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Spelling Out How School Funding Formula Needs to Be Overhauled

New report says so many things have changed since formula was created a decade ago that big adjustments are needed, including more money for special education

School recess
Credit: Creative Commons

It’s been a decade since New Jersey adopted its progressive school funding formula and new data suggest that it’s overdue for an update. Any revision of the formula should direct extra funding toward students with special needs, those in high-poverty communities, and upping teachers’ salaries, according to a new report.

The report, published by the left-leaning think tank New Jersey Policy Perspective, says the formula no longer matches requirements that have changed since it was created in 2008.

According to the report, many variables in the formula should be recalculated. Teacher wages, local taxes, special education funding, and costs for school resources should all be re-evaluated, argues Bruce D. Baker, the report’s author.

“We've changed the outcome goals that kids need to meet but we haven't really changed the funding structure that's supposed to get them there,” Baker told NJTV News reporter Joanna Gagis.

Despite its imperfections, however, the SFRA formula “remains among the more rational, equitable, and adequate state school finance formulas” in the nation, the report concludes, noting that even New Jersey’s least affluent districts still come close to matching the national average test scores because of the funding they’ve received through SFRA. In terms of national performance, the report found, money matters.

Baker, who teaches school finance at the Rutgers Graduate School of Education, had been publicly skeptical of SFRA in years past. He now reports that, despite its success, the formula has been prevented from reaching its full potential: Years of political and financial hamstringing including cuts and freezes to state aid, a failure to hold districts accountable for their local fair share of funding and strict caps on property-tax increase have undermined the formula and prevented SFRA from fully providing promised levels of funding for all students and districts.

‘First, fund the formula’

“Equitable and adequate financing is a prerequisite condition for a thorough and efficient school system,” said Baker. “The state has in place a reasonable, well thought out, flexible structure for financing its schools. However, SFRA was designed to meet outcome standards that are more than a decade old, based on schooling conditions and costs of that same period. It needs updating, but the basic structure is there. First, fund the formula. Then recalibrate to meet current demands.”

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With years of evidence to work with, Baker recommends the state fully fund the SFRA formula, requiring districts to contribute their fair share, recalculating the standards and funding targets that districts must reach, and reintegrating pre-K funding into the SFRA model.

“This report goes to great lengths to show the critical importance of New Jersey fully funding the school funding formula,” said Brandon McKoy, president of NJPP. “Just like the rest of our assets, New Jersey’s education system works better for everyone when we invest in it. By investing in our schools, we are investing in our children and our future.”

Baker’s intention in producing the report, he wrote, is not to point out which districts are winners or losers but rather to evaluate “how far the state as a whole has strayed from the original goals of SFRA.”

“The report shows us how far we’ve backslid on equity and targeting resources based on student needs and gives us some indication of how much ground we have to cover in closing those gaps over the next couple years,” Baker said.

Theory versus reality

The school funding law was enacted in 2008 after much debate among funding experts. When it was finally adopted in 2009 with the blessing of the courts, it immediately came up against an aggressive recession which took a toll on state revenues and, consequently, state spending on schools. Since then, state aid has remained largely frozen and inflexible despite enrollment changes in districts statewide. The result, the report notes is “SFRA, as designed, has never been completely implemented or fully funded.”

Murphy at Columbus School, Carteret
Credit: NJ Governor's Office
Gov. Phil Murphy has expanded preschool aid.

The formula itself is simple in theory: The state should calculate how much a district needs to adequately educate its students (called the “adequacy budget”) and how much that district can provide through taxes on its residents (called the “local fair share”). The rest, the state will make up (via “equalization aid”). Thus, Local Fair Share + Equalization Aid = Adequacy Budget.

However, the state has never had enough money to make up the difference for each district and “fully fund” the formula. In fact, the formula has been underfunded by more than $1 billion every year. Therefore, the order of the formula gets flipped: The state dictates how much funding a district needs, then says how much money it can contribute that year, and the rest must come from local taxpayers.

For years, the state operated with an underfunded formula coupled with adjustment-aid costs that were supposed to be phased out over time and a state-aid growth limit or “enrollment cap.” The latter limited how much money any district could gain at one time. Then, last year, Gov. Phil Murphy signed Senate President Steve Sweeney’s hard-fought funding bill, S-2, which would eliminate that adjustment aid and remove the enrollment cap.

Advocates say the new law covers significant ground in making funding fairer though it does so by redistributing the aid from wealthy districts to poor ones, meaning some in the middle are less than excited by the school funding they receive from the state.

What hasn’t been talked about

In the short term, Baker, Sweeney, Republican legislators and other education spending experts agree that the goal should be for the state to fully fund the formula. However, there is an understanding that finding the money to make that happen will be difficult.

Sweeney’s “Path to Progress” proposal emphasizes finding efficiency through district consolidation, lowering the costs of employee healthcare, and the continued phase-out of Adjustment Aid while Republican lawmakers have proposed their own plan to overhaul school funding; it calls for more funding for special needs kids and a decrease in aid for low-income students and English-language learners.

Steve Sweeney
Credit: NJTV News
Senate President Steve Sweeney

While Sweeney and GOP lawmakers’ solutions are big, broad and have garnered passionate responses from people across the state, Baker’s report touches topics that have largely been left out of the public eye.

Baker’s ideas to “make SFRA whole” include complex maneuvers like using a competitive wage index based on non-teachers to set inflation targets for SFRA calculations, phasing in local tax increases for those districts that don’t currently tax enough to reach their adequacy budgets, and moving special-education funding to a system based on “tiers of student need,” with different levels of funding based on distributions of children with disabilities.

Baker calculates that since 2008, changes in the state’s educational standards, testing requirements, demographics, teacher evaluations, anti-bullying mandates and so on have altered districts’ standards for delivering a “thorough and efficient” education as required by the state constitution.

The cost of keeping talented educators

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“There is a very real possibility that SFRA adequacy calculations no longer meet the state’s constitutional standard,” Baker writes. Put simply, state laws and requirements for schooling have become more financially demanding over the years but the formula has not been updated to reflect that. What’s more, teacher wages have become more competitive nationwide and it costs New Jersey more to retain talented educators, something the formula does not currently account for.

He also points to the formula’s so-called student weighting process — low-income and English language learners require more resources to educate and thus are given higher numerical values when calculating how much funding each district needs. Baker says that attendance numbers have been “subjected to manipulation,” meaning districts are being funded based on average daily attendance rather than fall enrollment which has real implications for schools that serve high-poverty student populations where daily attendance is much more of a struggle.

A third area he suggests needs more funding is special education. In his research, Baker found the special education formula “dramatically overfunds needs in high-wealth districts, many of which have low shares of children with disabilities.” He places the blame for this on the census-reliant formula which sets a standard statewide average need, and then overfunds some districts by allocating aid even if those districts could cover the costs with modest local tax increases.

The solution for this, Baker says, is a “system based on tiers of student need” which would redistribute special education funding based on a district’s actual number of children with varying severities of disability rather than on statewide averages which the current formula relies on.

Finding the cash to fully fund the formula is crucial, Baker says, because in national terms, the states contributing the most money to their schools see the best student outcomes.

New Jersey spends more than most states

Over the past 20 years, New Jersey has allocated a larger share of its economic capacity to schooling than most states. And the state’s education spending isn’t just high in dollars per pupil compared to other states, it’s also high compared to its own economy and personal incomes.

Indeed, Baker found New Jersey’s wealthiest districts spend more on schools than other states and get incredible outcomes in return; the state’s lowest-poverty districts also have some of the highest test scores in the nation.

If the goal of a progressive school-finance formula is to close funding gaps — and achievement gaps — between high-need and low-need districts, Baker’s report maintains national data show that SFRA has helped. State data, meanwhile, show New Jersey’s school funding system is still falling short.

“What we’ve seen is a significant tapering off of the resources to the highest need districts … and as a result we have significant gaps in the outcomes of those students whether those are measured by graduation rates or test scores in math and reading,” Baker said.

The state remains highly segregated and the gaps between spending on high- and low-poverty districts are cavernous. Districts with the highest levels of poverty still don’t spend enough to match the districts with the lowest levels of poverty in the state.

“New Jersey’s school segregation, coupled with its population density, is raising the costs of providing its students with an education that would allow all students to achieve average outcomes,” Baker writes.

Nonetheless, nationally, New Jersey’s least affluent districts still come close to matching national test-score averages.

What next?

In the long term, Baker proposes closing these achievement and funding gaps with an “SFRA 2.0,” that would utilize a “single coherent model policy” for all New Jersey students from pre-K through college. The state shouldn’t divorce educational success at the grade-school level from pre-K and college, he contends.

“It is my view that pre-K funding should be embedded within the SFRA formula, with per pupil adequacy targets for pre-K the same as for K-12,” Baker writes.

He also proposes drafting a formula to finance the state’s community-college system. Baker cites Murphy’s free community-college plan which would provide $45 million in direct grant aid to students for tuition subsidies, and $5 million to the colleges themselves.

But, he notes, “These figures are not in any way tied to the costs of providing sufficient quality community college programs to all those who might wish to access those programs.”

He also notes inequities such as the fact that New Jersey’s community-college spending is among the lowest of all states in the country and higher-income New Jersey counties tend to spend more per pupil on instruction in their community colleges than those in lower-income counties. Having a discrete formula to dictate spending would go a long way to fixing these issues, Baker writes.

Though the report has met with some criticism on social media from people like funding blogger and research director of the Fair Funding Action Center, Jeff Bennett, the consensus from those who are focused on New Jersey’s school funding system is that the report gets it right — New Jersey’s schools need more money.

“SFRA isn’t perfect and its formulas could be improved,” Bennett said, “But SFRA’s glaring problems are that it is underfunded ... Most of the districts who would benefit from Baker’s tweaks would also benefit from fairer funding under the existing version of SFRA.”

“2019 is the year to act,” the report reads. “This report provides a starting point for the Murphy administration and the Legislature to enact legislation that will lead to a better statewide school funding system and a better education for all of New Jersey’s students.”

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