A Politically Realistic Proposal to Fix Local Fair Share

 

Now that Adjustment Aid is being phased out, the biggest problem in the School Funding Reform Act is its use of Aggregate Income to calculate Local Fair Share.  To see how bad Local Fair Share disparities can get, check these out:

• Local Fair Share disparities for 2021-22 
• Anticipated Local Fair Share disparities for 2022-23 

If you are unfamiliar with the problems of Local Fair Share, New Jersey's formula for local share is nearly unique in the United States in that it is a 50:50 hybrid of a district's Equalized Valuation and its Aggregate Income.  

The use of Aggregate Income means Local Fair Share is unequal and the following categories of districts have high Local Fair Shares:

• Where residents live in houses that are inexpensive relative to income.
• Districts that lack non-residential property and/or vacation homes because non-residential + vacation property has no income "attached" to it.
• Districts where many residents live in tax-exempt housing.
• Districts with high-income outliers.

The districts who are the most hurt by the use of Aggregate Income tend to be Philadelphia suburbs, then rural districts, and then some random ones in Northeastern New Jersey.  Woodlynne's Local Fair Share is the highest and fluctuates around 2%.  The state's median Local Fair Share fluctuates at 1.4%.  In 2021-22 the median was 1.46% and in 2022-23 the median will be 1.38%.

Due to the penalty against districts that have high percentages of residential property and those towns are already disadvantaged, having a high Local Fair Share correlates with having high municipal taxes.

Ideally what New Jersey would do to fix Local Fair Share is base it solely on taxable property (ie, Equalized Valuation, which would make the tax rate the same for all Equalization Aid-eligible districts, but I realize that equalizing Local Fair Share would require some districts to pay higher taxes and that is politically difficult.

What I propose instead of an equal Local Fair Share that there be a cap on how high a Local Fair Share would be.  It would not require low LFS districts to pay more, but at least lessen the extremes of high Local Fair Shares that afflict some districts.

The costs are not high.

For instance, capping Local Fair Share at 1.7% would only affect eight districts (Woodlynne, Lindenwold, Laurel Springs, Highland Park, Harrison (Gloucester), Pitman, Linwood City, and Merchantville) and cost $2,063,729 in additional Equalization Aid.

District	Local Fair Share	Equalized Valuation	Local Fair Share as a Tax Rate	Amount of Equalization Aid at Real LFS if SFRA were 100% Funded	Equalization Aid if LFS were Capped at at 1.7%	Additional Equalization Aid at 1.7%
Woodlynne	$1,391,251	$72,802,527	1.91%	$10,880,769	$11,034,377	$153,608
Lindenwold	$11,303,200	$631,255,842	1.79%	$51,900,777	$52,472,628	$571,851
Laurel Springs	$2,287,277	$130,051,242	1.76%	$2,719,218	$2,795,624	$76,406
Highland Park	$24,379,427	$1,399,324,153	1.74%	$2,795,761	$3,386,677	$590,916
Harrison (Gloucester)	$15,252,825	$878,645,698	1.74%	$3,353,627	$3,669,475	$315,848
Pitman	$11,665,247	$674,646,564	1.73%	$4,817,288	$5,013,543	$196,255
Linwood City	$10,856,880	$629,986,822	1.72%	$71,230	$218,334	$147,104
Merchantville	$4,641,379	$272,331,669	1.70%	$4,746,854	$4,758,595	$11,741
TOTAL						$2,063,729

The costs aren't even that high if LFS were capped at 1.6% or 1.5%.  

If Local Fair Share is Capped at ...	Additional Equalization Aid
....1.7%	$2,063,729
....1.6%	$14,152,048
....1.5%	$69,092,717

Several more districts who are not ineligible for Equalization Aid would become eligible if Local Fair Share were capped.  Haddon Heights and Wenonah become eligible for Equalization Aid at a 1.6% cap.  Medford, Washington Twp (Morris), and Haddonfield become eligible at a 1.5% cap.  (their totals are included in the table above)

There is a lot of inertia behind keeping Aggregate Income in the Local Fair Share formula, but at least capping the contribution at a certain point above the state median would eliminate the worst victimization by the formula.

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See Also

• The Highs and Lows of Local Fair Share
• Is SFRA Fair to Rural and South Jersey
• High Local Fair Shares Correlate with High Municipal Taxes