Wednesday, July 6, 2016

Rich School, Poor School and Distributive Justice in New Jersey

by Brian T. Lynch, MSW

Governor Chris Christie can sound persuasive when he wants to lower taxes for the rich. He calls his latest effort the "Fairness Formula" for public school funding. In defense of this initiative he wrote a commentary in the Star Ledger newspaper on July 3, 2016. In it he said the 31 economically disadvantaged Abbot districts (plaintiffs in a prior class action suit) get "grossly disproportionate" amounts of state school aid, and that urban districts spend disproportionately "more on education that most other districts". His answer is to give every student in New Jersey an equal share of state aid no matter whether their parents are rich or poor. It seems obvious that the Fair Funding proposal is an attempt to give more tax breaks to his wealthy constituents. The fairness of  "Abbott" school funding has already been litigated and decided by the NJ Supreme court. But what about the claim that urban districts pay disproportionately more to educate children?

Trying to compare property taxes in New Jersey is a daunting task. The General Tax Rate used to actually calculate your tax bill is relative to the percentage of assessed valuation in every town. In some towns home values reflect current market rates and property taxes are assessed at 100% of full value.  In other towns property re-evaluations aren't current and property tax rates are based on less than 100% full the full market values.The General Tax Rates goes up as assessed home values dip below current market values, according to somewhat arbitrary municipal decisions.

The Effective Tax Rate, on the other hand, is a statistical calculations of what the rate would be if every home was assessed at 100% of market value. It allows a more direct comparison of tax rates from one town to the next. This is the property tax rate I will use, along with current home market values and current median family income, to show that New Jersey's current state aid formulas do an adequate job of at least balancing the tax burden between our biggest urban centers and our wealthier school districts.

A further complication to remember here is that school budgets get folded into the municipal budgets for property tax collection purposes. On average, about 52% of the municipal budget is spend on public education. In urban districts, and especially poor districts, the cost of municipal services is higher than in suburban. The greater needs and higher costs in urban municipal services eat into the revenue available for public education. In Newark, for example, the schools portion of the budget makes up 29% of the budget while in Hillsborough the school portion is 67% of the budget. 

.As discussed in prior posts, residential property values are a poor indicator of family wealth. Wealthy families may own multiple homes and other lucrative investments while poor families may have very little equity in their home. The current market value of the home is also not a good reflection of the residents disposable income. Poor folks or retirees may live in a home they have owned for many years before local real estate values, and property taxes, skyrocketed. A families median household income is a much better indicator of their ability to pay property taxes then is the assessed value of their home.

Keeping all this in mind, the following table compares the ten largest urban areas to 10 wealthy school districts in New Jersey.  Keep in mind that the quality of educational outcomes between urban districts are wealthy districts is vastly different. Wealthy districts have considerable advantages. Urban districts have to deal with the impact of poverty and inadequate nutrition on their students. They have many more foreign born students who don't speak English. They have more dysfunctional families, homelessness, poorer quality medical care and more special needs student. Their students are far more diverse in every way. While we must concede that the average cost of educating a child in the suburbs is less than in urban or wealthy districts, the cost of education children in urban districts is justifiably greater.  But that cost is not greater than the cost of all the educational benefits students receive in our wealthy districts. 



The current state aid formula helps urban school districts overcome the disadvantages induced by poverty and social inequality. As a result, the per-pupil costs in the 10 largest urban areas in New Jersey are virtually the same as the per-pupil costs in 10 of the highest income districts in New Jersey. The wealthy districts on average have only a $602 higher per-pupil cost than urban schools. This doesn't mean educational opportunities are the same. Extra funding in urban areas is spent on remedial needs for socially disadvantaged children while additional funding in wealthy districts is spent on exceptional education opportunities such as AP courses or the IB (International Baccalaureate) programs. 

Median household income in the largest urban districts is less than a third of the median household income in high income districts. Nevertheless, the average Effective Tax Rate in urban districts is a third higher than in ten of the highest income districts while urban home values are nearly 5 times less then in the high income districts.

If you multiply the effective tax rate (assumes 100% of evaluation) by the current average home value, you end up with what a comparative average property tax bill. The comparative property tax cost for the 10 largest cities is about $7,000 while the 10 wealthy districts pay almost $20,000 on average. That might seem unfair, but if you look at the last column in the table above you find that property taxes, as a percentage of household income, is higher in the urban districts than in the wealthy districts.

The municipal tax burden in urban districts is not disproportionate to the tax burden in wealthy districts relative to household incomes, and the per pupil cost of public education in both is almost identical. Governor Christie's Fairness Formula would upset this balance. It would take money away from urban districts needed to fund remedial needs of their disadvantaged students and give wealthy districts more cash to spend on giving their children even greater educational advantages.

Below are links to the resources used in this analysis
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Edu data links
http://www.nj.com/education/2015/04/nj_schools_how_much_is_your_district_spending_per.html
http://www.geonames.org/US/NJ/largest-cities-in-new-jersey.html
http://www.state.nj.us/education/data/grate/2015/
http://www.nj.com/education/2014/05/average_nj_per_pupil_spending_almost_19k_new_report_finds.html
http://www.joeshimkus.com/NJ-Tax-Rate
https://en.wikipedia.org/wiki/New_Jersey_locations_by_per_capita_income
http://www.nj.gov/governor/taxrelief/pages/formula.shtml

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