This week Acting Education Commissioner Kevin Dehmer and Chief Executive Officer of the Schools Development Authority (SDA) Manuel Da Silva answered tough questions about Gov. Phil Murphy’s 2024-25 state aid budget for school districts. While this budget fully funds schools for the first time since the passage of the 2008 School Funding Reform Act (SFRA)—Murphy allots $11.6 billion in state aid for New Jersey’s public schools, an increase of $908 million over last year—legislators are concerned that 140 districts, most in South Jersey, will see cuts in aid. They also perceive inadequacies with the budget for SDA, a measly $350 million, which is supposed to cover facilities costs for a list of 31 Abbott/SDA districts created in 1998, some of which are no longer among our most impoverished municipalities.

It is important not to conflate these two different funding streams. State school aid, which goes to all New Jersey school districts, depends on a complex formula that factors in property taxes, rateables, community wealth, enrollment, and what constitutes “Local Fair Share,” or how much each district should be raising in local tax revenue. Facility needs in SDA districts, which are supposed to be exclusively managed by SDA, have had a rocky road, especially in 2019 when the Authority made national news for wasting $11 billion in taxpayer funds through nepotism and incompetence.

Let’s look first at SDA. Is $350 million enough to manage facilities construction, maintenance, and renovations in districts like Newark, Camden, and Trenton? Not even close: recent construction projects include new high schools in Camden and Trenton for $130 million each and a new school in Perth Amboy for $230 million.

“Right now I would say — and I’m not an attorney — that we are not meeting our obligation that was directed to us through the courts,” said Senate Majority Leader Teresa Ruiz, referring to the current quality of school buildings.

In the realm of direct state aid to school districts, the problem is not the allocations but the difference between what districts have been accustomed to raising through local taxes and what is their actual Local Fair Share (LFS).

Example: Senator Owen Henry, who represents Jackson, has proposed a bill, S3076, which would restore all the aid cut this year by Murphy. Yet Jackson’s problem is that it hasn’t been paying its LFS, raising less local revenue than it should.

Here is Jeff Bennett, NJ’s school finance expert:

What does this mean?

Jackson’s Local Fair Share should be about $1.33 million but it’s only $1.1 million.. In other words, it is not taxing residents enough, with a tax rate of 1.14% instead of NJ’s average of about 1.33%. This is not entirely Jackson’s fault: One major flaw in how we calculate school aid is non-Abbott/SDA districts are not allowed to raise school tax increases by more than two percent a year without voter approval (except for a few exceptions like transportation and security). When state aid is reduced to the levels dictated by SFRA, local districts can’t compensate with additional local taxes, even if they had been in the habit of under-taxing their residents. This is due to a law called S2, which Bennett references. The math is impossible: If districts lose state aid and their costs go up more than 2% from the previous year (it does: teacher salary increases are at least 3% a year), they have to make cuts.

In districts like Jackson, there’s little left to cut.

To make matters worse, school districts have been relying on one-shot COVID emergency funds to fund recurring expenses like teachers and instructional programs. The money, all in about $125 billion nationally, with $2.8 billion going to New Jersey K-12 schools, was intended to help students catch up after the learning loss from school closures and remote instruction. Many districts throughout the nation, understandably, used the money to hire extra teachers. That money is gone in the fall, although NJ has asked for a short-term extension to use up the money.

Edunomics Lab at Georgetown University has been tracking the use of this money, commonly referred to as ESSER funds for the Elementary and Secondary School Emergency Relief Fund. You can look up your district here, see how much it received in each of the three ESSER grants cycles, and how much it has spent. Jackson, for example, received $12.8 million all in and has spent 87%. Newark, our largest district, received $277 million and has spent 60%. Asbury Park, one of our smaller districts, received $24.5 million and has spent 97% of its total. School districts that haven’t fiscally prepared themselves for the loss of federal funds are looking for trouble.

There are two competing bills in the Legislature to address these changes in state and federal budgetary support. One, sponsored by Democrats, would loosen the S2 tax increase cap so districts that are losing state aid can compensate with increased revenue from property taxes. Republicans are pushing a bill (referenced by Sen. Henry) that would restore all the aid cut by Gov. Murphy and go back to over-funding districts that were under-taxing residents.

To make the math more complicated, enrollment is down in many districts, both an artifact of COVID closures and declining birth rates; districts that lose students lose state money. That’s not likely to change.

Do we pay more for schools through property taxes or pay more for schools through state taxes?

Maybe that’s a distinction without a difference.