Wednesday, March 6, 2019

State Education Spending in New Jersey's FY2020 Budget

After months of speculation, Phil Murphy released his proposal for FY2020 on Tuesday, March 5th.  This blog post will focus on education spending.

We won't have the district-by-district state aid numbers until Thursday, March 7th, nor Actual Aid vs Uncapped Aid until next week (at the earliest), but the FY2020 Budget in Brief provides some big picture views of where the state's education money is going.

Phil Murphy's FY2020 Budget Proposal is a $38.8 billion package, of which $15.4 billion will be for PreK-12 education, or 40% of the budget.  Education spending will comprise the same percentage of the budget as it did in FY2019, although the 40% figure is high in comparison to the early 2000s, when education spending was closer to 30% of the budget.

The increase in education spending is based on an assumption that income taxes will increase by $1.1 billion.  There will be an offset due to expanding the EITC, but there is projected a $447 million increase from having the 10.75% tax bracket kick in at $1 million (instead of at $5 million) then another $752.7 million in organic revenue growth.

The $752.7 million in organic revenue growth is very high in comparison to recent years, which I suppose is based on accelerating economic growth.

  • Between FY2013 and FY2014 NJ's income tax grew by only $203 million
  • Between FY2014 and FY2015 NJ's income tax grew by $938 million.
  • Between FY2015 and FY2016 NJ's income tax grew by only $106 million.
  • Between FY2016 and FY2017 NJ's income tax grew by $602 million.
  • Between FY2017 and FY2018 NJ's income tax grew by $1 billion.
  • FY2019 is incomplete, but the Treasury's most up-to-date projection is a $410 million increase, despite creating the 10.75%/$5,000,000 top bracket.
Anyway, the massive contrast between the FY2020 budget and the FY2019 and FY2018 budget is how much smaller the increase for education-related debt is.  For FY2020, the increase for TPAF, Post-Retirement Medical, Whitman-era Pension Obligation Bonds (POBs), School Construction Debt Servicing, and teachers Social Security is only $141 million.

  • For FY2019, the five mandatory items increased by $627 million.
  • For FY2018, the five mandatory items increased by $507 million.

The biggest cause of the budgetary relaxation is that Post-Retirement Medical costs will decrease in absolute terms, by $244 million.  This is due to getting retired teachers onto Medicare Advantage.

If Post-Retirement Medical Care had increased at the $60 million a year pace it had increase in recent years, then the mandatory spending would be increasing by still a smaller amount than in FY2019, but by $400 million and the increase for K-12 opex aid would be much diminished.

Note, the $206 million is a net increase. There is also redistribution happening.

Of the $15.4 for education $8.7 billion is proposed for K-12 opex aid, aka "Formula Aid," a net increase of $206 million (+2.4%), however, underaided districts will gain substantially more than $206 million due to the redistribution of ~$80 million in Adjustment Aid.  The nearly $300 million for underaided districts should be greater than the natural increase in the deficit and continue to narrow the state's funding gap.

Phil Murphy did follow the new aid allocation method S2, which bases new state aid on a district's deficit, not its existing aid.  This approach focuses new aid on severely underaided districts and will be sufficient for every district to get at least 50% of its Uncapped Aid, for the first time in the SFRA era.

PreK aid will increase to $806.5 million, up $68.4 million (9.3%) from FY2019.  The increase for PreK is greater than the combined increases for miscellaneous items like Extraordinary Aid (+$5 million), Debt Service Aid (+$5.7 million), "Other Aid" ($15.1 million).

Next Year?

I did not foresee the spending cuts to post-retirement healthcare, so I thought that this year's budget would be much more difficult that it appears to be.

So I admit that I have a bad track record, but I don't know how the trend of higher and higher spending on pensions and other benefits will permanently reverse, nor do I think Phil Murphy will get an income tax increase through the legislature every year.

From the Path to Progress

So the phase-out of Adjustment Aid will have to continue.


No comments:

Post a Comment