Tuesday, May 24, 2016

Property valuations and the link to school funding

Recently news outlets are reporting on how the State of New Jersey is calling foul on municipalities that have refused to undergo property revaluations. This is part of a wider tax fairness issue that impacts citizens not only in their own communities but throughout the state, particularly with regard to state aid for schools.

The distribution of state aid to schools has been a political problem since the passage of the state income tax in 1976.  Over these past forty years, New Jersey communities have not received an equitable distribution of those funds. The most recent school aid formula, the School Funding Reform Act of 2008 (SFRA), aimed to distribute funding more equitably by changing the focus from school districts, which often have diverse socioeconomic demographics within their borders that fluctuate over time, to a focus on individual student characteristics, which are the real world for children and families.

The biggest problem with SFRA is neither the formula itself, nor the amount the state funds.  It is the historic imbalance in distribution, partly due to municipal tax levies as compared to the "local fair share," which SFRA would have exposed had it been implemented without modification.  However, that modification in the form of Adjustment Aid has baked in the inequities of the past and kept the formula from fulfilling its promise.

What is the local fair share? New Jersey calculates a local fair share, the tax levy that municipalities should be contributing to help fund their schools, from a combination of income and property valuation. When subtracted from what the state calculates as an "adequate" school budget, the difference is known as equalization aid (the state's contribution).  Because many municipalities tax at less than their local fair share, others are forced to accept less than equitable state aid and consequently pay more in school taxes than their local fair share.

How do school tax levies throughout the state compare to the local fair share?  The Tax Levy Ratio is the percentage of the local fair share that a community is contributing through its school tax efforts. In 2015-16, 97 school districts had a tax levy ratio of 80% or less; in fact, 26 of them were below 50%.  In other words, the latter communities are contributing less than half of what the state says they should contribute toward their local school budgets. How does the difference get made up? By taxpayers from other municipalities throughout the state, who are providing more than their fair share.

On the other side of the ledger, there are 120 school districts contributing at least 120% of their local fair share: over three-quarters of them (93) are doing so because they receive less than their full allotment of calculated state aid.

How exactly does this impact state aid to schools? This year, 197 school districts received more than 100% of their SFRA aid, in many cases due to Adjustment Aid making up for what the community is not fairly providing. 177 others received less than 60% of their calculated state aid, with 70 of those also having tax levies above the local fair share.

Fortunately, local communities and legislators are starting to speak up about the connection between state aid to schools and local tax fairness, and offering solutions to address the problem. Assemblyman Declan O'Scanlon just introduced a bill to enforce revaluations on communities who have not held theirs in decades. Senator Jennifer Beck and Senate President Stephen Sweeney are preparing to release a bill to revise the distribution of state aid to schools. These are important steps to begin to address this continuing unfairness for our state's taxpayers and their local school districts.

Please see the School Funding Fairness page on our district website for further information.

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