Friday, October 23, 2020

Rationalizing NJ's Construction Aid

Thanks to the passage of the School Funding Reform Act in 2008 (SFRA), New Jersey finally has a

unitary, progressive funding formula for K-12 opex aid.  The difference between the previous Abbott-dominated distribution and SFRA is that under the Abbott-dominated system, the 31 districts in the Abbott lawsuit were given substantially more state aid than equally poor districts that simply weren't part of the Abbott lawsuit. 

The passage of SFRA is a cause for celebration, but K-12 opex aid is only one of several large streams of education aid New Jersey has, and some of these streams have the Abbottist, anachronistic distributions that existed in K-12 opex aid before SFRA.

The major unreformed stream of aid is construction aid, which is still under Supreme Court orders and which lacks any semblance to a unitary, rational, up-to-date distribution.  Under New Jersey's construction aid status quo, there is a cliff in state aid availability between Abbotts and equally-poor and nearly-as-poor non-Abbotts.  The status quo is also too generous to high-tax base districts, who can have the state pay up to 40% of construction costs, thereby exacerbating New Jersey's existing school budget inequalities.

The Abbott Districts, 1990-present
Asbury ParkIrvingtonPemberton
BridgetonJersey CityPerth Amboy
CamdenLong BranchPlainfield
East OrangeMillvillePleasantville
ElizabethNeptune TnspSalem City (added 2004)
GarfieldNew BrunswickTrenton
GloucesterNewarkUnion City
HobokenPassaicWest New York

This post will examine the problem of the Abbottist distribution of construction aid and then present several possible solutions:


Under the Abbott IV decision (1997)and Abbott V decision (1998), the State of New Jersey is forced to pay 100% of construction costs in the Abbott districts. 

There is no Supreme Court requirement at all for construction aid to non-Abbotts, but the legislature & governors have seen it politically necessary to make money available to RODs (Regular Operating Districts) and vo-techs too.  When state money is available, non-Abbott districts can have the state pay for 40% of construction, although only for certain eligible purposes.  Poor non-Abbotts can request that the state pay for more than 40% of construction and the state has given additional money to a few districts like Freehold Boro and Belleville, but it's a haphazard, unpredictable, politicized process for a non-Abbott to get more than 40% state funding.

Although construction spending infrequently makes news coverage compared to the scandals at the SDA, K-12 opex aid or New Jersey's annually increasing pension costs, it's a huge debt service expense, which reached $1.1 billion a year in FY2019.

Although debt servicing costs marginally declined in FY2021, the NJ Treasury's forecast is for the spending level to remain high through the end of the 20202s.

Over the years, spending on Abbott construction tremendous waste.  For instance, the State recently tore down two elementary schools in Pemberton that were only from the 1960s, to build an all-new school.  In Jersey City, the state opened an elementary school that was only half-occupied.  In Neptune

Township, the State paid for an aquatics center that lacks equivalents in even the most affluent New Jersey towns.  Abbott construction money even covers PreK facilities, when PreK is a non-existent service in non-Abbott districts, including ones with large numbers of low-income children.

Even when building a new school is justified by the age of the previous buildings or enrollment growth, and there are no extravagances Abbott construction projects have been very expensive in square foot terms.  

The last three schools to open in Newark since 2016 -- South Street School, Oliver Street School and Elliot Street School -- cost an average of $515 per square foot. South Street, which was completed in 2018, cost $69 million or $669 per square foot, nearly 5 times the limits set by the Legislature.

To look at the cost another way: The SDA spent more than a quarter of a billion dollars to build schools for only 3,733 Newark children -- an average of more than $70,000 per student.

Charters, working in the same environment, were built much less expensively.

At the same time the SDA was building schools in Newark, several charter schools were also constructing buildings at a cost far less than the state. Charter schools do not receive any funding from the state and must raise their own money for construction.

KIPPNJ, which operates 11 schools in Newark, completed a new high school in Newark’s West Ward in August 2016 at a cost of $37.5 million, or $340 per square foot. KIPP Newark Collegiate Academy has the capacity to serve 800 students at an average cost of $46,900 per student. 

If a non-Abbott borrows money, Debt Service Aid is available, but it only covers part of the principal repayment, not interest, and Debt Service Aid has been funded below statutory targets.

Should New Jersey have a set dollar target in construction aid per student that is inversely proportional to district wealth? like SFRA has a set target for K-12 opex aid?  So that if a district wants to spend more, that's its own responsibility or if a district spends less, it can use that state money to offset taxes?

SFRA: A Template for a Rationalization of Construction Aid

SFRA recognizes the continuum of need and local capacity for K-12 opex aid.  It could thus serve as a template for a construction aid formula that recognizes the same continuum.

SFRA doesn't treat the Abbott districts as categorically different from non-Abbotts.  It calculates a unique Adequacy Budget for every district that is based on demographics, including the age of the students, FRL-eligibility, and ELLs.  Districts with more at-risk students -- like most of the Abbotts -- have higher Adequacy Budgets on the basis that their students need more assistance than non-at-risk students and that teachers in high-FRL districts need to be paid more.  

SFRA also calculates a a unique Local Fair Share for every district, which depends on a district's Aggregate Income and Equalized Valuation, however, for the ~270 districts who are ineligible for Equalization Aid, the exact Local Fair Share is a mathematical product with no practical meaning.

A simple formula for construction aid could say that if a district is expected to cover 10% of its Adequacy Budget for operating expenses with local money, it should pay for 10% of its construction projects, while another district that is is expected to cover 50% of its Adequacy Budget with local money, it should pay for 50% of its construction projects, while yet another district that is expected to pay 90% of its Adequacy Budget should pay 90% of construction costs.  

A slight complication in this model is that SFRA has two conceptions of an "Adequacy Budget."  There is an Adequacy Budget for Equalization Aid and then another number "Adequacy Budget for Cap Comparison," that 6-7% higher and includes expected Security Aid and Special Education Aid.  

As you can see from this chart, local construction aid copays could look like the following:

DistrictProjected Resident Enrollment (FTE)2020-21 Local Fair ShareAdequacy Budget (for Equalization Aid)State Share of Adequacy Budget (for Equalization Aid)Adequacy Budget (for Cap Comparison)State Share of Adequacy Budget (for Cap Comparison)
SOUTH ORANGE-MPWD7,291$124,715,383$116,227,9160%$124,345,4740%
TOMS RIVER REG.14,869$223,196,062$239,752,7557%$256,702,32613%
CHERRY HILL10,810$147,934,009$167,125,21211%$178,642,79117%
KINGSWAY REG.2,689$24,193,008$41,964,48042%$44,769,95146%
EGG HARBOR TWP7,230$64,481,174$125,448,23649%$134,453,97852%
FREEHOLD BORO1,601$10,138,841$31,904,82668%$34,238,58370%
PROSPECT PARK BORO851$3,949,065$15,334,45074%$16,463,19876%

For districts whose Local Fair Share exceeds the Adequacy Budget, the state's copay could be $0, under this simplistic formula.  

For some districts that are barely above the threshold for Equalization Aid, like South Orange-Maplewood, Brick, and others, a $0 copay is too small (disclosure, I live in South Orange-Mpwd).  It would be reasonable for the state to have a minimum funding percentage, although that would violate the principle of having a truly unitary construction aid formula if low percentages implied by the formula are nullified by a minimum funding percentage.

Using Equalization Aid divided by Adequacy Budget would produce the following funding share for the Abbotts, where state payment would be highest for Bridgeton and Camden City, and $0 for Hoboken.

There are additional complications that would be sorted out by the political process: 

  • If a district wants a non-essential capital expenditure, such as a pool, rock wall, or luxurious performing art space, should the state fund part of that? (I think it shouldn't.)

  • Given that districts with enrollment growth will have larger capital needs than districts that have flat enrollment, should the state attempt to give growing districts more construction aid than districts with flat enrollment?  (I think it shouldn't.)

The Big Problems of Local Fair Share

A problem of SFRA that I've tried to expose on this blog is that :

  1. the multipliers for Local Fair Share have steadily increased since 2008, so that the state's average Local Fair Share has risen from ~1.15% in 2008 to 1.45% today.  Given how Adequacy Budget inflation increases more quickly than the state's ability to increase Equalization Aid, Local Fair Shares will likely increase indefinitely.  (See "Brick, Toms River, and the Local Fair Share Formula")
  2. the use of Aggregate Income produces a huge range in what districts are expected to pay, from 0.8% to 2.1%. (see "The Highs and Lows of Local Fair Share")

The growth of the Local Fair Share multipliers is a difficult budgetary problem to solve, since it would require cancelling the inflationary adjustments to the Adequacy Budget and/or pumping billions more into K-12 opex aid.  Ironically, borrowing billions for construction aid would force New Jersey to raise Local Fair Share even more, since debt servicing spending is subtracted from Equalization Aid.  

The problem of Aggregate Income has an easier solution: Just stop using Aggregate Income and base Local Fair Share only on Equalized Valuation.

Converting to an Equalized Valuation-based Local Fair Share for K-12 opex aid would be disruptive, since it would require higher taxes for some districts who have a lot of non-residential property and/or vacation homes, but since New Jersey lacks a rational formula for construction aid anyway, perhaps starting the conversion for construction aid is a good idea.

Adequacy Budget

There are also issues with the calculation of a district's Adequacy Budget.

The calculation of an Adequacy Budget assumes that low-income students need more staff for operating spending, but do they need that much more room?  

Using a more linear calculation of a district's Adequacy Budget might be called for.  


The Supreme Court ukases for 100% state payment for Abbott construction are 23 years old.  The Abbott list was made in 1990, so is thirty years old.  The data used by Tsar Chief Justice Robert Wilentz is 40 years old, ie the 1980 Census.  

It's time to bring New Jersey into today's reality.

What also cannot be New Jersey is the country's most indebted state.  Ever increasing debt payments combined with slow revenue growth are a major reason for the underfunding of K-12 opex aid, and even worse neglect of non-education spending.  (See "How Education Spending Ate the NJ Budget")

If New Jersey is going to have construction aid and accept less K-12 opex aid in the future, at least it must distribute that aid on a fair basis, depending on today's conditions and recognizing the continuum of local tax base across districts.  

See Also:

Thursday, October 8, 2020

2021 Equalized Valuations Show Economic Trends, Forecast State Aid Changes


The release of Equalized Valuations for every town in New Jersey allows us yet again to get a snapshot of New Jersey's demographic and economic churn, plus get a preview of state aid changes for 2021-21 school year.  

(I've made 2018-20 data available here)

Equalized Valuation is the value of all the taxable property in a town.  It is used to apportion county taxes and, in theory, to distribute Equalization Aid (the most important stream of state aid).  

New Jersey's total Equalized Valuation grew by $34.9 billion, or 2.29%, from $1.323 trillion to $1.353 trillion, which is better than inflation (~0.65%).  

As usual, growth is uneven, ranging from 0.1% growth for Hunterdon County, to 6.2% in Hudson County.  In fact, Hudson County's $5.9 billion was 17% of the state's total, which is in line with the trend of recent years.  

The median town only gained 1.66%, which underscores how Equalized Valuation gains are always concentrated in a small number of towns.  Half of NJ's $34.9 billion net gain occurred in only 51 towns.

This is shocking, but part of a trend.  Since 2018, half of NJ's $71 billion net gain in Equalized Valuation has occurred in only 34 towns!

140 towns actually lost Equalized Valuation.  The Equalized Valuation-losing towns were in all counties except Cape May.  Bergen had 23 towns lose Equalized Valuation.  Morris County had 14. 

We often hear about an "urban renaissance" and gentrification, as a class New Jersey's cities are highly disparate.  Newspapers print many articles about gentrification in Newark, Newark lost Equalized Valuation (-1.85%) and hasn't had consistent growth recently.  Trenton (-0.8%) lost Equalized Valuation too.  On the other hand, Paterson gained 12.7%, but after having zero growth for 2020.  

Jersey City, Orange, East Orange and Plainfield had excellent years, although after a few years of stagnation for the towns other than Jersey City.  A conversation about "urban areas" in New Jersey has little meaning, because NJ's urban areas differ so much from each other.  

A few years ago affluent train line suburbs were doing extremely well, but that hasn't been the case for the last few years. Morristown was -3.95%. Chatham was -2.04%. Maplewood was -1.31%. Millburn was -0.74%. South Orange had 0% growth. Summit was 0.50%. Ridgewood Village was +0.57%. Montclair was at +1.95%. Glen Ridge gained 2.44%.  Over in central Jersey, Princeton was +0.99%.  Collingswood was +3.67%.

