Why Cape May Needs Consolidation, Not Permanent Adjustment Aid!

What county in New Jersey is the wealthiest when it comes to Local Fair Share per student?

Bergen?  No!
Hudson? No!
Morris?  No!
Hunterdon? No!

Answer: CAPE MAY.

BY FAR.

Yet, despite Cape May's exceptionally high wealth, Cape May school districts and politicians have been fighting not for an effective means of tapping their own tax base, but for more of the state's money, specifically, keeping Adjustment Aid permanent.

This post is an argument that what Cape May needs is district consolidation in order to be able to tax its wealthiest towns, not permanent Adjustment Aid.

---- Background ----

Certain Cape May County districts have been amongst the staunchest opponents of state aid reform in the last two years.  Certain Cape May districts, like by Wildwood City,  have waged this fight for permanent Adjustment Aid without acknowledging New Jersey's fiscal crisis or the state aid deficits in hundreds of their sibling school districts in other parts of New Jersey.

Wildwood's superintendent J. Kenyon Kummings, has been outspoken in favor of Adjustment Aid.  He has called taking money from overaided districts and giving it to underaided districts a "shell game."

Writing in May 2018, Wildwood's superintendent said:

Last spring [in 2017], school districts received their state aid notices, approved their budgets and prepared for the 2017-18 school year. After finalizing their budgets, over 100 districts were told other districts needed more funding so some of their aid would be cut and sent to those other districts.

In effect, the state Legislature moved money around, creating winners and losers among our school children..... 

Cutting our funding to give other districts more money, as happened last year, is not what our students, schools and communities need. 

Public school educators have a professional responsibility to represent the needs of all students, not just in our own district, but across the state. We cannot support changes in the distribution of state aid that negatively impact some of our children at the expense of others. 

We need to take a firm stand against a final state budget that moves money around from district to district again this year, pitting groups of districts against one another. Playing shell games does not help our students or their schools, regardless of whether one district may be owed more aid under the funding formula than another. 

The good news is that Murphy and most legislators agree on the urgent need to reduce the deep deficit in school funding caused by the last eight years of neglect. But taking books out of one child's hands to place them into the hands of another is simply not the way forward.

In that whole op-ed, Kummings says not one word about underaided districts and places all the blame on NJ's funding deficit on Chris Christie and says the problems only started eight years prior.  Kummings even denies that receiving additional state aid is a "help" at all to a district receiving that aid.  He never even comes close to saying what the "best way forward" even is, let alone how much it would cost or where NJ would get the money.

Wildwood Crest's boro administrator, Constance Mahon, claims that there isn't "anyone" who would claim any district in Cape May is overfunded:

"Ironically, I know of no school in this county that anyone would consider overfunded. Schools are struggling every day to provide the level of service and quality of education that our children deserve. This Robin Hood approach to school funding will create a financial dilemma for not only Wildwood Crest residents but a vast majority of our county residents."

Really, anyone?

Personally I know a lot of "anyones" who would say that some Cape May districts are overfunded/overaided, including myself, the authors of S2, and including the impersonal formulas School Funding Reform Act, which in 2018-19 says that sixteen Cape May districts are receiving more state aid than they need:

	Total State Aid Surplus (or Deficit)	Surplus PP
Dennis Twp	$4,530,673	$7,090
Lower Cape May Reg.	$5,926,651	$4,136
Wildwood City	$2,004,676	$2,796
Lower Twp	$3,284,398	$2,165
Upper Twp	$3,859,137	$1,997
North Wildwood City	$379,586	$1,987
Middle Twp	$3,332,585	$1,509
Cape May Co Voc.	$809,728	$1,296
Cape May City	$179,428	$1,128
Woodbine Boro	$201,855	$841
Wildwood Crest Boro	$163,189	$581
Avalon Boro	$9,775	$315
Stone Harbor Boro	$8,579	$306
West Cape May Boro	$3,733	$53
Ocean City	-$459,309	-$316
Sea Isle City (Non-Operating)	$89,589	$1,149
Cape May Point (Non-Operating)	$17,981	$3,596
West Wildwood (Non-operating)	$0	$0

---- Cape May County is Rich ----

"Ironically,"  Constance Mahon concedes this a "Robin Hood approach," which would seem to acknowledge that some Cape May districts are rich, which indeed they are, with seven operating and the three non-operating Cape May districts having more than $30,000 per student in Local Fair Share.

	LFS Per Student	2018-19 Local Fair Share	2018-19 Projected Enrollment
Avalon Boro	$1,935,039	$59,986,223	31
Stone Harbor Boro	$1,146,454	$32,100,722	28
North Wildwood City	$105,581	$20,165,910	191
Cape May City	$92,527	$14,711,829	159
Ocean City	$65,703	$95,532,606	1,454
Wildwood Crest Boro	$62,655	$17,605,956	281
West Cape May Boro	$39,498	$2,804,371	71
Cape May Point (Non-Operating)	$671,226	$3,356,132	5
Sea Isle City (Non-Operating)	$451,956	$3,356,132	78

Although Cape May's residential income is slightly below the median for NJ, Cape May has, by far, the highest tax base per student of any county in New Jersey, with nearly twice the Local Fair Share per student of Morris County, the next wealthiest county.

Cape May County's overall tax wealth per student is actually superior to that of New Jersey's richest independent suburbs, like Princeton, Millburn, and Mountain Lakes.

This is a representative sample of NJ's affluent suburbs. Note, Franklin Lakes actually does have a larger
tax base per student than Cape May, but that's just the exception that proves the rule.  NJ's
richest K-12 district is Hoboken.

This extraordinary property wealth is due to Cape May County having many second-home properties and hotels.

Since the seventeen Cape May districts had a $161.8 total tax levy for 2017-18 and Cape May County's total Equalized Valuation is $51 billion, if Cape May County became a single, consolidated district it would only need a tax levy of 0.33%, which is one-quarter the state average!

---- The Budgetary Solution is Consolidation ----

Cape May County's problem is that its gargantuan tax-base assets are barricaded within a handful of small towns who have independent school districts and are thus not required to share their wealth with the rest of Cape May County's students.  Several of these small, rich towns have "Send-Receive" relationships with larger, K-12 districts where they pay flat-rate per student tuition to the receiving districts, in which the total tuition is a minuscule portion of their tax capacity.

Indeed, Avalon has 15.3% of Cape May County's tax base, but only 0.26% students.  Avalon's Equalized Valuation is larger than Cherry Hill's, but it has barely a classroom worth of residential students.  Stone Harbor has 8.2% of Cape May County's tax base, but only 0.2% of the students.  North Wildwood has 5.2% of the tax base, but 1.7% of the students.

Cape May Point and Sea Isle City also have huge tax bases relative to enrollment, but they are non-operating districts.  Cape May Point has $457,833,090 in Equalized Valuation, and only four students.  Sea Isle City has $4.8 billion in Equalized Valuation and 85 students.

Overall, Cape May's ten districts who have more than $30,000 in Local Fair Share per student possess 64% of Cape May's Local Fair Share ($251 million out of $391 million), but only 20% of the students (2,326 students out of 11,527)

Since Wildwood City has been aggressive in fighting to maintain its $2 million in Adjustment Aid, let's take a deeper look at the untapped tax bases of its own Send-Receive districts:

	2018-19 Local Fair Share	2018-19 Local Tax Levy	Gap Between Local Fair Share and Tax Levy	School Tax Rate
North Wildwood	$32,100,722	$7,043,281	$25,057,441	0.2768
West Wildwood	$1,749,539	$989,215	$760,324	0.49
Sea Isle City	$35,252,530	$1,827,302	$33,425,228	0.0378
Wildwood Crest	$17,605,956	$7,541,532	$10,064,424	0.3441
Total of Send-Receive Districts	$86,708,747 $51,456,217	$17,401,330 $15,574,028	$69,307,417 $35,882,189

(Note, the (Equalized) School Tax Rate is the tax levy divided by Equalized Valuation, so it will be correlated with, but not equal, taxes as a percentage of Local Fair Share.)

The four three sending districts alone have taxes that are $35.9 million  million below Local Fair.

For J. Kenyon Kummings to fight to keep $2 million in Adjustment Aid, and not fight just as hard to get Wildwood's Send-

Steve Sweeney Already
Supports Consolidation that
Would Benefit Wildwood City.
He Just Needs Help from
Wildwood City Itself.

Receive districts to contribute anything above the bare minimum is worse than indifference to NJ's 370 underaided districts, it is malpractice, since Wildwood's Send-Receive districts have so much more taxpaying potential than the bankrupt the State of New Jersey.  There is also quite a lot more moral justice in going after that local money too, since continuing to clench Adjustment Aid deprives underaided districts of state aid that they need.

Kenyon Kummings might demur by saying that it is not politically viable for Wildwood City to get more taxes out of its Send-Receive districts, but that is changing, since the consolidation of non-K-12s into K-12s is part of Steve Sweeney's "Path to Progress."  

Cape May districts themselves have discussed consolidation, with the usual complaints from the rich beachfront districts that tax apportionment be based on student enrollment, so that they are treated "fairly."

For example, in 2012 Cape May City's deputy mayor bemoaned the fact that Cape May City was forced to pay the same tax rate as Lower Township because it meant that Cape May City spent more per student

'I�ve been talking about [tax apportionment] since the year 2000,' he said. 'It is so inequitable what�s happening to us.'

Wichterman said the $50,000 per student fee could send each student to Princeton.'We have no say in the formula that�s utilized to determine how much money we pay to that school district,' he said.

 'There are several formulas that can be used and the one that the Lower Township members of that school board chose to use is the one that penalizes the City of Cape May because our real estate values are so much higher than they are in Lower Township.'

But why should "equity" be measured according to how much money a town spends per student?

NJ's towns are artificial political entities with arbitrary borders.  No one claims that a district's wealthiest neighborhood is "penalized" when it contributes more per student in taxes than poorer neighborhoods.  Few families that live in expensive houses don't say they are "penalized" for paying they will pay more per student than the owners of less expensive houses.

Even conservatives who advocate for a flat income tax acknowledge that wealthier people should pay taxes that are out-of-proportion to the services they receive.

So why would it be any different for property owners in a section of Cape May called "Avalon" or "Sea Isle City" "Wildwood Crest" or "Cape May City" to pay more per student than property owners in other sections called "Wildwood City," "Dennis Township," "Lower Township," or "Woodbine"?

Even if Adjustment Aid were not going to be phased-out, it would behoove Cape May County to consolidate because its K-12 student enrollment has been falling for years, falling from 13,800 in 2007-08 to only 11,743 in 2017-18.  As Cape May's births per year is down by 15% since 2000,it seems likely that that enrollment decline will continue indefinitely.

It would also behoove most year-round Cape May residents to seek consolidation because their taxes would actually fall as all districts converged on the 0.33% countywide tax average.  As Avalon, Stone Harbor, pay more, Dennis Township, Wildwood City, Lower Township, and Upper Township will pay less.


----

See Also:

• "NJ District Consolidation and Tax Apportionment"
• "Sussex County Consolidation" 
• "Dream First, Figure Out the Costs Later: Paul Tractenberg's Idea for an Essez County Superdistrict"

NJ School District Consolidation and Tax Apportionment

A major political saga of 2019 is going to be the fate of Senate President Steve Sweeney "Path to Progress" tax savings recommendations.

Sweeney's task force differs from many previous attempts to address property taxes in New Jersey by making an assumption that NJ has a spending problem, not a revenue problem, and therefore makes 40 recommendations to help rein in state and local spending in New Jersey.

One of "Path to Progress's" recommendation that I'll address here is the recommendation to consolidate all non-K-12 districts into K-12 districts.

This blog post will then identify the complexities that will arise in tax apportionment in newly-consolidated districts and why taxation must be apportioned by Equalized Valuation and not student enrollment.

---- The Consolidation Recommendation ----

As NJ State Senator Vin Gopal writes:

One of the smartest ways to provide property tax savings is to regionalize services where we can save tax dollars while providing equal or better service.

Let�s start with school regionalization. On average, more than 50 percent of every property tax bill goes into funding education from preschool to 12th grade. New Jersey students score second only to Massachusetts on national standardized exams, and the quality of our schools is one of our best selling points as a state.

But we can do better and at a lower cost. Too often, our K-4, K-6 and K-8 school districts do not coordinate curriculum or teaching methods, textbooks or specialized services with the regional high school districts their children will be attending, so 7th and 9th graders arrive with different skill sets. 

Furthermore, a recent analysis showed that the 120 K-4 to K-8 school districts with 480 or fewer students spent 17 percent more on average � about $3,400 per child � than the 360 districts with more than 1,000 students. 

Clearly, it makes sense on both an educational and a cost basis to move forward with K-12 regionalization plans that will create larger districts with the more diverse curriculum that students need heading into high school while saving on duplicative administrative and back-office operations.

----Background on Enrollment and Taxes----

Although K-12 districts educate 71% of NJ's students, they are actually just 22% of NJ's geographically-defined districts.  (NJ non-geographically defined districts are charter schools, special education districts, and vo-techs.)

• K-6, 56 districts, 12% of the total districts, but only 32,410 students, or 3.1% of enrollment.
• K-8, 222 districts, 47% of the total, but only 179,473 students, or 17.2% of enrollment. 
• 7-12 and 9-12, 64 districts, 14% of the total, but only 90,235 students, 8.7% of enrollment. 
• K-12, 131 districts, 28% of the total, but 740,311 students, 71% of enrollment.

Overall, NJ's K-6s and K-8s have a slightly disproportionate share of NJ's overall tax base relative to K-12s but a much wider variation in wealth than K-12s.  K-6 and K-8 districts range from NJ's fourth poorest district in tax base, Woodlynne, whose Local Fair Share is only $2,343 per student, to all fifteen of NJ's richest districts in tax base, with Avalon as the absolute richest, whose Local Fair Share is $1,935,039 per student.

Of the sixty districts in NJ with the highest tax bases per student, 42 are K-6 or K-8 districts.

District Type	District Name	Local Fair Share Per Student	District Type	District Name	Local Fair Share Per Student
K-8	Avalon Boro	$1,935,039	K-8	Colts Neck	$36,596
K-8	Stone Harbor Boro	$1,146,454	7-12 / 9-12	Southern Regional	$36,285
K-8	Alloway Twp	$1,006,527	K-12	Millburn	$35,462
K-6	Long Beach Island	$236,582	K-8	Tewksbury	$34,964
K-6	Beach Haven Boro	$170,436	K-8	Florham Park	$32,272
K-8	Spring Lake Boro	$166,397	K-8	Belmar Boro	$32,268
K-8	Sea Girt Boro	$153,326	K-8	Bradley Beach Boro	$32,085
K-8	Andover Reg	$151,537	K-8	Spring Lake Heights Boro	$31,695
K-8	Bay Head Boro	$148,283	K-12	Princeton	$31,619
K-8	Lavallette Boro	$135,130	K-6	Edgewater Boro	$31,576
K-6	Saddle River Boro	$121,136	7-12 / 9-12	Shore Regional	$30,669
K-8	North Wildwood City	$105,581	K-12	Point Pleasant Beach Boro	$30,291
K-8	Deal Boro	$93,959	K-12	Summit City	$29,903
K-6	Cape May City	$92,527	K-8	Mendham Boro	$29,491
K-8	Margate City	$90,812	K-12	Weehawken	$29,326
K-12	Hoboken City	$79,106	7-12 / 9-12	Warren Hills Regional	$29,205
K-8	Englewood Cliffs Boro	$70,804	7-12 / 9-12	Carlstadt-East Rutherford	$27,958
K-12	Ocean City	$65,703	K-12	Mahwah Twp	$27,740
K-8	Wildwood Crest Boro	$62,655	K-12	Paramus Boro	$27,706
K-8	Monmouth Beach Boro	$57,516	7-12 / 9-12	Rumson-Fair Haven Reg	$27,539
K-8	Avon Boro	$56,337	K-8	Watchung Boro	$27,460
K-8	Franklin Lakes Boro	$45,511	K-8	Cranbury Twp	$26,819
K-8	Brigantine City	$45,091	K-8	East Hanover Twp	$26,682
K-6	Essex Fells Boro	$44,064	K-8	Woodcliff Lake Boro	$26,594
K-8	Bedminster Twp	$40,784	K-8	North Haledon Boro	$26,549
K-6	West Cape May Boro	$39,498	K-8	Demarest Boro	$26,458
K-8	Mendham Twp	$38,043	7-12 / 9-12	Hanover Park Regional	$26,254
K-8	Carlstadt Boro	$37,112	7-12 / 9-12	Watchung Hills Regional	$26,190
K-12	Somerset Hills Regional	$36,993	7-12 / 9-12	West Essex Regional	$25,963
K-8	Rumson Boro	$36,919	K-6	North Caldwell	$25,908

