In his budget for FY2022, Phil Murphy has proposed an increase in education spending of $1.7 billion, of which $578 million is for new K-12 operating aid.
More than just a very large increase in state education support, Phil Murphy has followed a principle I originally thought he would ignore -- making state aid equality a goal in-and-of itself and recognizing the budgetary necessity of redistribution. He has also targeted new state aid for the most severely underaided districts by using the deficit-based allocation of new aid Steve Sweeney devised for S2.
By making a $578 million increase in K-12 operating aid plus redistributing $192.5 million in Adjustment Aid, Phil Murphy has brought the state aid deficit from $1.9 billion in FY2020-21 to only $1.2 billion.
This is tremendous progress. In the last Christie budget of 2017-18, there were 377 underaided districts with a total deficit of $1.96 billion and 200 overaided districts with a surplus of $634 million.
In the fourth Murphy budget of 2021-21, there will still be 380 underaided districts, but with a total deficit of only $1,230,989,213. They will be balanced by 212 overaided districts, but with a total surplus of $361,728,172.
A $1,230,989,213 deficit is large, but it is the smallest deficit SFRA has had since its first year of 2008-09, under Jon Corzine.
Sketch of the Underaided
Atlantic City has the largest deficit in NJ, at $7,110 per student, but there are only six districts with deficits over $4,000 per student. This is a huge contrast to 2016-17, when there were 58. There are only 64 districts that are underaided by more than $2,000 per student, compared to 118 in 2017-18.
Atlantic City is sui generis because of the rapidity of its tax base collapse, including the PILOTing of its
casinos in 2015, which makes them "invisible" to the formula for Equalization Aid, although a large percentage of the PILOT money goes to the school district. A $7,110 per student deficit is very large, but it's much better than
$10,939 per student deficit of 2020-21. Finally, Atlantic City also receives $20 million in Commercial Valuation Stabilization Aid, which is outside the SFRA formula and not included in the DOE's data. If that $20 million were include, Atlantic City's per student deficit would only be $4,011 per student.
In percentage terms, the most underaided district is Loch Arbour at 48% (a microdistrict whose enrollment anomalously went from one to eight students in a single year). Of normal-size districts, Cumberland County Vocational is the most underaided, but it still gets 58% of its state aid. This is also a massive improvement. In 2012-13,
157 districts got less than 50% of their state aid.
Looking at the most exceptionally underaided districts of Christie's second term also demonstrates the great increase in equality over the last four years.
- in 2016-17 Chesterfield was the most underaided district in percentage terms, only getting 9% of its recommended state aid. Now it gets 78%.
- in 2016-17 Bound Brook was the most underaided district in dollars per student, with a deficit of $9,836 per student. Now its deficit is only $4,053 per student.
- Freehold Boro, where 1,700 children were housed in a school built for 1,200 and which had become a symbol of the grossness of NJ's state aid inequalities, has gone from a deficit of $8,243 per student to deficit of $3,437 per student.
| WOODLYNNE | -$3,143 | NORTH PLAINFIELD BORO | -$3,712 |
| TRENTON | -$3,218 | ATLANTIC CO VOCATIONAL | -$3,805 |
| PENNS GRV-CARNEY'S PT REG | -$3,266 | BOUND BROOK BORO | -$4,053 |
| WOODBURY CITY | -$3,328 | FAIRVIEW BORO | -$4,236 |
| MANCHESTER REG | -$3,365 | PASSAIC COUNTY VOCATIONAL | -$4,239 |
| FREEHOLD BORO | -$3,437 | LINDENWOLD BORO | -$4,801 |
| PLAINFIELD CITY | -$3,459 | CUMBERLAND CO VOCATIONAL | -$6,453 |
| DOVER TOWN (VICTORY GARDENS) | -$3,487 | ATLANTIC CITY* | -$7,110
(Would be $4,110 pp if CVSA) |
A $1.2 billion deficit is still large and these are the districts with the largest deficits.
Approximately half of the deficit is in only eighteen districts (enrollment = 257,168 students). Newark's deficit, at $146 million, is by far the largest in absolute terms, although at $2689 per student it is only the 28th largest.
Sketch of the Overaided:
Asbury Park's surplus is the largest in New Jersey in dollars per student, at $5,509 pp ($11.3 million). This is a tremendous decrease from prior to 2017-18, when Asbury Park's surplus was nearly $12,000 per student ($24 million). Given that Asbury Park was frequently used as a representative of Abbottist excesses and ineffectiveness, the reduction in Asbury Park's state aid could become politically significant. (See the "
Asbury Park, Overaiding at its Most Extreme.")
There are now only 29 districts with surpluses over $2,000 per student, compared to 80 back in 2016-17.
Jersey City has $121 million in excess state aid, or 34% of the total. Jersey City and the five other districts with the largest surpluses, with an enrollment of 68,715, account for half the total surplus.
That amount is not a complete picture of how much state aid will come out of Jersey City, due to Jersey City's astronomical growth in tax base, which converts Jersey City's Equalization Aid to Adjustment Aid, which is then phased-out per the stipulations of S2. (see a 2019 post by me "
In Five Years, Jersey City will be Ineligible for Equalization Aid.")
In 2021-22, Jersey City is still eligible for $84 million in Equalization Aid, but Jersey City's tax base growth combined with the increases to Local Fair Share from next year's Education Adequacy Report should eliminate or nearly-eliminate that.
Hence, Jersey City will eventually lose $200 million in state aid by the time S2 runs its course, but thereafter not see any further losses.
The most overaided, with surpluses in dollars per student.
| ASBURY PARK | $5,509 | KNOWLTON TWP | $3,446 |
| PEMBERTON TWP (PEMBERTON BORO) | $5,454 | PLUMSTED TWP | $3,210 |
| CAPE MAY POINT | $5,348 | KEANSBURG BORO | $2,980 |
| WEYMOUTH TWP | $5,282 | OCEAN COUNTY VOCATIONAL | $2,961 |
| BASS RIVER TWP | $4,764 | MONMOUTH CO VOCATIONAL | $2,796 |
| JERSEY CITY | $3,990 | DENNIS TWP | $2,775 |
| PEMBERTON TWP | $3,498 | HOPATCONG | $2,553 |
| WASHINGTON (Burlington) | $3,474 | OCEAN TWP (Ocean) | $2,499 |
Overaided districts vary greatly in their tax base capacity and what their spending is relative to Adequacy. S2 eliminated the tax cap for Abbotts, but non-Abbotts are still constrained by it. Non-Abbotts like Toms River and Brick who are below Adequacy and losing state aid are in a budget crisis whose only solution is tax cap liberalization. They have failed to fight for liberalization in favor of fighting for permanent Adjustment Aid. Hence, in 2020 after the legislature sent Phil Murphy a bill loosening the tax cap for under-Adequacy, overaided districts, Murphy had no political cover and
vetoed it, keeping these districts in a severe vise.
Outlook for the Near-Term
New Jersey has almost never fully-funded its state aid law, going back over forty years to Governor Brendan Byrne. With the deficit significantly reduced, it's possible to talk about state aid being fully-funded sometime in the near-future.
The possibility can be seriously entertained that SFRA will be fully funded, but there are still large challenges.
To make an optimistic case:
- FY2022 marks New Jersey fully meeting its pension obligations, which means that there should not be large increases required for TPAF. In FY2022, New Jersey is putting $3 billion into TPAF, which should be basically constant from here on out.
- NJ's enrollment continues to shrink. This means that the growth in the Adequacy Budget is lower than it would otherwise be. If thousands of students leave the public schools because of this year's school closings (the estimate for 2021-22 is for 26,000 fewer K-12 students) and up to 10,000 fewer babies are born in 2021, it would mean hundreds of millions in lower spending targets.
However, there as many reasons to be pessimistic.
- SFRA's spending target continually grows (Despite enrollment loss!).
- Phil Murphy has used $4.2 billion in borrowed money for the FY2022 budget and the Education Law Center is demanding billions in additional borrowing for Abbott construction.
- New Jersey's revenue growth is low.
1. The Spending Target Grows
Despite NJ's shrinking enrollment, the full-funding of SFRA is a moving target that grows by an average of $130 million a year. Although the state's enrollment is slowly declining, inflationary adjustments increase the funding target every three years when the state runs an Education Adequacy Report, and 2022-23 with be an Education Adequacy Report year. (see "
Education Adequacy Report Drives Big Changes to State Aid")
Illustrated by the chart below, to fully fund SFRA (without Adjustment Aid) would have required $9.3 billion in 2015-16, but $10.1 billion in 2021-22. The growth to $10.071 billion to fully fund SFRA is smaller than in previous years, but note it occurred despite a record-setting loss in enrollment.
2. DEBT: Phil Murphy Borrowed $4 billion (and NJ might have to borrow more)
I hate to be a spoiler, but there is a sizable caveat [to this budget]: It was made possible by the $4.3 billion the governor borrowed last summer when the economy was in a free fall, and everyone expected tax revenues to plummet. The governor warned that the shortfall could amount to $20 billion to $30 billion over two years.
Not close. As is happens, the economy recovered much faster than expected, and revenues are now rising. In this budget, the governor anticipates revenue growth of 2.4 percent. [sic, see more context below]
Thanks to those rising revenues, most of the borrowed money was not spent. It was put into the state surplus and rainy day fund, which swelled to more than $6 billion, about twice as big as planned. In this budget, Murphy is tapping $4.4 billion of that to support spending, including on the pensions.
Like former Gov. Christie Whitman, he’s using borrowed money to help shore up the pension funds, a move that has an old-fashion Jersey whiff to it.
In FY2023, when NJ won't have $4 billion in borrowed money to spend, there will be budget stress.
The bonds are scheduled to be repaid over 12 years, with principal payment beginning in Year 3. The repayment of this debt will crowd-out future spending capability.
On top of the debt being used to increase spending in FY2022, the Education Law Center
is demanding billions for Abbott construction. Education Law Center debt servicing will also cut into future spending latitude.
(See "ELC Demand for More Abbott Construction Debt Can Only Cut K-12 Operating Aid")
3. New Jersey's Revenue Growth is Low
Lost amidst the celebration from categories seeing spending increases is that New Jersey's revenue is only projected to increase by $952 million, or +2.4%.
Part of the reason revenue growth is a one-time only delay of tax payments due to a SALTcap workaround called the "Pass-Through Business Alternative Income Tax." If this workaround were not created, NJ's revenue would actually increase by 4%, which is still not better than Christie's second term, and much lower than the revenue growth NJ had in the 1980s-1990s.
Although income tax growth from FY2021 to FY2022 is projected to be +6.4%, looking back another year previous, from FY2020 to FY2022, there is practically no increase despite FY2022 having a broader bracket for the 10.75% tax bracket.
Should New Jersey Try to Fully Fund SFRA?
The FY2022 budget delivers a staggering amount to education compared to what most states spend.
NJ's state education spending in FY2022 will be $18.1 billion, of which $17.2 billion is for K-12. That is $
13,060 per K-12 student, an amount HIGHER than the national average for local+state+federal education spending, combined.
Although education gets a stable 40.6% of the budget, its share of the Property Tax Relief Fund has continued to grow at the expense of Municipal Aid, Direct Tax Rebates, and a category "Other Local Aid."
Since Education also gets money from borrowing, the half-cent sales tax diversion, and the lottery, education actually gets more than 100% of income tax revenues ($18.1 billion, out of $16.3 projected in income taxes).
So, bottom line, I have mixed feelings about the 2021-22 budget. I'm glad that education is getting an increase and that principles of equality are being followed in the distribution, although I worry about the sustainability of this level of spending and the condition of non-education items in the NJbudget.
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