Perhaps the acceleration of suburbanization from New York City and hot real estate markets in train-line
A rendering of the Franklin Township
Amazon warehouse.
towns will be reflected in 2022 Equalized Valuation numbers?  But as of June 2020 (the end of the data gathering), there was no boon to report.

Several of the biggest gainers are towns with large logistics facilities.  Franklin Township, which is ranked #6, had an Amazon warehouse open up.  South Hackensack also has an Amazon distribution center.  

Presumably the growth comes from the distribution centers themselves and employees purchasing homes.

NJ's fastest gainers for 2019 to 2020.

TownOne Year Percentage Gain in 2020
FRANKLIN (Somerset)12.49%
FAIRFIELD (Essex)12.00%

Implications for State Aid

The 2020-21 formula for Local Fair Share is

(Equalized Valuation x 0.01448)/2 + (Aggregate Income x 0.05277)/2

The formula is tweaked two years out of three, but large changes corresponding to inflation happen whenever an Education Adequacy Report is produced.  2021-22 will be another "tweak year," so we can use the above formula to estimate Local Fair Share changes from Equalized Valuation growth or loss.

Jersey City merits special attention, since it's $4.1 billion gain will correspond to ~$29 million increase in Local Fair Share.  Assuming $20-$30 million in LFS growth from the increase in Aggregate Income, Jersey City's total Local Fair Share growth should be at least $60 million.  That increase in Local Fair Share will cause more of Jersey City's Equalization Aid to be converted to Adjustment Aid, which will then be subject to redistribution per the amounts established by S2.

In 2020-21 Jersey City was eligible for $91 million in Equalization Aid.  It should still have $~30 million in Equalization Aid in 2021-22, but 2021-22 will be the last year of Jersey City getting Equalization Aid.  Thereafter, Jersey City will be as wealthy in tax base as the suburban districts Judge Robert Wilentz compared it to in the Abbott II decision.  

Over the last two years (2018-2020), Jersey City's growth has been the largest in NJ in dollar terms (+$10.4 billion) AND percentage terms (+30%)

Several of NJ's logistics towns with huge growth, Lyndhurst, South Hackensack, Franklin Township were eligible for small amounts of Equalization Aid in 2020-21.  In 2021-22 they won't be as their increases in Local Fair Share were multiples of what their 2020-21 Equalization Aid was.

Equalization Aid 2020-21Increase in Eq. ValuationIncrease in LFS
South Hackensack$498,974$142,015,186$1,028,190
Franklin Township$1,588,451$1,334,420,582$9,661,205

Of districts that are eligible for Equalization Aid losing Equalized Valuation and thus, likely, seeing decreases in their Local Fair Shares, the following should see the largest increases.

Voorhees' Local Fair Share and Adequacy Budget are near-parity.  It *may* become eligible for Equalization Aid in 2021-22.

Decrease in Equalized ValuationEqualization Aid EligibleDecrease in LFS
HAMILTON (Mercer)-$68,782,190-$2,255,817,783-$497,983
VOORHEES-$160,461,829Near Parity of Ad'cy Budget&LFS-$1,161,744
SOUTH BRUNSWICK-$475,985,004-$9,713,956,679-$3,446,131
EDISON TWP-$951,143,104-$18,990,687,061-$6,886,276


An increase in Equalized Valuation that exceeds the state's average will increase a district's Local Fair Share.  If the district is eligible for Equalization Aid, the district will experience a loss of state aid equal to the increase in Local Fair Share.

Right now NJ is attempting to get every district to 100% funding, so flaws in SFRA's details are irrelevant, but in the period when every district is 100% funded, allowing development will mean LESS state aid for a district.

Since tax offsets for new development is one way that municipal councils justify new development to themselves and residents who are wary of change, if tax offsets are substantially cancelled out by the loss of Equalization Aid, municipal councils will be less likely to accept new development.

Since NJ needs economic growth and housing growth, New Jersey's next generation of state aid law must address the disincentive to allow development currently in the SFRA/S2 paradigm.  


See Also: