an enrollment-loss inflection point, the enrollment loss began several years before Hurricane Sandy and is mirrored in other towns in non-metropolitan New Jersey who are not affected by Hurricane Sandy.

Brick's enrollment peaked in 2003-04, at 11,450. Toms River's enrollment also peaked in 2003-04, at 18,192.5.

By contrast, the state's enrollment is only down by 1% since its 2005-2006 peak.

Hurricane Sandy

There's no denying that Brick and Toms River have lost tax base over the last few years, in part by Hurricane Sandy.   From 2008 to 2018, Brick lost 17% of its Equalized Valuation and Toms River lost 10%, compared to the state's average loss of only 6.6%.

HOWEVER, SFRA compensates Brick and Toms River for the loss of tax base, since as a district's Equalized Valuation and Aggregate Income shrink, so does its Local Fair Share.  As Local Fair Share decreases, Equalization Aid increases.

Brick and Toms Rivers' boards of education may decide that their communities do not need to handle paying the state's 1.3% average tax rate, but they have the option of cutting costs.

I do not think that consolidating schools is easy, but it is a prospect in large swathes of New Jersey and at some point it becomes a necessity.

Here Brick and Toms River are actually advantaged because they are very large school districts with 12 and 18 schools, respectively.

Brick is Right About One Big Thing about SFRA

Although I strongly support the redistribution of Adjustment Aid and I believe that Brick and Toms River are in denial about their ability to pay higher local taxes and even consolidate schools, I am in agreement with Brick that SFRA sees Brick as a "wealthy district" when in actuality it is merely middle-income.

"Under the formula, Brick Township is considered a wealthy district."

Without Adjustment Aid, Brick would only receive $12,811,141 for its 8,449 students, which is $1,516 per student.

If you compare Brick's state aid target to the targets of extremely wealthy districts, you can see that Brick is essentially treated as a wealthy district too:

State Aid Target Per StudentLocal Fair Share Per Student
PARAMUS $1,214$27,706
HOBOKEN $1,207$79,106
SPRING LAKE BORO$1,411$166,397
AVALON $2,041$1,935,039
OCEAN CITY$1,127$65,703
FLORHAM PARK $1,126$32,272
MILLBURN $1,125$35,462

I'll compare Brick to Princeton, since Brick has complained about Princeton gaining state aid while it
Avalon is NJ's Richest District in Tax Base Per Student, so
Why on Earth does Avalon, NJ Need $2041 Per Student
in State Aid?
loses state aid, although Princeton is not even close to being NJ's wealthiest district (which is Avalon).

Brick's median household income is $70,655. Princeton's median household income is $118,467.

Although Brick's $1,516 state aid target might be 27% higher than Princeton's in percentage terms, it is only dollars per student that is budgetarily meaningful. 

Brick's $323 superior state funding per student relative to Princeton is very little additional state support in terms of the overall budget.  

To put it another way, Princeton is supposed to fund 92.4% of its Adequacy Budget with local taxes; Brick is supposed to fund 90.6%. 

To put it another way mathematically, SFRA expects Princeton to tax itself at $14,478 per student. It expects Brick to tax itself as $14,692 per student, even though Brick has nowhere near Princeton's wealth. In actuality, Princeton taxes itself at $19,825 per student because it wants to have higher spending.  (and that amount is nowhere near Princeton's Local Fair Share.)

What Brick is complaining about is a statewide problem. For 2018-19, 44% of NJ districts are not supposed to receive Equalization Aid. All in, there are 269/588 districts in NJ are that are supposed to receive less than $2,000 per student.

The reason we haven't heard about how inadequate SFRA's target is for middle-class districts is because most NJ's middle-class districts are underaided compared to their SFRA target anyway, and so for them to get even $1525 per student like Brick is supposed to get would be an improvement.

I will write a future post on making NJ school funding fairer to middle-class districts.

The Bottom Line is that NJ Can't Afford Adjustment Aid

Brick and Toms River aren't wealthy enough to just shrug off the loss of Adjustment Aid, but the bottom line is that they can afford to pay the same tax rates that other non-wealthy towns pay.  I acknowledge that it will be damaging to pay more in taxes, but Brick and Toms Rivers' taxes are artificially low due to the involuntary generosity of taxpayers in the rest of New Jersey.  It would be nice if NJ had a state aid law that helped middle-income districts, but given that we don't, it's inherently unfair to treat some middle-class districts differently than other middle-class districts.

NJ does not have a budgetary choice but to redistribute state aid.  For 2018-19, the state aid deficit for the 370 underaided districts was $1.74 billion and that continually grows.

Although 2018-19 Adjustment Aid was technically $652 million, at least $50 million of that is already roped off from redistribution because it goes to vo-techs or districts with very high municipal taxes.

Given NJ's intensifying needs to fund teacher pensions, post-retirement medical, and other debts, the state cannot create equity in K-12 school funding by increasing state aid alone and redistribution has to be part of the solution.

Redistributing state aid does mean some districts must lose state aid, but these districts will only be reduced to 100% of their recommended funding.  When NJ has 370 districts who are currently given less than 100% funding, I have a hard time seeing the unfairness of that.


See Also: