Explainer: Everything You Need to Know About School Funding in NJ

Carly Sitrin | July 25, 2018 | Explainer
Funding for New Jersey’s K-12 schools is one of the state’s most divisive issues, pitting district against district. How did it ever get that way?

New Jersey’s system of funding K-12 schools is a controversial subject in the state, and many taxpayers resent how aid is distributed. Gov. Phil Murphy signed a bill yesterday to modernize the formula the state uses to determine the aid, with the goal of making it fairer. To understand the debate, NJ Spotlight offers this guide to the complicated funding formula — and a useful glossary at the end of the story.

The formula that decides how K-12 schools are funding in New Jersey, created by the School Reform Funding Act of 2008, has itself been underfunded since its inception and — depending on how it’s calculated — it may never be truly fully funded.

The new plan, intends to create more parity among the school districts; those that have been chronically underfunded like Chesterfield and River Edge will receive large increases while those that have been overfunded (Jersey City and Glassboro) will see drastic cuts. The plan also places limits on how much aid a district can gain overall and focuses new state aid on underfunded districts.

District by district impact: See how the bill will impact your district.

The School Funding Reform Act (SFRA) was blessed by the courts, Legislature and school districts in 2008, and its calculation form the basis for how New Jersey funds its K-12 schools. It sets forth parameters for a carefully thought-out, detailed formula to be used to determine funding for all public schools in New Jersey.

The new bill signed by Murphy yesterday attempts to rectify inequities in the formula that existed when SFRA was signed in 2008 and that intensified during Christie’s term. For instance, the bill phases out millions of dollars in so-called adjustment aid to nearly 200 districts. This will result in cuts to schools in those districts of about $32 million next year and $600 million over seven years.

Promising a path to full funding

According to Murphy and legislative leaders, the new law will put the state on the path to fully funding the school-aid formula within those seven years. “Full funding” basically means providing every district with the amount of money they need to provide a “thorough and efficient” system of education for every student, as required under the state constitution. The problem is, lawmakers and experts disagree on the definition of what “full funding” is, so it’s unclear whether the new bill can ever satisfy everyone.

School funding is one of the most controversial issues facing New Jerseyans today, creating division between wealthy suburban towns and urban and rural municipalities. The issue is at the very root of the state’s tax debate. For one thing, many residents of wealthy towns believing erroneously that their high property taxes go to support poorer school districts. They don’t. Local property taxes are used for local districts. However, the preponderance of state school-aid does go to poorer districts since it is meant to be distributed based on need. Thus, wealthier districts get less state aid to offset the high cost of education. Even so, the formula the state uses to determine distribution has become outdated and unbalanced.

The convoluted way the state determines distribution of the aid masks many of the inequities in the system. It also means that just increasing overall aid to districts will never make the system fairer; that’s because funding for school districts is very uneven, penalizing some relatively wealthy districts as well as distinctly poor ones.

It all began with legal challenges

The SFRA was a response to decades of legal challenges to the state’s method of funding public schools, arguing that it discriminated against poorer urban districts and favored wealthier suburban ones.

There has been a persistent impression that most districts suffer from a lack of state aid while the Abbott districts — or the state’s neediest urban school districts — aren’t. That’s not the case. Under the SFRA formula approved by the state Supreme Court in 2008, Newark gets $100 million less than the formula calls for, and Plainfield gets $65 million less. On the other hand, Jersey City gets more state aid than is called for — but it still spends less overall through its local taxes than the court says it should. So, the cities have similar underfunding struggles today as the suburbs do,

It’s important to note that the new bill only aims to deal with the inequities caused by the formula; it does not tackle the formula itself. Coming up with a plan that would please the courts, lawmakers, and school districts has taken years — and, going forward, any significant changes to the underlying formula will have to be blessed by the courts.

The SFRA’s earliest predecessor, the Public School Education Act of 1975 (Chapter 212), was enacted after the state Supreme Court decided on a lawsuit, Robinson v. Cahill, that New Jersey’s heavy dependence on local property taxes to fund schools gave a big advantage to rich (primarily white) districts. That act created an outline and formula for how the state should step in and help fund public schools.