So, Sen. Vin Gopal's statement about high spending is slightly incomplete about the causation of high average spending in small districts because many K-6s and K-8s are extremely rich in tax base and they skew the spending average higher.  Avalon Boro alone is an outlier and skews the spending of K-8s higher.

NJ Districts with the Highest Spending PP. The Small Districts on This List Have Huge Tax Bases
District Type	Name	2016-17 Total Spending Per Pupil	District Type	Name	2016-17 Total Spending Per Pupil
B. K-8 / 0 - 400	Avalon Boro	$61,489	B. K-8 / 0 - 400	Alpine Boro	$30,633
F. K-12 / 1801 - 3500	Asbury Park City	$36,957	G. K-12 / 3501 +	Lakewood Twp	$30,441
B. K-8 / 0 - 400	Margate City	$34,881	C. K-8 / 401 - 750	Brigantine City	$29,886
B. K-8 / 0 - 400	Stone Harbor Boro	$34,679	H. 7-12 / 9-12	Shore Regional	$29,864
B. K-8 / 0 - 400	North Wildwood City	$34,213	B. K-8 / 0 - 400	Spring Lake Boro	$29,642
H. 7-12 / 9-12	Henry Hudson Reg.	$32,760	H. 7-12 / 9-12	Monmouth Reg.	$29,230
A. K-6	Beach Haven Boro	$32,305	D. K-8 / 751 +	Colts Neck Twp	$29,007
H. 7-12 / 9-12	Carlstadt-East Rutherford	$32,230	G. K-12 / 3501 +	East Orange	$28,655
A. K-6	Long Beach Island	$32,077	E. K-12 / 0 - 1800	Burlington City	$28,460
B. K-8 / 0 - 400	Califon Boro	$31,485	D. K-8 / 751 +	Franklin Lakes	$28,315
B. K-8 / 0 - 400	Milford Boro	$31,446	G. K-12 / 3501 +	Neptune Twp	$28,252
C. K-8 / 401 - 750	Demarest Boro	$31,226	C. K-8 / 401 - 750	Mendham Twp	$28,113
G. K-12 / 3501 +	Camden City	$31,151	B. K-8 / 0 - 400	East Amwell	$28,109
E. K-12 / 0 - 1800	Keansburg Boro	$30,950	B. K-8 / 0 - 400	Frenchtown	$28,008
H. 7-12 / 9-12	High Point Reg.	$30,800	H. 7-12 / 9-12	Northern Valley Reg.	$27,945

---- To Apportion Taxes By Enrollment or Tax Base, That is the Question ----

Because there will be situations where K-6 and K-8 districts will be merged with districts who are much less wealthy or more wealthy than they are, a battle will arise on how taxes are to be apportioned.

