Thursday, February 14, 2019

How Education Spending Ate the NJ Budget

One important consequence of New Jersey's 21st Century budget travails is the severe neglect and outright cuts of the state's municipal aid, other local aid, and direct tax rebate payments.

Although we hear often about the underfunding of public education in the
Sourge, FY2002 Budget, Pg 8
Christie era (including on this blog!), it is the OTHER ITEMS paid for by NJ "Property Tax Relief Fund," from municipal aid to direct tax rebates to library funding to community colleges, that have been much more neglected and gutted.

In the 1990s, municipal aid averaged 30% of school aid, but by FY2019, municipal aid was only 10% of school aid.  

Although the state's municipal aid programs complex and opaque, the overall numbers  appear in the state's Budgets in Brief and show the flat-funding of municipal aid and direct tax rebates from 2001 onwards, cuts in 2010, and continued flat-funding from the new 2010 baseline.

Note, this slide was updated with FY2020 data after I originally wrote this post.

New Jersey's peak year of direct property tax rebates was FY2008, when we distributed $2.8 billion.

New Jersey's nadir was FY2018, when it had shrunk to only $420 million.

New Jersey's peak year for Municipal Aid was also FY2008, when it was $2 billion.  Municipal aid sank to a nadir of $1.3 billion in FY2011 and in FY2018 it was only $1.524 billion.  For FY2019 although Phil Murphy and the legislature increased PreK by over $50 million, increased K-12 opex aid by $350 million, they only increased municipal aid by $12 million, all of which was earmarked as Transitional Aid.

New Jersey also distributes a lot of money referred to as "Other Local
Aid."  Other Local Aid consists of a basket of programs including libraries, reimbursements for sundry administrative expenses, and county-specific spending that might be considered pork barrel.  This category of aid has increased over the years, but at a sub-inflation rate and most of the increase has gone to a category called "Employee Benefits on Behalf of Local Governments.

Library Aid has been cut from $18.5 million to $9.2 million.

County College Aid was $191.1 million in FY2001.. County College Aid  had risen to only $199.8 million in FY2018.

For New Jersey to increase municipal aid and direct tax rebates for inflation (+19% since 2008) would require municipal aid to now be $2.4 billion and direct tax rebates to now be $3.4 billion.  Since New Jersey's population has grown by 3.5% since 2008, the real increases in per capita should be 3.5% higher.

The great contrast, of course, is to education spending, which has increased from $6.8 billion in FY2001 to $14.9 billion in FY2019, despite enrollment K-12 enrollment loss 2001.
*(NJ's enrollment nominally from 1,341,503 students in 2001-02 to 1,369,715 in 2017-18, however that includes PreK students.)

Over the 21st century timeframe, the state's education spending has increased more rapidly than other items funded by the "Property Tax Relief Fund" and the entire state budget.

Of course, the increase in K-12 opex aid has been more modest, but the large increases for the Teachers Pension and Annuity Fund, school construction debt servicing, Whitman-era Pension Obligation Bonds, teachers Post-Retirement Medical, teachers Social Security, and PreK are still real money intended to support education, and that money comes out of the state's income tax revenues.

Municipal Aid is Not Distributed Justly

I don't understand all the formulas and sub-formulas of municipal aid, but a glance at the amounts of aid that different towns are getting shows that the amounts do not make sense based on population or the principle that state aid should compensate for a town having a low tax base.

Muni Aid Per ResidentPopulation (2017)Total Formula Aid
Toms River$9193,017$8,492,807
Franklin Lakes$15811,255$1,781,701

Or how about the fact that Jersey City, despite its increase in wealth, gets more municipal aid ($63.9 million) than Elizabeth and Paterson combined ($62.2 million), despite Elizabeth and Paterson having a population that is still 8,000 people larger?

Muni Aid Per ResidentPopulation (2017)Total Formula Aid
TOTAL for E & P.$223 (weighted avg)278,893$62,182,555
Jersey City$236270,753$63,860,522

Municipal and County Budgets will Come Under Pressure

The neglect of municipal aid is not sustainable for obvious reasons in that their budgets are growing, but also because municipal and county budgets will come under increasing pressure due to the following measures.

  • Phil Murphy and the legislature allowed the police & fire salary arbitration cap to expire.
  • Phil Murphy and the legislature passed S5, which will allow the police & firefighter unions to increase their pension benefits.
  • The state is lowering the expected rate of investment earnings for the pensions from 7.65% to 7.0%.  Lowering this "Discount Rate" will increase the amounts of money municipal and county employers must contribute to the pension funds because in the future expected investment earnings are lower.
  • The $15 minimum wage, which the NJ League of Municipalities opposed because it would increase their costs.
The fact that New Jersey has flat-funded orgutted Municipal Aid, Other Local Aid, and Direct Tax Rebate is another reason why NEW JERSEY MUST REDISTRIBUTE ADJUSTMENT AID, since any attempt to fully fund all NJ school districts just with new revenue would necessarily cause continued flat-funding and negative funding for other vitally important state obligations.


See Also: