Jack Ciattarelli's Tax Plan Is a Disaster For Schools AND Taxpayers

 Once again, here's the Republican candidate for governor of New Jersey, Jack Ciattarelli:

Our property taxes are the highest in the nation, not necessarily because of municipal and county budgets, upon which [a governor has] no real power. Where I could have real influence is the school tax, and that’s because of state aid. So, we need a new school funding formula. The current one is nefarious. It’s arbitrary and violates the equal benefit clause of our state constitution that says no community is supposed to suffer at the expense of another. So, with a more equitable distribution of state aid, we can lower property taxes. The cost per pupil in a place like Newark is $37,000, while the state average is $16,000. No one can justify to me that a particular student needs $21,000 more per year to educate them. That makes a compelling case why the current formula is unfair. Does that mean I will leave a community or student behind if that school district isn’t performing well? No. I believe in a voucher system, like we’ve seen in Arizona, Ohio, and Florida. I also believe in school choice, and charter schools to achieve that objective. [emphasis mine]

Ciattarelli's mention of Newark is telling. The Republican line in New Jersey has, for years, been that districts like Newark have been taking too much state aid for schools—at the expense of suburban districts, which have to raise their property tax rates to make up for the lack of state funding. As NJ.com writes:

Republicans have long claimed that many of the school districts that have seen reduced funding under the state funding formula are in areas that elect GOP representatives. 

During the September debate Ciattarelli blamed a large portion of the state’s high property taxes on the school funding formula. 

“We need a new school funding formula,” Ciattarelli said. “A more equitable distribution of state aid to our schools will help lower the property tax.” [emphasis mine]

This was the premise behind Chris Christie's disastrous school funding plan from 2015; the Fairness Formula. That plan went nowhere, because everyone who knew anything about school funding knew it made no sense and would never pass muster with the courts. But it's fair to say Ciattarelli is reviving the ideas behind the Fairness Formula—and they're as bad now as they were back then.

Property taxes for schools are based on the total value of a school district's taxable property. Some districts have high property values; some have lower property values. It's important to understand that districts with low property values must have higher tax rates than districts with high property values just to raise the same amount of funding for schools.

Here's a hypothetical example:

We've got five school districts here. We' gathered all the taxable property in the district, add together the value, and divide it by the number of students, giving us the "property value per pupil."

The least-affluent district has a total of $500,000 of property value for each enrolled student; in contrast, the most-affluent district has $2.5 million. All five districts want to raise $10,000 per pupil for their schools. Who pays the higher effective tax rate?

The answer (and you'd be surprised how many people who should know better get this wrong) is the least-affluent district pays the highest tax rate. Why? When your district's property values are low, you have to have higher tax rates to raise revenue. Note how the tax rate goes down as the property value per pupil goes up: the wealthiest districts pay the lowest tax rates.

Let's see how this plays out in real life New Jersey. Here are the effective tax rates for the most- and least-affluent school districts in the state. (I have a technical explanation of how I did this below.)

Each bar represents a group of school districts with varying amounts of property value per pupil. The far left bar represents the 54 NJ districts who have less than half-a-million dollars in property value per pupil. The next bar to the right represents the 177 districts with between $500,000 and $1 million in property value per pupil. This continues until the far right bar: that's the 92 districts with more than $2 million in property value per pupil.

Let's save the leftmost bar and look at the next four. As property values go up, effective tax rates go down. Again, this makes sense: wealthy districts don't have to tax themselves at as high of a rate as less-wealthy districts. Districts with property values per pupil between $500K and $1 million pay twice as high an effective property tax rate as districts with over $2 million in property value. In New Jersey, wealthy districts pay a much lower effective tax rate for their schools than working-class and middle-class districts.

But what about the far left districts, the ones with the lowest property values? They pay an average rate slightly higher than the wealthiest districts; how is that possible?

This is the NJ school funding formula at work. These districts—which still have property tax rates that are, on average, more than the wealthiest districts—don't have sky-high property tax rates because they get state aid for their schools. The New Jersey school funding formula keeps average effective school property tax rates for the poorest communities at rates equivalent to those in the wealthiest districts.

But what about those middle three bars? Why isn't the school funding formula helping them? That's a great question, and it speaks to how the formula is not nearly as equitable as it should be. Working-class and middle-class school districts need more help—but Ciattarelli's plan, like all other NJ Republican plans before his, would not provide it.

Back in 2016, Ajay Srikanth and I wrote a research brief about the Christie "Fairness Formula." What we showed was that, if Christie's plan went through, tax rates would drop for the wealthiest districts and soar for the least-affluent districts, but would change little for the "working class" districts that need property tax relief.

It's hard to assess exactly how Ciattarelli's plan would affect tax rates, because he hasn't released any details. But if he follows the same basic idea as Christie—and it's clear, to me at least, that's exactly what he intend to do—then watch out. Ciattarelli's ideas mean sky-high tax rates for the least-affluent communities, and tax breaks for wealthy communities that already have relatively low property tax rates.

We can do better.

Technical note: The "effective tax rate" or "effort" is the amount a district raises in revenues divided by the total value of its taxable;e property. For the revenue amount, I use the NJDOE's User Friendly Budgets. FY2023 is the latest audited year, so that's what I use. The property values come from the same year's state aid notices, which I got through an Open Public Records Act request. Averages are weighted by resident student enrollment.