NJ EDUCATION AID: Murphy's 2022-2023 School Aid Budget Is a 'Positive Surprise'

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NJ EDUCATION AID: Murphy’s 2022-2023 School Aid Budget Is a ‘Positive Surprise’

By New Jersey Education Aid at March 23, 2022

Topic

Details About the Underaided

Counting vo-techs and non-operating districts, there are 391 underaided districts with a total enrollment of 961,649, or 74% of the total.

In total dollars, the district with the largest deficit is Newark, at -$98,901,597, or -$1,799 pp. Newark’s state aid has risen from $742 million in 2017-18 to $1 billion in 2022-23, but its deficit was originally so large ($146 million) and its Adequacy Budget has grown so much, that the deficit has not yet been eliminated despite getting $258 million in additional state aid.

The districts with the largest deficits per pupil are Cumberland County Vo-Tech at -$3,109 pp and Atlantic City at -$3,057 pp. Cumberland County Vo-Tech and Atlantic City are the only two districts with per pupil deficits over $3,000 per pupil. Their deficits are large, but in 2017-18 Atlantic City and Bound Brook had deficits of over $8000 per student.

In percentage terms, Loch Arbour is the most underaided, at 69%, $23,359 out of $33,685. No other district is below 70%. Only five other districts are even below 80%.

This is a huge contrast to 2017-18, when 96 districts got less than 50% of their recommended state aid. It’s a huge contrast to when Chesterfield got only 10% of its state aid target.

The Education Adequacy Report Misses Inflation

The second reason this year’s deficit decreased so much is that the triannual Education Adequacy Report’s inflationary adjustment stopped in June 2021. Hence, SFRA’s Base Payment per pupil barely budged, from only $12,177 per student to $12,451 per student. (see at right)

From June 2021 to February 2022 inflation has been 4.4% and is running even faster now.

This is an important fact because it means aid increases to the underaided are smaller than they initially appeared and aid cuts are larger to the overaided.

Since New Jersey’s projected enrollment fell from 1,316,864 in 2021-22 to 1,304,773, the statewide Adequacy Budget did not increase very much despite the inflationary adjustment.

Details About The Overaided

The 201 overaided districts have 343,124 students, or 26% of the total. Their $232 million surplus is the smallest it has ever been.

Asbury Park’s state aid loss merits attention: In 2019-20 Asbury Park’s surplus was $22.9 million, or $11,026 per student. Now it is only $7 million, or $3,653 per student. Asbury Park’s K-12 state aid per student has fallen from $25,000 per student (it was the highest spending K-12 district in the US), to only $15,176 per student.

Jersey City’s aid loss merits attention too. In 2018-19 its surplus peaked at $171 million, or $5542 per student. Now it is only $56 million, or $1,903 per student. In total K-12 opex aid, Jersey CIty’s aid has gone from $419 million to $185 million, a loss of $234 million.

Jersey City has actually lost more than $115 million, but it has a constant growth in tax base which converts its Equalization Aid to Adjustment Aid, which is then phased-out per the process laid out in S2. In 2022-23 Jersey City will still be eligible for $82 million in Adjustment Aid.

The redistribution of state aid for 2022-23 was not something I was sure would happen after the Biden administration, acting on a vicious Education Law Center complaint, interpreted a provision in the ARP to prohibit state aid cuts to high-poverty districts (which Hoboken and Jersey City technically are), but apparently the Murphy administration has found a way to continue aid redistribution.

Other Education Spending

New Jersey’s budget for FY2023 is going to be $49 billion, of which $19.16 billion, or 39%, is considered school aid (see page 58). That ~40% percentage has been constant for the last decade, although it’s worth noting that in 2001 education spending was only 31% of the budget.

On the other hand, education spending actually exceeds the income tax’s $18.15 haul due to education getting money from the lottery and a half cent of the sales tax. Education spending has come to be nearly synonymous with the Property Tax Relief Fund, although the new ANCHOR credit will represent a long-overdue increase for direct tax rebates.

K-12 opex aid is just $9.9 billion, so 52% of the total education spending. Here are some looks at the other major education spending categories.

Extraordinary Aid will be $400 million.
Below are the net changes year over year for the above categories. As you can see, the major debt categories of Teacher Pension And Annuity Fund, post-retirement healthcare, construction debt, and Pension Obligation Bonds did not require substantial increases and TPAF and Construction Debt service actually fell. This is a tremendous contrast to the past, when TPAF payments increased by over $400 million in some years.

Disparities in Local Fair Share

Readers of mine know that New Jersey’s Local Fair Share is NOT a constant tax rate due to it being based 50% on Equalized Valuation and 50% on Aggregate Income. Thus, towns where residents live within their means in properties that are inexpensive relative to income must pay higher school taxes, as well as property owners in towns without non-residential property and vacation homes.

New Jersey’s Local Fair Share grew from SFRA’s inception in 2008-09 when it was a 1.15% median and peaked in 2019-20 at 1.53%. The cause of the growth was that Adequacy Budgets grew faster than Equalization Aid, so the SFRA formula automatically adjusted to increase Local Fair Share. (Brick and Toms River repeatedly complained that their Local Fair Shares have increased despite loss of Equalized Valuation, but that has happened statewide).

Phil Murphy’s increase to Equalization Aid exceeds the growth of the statewide Adequacy Budget, hence Local Fair Share actually will fall 1.38%, with a low of 0.79% for Wildwood City and a high of 1.91% for Woodlynne (which peaked at 2.1% in 2019-20).

The decrease in Local Fair Share also decreased the number of districts who are ineligible for Equalization Aid from 272 in 2020-21 to 260 in 2022-23. (Note, in SFRA’s first year only 180 districts were ineligible for Equalization Aid).

The extremes of LFS are here:

Conclusion

FY2022-23 was another good year for K-12 opex aid equity. We have come a long way from the time when New Jersey’s state aid formula was inoperative in the early 2010s (which was Christie’s fault) and when huge education-debt increases crowded out K-12 opex aid increases (which was not Christie’s fault). If the state’s revenues continue to grow, in 2023-24 it’s possible that every district will reach 100% funding.

SFRA is always a work in progress and the legislature is moving to revamp the state aid law. If it does
so, I hope it includes the following.

The tax cap must be loosened for under-Adequacy non-Abbotts who are losing state aid.
The state must move up the timetable on its inflationary adjustment due to the 2022 Education Adequacy Report stopping its inflationary measurement in June 2021
New Jersey should base its Local Fair Share solely on taxable property.

Overall, Phil Murphy has been a positive surprise on state aid. Although I knew that he would increase K-12 opex spending, I did not expect him to prioritize fairness of the distribution as much as he has.

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