This post will examine an important flaw in SFRA that has been underaddressed since SFRA was written in 2007-08, which is that that SFRA does not differentiate between middle-class districts and rich districts in that it directs the same amount of money to both New Jersey's richest districts and districts who are merely middle-class.
The inspiration for this post is Brick's complaint in the face of the loss of Adjustment Aid, which is that SFRA sees it as a "wealthy district."
SFRA Says: Rich? Middle-Class? What's the Difference?
The most important stream of state aid in SFRA is Equalization Aid, which is intended to "equalize" the budgets of low-income districts with wealthy districts.
The formula for Equalization Aid is:
Adequacy Budget - Local Fair Share = Equalization Aid
A facet of Equalization Aid that is often neglected is that if Local Fair Share exceeds the Adequacy Budget -- either by 1% or 1000% -- a district's Equalization Aid is $0.
In all, 44% of districts in New Jersey have Local Fair Shares that exceed their Adequacy Budgets and so get $0 in Equalization Aid.
New Jersey's richest large suburbs, Princeton and Millburn, get about as much as Brick. Princeton is supposed to get $1,193 per student. Millburn is supposed to get $1,125 per student.
Those other districts that Brick is comparing itself to currently get less state aid than SFRA says they should get, therefore they are getting small increases over the next six years, whereas Brick is getting a cut.
The percentage of New Jersey districts who are "too wealthy" to get Equalization Aid has increased since SFRA was passed in 2008. Back in 2008-09, only 31% of NJ districts were ineligible for Equalization Aid.
A district that doesn't receive Equalization Aid it will receive money from the three Categorical Aids: Special Education Aid, Security Aid, and Transportation Aid. Special Education Aid and Security Aid depend on FRL-eligibility; Transportation Aid depends on miles driven.
Due to the existence of the three Categorical Aids, the minimum amount of state aid a district is supposed to receive is around $1,000 per student, with Fair Haven at the absolute bottom for its aid target, at $953 per student.
Brick is supposed to receive $1,516 per student, which is basically as much as wealthier towns including Bedminster ($1,491 pp), Tewksbury ($1,600 pp), Mahwah ($1,412 pp) Bernardsville ($1,350 pp), Saddle River ($1,764 pp) Stone Harbor ($1,563 pp), Spring Lake ($1,411 pp), and Holmdel ($1,361 pp).
A district that doesn't receive Equalization Aid it will receive money from the three Categorical Aids: Special Education Aid, Security Aid, and Transportation Aid. Special Education Aid and Security Aid depend on FRL-eligibility; Transportation Aid depends on miles driven.
Due to the existence of the three Categorical Aids, the minimum amount of state aid a district is supposed to receive is around $1,000 per student, with Fair Haven at the absolute bottom for its aid target, at $953 per student.
Brick is supposed to receive $1,516 per student, which is basically as much as wealthier towns including Bedminster ($1,491 pp), Tewksbury ($1,600 pp), Mahwah ($1,412 pp) Bernardsville ($1,350 pp), Saddle River ($1,764 pp) Stone Harbor ($1,563 pp), Spring Lake ($1,411 pp), and Holmdel ($1,361 pp).
New Jersey's richest large suburbs, Princeton and Millburn, get about as much as Brick. Princeton is supposed to get $1,193 per student. Millburn is supposed to get $1,125 per student.
Those other districts that Brick is comparing itself to currently get less state aid than SFRA says they should get, therefore they are getting small increases over the next six years, whereas Brick is getting a cut.Due to how these aid streams depend on factors that are only loosely correlated with district wealth, oftentimes a richer district will be due for more state aid than a poorer district.
For instance, Avalon has $1.7 million in Local Fair Share per student and has no need for even a cent of state aid, and yet it is supposed to receive $2,041 per student.
In order to demonstrate how SFRA directs the same amount of state aid to New Jersey's wealthiest and middle-class districts, the following is a list of the 50 richest and 50 most-middle- districts who are not eligible for Equalization Aid, what their State Aid Targets are, and how much aid they are due under the Categorical Aids.
As you can see, the districts who are disqualified from getting Equalization Aid range from ultra-wealthy microdistricts at the Jersey Shore to districts who are middle class
So Brick has a valid complaint. SFRA _does_ see it as a rich district, since it is only owed $1,516 per student, which is not essentially different from what much richer districts are getting, like Spring Lake getting $1,411 per student, Mendham getting $1563 per student, Colts Neck getting $1836 per student.
How to Make School Funding More Generous to Middle Class Districts
My preferred solution to NJ's school funding and tax problems is to have countywide school property taxes that would then be distributed to districts on a strictly equal-funding-per-student basis. I believe that this would foster equity in taxation and require all districts, from ultra-high tax base Jersey Shore microdistricts to affluent suburbs to the Abbotts to should equal burdens for education.
Having a countywide school tax would eliminate the cost escalation that comes from the "Millburn-Princeton Effect," where districts compete against each other and therefore drive school spending ever higher.
I'm not naive, I realize this is an impossibility.
(see "Two Cheers for County Taxes!" and "How Maryland Does It")
Working Within the Fragmented System We Have
Working within New Jersey's byzantine system of local-state school funding, the first thing New Jersey could do to direct more state aid to middle-class districts is to change the multipliers in the formula for Local Fair Share so that the product of the formula will be lower.
This is the current 2018-19 version of the Local Fair Share formula:
The Local Fair Share formula basically means that the state expects a school district to pay property taxes equal to 0.69% of its Equalized Valuation plus 2.3% of its Aggregate Income.
For instance, Avalon has $1.7 million in Local Fair Share per student and has no need for even a cent of state aid, and yet it is supposed to receive $2,041 per student.
In order to demonstrate how SFRA directs the same amount of state aid to New Jersey's wealthiest and middle-class districts, the following is a list of the 50 richest and 50 most-middle- districts who are not eligible for Equalization Aid, what their State Aid Targets are, and how much aid they are due under the Categorical Aids.
As you can see, the districts who are disqualified from getting Equalization Aid range from ultra-wealthy microdistricts at the Jersey Shore to districts who are middle class
So Brick has a valid complaint. SFRA _does_ see it as a rich district, since it is only owed $1,516 per student, which is not essentially different from what much richer districts are getting, like Spring Lake getting $1,411 per student, Mendham getting $1563 per student, Colts Neck getting $1836 per student.
How to Make School Funding More Generous to Middle Class Districts
My preferred solution to NJ's school funding and tax problems is to have countywide school property taxes that would then be distributed to districts on a strictly equal-funding-per-student basis. I believe that this would foster equity in taxation and require all districts, from ultra-high tax base Jersey Shore microdistricts to affluent suburbs to the Abbotts to should equal burdens for education.
Having a countywide school tax would eliminate the cost escalation that comes from the "Millburn-Princeton Effect," where districts compete against each other and therefore drive school spending ever higher.
I'm not naive, I realize this is an impossibility.
(see "Two Cheers for County Taxes!" and "How Maryland Does It")
Working Within the Fragmented System We Have
Working within New Jersey's byzantine system of local-state school funding, the first thing New Jersey could do to direct more state aid to middle-class districts is to change the multipliers in the formula for Local Fair Share so that the product of the formula will be lower.
This is the current 2018-19 version of the Local Fair Share formula:
(Equalized Valuation x 0.013828828) / 2 + (District Income x 0.046200477) / 2
New Jersey's total Local Fair Share for 2018-19 was $17.2 billion. The statewide Equalized Valuation for the pre-budget year was $1.24 trillion, so the formula produces an average tax rate of 1.38%.
In no other state would a 1.38% school tax rate be considered "fair."
Solutions:
So, any measure to direct more state aid to middle-class districts would lower the Equalized Valuation multiplier and the District Income multiplier so that the product of the formula is lower. If the weights were lowered by 30% each, New Jersey's expected school property tax rate would become 1%.
This step would also direct additional state aid to low-income districts because their Local Fair Shares would fall as well. For instance, Newark's Local Fair Share would fall from $186 million to $132 million, which would coincidentally align with Newark's real school tax levy of $132.9 million.
Lowering Local Fair Share would not direct additional state aid to truly wealthy districts, since their Local Fair Shares would still exceed their Adequacy Budgets.
The question for New Jersey would then become "how do we pay for lowering Local Fair Share?" since if districts are relieved of the obligation to pay a 1.38% school tax rate, the state would have to step in and replace that lost money.
I can think of several "pay fors."
1. Eliminate all state aid, including TPAF payments, for districts whose Local Fair Shares exceed their Adequacy Budget by some percentage.
I cannot estimate how much money this would save, since it would depend on an arbitrary cutoff point, but the amount would be substantial if it also included TPAF money and Social Security money.
2. Have the Abbotts Pay for Some Construction.
The state needs to insist that the Abbott districts pay for a share of their construction. In FY2019, New Jersey's school construction debt payment is $1.07 billion, about 70% of which went to school construction projects in the Abbotts. Thus, even a 10-20% obligation for the Abbott districts would produce large savings.
3. End "Free" PreK for Affluent Children in the Abbotts
The state could also discontinue "free" PreK for affluent children in the Abbott districts. Currently there are thousands of affluent children getting state-funded PreK in Hoboken and Jersey City. Since those districts get a combined $80 million in PreK money, discontinuing free PreK for the children of Gold Coast and any other affluent children living in the Abbott bubble would free up tens of millions per year.
If New Jersey reconsidered providing "free" PreK to three year olds it would save hundreds of millions.
4. Lower the At-Risk Weights for High-FRL Districts
Finally, I would change the formula for calculating an Adequacy Budget so that it produces a lower Adequecy Budget for high-FRL districts.
This will require some additional explanation.
New Jersey's state aid formula is relatively unique in that it uses "exponential weighting" to calculate the Adequacy Budget of a district, where there is one weight for a district whose FRL-eligibility is 0-40%, a higher weight if the FRL eligibility is 40-60%, and a higher weight still if the FRL-eligibility is >60%.
"Linear weighting" would pay out extra state aid if a district has more at-risk students, but not increase the weighting as the at-risk concentration increases, would save tens of millions of dollars too. (see page 92 for more explanation)
NJ Needs to Redistribute Adjustment Aid, but SFRA is Not a Middle-Class Friendly Law
The point of this blog is to argue that Adjustment Aid must be redistributed and every district should have 100% of what our school funding law recommends. If Justice is "Equal Treatment Under Law," then NJ's status quo is indefensibly unjust when the law applies differently to different districts based on historical enrollment, historical tax base, or inclusion in the Abbott lawsuits.
But that being said, the core formulas of SFRA itself are not above criticism and changing the calculation of Local Fair Share and Adequacy Budget can help relieve New Jersey's middle class squeeze.
------
See
In no other state would a 1.38% school tax rate be considered "fair."
Solutions:
So, any measure to direct more state aid to middle-class districts would lower the Equalized Valuation multiplier and the District Income multiplier so that the product of the formula is lower. If the weights were lowered by 30% each, New Jersey's expected school property tax rate would become 1%.
This step would also direct additional state aid to low-income districts because their Local Fair Shares would fall as well. For instance, Newark's Local Fair Share would fall from $186 million to $132 million, which would coincidentally align with Newark's real school tax levy of $132.9 million.
Lowering Local Fair Share would not direct additional state aid to truly wealthy districts, since their Local Fair Shares would still exceed their Adequacy Budgets.
The question for New Jersey would then become "how do we pay for lowering Local Fair Share?" since if districts are relieved of the obligation to pay a 1.38% school tax rate, the state would have to step in and replace that lost money.
I can think of several "pay fors."
1. Eliminate all state aid, including TPAF payments, for districts whose Local Fair Shares exceed their Adequacy Budget by some percentage.
I cannot estimate how much money this would save, since it would depend on an arbitrary cutoff point, but the amount would be substantial if it also included TPAF money and Social Security money.
2. Have the Abbotts Pay for Some Construction.
The state needs to insist that the Abbott districts pay for a share of their construction. In FY2019, New Jersey's school construction debt payment is $1.07 billion, about 70% of which went to school construction projects in the Abbotts. Thus, even a 10-20% obligation for the Abbott districts would produce large savings.
3. End "Free" PreK for Affluent Children in the Abbotts
The state could also discontinue "free" PreK for affluent children in the Abbott districts. Currently there are thousands of affluent children getting state-funded PreK in Hoboken and Jersey City. Since those districts get a combined $80 million in PreK money, discontinuing free PreK for the children of Gold Coast and any other affluent children living in the Abbott bubble would free up tens of millions per year.
If New Jersey reconsidered providing "free" PreK to three year olds it would save hundreds of millions.
4. Lower the At-Risk Weights for High-FRL Districts
Finally, I would change the formula for calculating an Adequacy Budget so that it produces a lower Adequecy Budget for high-FRL districts.
This will require some additional explanation.
New Jersey's state aid formula is relatively unique in that it uses "exponential weighting" to calculate the Adequacy Budget of a district, where there is one weight for a district whose FRL-eligibility is 0-40%, a higher weight if the FRL eligibility is 40-60%, and a higher weight still if the FRL-eligibility is >60%.
"Linear weighting" would pay out extra state aid if a district has more at-risk students, but not increase the weighting as the at-risk concentration increases, would save tens of millions of dollars too. (see page 92 for more explanation)
NJ Needs to Redistribute Adjustment Aid, but SFRA is Not a Middle-Class Friendly Law
The point of this blog is to argue that Adjustment Aid must be redistributed and every district should have 100% of what our school funding law recommends. If Justice is "Equal Treatment Under Law," then NJ's status quo is indefensibly unjust when the law applies differently to different districts based on historical enrollment, historical tax base, or inclusion in the Abbott lawsuits.
But that being said, the core formulas of SFRA itself are not above criticism and changing the calculation of Local Fair Share and Adequacy Budget can help relieve New Jersey's middle class squeeze.
------
See
- "Funding SFRA is Necessary But Not Sufficient to Ease NJ Taxes."
- "Brick, Toms River, and Their State Aid"
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