• If taxes are apportioned by enrollment -- so that a town that contributes 15% of the students pays 15% of the costs even if it does not possess 15% of the tax base -- then there will be divergences in tax rate between the towns.  

• If taxes are apportioned by Equalized Valuation -- so that a town that has 15% of the tax base pays 15% of the costs -- then tax rates between the towns will be equal, although per pupil costs will diverge. 

To illustrate this point about how enrollment and tax base will not line up, let's just consider a hypothetical "Northeastern Monmouth Regional School District," which would consist of the six towns who now send students to Asbury Park High School: Lake Como, Deal, Allenhurst, Belmar, Interlaken, and Asbury Park itself.

Since Asbury Park has 71% of the students at this consolidated district, it would have to pay 71% of the costs, which is triple its share of the tax base.

Deal, which has 35% of the combined tax base, would pay merely 6% of the costs to match its 6% of the total enrollment.

Mathematically, Asbury Park's tax rate would be 18x what Deal's is if taxes are based on enrollment.

If taxes are based on enrollment, then the tax bases of Deal, Allenhurst, Interlaken, and to a lesser extent Belmar and Lake Como would effectively be "walled off" from being tapped and the tax base would appear artificially low in the eyes of SFRA.  The State of New Jersey would then have to deliver unneeded Equalization Aid.  Apportioning taxes by enrollment would thus make a mockery out of SFRA since the Equalized Valuations of towns with high tax base:enrollment ratios would be untouchable by the consolidated school districts.

BY CONTRAST, under tax apportionment by Equalized Valuation, every district would have an equal tax rate, although taxes per student would be very high and Deal, Interlaken, and Allenhurst. They would probably end up paying over $100,000 per student they actually send to the new district.

Many people living in Deal, Interlaken, and Allenhurst would argue that that is "unfair" to make them pay more per student than less-wealthy towns, but is it "unfair" if the taxpayers in a wealthy section of a town pay more per student than the taxpayers in a poor section? Is it unfair if the owners of a $600,000 house pay more per student than the owners of a $400,000 house?

If taxes were apportioned by enrollment, a family living in Asbury Park would pay thousands of dollars more per year in property taxes than a family living in a property of identical value in another town.  Since the tax rates would vary so much, even houses worth $100,000 in Asbury Park would pay more in school taxes than $1+ million houses in Deal, Interlaken, and Allenhurst.

The phenomenon of staggeringly unequal tax rates already happens in Manchester Regional High School in Passaic County, where North Haledon, Prospect Park, and Haledon have a unique hybrid tax apportionment formula that is based 50% on Equalized Valuation and 50% on enrollment.

Although North Haledon has 60% of the three towns' tax base, it only pays  21% of the taxes.  Conversely, Prospect Park has only 14% of the tax base, but it must pay 31% of the taxes.

See "Manchester Regional: NJ's Most Underaided and Divided School District"

If apportionment by student enrollment is duplicated in all consolidated districts, then inequality like will exist through New Jersey.

---- Conclusion ----

The elected officials who are promoting consolidation in the Path to Progress deserve respect for taking on multiple third-rails of NJ politics in school spending and home rule.

However, consolidation isn't something that will save every taxpayer money, even if school district administrative expenses decrease.  If newly consolidated school districts apportion taxes by Equalized Valuation, which I see as the only fair way to have apportionment, then some towns that have walled off their tax bases behind "home home" independence are going to have to pay higher taxes (aka, their fair share).

Although towns who have high ratios of tax base:students will resist fighting their fair share and make this an uphill struggle, it's a battle to make sure that all New Jersey taxpayers have somewhat equal burdens for local education and therefore a battle worth fighting.

-----

See Also

• "Sussex County Consolidation" 
• "Dream First, Figure Out the Costs Later: Paul Tractenberg's Idea for an Essez County Superdistrict"
• "Why Cape May Needs Consolidation, Not Permanent Adjustment Aid!"

So