The original Abbott case

Unfortunately, there wasn’t much money available to fund the formula, as lawmakers refused to raise state taxes to pay for it. Several years of little to no funding (and one notable lockout) were enough for the Education Law Center to file the Abbott v. Burke lawsuit in 1981 claiming that the 1975 Act was failing. The first Abbott case went all the way to the state Supreme Court, where the justices demanded a complete overhaul of school funding system in New Jersey.

Over the next decade a series of new Abbott cases were filed and attempts were made to revamp the funding system: There was Gov. Jim Florio’s Quality Education Act, and Gov. Christine Todd Whitman’s Comprehensive Education Improvement and Financing Act, both of which were declared unconstitutional. After another decade of ups and downs in attempted funding of so-called Abbott districts, the Legislature enacted, and Gov. Jon Corzine signed, the SFRA into law in 2008.

The following year, the state Supreme Court found the SFRA to be constitutional for Abbott students under two key conditions: The formula must be fully funded for the first three years, and it must be repeatedly reviewed and adjusted annually. But, because it wasn’t fully funded past the first year, some education advocates argue that the SFRA is not constitutionally compliant today.

Christie and Corzine

Gov. Chris Christie often gets much of the blame for worsening the underfunding of schools, but it’s not entirely his fault. Though Corzine fully funded the SFRA under the “capped” definition that first year, 2008-2009, schools were still underfunded by $1 billion annually according to the “uncapped” definition. Capped aid refers to a cap on the amount of aid any district can receive; uncapped aid is the amount of aid a district would need in order to reach its “adequacy budget,” according to the formula. (For a fuller explanation of these and other terms, check out the glossary at the end of the story.)

When it was first enacted in 2008-2009, many districts were set to receive less state funding than they had in the previous years. In an effort to provide a smooth transition, the formula included “adjustment aid,” also known as “hold harmless” aid, which was disbursed on top of the standard formula aid. In SFRA’s first year, 250 districts received adjustment aid amounting to $850 million. The intention was for this funding to slowly peter out over time, but no strict sunset date was written into the legislation.

When the Great Recession hit during Corzine’s final two years in office, he initiated deep spending cuts across the board. But he also used $1 billion of “stabilization” aid, provided by the federal government, to ease the recession’s effects on the state’s teacher-pension crisis. This created a sizable structural hole in school aid, as the stabilization aid was temporary.

What Christie did was continue cutting education spending to the tune of an additional $1 billion in state funding of public schools in 2010. Eventually, after the Abbott XXI decision in 2011, $500 million was restored by the state Supreme Court and directed to Abbott districts. Following that decision, the Legislature did restore about $200 million to non-Abbott districts as well, and in 2012-2013 Christie increased state aid to underaided districts and cut adjustment aid.

Christie also widened the gap in state-aid distribution, mostly because adjustment aid — which was supposed to be phased out — never was.

Advocates say Christie essentially flat-funded state aid for schools during his tenure (with the exception of the court-ordered $500 million for the Abbotts). Christie pointed to the fact that he too had to make massive increases in state debt-payments and pay off pension obligation bonds that were sold in the 1990s by Whitman, all of which diverted funds from education aid for the districts.

Christie’s 2 percent cap

During all this, Christie signed a law that capped municipal and school-tax increases at 2 percent, which further curbed education spending. Blocked by that 2 percent ceiling, districts that already were stuck below what was considered their fair-share amount had a more difficult time raising local funds.

What does property tax have to do with it?

Property-tax values which significantly impact the formula — they are a factor in determining the equalization aid — declined during Christie’s tenure. That resulted in the formula’s effects going further off kilter. To top all that, 10 years have passed since the formula was struck, so demographic changes have also upset the balance, with places like Hoboken and Asbury Park rapidly gentrifying — thereby impacting the portions of the formula that take into account “at risk” students and the overall tax contributions.

The upshot of it all is that education funding in the Garden State is all over the map, and state officials know it. This year, Murphy and Sweeney each crafted plans to revise funding so as to get back to the original intent of the formula at the least cost possible.

The Murphy plan

Murphy’s plan for 2019 was to inject close to $284 million in direct budget funding for K-12 districts and find a way to redistribute aid to those districts that are severely underfunded. However, he planned to retain adjustment aid and the so-called state-aid growth limit (see glossary).

The Sweeney plan

The Senate President’s plan, which Murphy ended up agreeing to, calls for gradually increasing the overall education budget, but phasing out adjustment aid over seven years and eliminating state aid growth limits as written.

The basic SFRA formula

At its most basic level, the SFRA says that the state should calculate how much a district needs to adequately educate its students (the “adequacy budget”) and how much it can provide through taxes (the “local fair share”). The state will make up the rest (via “equalization aid”). The general formula looks like this: Local Fair Share + Equalization Aid = Adequacy Budget. Of course, in reality, it’s much more complicated. The goal of the SFRA was to eventually bring all the districts to adequacy — or “full funding.”

The SFRA formula is among the most complicated and thorough in the nation. But over the years, it’s maintained a few skin tags that have turned deadly. “Temporary” adjustment-aid payments — which were supposed to gradually decrease — continued to be doled out even for districts where enrollments didn’t justify it. Thanks to adjustment aid, no district receives less than what it was getting on October 15, 2008 — even if the tax base changed drastically.

Another serious problem with the formula is the “state aid growth limit,” sometimes referred to as the “enrollment cap.” The impetus for this is somewhat unclear, but experts tend to think of it as a way for the state to legally delay full funding. The authors of the SFRA most likely knew it would be all but impossible to fully fund the formula for all districts in one year. So, SFRA built in a cap that can negate most of the formula: Any underaided district (one that is not meeting its adequacy budget) can only receive a 20 percent increase in what it received the previous year while any district spending above adequacy can get at most 10 percent of its last year’s allocation.

Nuts and bolts of the new law

The new bill signed by the governor, eliminates the state-aid growth limits as they were originally written — so there is no longer a “capped aid” standard moving forward. However, it still keeps some limits on how much aid a district can gain in a year. Starting with the 2019-20 school year, state aid will be distributed based on a district’s deficit, rather than its existing aid from the previous year. The new limits take into account whatever amount the state has available that year, and even, indirectly, the deficits of other districts (since the state’s entire deficit is also a factor.)

Thus, if the state has enough money to fund 10 percent of the entire state deficit, every underaided district gets an increase in aid equal to 10 percent of that district’s deficit.

The supreme imbalance in New Jersey’s current funding of school districts has led some to suggest the formula should be scrapped and rewritten altogether. More than 300 districts have not seen full funding under the SFRA since its first year; and some, like Chesterfield and Atlantic City, are funded at less than 25 percent of uncapped funding. Chesterfield is owed more than $4 million and Atlantic City is owed $110 million, though they only received a fraction of that amount in aid this past year; Chesterfield received $821,188 and Atlantic City received $24.2 million. Some districts are still receiving adjustment aid despite no longer requiring it, and others are paying through the nose in property taxes but not receiving their full allocation from the state.

What will the changes cost?

In fiscal year 2018, K-12 aid totaled $8.1 billion. The state spent $6.3 billion in equalization aid and $522 million in adjustment aid; the rest of that $8.1 billion went to categorical aid, choice aid, and other aid categoriess).

Counting Pre-K and K-12 operating aid, the Abbott districts receive close to 60 percent of New Jersey’s state education aid. According to the most recent available U.S. Census Bureau figures, 55.3 percent of the Garden State’s education spending comes from localities, 40.9 percent of from the state, and only 3.8 percent from the federal government. According to state Department of Education numbers, New Jersey spent $18,402 per pupil on public-school students in 2015-2016.

Can NJ ever fully fund school districts?

Murphy said at yesterday’s bill signing that “by 2025, every district will receive the [full] level of aid under the school funding formula.” By that he means over the next seven years, the state will continue to inject funds of up to nearly $2 billion more a year. If the economy holds up, the plan will theoretically get New Jersey school districts to full, uncapped, funding under the SFRA formula as originally intended. But there’s no guarantee that the state will have this money year after year. Indeed, when the formula was passed back in 2008, lawmakers were similarly optimistic.

Though the state may find it challenging to reach the original goal, the changes that Sweeney and Murphy have agreed to will go a long way toward providing more funding equity across the districts.

That agreement comes with political consequences as there will be winners and losers. And some of the losers, such as Jersey City, have a lot of political clout. That’s a key reason the problem hasn’t been addressed before now.


Adequacy Budget

This is the amount of money a district needs in order to provide all its students with a “thorough and efficient” education. It’s calculated by assigning weights and values to every student in the district for their various needs; it also takes into account teachers’ salaries, the cost of supplies, and inflation. It then multiplies the student-body value by the Geographic Cost Adjustment.

Adjustment Aid

Also known as “hold harmless aid,” this additional funding was given to districts whose funding was to be cut when the SFRA was originally enacted. Adjustment aid was supposed to peter out but no end date was ever set, so it just continued until this new plan.

Baseline Per Pupil Amount

This is the amount it costs to educate one elementary student without any outstanding needs, with all other weights in the adequacy budget based on this number. The BPA is 1.0, counting one elementary student at 1.0 — or, what it would cost a district to educate that one student. From there, the formula adds weights for other students. Middle schoolers count as 1.04 students, high schoolers as 1.16 students, students enrolled in a free- or reduced-cost lunch program are considered “at risk” and are given an additional weight as are those who are considered to have Limited English Proficiency. In practice, a high school student who learned English as his second language would have a weighted value of 1.58 (1.16 for being in high school, and 0.42 for being LEP). The state reviews and adjusts those weights occasionally.

Capped Aid

This reflects state aid when growth limits are in place. It must be said, however, that the capped-aid number is misleading because it doesn’t reflect districts’ true needs but adheres to the limits placed on the formula.

Categorical Aid

This is calculated separate from the adequacy budget and includes needs like transportation aid for each student (calculated by mile), school-security aid, school-choice aid and -special-education aid.

Equalization Aid

This is the amount of aid the state is expected to contribute in K-12 funding, according to the formula. And it’s usually what people mean when they say the state isn’t “fully funding” the formula — in other words, that the state’s not giving a district enough equalization aid for it to meet its adequacy budget.

Theoretically, once the state tells a district how much it needs and how much it should raise in taxes, the state would provide enough to cover the costs not handled by taxes. In reality, the state has never had enough money to provide the full amount — or “fully fund” the formula. This means the situation is flipped: The state tells a district how much funding that district needs, then says how much it can provide that year, and taxpayers are expected to make up the difference.

Full Funding

The SFRA formula requires funding at adequacy levels for all districts. Every district is supposed to get enough funding through state aid and local taxes to provide a “thorough and efficient” education for every child. (And just to keep things complicated, there are two different ways of measuring full funding — capped and uncapped aid.)

Geographic Cost Adjustment

This portion of the formula takes account of differences in wages and resource costs across the state. It’s calculated by the state and applied to the adequacy budget. The GCA is important because it accounts for differences in salaries across the state. Some counties pay teachers higher wages, others have difficulty finding and retaining educators. This GCA is supposed to take those factors into consideration in the final calculations.

Growth Limits

Also known as an “enrollment cap,” this element of the SFRA formula effectively canceled out the intricacies of the formula. The state-aid growth limit put a freeze on the amount of aid any district could receive. If a district was not meeting its adequacy budget (an “underfunded” district), it could only receive 20 percent of what it got the previous year. Any district spending above adequacy could gain, at most, 10 percent of its last year’s allocation. The new bill eliminates the growth limits..

Local Fair Share

This marks the amount of aid a district is expected to contribute to the formula. It incorporates two factors —property values and residents’ incomes. Those factors are each separately multiplied against state-calculated rate multipliers, added together, and divided by two. The formula looks like this: [(Property Value Property Rate Multiplier) + (Income Income Rate Multiplier)]/2.

Uncapped Aid

This reflects state aid without the growth limits in place. Uncapped aid is the real number of aid a district needs to reach its adequacy budget, according to the formula as originally written.

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