This is a guest post by @stateaidguy who blogs at New Jersey Education Aid, where this piece was first published in slightly different form.

Over the last 35 years, New Jersey’s 31 Abbott districts — which, by order of a series of State Supreme Court rulings, receive high levels of funding — have become increasingly disparate. If New Jersey’s school funding formula (SFRA) was anchored in reality, many of these districts would no longer be eligible for compensatory money.

This is an important issue because despite SFRA and S2 (the bill that caps school property tax increases at 2%), the Abbotts retain several state aid privileges.  

• The Abbotts are guaranteed 100% state funding for construction, and there is an active Education Law Center demand for billions more in Abbott construction.  
• The Abbotts have a state guarantee of two years of state-funded PreK for all 3 and 4-year-olds. Currently the 31 Abbotts receive $614 million, or 79% of NJ’s $781 million, in direct PreK spending.  
• S2 exempts districts with high taxes from losing Adjustment Aid, but the threshold for exemption is lower for Abbotts than non-Abbotts.  A non-Abbott must have all-in taxes that exceed the state’s average by 10% to be protected from losing Adjustment Aid, whereas an Abbott only needs to have taxes that are above average. 

In addition to a review of Abbott tax bases, this post will examine S2’s change in how new state aid is distributed and how this change is actually a setback for underaided Abbotts, since the underaided Abbotts are only modestly underaided.

The State Aid and Enrollment Context

Abbott districts received 54% of NJ’s K-12 state aid in 2019-20 ($4,731,527,807 in state aid for 2019-20, against $8,711,933,675 for all districts).

This is effectively the same percentage as in 2007-08 when the Abbotts (now technically called “SDA districts”) got 55% of the total ($4,025,044,458 out of $7,304,967,207).

23.5% of New Jersey’s K-12 public school students are in Abbott districts (including Abbott charter students). This is also constant over the last decade.

However, the number of students in Abbott traditional district schools has fallen, due to charter enrollment, from over 300,000 students to only 256,205. This fall in district enrollment is relevant because if New Jersey passed another round of Abbott construction bonding, the Abbott charter schools would not receive any of that money, so New Jersey would be pouring more money into a shrinking pool of students.

Students in Abbott district schools are now only 19% of New Jersey’s enrollment, and, as will we see, not all Abbott districts are low-wealth.

Abbott Tax Bases

The Abbott districts remain, on average, very poor in tax base, with 15 of the 31 Abbotts in New Jersey’s bottom 100 in Local Fair Share (LFS) per student.

District	Local Fair Share Per Student	State Rank in LFS/Student
HOBOKEN*	$82,862	29 (#1 of K-12 districts)
JERSEY CITY	$15,452	274
NEPTUNE TWP	$14,734	294
State Median	$14,689
State Weighted Avg	$13,947
LONG BRANCH CITY	$10,772	437
ASBURY PARK	$9,621	467
HARRISON	$9,394	479
GARFIELD CITY	$6,983	535
BURLINGTON CITY	$6,898	538
WEST NEW YORK	$6,821	540
VINELAND	$6,451	549
PEMBERTON TWP	$5,544	562
MILLVILLE CITY	$5,474	563
KEANSBURG	$5,365	564
EAST ORANGE	$4,880	568
UNION CITY	$4,753	570
IRVINGTON	$4,639	571
GLOUCESTER CITY	$4,533	575
PERTH AMBOY	$4,443	576
PHILLIPSBURG	$4,439	577
CITY OF ORANGE	$4,435	578
NEW BRUNSWICK	$4,344	580
PLAINFIELD CITY	$4,325	581
ELIZABETH	$4,287	583
PASSAIC CITY	$3,912	585
NEWARK	$3,783	586
PATERSON	$3,639	587
PLEASANTVILLE	$3,171	588
TRENTON	$2,827	589
SALEM CITY	$2,405	591
CAMDEN CITY	$1,936	592
BRIDGETON	$1,691	593

The Abbotts have no monopoly on insufficient tax bases. Woodlynne’s LFS is $2526 per student. North Hanover, Prospect Park, Paulsboro, Egg Harbor City, Lindenwold, Atlantic City, and Hi Nella have between $4,000 and $5,000 per student. Commercial Township, Folsom, Pine Hill, Lakehurst, Riverside, and Penns Grove-Carney’s Point are between $5,000-$6,000 per student. Freehold Boro, the district that has experienced New Jersey’s worst crowding, has only $6,185 per student, which is less than Vineland.

The low-Local Fair Share non-Abbotts are actually worse off than they look, because they are disproportionately rural districts in South Jersey, and SFRA’s Local Fair Share formula is savagely unfair to rural and South Jersey districts where people have high ratios of income to Equalized Valuation.  (See “Is SFRA Fair to South Jersey and Rural New Jersey?“)

So obviously, most of the Abbotts are poor and some are extremely poor, but it is impossible to generalize about the 31 districts because they range from NJ’s richest K-12 district, Hoboken, to its poorest, Bridgeton.

Although Hoboken is an incredible tax base outlier, Jersey City’s growing wealth also merits scrutiny since Jersey City is the second largest Abbott, as well as the second wealthiest.

Jersey City’s $15,452 in Local Fair Share per student is roughly the same as West Orange ($15,694 per pupil), Haddonfield ($15,235 pp), Flemington-Raritan ($15,626 pp), and Metuchen ($15,709 pp).

Since Jersey City gained $6.1 billion in Equalized Valuation for tax year 2020, and presumably hundreds of millions of dollars in Aggregate Income, Jersey City’s Local Fair Share will increase by $60-$70 million for FY2021. (+ $2000-$2300 per student)/

I estimate that in only 4 years Jersey City will become ineligible for Equalization Aid.

Disparate Tax Rates

One justification for the Abbott decisions was that the Abbott districts faced “municipal overburden” and could not raise their taxes to pay for school operations, nor capital improvements.

As Chief Justice Robert Wilentz wrote in the Abbott II decision,

Municipal overburden” is the excessive tax levy some municipalities must impose to meet governmental needs other than education. It is a common characteristic in poorer urban districts, a product of their relatively low property values against which the local tax is assessed and their high level of governmental need. The governmental need includes the entire range of goods and services made available to citizens: police and fire protection, road maintenance, social services, water, sewer, garbage disposal, and similar services. Although the condition is not precisely defined, it is usually thought of as a tax rate well above the average.

Even in 1990, Wilentz was wrong.  

The Abbotts were then disparate; Garfield and Burlington City had below-average taxes. Harrison, Perth Amboy, Neptune Township, Phillipsburg, and Hoboken were barely above-average, but but they have become more so today.  (See “The Abbotts Didn’t and Don’t Have the Worst Municipal Overburden.”)

Low-Abbott tax rates are due to tremendous amounts of state school aid and municipal aid, but also tax base growth for the Hudson County Abbotts.

PILOTs Galore

Another facet of the tax bases of several Abbott districts is that they are artificially low due to their tendency to PILOT (Payment in Lieu of Taxes) new development and that PILOTed improvements are not added into a town’s Equalized Valuation and are thus “invisible” to the formula for Local Fair Share and Equalization Aid.

Although I do not have comprehensive data on how much PILOTed property all the Abbotts have, Comptroller Matthew Boxer documented that the Abbotts have been among NJ’s biggest PILOT granters.

Significant Use of Development Abatements: Asbury Park, Atlantic City, Bayonne, Bridgeton, Camden, Collingwood, Harrison, Hoboken, Gloucester Township, Jersey City, Long Branch, Millville, Newark, New Brunswick, Paterson, Rahway, South Bound Brook, Vineland, Union City, Trenton.

I don’t see anything inherently wrong with the Abbotts granting a lot of PILOTs, since these tax abatements are intended to spur redevelopment. Moreover, the Abbotts tend to need redevelopment more than most other towns in New Jersey.

The problem is simply that PILOTed improvements are not part of the formula for Local Fair Share, nor the apportionment of county taxes, so they create an unfair Equalization Aid bonus for districts with considerable PILOTed property.

I do not have the total value of PILOTed properties either, but Jersey City has at least $11 billion in “invisible” PILOTed property Some PILOTed residences are extremely high value. For instance, a penthouse in Asbury Park recently sold for $5 million.

Abbotts Disparate in Enrollment Growth

Even though the Education Law Center is demanding billions more in construction for all the Abbotts, the Abbotts have nothing in common in terms of enrollment growth.

At one extreme, New Brunswick has gained 33% enrollment (+2203) since 2008-09, but at the other extreme, Neptune Township has lost 62% of students (-2,442) since the same year.

Another round of SDA bonding would pay for construction in Abbott traditional public schools, not charters, so I have excluded Abbott charter students from the above calculations.

I object to in the possibility of another round of Abbott bonding because a large amount of the money would go to PreK, a service which barely exists in non-Abbotts.

S2’s State Aid Increase Inversion

The original version of SFRA was written to get a begrudging consent from New Jersey’s Supreme Court, which had rejected three previous state funding laws passed by the governor and Legislature.

One way that SFRA was written to benefit the Abbotts is that State Aid Growth Limits were to be a 10% or 20% boost of an underaided district’s existing state aid. Most of the Abbotts were overaided in 2008-09 anyway, but the ones that were underaided got large increases.

The victims of SFRA’s original State Aid Growth Limits were severely underaided districts, since a 10% or 20% boost of their existing state aid would be a small amount.

When Gov. Phil Murphy proposed his first state aid distribution for 2018-19, he strictly obeyed the State Aid Growth Limits, which produced windfalls for the Abbotts and “punches in the gut” for severely underaided non-Abbotts.

Chesterfield is an extreme example. In 2017-18 it had only gotten 19% of its state aid, but it clearly illustrates the problem of the original State Aid Growth Limits.

Chesterfield had been underaided by -$3928 per student in 2017-18 (getting $821,188 vs an Uncapped Aid of $4,224,394), but Phil Murphy’s original budget proposal only increased its state aid by $41,060, $53 per student.

As Chesterfield’s superintendent said:

“When those numbers came out this year for aid, it was a crushing blow. That was a big punch in the gut.”

On the other hand, the Abbotts got much larger increases even when they weren’t nearly as underaided.

Of the ten operating districts with the largest gains in dollars per student, eight were Abbotts in the original Murphy proposal.

In fact, under Murphy’s original proposal, HALF of the new aid went to only thirteen Abbotts.

Senate President Steve Sweeney and his allies fixed the problem of the State Aid Growth Limits by inverting them so that they were based on a district’s deficit.  Hence, the most severely districts like Chesterfield got proportionally larger increases, while less underaided districts got small increases.

This change is good and necessary, but it was not as good for the Abbotts as the original method.  Hence, for 2019-20, underaided Abbotts tended to get smaller increases.

Conclusion:

I strongly believe that a state needs to have a state aid formula that distributes state aid in inverse proportion to district wealth and student affluence. I also believe that New Jersey’s pre-Abbott state aid law gave too much money to high-wealth districts , but the Abbott rulings are objectionable because they created a new set of inequalities between poor districts that met the Supreme Court’s eligibility criteria for Abbottization and poor districts that didn’t.

Although the Abbott list becomes more unfair every year, it was never rational to begin with, since Hoboken was already a highly gentrified, high-tax base district in 1990, and Pemberton, Burlington City, and Millville were, by any common sense observation, rural, not urban anyway.  (See “The Abbott List has Always Been Unfair.”)

From a conservative point of view, there are many other objections one could make to Abbott funding, but from a progressive point of view, we must acknowledge the inequities between Abbotts and non-Abbotts.

While the legislature and former Gov. Jon Corzine passed a new state aid law (SFRA) in 2008 that created a unitary funding formula for K-12 operating aid, it left intact Abbott privileges for construction funding.

I would prefer that New Jersey write a unitary funding law for construction aid, but if New Jersey is still going to obey a 1990s-era Supreme Court ukase for 100% state construction funding, at least let the Abbott list reflect current economic and demographic reality.

Contrary to popular myth that the Supreme Court possesses the sole power to update the Abbott list, the legislature and executive branch have this power as well.

The original text by Judge Robert Wilentz in the Abbott II decision shows this:

We leave it to the Legislature, the Board, and the Commissioner to determine which districts are “poorer urban districts.” It appears to us that twenty-eight of the twenty-nine school districts designated by the Commissioner as “urban districts” located in DFGs A and B should qualify. (We omit Atlantic City since its tax base for 1989-90 is far in excess of the statutory guaranteed tax base.) Perhaps more should qualify, perhaps fewer. The assured funding per pupil should be substantially equivalent to that spent in those districts providing the kind of education these students need, funding that approximates the average net current expense budget of school districts in DFGs I and J. In addition, provision will be made, presumably similar to categorical aid, for the special educational needs of these districts in order to redress their disadvantages. Such provision will necessarily depend upon the legislative judgment, informed by the Board and Commissioner

Later, in the Abbott VII decision, the Supreme Court made explicit what Wilentz had hinted at:

Whether the Legislature can remove a school district from its designation as an Abbott district has not before been specifically considered by the Court. The addition of districts, e.g., Neptune and Plainfield, that meet the criteria for Abbott classification certainly suggests that in the happy circumstance in which a district no longer can claim it is typical of poorer urban districts, Abbott II, supra, 119 N.J. at 346 n.21, it could be removed by the Legislature from the Abbott classification. We affirm that principle. When a district no longer possesses the requisite characteristics for Abbott district status, id. at 338-45, the Legislature, the State Board and the Commissioner may take appropriate action in respect of that district.  [Emphases my own.]

Commissioner of Education William C. Librera also said in 2005 that the Abbott list could be changed, although he believed that academic performance should be considered.

In order to be considered for Abbott designation or Abbott declassification, a school district must be characterized by both low student achievement and concentrated poverty for designation or the absence of both for declassification. Both Abbott II (page 385) and Abbott VII, as well as legislation (N.J.S.A.18A:7G-4), give the Commissioner the responsibility to determine those districts to include or, as will be discussed, to remove from Abbott status. . …  

He continues,

The decennial census may validate that some Abbott Districts no longer satisfy Abbott’s economic requirements. After each census, the Commissioner shall document those Abbott Districts, if any, that no longer satisfy the criteria for concentrated poverty. Should these districts also demonstrate satisfactory student achievement, an exit plan will be devised for each no longer qualifying district to permit an orderly financial and educational transition. Funding, for example, might be phased out over four years. These districts will continue to receive 100 percent facilities funding for all projects in the design or construction phase. Districts will be able to make application for adjustment based on hardship.

Let’s hope in 2020, a full 40 years after the 1980 Census that is the actual basis of the Abbott list, we can finally bring construction spending into the 21st century.