Monday, March 13, 2023

2023-24 New Jersey State Aid

 The 2023-24 state aid numbers are available.  Although there are some losers in state aid this year who are in budget stress or crisis due to the rigidity of the tax cap, this is the best year for state aid fairness we've had since the start of the SFRA era in 2008-09, perhaps since the inception of major state aid in 1976.

For 2023-24 Phil Murphy proposes to increase overall K-12 formula aid by $832 million and redistribute $157 million from overaided districts.  This means +$991 million for underaided districts and enormously greater state aid equality than even 2022-23, when underaided districts still had a deficit of $618 million.

The most important numbers are the following:

  1. There are 192 overaided districts (including vo-techs and non-operating districts) with a $165 million surplus.  This is a huge drop in total state aid excess in the mid-2010s, when the state aid excess was $618 million.  

  2. There are 401 underaided districts (including vo-techs and non-operating districts) with a $277 million deficit. This is also a huge decrease from a few years ago, when the deficit against Uncapped Aid was $2 billion.

As usual, I've put all the 2023-24 State Aid Disparities and Local Fair Share disparities online.

The Underaided

Former "poster children" for underaiding are now doing well.

  1. Chesterfield, which only got 9% (-$4798 pp) of its uncapped aid in 2016-17 ($420k for 801 students) is now slightly overaided, at $3.5 million for only 684 students (101%, or +$44 per student).  

  2. Red Bank Boro, whose deficit was -$4973 per student in 2016-17, also became overaided and actually lost -$545,705 in state aid (-5.9%, or -$431 pp).  Like many overaided districts, Red Bank Boro's excess is due to enrollment loss.  For 2023-24 Red Bank Boro is only projected to have 1,267 students, compared to 1,371 in 2022-23 and over 1,400 a few years ago.

  3. Freehold Boro, which was underaided by $14 million for 1,700 students (-$8,243 per student) and "where students were packed on top of each other"  now only has a deficit of -$991,388 for 1,557 students (-$637 per student).  

  4. Bound Brook, whose deficit was the largest in per student terms -$17,154,750 for 1,744 students (-$9,836 pp), now only has a deficit of -$1,740,085 for 1,839 students (-$946 per student).

  5. Newark's state aid deficit has long been the largest in total dollars in NJ, at -$133.5 million in 2016-17 (-$2635 pp).  Since 2016-17 Newark has gained $408 million, but since its Adequacy Budget has grown, it still has a deficit of $36 million (-$660 per student).  

    Newark has continued to gain students.  Its 2023-24 enrollment will be 54,555.

There are only 64 districts with deficits over $500 per student.  The most underaided district in dollars-per-student is now Lindenwold, with a deficit of -$3,356,389, or -$1,096 per student, which is only tenth of what Bound Brook's deficit was in its worst year.

The most underaided district in percentage terms is Woodland Park, but it still gets $2,747,157 out of $3,099,440, or 89%, which is only a ninth of what Chesterfield's was in its worst year.  All other districts get at least 90%.

The Overaided

The districts I highlighted as examples of Adjustment Aid excess no longer have large surpluses anymore, and in the case of non-Abbotts which are constrained by the 2% tax cap, I am worried about them budgetarily.

  • Jersey City is losing $51 million (-$1,730 pp), bringing its state aid surplus down from $1,903 pp in 2022-23 to $552 pp in 2023-24.  Factoring in the tax increase necessary to compensate for inflation and to compensate for the lost $51 million, Jersey City should have to raise taxes by $70 million, bringing their levy up to $500 million.  However, on an Equalized Valuation of $49.4 billion, we need not be concerned about Jersey City being overtaxed.  A $500 million levy is still a 1% school tax rate.

    Jersey City's Equalization Aid is still $68 million and its state aid excess is $16.3 million.  It should lose a few tens of millions in state aid for 2024-25, but thereafter gain state aids through growth in the categorical aids.

The most overaided district in 2023-24 will be East Orange, getting $175,087,372 when SFRA's core formulas say it only should have $144,910,078, which is a $30.2 million surplus for 9,522 students, or +$3,169 per student.

East Orange's Adjustment Aid is protected by East Orange having exceptionally high taxes, with an effective all-in tax rate of 3.449.  The protection comes from S2.

 (1) An SDA district that is located in a municipality in which the equalized total tax rate is greater than the Statewide average equalized total tax rate for the most recent available calendar year and is spending below adequacy as calculated pursuant to section 1 of P.L.    , c.   (C. ) shall not be subject to a reduction in State aid pursuant to subsection b. of this section.

Toms River, Lakewood and Others Show the Clear Need for Tax Cap Liberalization

As some aid-losing districts fall deeper under Adequacy, the more undeniable their mistake was to not ask for tax cap relief, and Phil Murphy's veto of a 2020 bill that would have done exactly that.
  • Toms River is losing $14.4 million ($1,121 per student), which is much larger than their $3.5 million surplus it had in 2022-23.  The reason Toms River lost much more than anticipated is that their Local Fair Share grew, from $219 million to $251 million (+20%), while Toms River's Adequacy Budget only grew from $238 million to $252 million, meaning that Toms River is nearly ineligible for Equalization Aid.  

