Sunday, March 31, 2019

2020 Education Adequacy Report Drives Big Changes to NJ State Aid

An important development in New Jersey state aid that hasn't gotten any media attention so far is the release of the Department of Education's "2020 Education Adequacy Report."

The composition of a triennial Education Adequacy Report is a requirement from the 2009 Abbott XX decision, in which the Supreme Court deemed the School Funding Reform Act to be constitutional.

The Education Adequacy Report does not acknowledge the underfunded, off-formula reality of SFRA, but instead writes as if SFRA were a fully-funded, operating state aid law that actually delivered 100% of every district's state aid.  The Education Adequacy Report also evaluates SFRA in isolation from the rest of the NJ budget and NJ's other education spending and fiscal policies (eg, TPAF, the tax cap, health benefits, construction debt service, charter schools).

While SFRA has several points of controversy, the Education Adequacy Report is very narrowly focused on only seven state aid issues.

  1. The Base Cost Per Pupil for K-12 students
  2. The Preschool Per Pupil Aid Amount
  3. The extra weights for at-risk students and vo-tech students.
  4. The cost coefficients for Security Aid and Transportation Aid.
  5. The state average classification rate for students getting Special Education.
  6. The excess cost for Special Education pupils.
  7. Extraordinary Special Education thresholds.
Despite New Jersey's aid distribution being wildly off-formula anyway, the Education Adequacy Report is important because by increasing New Jersey's statewide Adequacy Budget, it determines the size of the total deficit for underaided districts, the surplus for overaided districts, and even where a district falls if it is on the cusp of being overaided or underaided.

By determining the shape of the statewide deficit and the weights used for at-risk students, Education Adequacy Report determines how deep underfunding is for districts with more at-risk students versus districts whose students are more solidly middle class.

Increases to the Statewide Adequacy Budget (And Deficit)

The most important change from the 2020 Education Adequacy Report is the $566 per pupil increase to the Base Per Pupil amount, a 5% increase.

That $566 per student increase, which is inflated downstream in the SFRA formulas by the extra weighting for at-risk students, produced a massive increase in the statewide Adequacy Budget by $1.3 billion, from $23.3 billion in 2018-19 to $24.7 billion in 2019-20, a 5.6% increase.

This Adequacy Budget increase has occurred despite New Jersey having slight K-12 enrollment loss, from 1,342,749 students in 2016-17 to 1,345,127 in 2018-19 down to a projected 1,341,450 for 2019-20.

It is because of the large increase in NJ's Adequacy Budget that New Jersey's state aid deficit grew from $1.75 billion to $1.8 billion in 2019-20 despite the addition of $206 million in new aid (+2.43%) and $90 million in redistributed aid.

The Local Fair Share Formula Increases (Yet Again)

The calculation of the Local Fair Share multipliers is one of the most opaque parts of SFRA, but the multipliers depend on the gap between available Equalization Aid and NJ's statewide Adequacy Budget and are tweaked annually.

However, in years that an Education Adequacy Report comes out the multipliers show a large change because of how the EAR itself drives increases to the statewide Adequacy Budget.

The Local Fair Share weights are governed by this section of SFRA:
the property value rate shall be determined such that Equalization Aid equals the Statewide available Equalization Aid for all districts determined according to this act had each school district's local share equaled the product of the property value rate and the district's Equalized Valuation ... 
the income rate shall be determined such that Equalization Aid equals the Statewide available Equalization Aid for all districts determined according to this act had each school district's local share equaled the product of the income rate and the district's income.
(See pages 14 and 15 of SFRA.

The above section underscores a rarely-made, but correct, point about SFRA which is that the usual description of Equalization Aid, which is Equalization Aid = Adequacy Budget - Local Fair Share is not true in a practical sense.

What is correct in a practical sense is something like this:

Local Fair Share = Adequacy Budget - Available Equalization Aid

As the gap between New Jersey's statewide Adequacy Budget and Available Equalization Aid grows, so must the Local Fair Share.

Hence, we have increases to the Local Fair Share multipliers as I will demonstrate below.

Anyway, back in 2008-09, the Local Fair Share formula was:

= (Equalized Valuation x 0.0092690802)/2 + (Aggregate Income x 0.04546684)/2 = 

Which is just a complex way of saying:

0.46% of Equalized Valuation + 2.27% of Aggregate Income:

Statewide, that would equate to about a 1.15% tax rate.  In 2008-09, less than 184 (31%) of school districts were ineligible for Equalization Aid (1)

By 2018-19 the formula for Local Fair Share formula's multipliers had grown to:

0.69% of Equalized Valuation + 2.3% of Aggregate Income

However, now that the Education Adequacy Report has increased NJ's Adequacy target, the formula for Local Fair Share for 2019-20 has grown to:

= (Equalized Valuation x 0.014523812)/2 + (Aggregate Income x 0.049819447)/2 =

Which is:

0.73% of Equalized Valuation + 2.49% of Aggregate Income!

NJ's Local Fair Share target equates to a statewide 1.46% weighted average, or a 1.5% median!!

Thus, between 2018-19 to 2019-20 New Jersey's total Local Fair Share increased from $17.2 billion to $18.7 billion (+8.7%), even though if the Local Fair Share formula had been kept constant Local Fair Share would have only increased by 3-4% along with the growth of Equalized Valuation and Aggregate Income.

Now New Jersey has 272 districts who are ineligible for Equalization Aid, including many districts who are middle-class and/or diverse.  This is a huge problem because it means that SFRA recommends essentially the same amount of state aid for Lawrence Township as it does for Princeton, the same amount for state aid for Brick as it does Mantoloking; the same amount of state aid for South Orange-Maplewood as it does Millburn.

The increase in NJ's total Local Fair Share due to the increase in the LFS multipliers makes the increase in the statewide deficit smaller than it would be if SFRA didn't simultaneously demand more from local school districts, but again, it is still not a large enough increase to prevent an increase in the statewide deficit.  

PreK Costs Increase Too 

The Education Adequacy Report also makes inflationary adjustments to the cost of PreK, which also drives up large increases in New Jersey's appropriation for existing PreK programs and significantly reduces New Jersey's ability to expand PreK.

It is due to this cost increase that NJ's PreK appropriation for existing PreK is larger than the appropriation for new PreK spaces.

In his FY2020 Budget, Phil Murphy proposed a $68 million increase for PreK, but only $25 million of that is for new seats.  The rest of the amount, $43 million, is for existing programs, mostly in the Abbotts.


New Jersey is not even close to fully or fairly funding SFRA, so the Education Adequacy Report isn't a fully-relevant document.  However, the inflationary increases in the report underscore how full funding of SFRA is a moving target that New Jersey may never catch no matter what it does, and certainly will not catch if Adjustment Aid is kept permanent.

Also, the constant increase in the Local Fair Share weights are responsible for SFRA evolving into a formula that deprives middle-income districts of Equalization Aid and increasingly fails to distinguish middle-class from truly rich.


See Also:

(1)  I do not have the exact number of ineligible districts in 2008-09, but in that year there were 184 districts who did not receive Equalization Aid.  Some districts not receiving Equalization Aid must have been underaided and thus would have been eligible for it, so the actual number of ineligible districts must be lower than 184, hence the preceding phrase, "less than."

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