Loss of Property Wealth in NJ's Most Underaided Districts

We all know that underaiding negatively impacts students, teachers, and taxpayers in an underaided district.  

This post is about a downstream consequence of underaiding that I haven't addressed yet; how it forces towns to sacrifice their schools and/or accept heavy tax burdens and therefore weaken their real estate markets.  This post is a reminder to people that school quality and taxes count and when these factors are unattractive, buyers will avoid the town and homeowners will see the values of their homes depreciate.

NJ's most underaided towns have almost always exceeded the state's average loss of property wealth in the last six years, be they in South Jersey or North Jersey - rural, suburban, or urban.  This post suggests that underaiding is a reason and shows the depth of the property base loss.  

A Positive Feedback Loop Isn't Necessarily a "Positive" Thing

There are many people who will tolerate high taxes if they are receiving superior services, but the number of people who will voluntarily tolerate high taxes combined with inferior services is far fewer.

If a town's schools are underfunded and sub-par and if that town's taxes are also high, the town will have a more difficult time attracting new residents than a peer town whose schools are superior and taxes are lower.  When this is the case, sellers have to discount their homes in order to sell them.  

Thus, there is a positive feedback loop of market decline where :  

>The more a market declines, the higher the tax rate gets

>>The higher the tax rate gets, the more the market declines 

>>>the more the market declines, the higher the tax rate becomes.

>>>>etc etc 

As newer residents may be poorer than older residents, sustaining a tax levy might become increasingly difficult.  

(Having Five Nodes is Arbitrary.
"A Declining Real Estate Market" and "Loss of Equalized
Valuation" are the same thing with different terminology.)

State Aid is Supposed to Stop Downward Spirals

The point of state aid - municipal and school aid - is to arrest this downward spiral.

If state aid is properly distributed, the infusion of money from the thriving parts of New Jersey should be able to equalize a town's taxes and school spending with other towns and give residents fewer reasons to leave and new residents more reasons to move in.  Maybe the process of decline is reversed, maybe the town is only really stabilized, but still, the tax/school spending situation would be a lot better if state aid were fairly distributed.  

In looking at underaided school districts, I am not saying that underaiding is the sole reason for their real estate declines or even the major reason. I am, however, saying that it is a reason and therefore in addition to hurting taxpayers and schoolchildren, it hurts their families' home values and financial security

In looking at NJ most underaided districts for 2016-17, I am aware that I am not looking at a random sample.  Since Equalized Valuation is a key component of the calculation of state aid, towns that have lost Equalized Valuation since state aid was last properly (though inadequately) run in the Corzine era, have become the most underaided due to the mechanism of the aid formula.  Therefore, looking at the most underaided and showing that they have lost the most Equalized Valuation is partly a self-fulfilling prophecy.  

Although loss of Equalized Valuation is probably a bigger cause than effect of underaiding, logically speaking it is part of a feedback loop that produces deeper underaiding, so this self-fulfilling prophecy is to be expected.  

My assumption is that most of the most underaided for 2015 would have been among the most underaided in 2009 too.  

Note: Equalized Valuation is the market value of a town. It is computed annually by the county tax assessor. Equalized Valuation is used to apportion county taxes. It is supposed to be used to distribute state aid, but as we all know SFRA is non-operating. The Dept of Treasury gives every town's EV at the Table of Equalized Valuations. I have put the data I used here:

The Most Underaided Are Almost Always Low Spending and High Taxing

Above, Total Budgetary Cost Per Pupil
Excluding regionals and Hi Nella (which is non-operating).  Original Source, Taxpayer Guide to Education Spending: Available here:  http://bit.ly/1XH0sPR

And these districts always always have tax rates that exceed Local Fair Share.

Of the most underaided districts whose spending is above the median (Atlantic City, Wharton, Linden, and Newton), all have among the highest taxes.  

Source: http://bit.ly/1UCWnOm

Since 2009, the state as a whole (ie, counting the underaided) has lost 11% of its Equalized Valuation, indicating how weak our "recovery" has been, but the underaided districts exceed this average loss significantly, having lost 24% of their (weighted) Equalized Valuations.   Atlantic City is a large outlier, but even with Atlantic City factored out, the underaided districts would have lost 17% of their Equalized Valuations.  

So, in underfunded school/high tax conditions, is it any wonder that almost all of these underaided towns see declines in their real estate markets that exceed the state's average?  Of the 40 most underaided non-regional districts, 35 have lost more than the state's average 11% loss!

Source: Table of Equalized Valuations: http://www.state.nj.us/treasury/taxation/lpt/lptvalue.shtml

Some readers may notice that Chesterfield has actually gained 1% on its 2009 Equalized Valuation, but Chesterfield is the exception that proves the rule since Chesterfield has had significant real estate development and thus a gigantic increase in its student population, from 439 students to 767 students.  

So despite the small increase in Chesterfield's Equalized Valuation, Chesterfield has much less tax base per student than it did before.  

Conclusion

By not redistributing state aid from certain wealthy and overaided districts the state, ironically, deepens underaiding for already-underaided districts since it damages their real estate markets, lowers their Equalized Valuation, and increases their hypothetical Equalization Aid.  

There are many educational and tax rate reasons to demand the redistribution of state aid, but another one is to stabilize real estate markets and help families protect the value of their houses, their greatest assets.

One of the biggest drivers of wealth inequality is differential appreciation and depreciation of real estate values, so if you purport to want to reduce wealth inequality, then slowing a process of the destruction of wealth has to be part of your agenda.  

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See Also "Beyond the Point of Fairness: New Jersey's Highest Taxed School Districts."

Two Cheers for County Taxes! (the fairest of all property taxes)