    Toms River's Local Fair Share grew so much because of 20% growth in its Equalized Valuation (compared to +11% statewide), although Aggregate Income fell by 2% (which is a statewide effect presumably due to the Covid disruption of 2020).

    Equalized Valuation (2022)Aggregate Income (2020)Local Fair Share
    Toms River 2022-23$19,518,711,982$4,007,942,878$219,146,610
    Toms River 2023-24$23,423,170,202$3,951,760,462$250,875,466

    Most of TR's aid loss comes from the growing Equalized Valuation, but 2023-24 will mark another year in its long trend of enrollment loss.  In 2003-04 Toms River had 18,192 students.  Next year's enrollment is projected at 14,000 exactly, down from 14,095 in 2022-23.

  • Freehold Regional has also been a prominent opponent of Adjustment Aid redistribution but said very little about liberalizing the tax cap.

    Freehold Regional taxes were $22 million below LFS for 2022-23. IE, despite having a LFS of $168,740,593 for 2022-23, the local tax levy is only $146,050,632.  

    In 2023-24 Freehold Regional's Local Fair Share will be $184,622,567 and it will lose $6.8 million in state aid.  Even a full 2% tax increase will only be +$2.8 million, which is far inadequate to compensate for its $6.8 million state aid loss.

  • Lakewood is a very complex district budgetarily due to its high OOD and transportation spending.  I agree that the SFRA formula does not work for Lakewood, but Lakewood's budget is also badly hurt by the rigidity of the tax cap.

    For 2023-24 Lakewood's Local Fair Share will rise from $137 million to $160 million, but due to how the tax cap is just 2% and is based on the 2022-23 tax levy of $109.5 million, the tax levy can only rise +2%, or $2.1 million.

In 2016, when Lakewood was nearly at its full Local Fair Share, I wrote about how SFRA didn't work for Lakewood, but if it were to update that article I would have to write equally much about the tax cap.  

These districts would probably say that the real problem is state aid loss at all, 

Equalization Aid Eligibility Increases; Local Fair Share Rate Decreases

There will be 309 districts eligible for Equalization Aid, which is an increase from a few years ago, when as few as 270 districts were eligible.  Their Local Fair Share works out to a 1.36% median tax rate, which is slightly lower than 1.38% in 2022-23, but significantly lower than 2018-19 when it was as high as 1.52%.  

The reason Local Fair Share decreased is the big increase in Equalization Aid, which lowers the Local Fair Share multipliers relative to tax base growth (which was +11% for this year due to the real estate boom.)

The 2023-24 Local Fair Share formula is 

(Equalized Valuation x 0.012805233) + (Aggregate Income x 0.051068829) / 2

which is a reduction in the Equalized Valuation multiplier and an increase in the Aggregate Income multiplier.  NJ's Equalized Valuation had been way up in 2021-22, while in 2021 there were Covid-related reductions in income (about -2%)

Despite the decrease in Local Fair Share rate, since NJ's Equalized Valuation grew so much, the total, statewide Local Fair Share for Equalization Aid eligible districts grew from $8.7 billion to $9.4 billion.  That effect is part of the reason the state aid deficit fell, as well as increased education spending.

Local Fair Share Disparities

Very few people recognize how unequal New Jersey's Local Fair Share is.  Although the state median is 1.36%, Local Fair Share ranges from only 0.94% for Long Branch City up to 1.81% for Woodlynne. This actually a narrower gap than a few years ago, when Local Fair Share range went from 0.8% for Wildwood City to 2.1% for Woodlynne.

The reason New Jersey's Local "Fair" Share varies so much is that New Jersey uses Aggregate Income as well as Equalized Valuation to calculate it.  This means that the lower the ratio of Aggregate Income to taxable property there is, the lower the tax rate and the higher the ratio of Aggregate Income to taxable property there is, the higher the tax rate.

The logic "make higher earning people pay more" breaks down because NJ uses Aggregate Income, not median income, so that ultra high-income outliers and residents living in PILOTed or tax exempt property have their incomes added to Aggregate Income, even though high-income outliers pay little property taxes relative to income and residents of PILOTed and tax exempt property pay no regular property taxes at all.

Furthermore, the use of Aggregate Income introduces a bias in favor of non-residential property and vacation homes, since neither non-residential property nor vacation homes has any income attached to it.

Using Aggregate Income also penalizes people who have chosen to live within their means, in houses that are inexpensive relative to their income.

The following districts have the highest Local Fair Shares:


It's not a coincidence that the highest LFSs are in South Jersey, particularly the Philly suburbs, since it was the original intention of the law back in 1990.  NJ's LFS formula penalizes districts where people live within their means. 

Although there are some districts in northeastern New Jersey that also have high Local Fair Shares 2023-24 also continues the anti-rural, anti-South Jersey bias of the Local Fair Share formula.  The northeastern NJ district with the highest Local Fair Share is West Orange, but it is only 1.55%, which is #38 in the state.

Some wealthy districts in northern NJ have theoretically high Local Fair Shares, including Mendham Township at 2.13%, but for a district like Mendham the official LFS has no meaning since it's far in excess of what the district would ever need.


1 comment: