by Brian T. Lynch, MSW
Fairness Formula? Governor Chris Christie is proposing a
plan to give an equal amount of State Aid funding to every student in every school
districts in New Jersey. Specifically, his proposal would take the higher
amounts of State Aid we currently give to very poor districts and distribute it
equally across the state to reduce property taxes in the wealthier suburbs.
This, he says, is fair.
For those who are not familiar with New Jersey, most school
funding is raised through a local wealth tax based on the assessed value of
residential and private property. This is a highly regressive way to raise
revenue, as you will see below.
We are
big on home rule in New Jersey, so each town has its own independent school board.
Each towns Board of Education proposes an annual school budget which is voted on in a
public referendum. If passed, the costs
are incorporated into the municipal budget and property tax rates are raised if
more revenue is needed. If the school budget
fails, town and school officials have to either cut the school budget or make
other adjustments to municipal services so property taxes don't rise.
Here is truism:
Wealthy municipalities tend to grow more affluent over time while poor
districts tend to decline even further.
Wealthy towns have better school systems in New Jersey. That is also a fact. So parents who can afford to upgrade their home often move into towns with better
schools. Property values rise with the demand for homes in districts with
better schools. Property values decline
in districts that have underfunded or troubled schools, so property tax rates
must increase in poor districts just to break even on current school spending. As property values increase in wealthy
districts, more property tax revenue is generated. Some of this additional revenue goes into further improving
the schools without the need to increase taxes. In some cases tax rates may even decline in
affluent municipalities as home values rise. The result is that wealthy districts have much better
public schools and lower tax rates while poor districts cannot afford to keep up the disadvantaged schools they have.
State Municipal and School Aid was designed to help level municipal tax burdens in New Jersey.
State Aid is allocated to local municipalities and school districts to fill in the gaps that exist
between wealthy and poor municipalities. This funding solution grew out of a
state Supreme Court ruling, Abbott vs. Burke, that found New Jersey school funding did not result
in equal education opportunity, as mandated by the State Constitution.
This vicious cycle of migration between rich and poor districts is a big reason for the educational funding disparity. It is the one usually mentioned
by NJ state legislators and the press. But this cycle only exacerbates an underlying
funding flaw. A wealth tax based on residential property values is incredibly
regressive.
I wrote another article about the regressive education taxes in New Jersey last year. The Governor's new School Aid plan only compounds the
problem.
To show just how
unfair residential wealth taxes are for funding public schools,
consider that people who own million dollar homes almost always have
significant other wealth investments and ownership interests that aren't being
taxed to funding public schools. The
rich have far more wealth and investment income. On the other hand, people who own homes in
economically depressed areas, people whose homes are well below the state average in
value, have few investments or ownership stakes. Many of them have a negative
net worth, almost no savings and many of them struggle to pay their monthly bills.
Most economists agree that a flat tax is a
regressive tax. It favors the rich, but it is still far less regressive than
the property tax scheme in New Jersey. To
illustrate, the table below looks at information from three actual New Jersey
municipalities: a poor district, an modestly affluent district and a wealthy
district. The number of students in these districts tell you that these aren't
all K-12 districts, but the tax lesson here is still valid whether a district
is a sending district or not.
Table 1
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Hammonton and Margate are municipalities in Atlantic County
and Stone Harbor is in Cape May County. In all three districts the average tax bill is
below the state average. Hammonton does a pretty good job of keeping per pupil
costs down so it's residents can afford their property taxes. It is a town where the average home value of
$205k is significantly below the state average of nearly $400k. It is not an
affluent community like Margate, or a wealth district like Stone Harbor where
the average home sells for over a million dollars.
The average tax bill in Hammonton is just under $5,000 per
year, almost half the state average. The $14,384 annual per/pupil cost of
education is also below the $19,211 state average. The low tax bill per resident is due, in part,
to the fact that Hammonton receives $20 million dollars in State Aid.
Despite all of their frugal budgeting to keep
tuition costs down, and despite a good amount of state assistance, look
at Hammonton's general property tax rate. It
is double the tax rate in Margate and more than five time higher than the tax
rate in Stone Harbor. Hammonton's property tax rate is still well above the state
average.
The residents of Margate and Stone Harbor pay a few thousand
dollars more per year in property taxes, but they can well afford it. They pay
less than the state average in property taxes yet spend far more than average
in student tuition. Even so, Margate currently receives $2.5 million in State Aid while the very wealthy Stone Harbor receives
nearly a half-million dollars in State Aid. Ironically, Under Governor Christie's plan,
each of these three districts would receive substantially more State Aid, but
this would come at the expense of the very poor urban districts, the so call "Abbott"
districts, where poverty levels are very high
and property values are very low.
If instead of a flat State Aid rate for every student,
Governor Christie proposed a flat property tax rate, and used additional revenue
from wealth districts to fill funding gaps in poorer districts, how would that
effect property taxes in these three communities?
Keeping in mind that a flat tax is still regressive, and
that home values are not a good indicator of wealth ownership (it under
represents the wealth of the wealthy) the table below shows what property
taxes would look like if a flat property tax was implemented based on New
Jersey's average property tax rate.
Table 2
This exercise illustrates just how incredibly regressive the
current property tax scheme is. More affluent towns are paying a lower property tax rate and middle class communities are paying a higher rate. Even a flat property tax rate would double Margate's tax bill and more than quadruple Stone Harbors tax bill. A flat property tax rate would probably generate enough additional revenue to adequately fund
and rehabilitate Abbott district schools and disadvantaged schools throughout
the state. A progressive property tax
formula would go even further to fully fund New Jersey's public schools
and give every child their constitutionally protected right to an equally good public
education. Giving the same amount of
state aid to both the rich and poor isn't fair at all. A progressive wealth tax based on
residential property values would be.
Below are the URL internet addresses for all of the data
presented above.
_____________________________________________________________
http://www.nj.com/education/2015/04/nj_schools_how_much_is_your_district_spending_per.html
http://www.nj.gov/education/data/fact.htm
http://www.state.nj.us/education/data/enr/enr14/stat_doc.htm
http://www.state.nj.us/treasury/taxation/lpt/taxrate.shtml
http://www.state.nj.us/treasury/taxation/pdf/lpt/class2/avgsale15.pdf
http://www.state.nj.us/treasury/taxation/lpt/class2avgsales.shtml
http://www.joeshimkus.com/NJ-Tax-Rates.aspx
http://www.state.nj.us/dca/divisions/dlgs/resources/stateaidinfo.shtml
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