New Jersey…and how it got that way: February

Situation: Taxes, especially property taxes, have risen to onerous levels and threaten to make the state unaffordable for all but the affluent.

Situation: Taxes, especially property taxes, have risen to onerous levels and threaten to make the state unaffordable for all but the affluent.

Cause: Like a car that develops a steady pull in one direction, New Jersey has seen its major revenue sources fall out of alignment during the past few decades. The average state and its municipalities raise 46 percent of income from three taxes: income, property, and sales. That combo balances the burden among wage earners, homeowners, tourists, truckers, people changing flights at the airport—basically everyone in the state. But New Jersey and its municipalities take in 60 percent from those three taxes, including a hefty 30 percent of the total from property taxes. One major contributor to the tax scenario is the state’s long-term inability to create an equitable funding formula for the poorer Abbott school districts, as first required by a 1985 State Supreme Court ruling. This reliance on property taxes prompted Governor Jon Corzine’s mid-2006 call for tax reform and the resultant Joint Legislative Committee meetings, which could lead to a reconfiguration of how much is raised through each tax and what portion the state returns to municipalities and schools.

How to fix:

1. Get more money from Washington. As of 2003, the most recent year for which the U.S. Census Bureau has final figures, New Jersey received $8.95 billion in federal funds, eleventh highest among the states. But it ranked 50th in returned money per dollar of federal taxes paid (57 cents). That’s one reason the state paid $1.79 in federal taxes for each federal dollar received, also the country’s worst ratio (national average: 77 cents). Eleven states received less from the feds than from property taxes—and of those, Florida, Nevada, and Texas don’t have a personal income tax.

Even a small bump in federal money could help close an estimated $2 billion budget deficit for the upcoming fiscal year, giving the legislature a potential source for property tax relief. Any increase would require a unified effort by the state’s bipartisan fifteen-person Congressional delegation (Democrats: two senators, seven representatives; Republicans: six representatives).

2. Fix school funding formulas. The state is on its third formula in the last two decades. Right now, one-third of the state’s $30 billion budget for fiscal 2007 is spent on educating students from preschool through twelfth grade. The Legislature is trying to establish a financial yardstick for spending and pay for help to disadvantaged students.

The original Abbott decision found that the state must erase discrimination against students in poor districts by funding the districts not at a statewide average but at a level equal to the state’s richest districts. That was easier in the late 1980s, when the gap in per-student funding between the poorest and richest districts was small. Today, with no monetary caps, the highest per-student spending edges toward $20,000, forcing the state to keep pace by underwriting Abbott districts with close to 58 percent of education dollars. That leaves districts teaching 77 percent of the state’s students with only 42 percent of the money. Without change, that imbalance will widen. According to Michael Griffith, education finance consultant with the National Conference of State Legislatures, by 2014, Abbott districts will require 70 percent of all state education dollars.

Legislators are mulling a plan that would in essence toss out the Abbott list while also estimating each district’s needs:

Step 1: Set a statewide average per-student cost of a “thorough and efficient education” required by the state constitution, while also managing the costs for additional special education, transportation, geographic cost-of-living differences, and ESL instruction.

Step 2: Count each district’s “average student” population as well as those in need of extra services.

Step 3: Calculate each district’s ability to pay for that basic per-student cost based on property tax and income levels.

So the state declares that the minimum required to educate an “average” student is $X. What happens if a district wants to spend $X plus $2,000? As long as voters approve the school budget and the tax hike to pay for it, the sky’s the limit—and it would probably remain that way in affluent communities. But establishing a per-student target would prompt a long, hard look at costs and give voters a basis to determine how wisely their property tax dollars are being spent.

Officials from Abbott districts say they’ll challenge any change, meaning the State Supreme Court could always rule such a plan unconstitutional—which would put the state back at square one.

3. Commit to municipal consolidation. It’s hardly a slam-dunk, but it may be the answer. The state’s last successful consolidation came in 1952, when Vineland Boro and Landis Township became the city of Vineland. Getting to outright consolidation means surviving political resistance.

The solution lies in a mix of financial sweeteners and brute legislative force. The state might get some cash-starved municipalities to consolidate by promising money up front to cover costs—or threatening to reduce aid. But the state could address its labyrinthine laws to facilitate mergers. It could form a commission vested with the power to investigate candidates and all but dictate mergers, circumventing voter refusal. As consolation, the state could come up with short-term funding. A prudent initial step would be an education campaign by the governor and legislators focusing on potential fiscal benefits, including good-faith estimates on savings.

As the legislature struggles with ways to provide for less-affluent and underperforming students in public schools, spending and funding disparities grow. School districts are designated with letters that go from A—the poorest—to J, the wealthiest. State Supreme Court decisions in Abbott v. Burke tie state funding for the poorest and underperforming districts to the most affluent and most accomplished (I and J district factor groups). The 31 current Abbott districts are seeing their slice of funding soar: 23 percent of New Jersey’s 1.45 million public students receive 58 percent of state dollars (it would reach 70 percent in five to seven years). Meanwhile, equally imperiled A and B districts such as Atlantic City, Carteret, and Dover—candidates for Abbott designation if the case were decided today—attempt to provide a “thorough and efficient education” on far less. Likewise, non-Abbott schools in groups B and above must raise property taxes to make up for shrinking state contributions. By establishing a statewide basis for per-student spending and calculating each community’s ability to pay for schools, the legislature could apply the Abbott yardstick to provide funding where it is most needed.

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