I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Sunday, March 10, 2019

The Case For Stable, Adequate, and Predictable School Funding

Here in New Jersey, we're entering budget season -- and that means the beginning of the annual ritual of declaring "winners and losers" in state aid to school districts. Governor Phil Murphy just released his budgetary plan for schools, showing which districts will get more or less aid from the state this year.

In a $38.6 billion budget, PreK-12 school aid in all its forms totals $15.5 billion -- that's 40 percent of the total budget (and includes payments into the school staff pensions). But in the past several years, the total amount of aid has not been as controversial as where the aid goes.

A particular sore spot has been adjustment aid, a category of state aid that has kept some districts' total aid higher than it would otherwise be, even as those districts have seen declines in enrollment or rises in the ability to collect local taxes.

There will, undoubtedly, be plenty of analysis about whether the winners and losers are being treated fairly. I'm sure I'll have a few things to say in the coming weeks and months.

But right now, I want to take a step back and see the larger picture, both here in New Jersey and in other states. Because focusing on winners and losers can keep us from thinking about why we have state school aid programs, what we want from them, and how we can make them better.

That's not to say the effects of particular policies on individual districts isn't important, and isn't worthy of our time. But if we don't have a clear vision of what we want in a school funding system, we can get caught up in who's up and who's down, rather than whether the entire system is being served well.

So, in no particular order, here are some principles I believe should be applied to any analysis of a statewide school funding plan:

- State funding programs should pursue (at least) two major goals: getting more funding to the students who need it, and making taxes more fair for local residents.

In the wonky world of school finance research, we've started to establish a new normal: money does matter. Taking the opposite position has become akin to being a climate change denier: you are simply no longer credible if you insist that more funding can't improve student outcomes (even if how to apply those funds is still subject to debate).

Further, nearly everyone now understands that students with special needs require more revenues to equalize their educational opportunities. Even Chris Christie, when pushing his insane "Fairness Formula," acknowledged that special education students, for example, need more funding so their learning disabilities can be addressed.

So a state aid system should drive more funding toward districts with greater numbers of students in economic disadvantage, or who don't speak English as their first language, or who have special education needs.* But the system also needs to acknowledge that communities with different levels of wealth have different abilities to raise revenues locally.

As I've explained previously, towns and cities that have low property values must tax themselves at higher rates just to raise equivalent revenues. In other words: if Newark wanted to raise the same amount of property tax revenue per house on average as Chatham, its tax rate would have to be much higher, because its houses are worth much less. School aid funding formulas should acknowledge this and drive aid toward districts whose capacity to tax themselves is lower than others.

To the extent that state aid programs meet both of these goals -- getting more funds to students who need them, and making local taxes more fair -- we should consider them successful.

- School leaders can't be expected to make effective plans if their districts' revenues are always subject to political winds.

District superintendents and their staffs should be able to set goals and make plans in a reasonably long time frame. But that's impossible when budgets depend on state aid that is determined year-to-year, with little time between the announcement of the aid and the start of school.

One of the responses I hear to school districts that have lost aid is: "Well, you should have made plans." That's simply not reasonable: you can't go to your community and make a case to raise more local taxes, or make cuts in your own budget, without having at least some idea of how state aid to your district will change in the future.

State revenues are subject to larger economic forces, so there are times when aid may be less than expected because of a serious economic downturn. But aid formulas ought to be stable, and districts should have time to respond to concrete changes. That's just good public policy.

- "Stealth inequities" in school funding should be avoided.

A few years ago, Bruce Baker and Sean Corcoran wrote a weighty policy brief about the school funding systems in several different states. One of their key points is that these states often put provisions into their school aid formulas that undermine the goal of making funding more equitable. In New York, for example, the state gives every district $500 per pupil in state aid, no matter that district's level of student need or ability to raise its own revenues locally. That diverts money away from districts who need it more, but have less capacity to raise it.

In New Jersey, adjustment aid is, arguably, a stealth inequity: it privileges some districts over others arbitrarily. Tax abatements** are another: they can artificially decrease the calculation of how much a district can raise locally for its schools.

I don't necessarily have a problem with localities using tax incentives in some -- some -- cases to spur investment and growth, although the ensuing race to the bottom remains a big problem. But rewarding a city or town that doesn't tax itself properly with increased state aid at another town's expense isn't right. Again: state aid is supposed to help those districts that don't have the capacity to raise more funds, not the districts that have the capacity but just won't do it.

- School funding policy should acknowledge that building and maintaining a high-quality teaching corps is a worthy goal that requires adequate funding.

No one has done more to cast doubt on the relationship between school funding and student achievement than economist Eric Hanushek. But even he has provided evidence that building a high-quality teacher workforce requires paying teachers competitive wages.

Back in the Great Recession, there was plenty of resentment toward teachers, who supposedly had stable jobs and better benefits than other workers. But even then, it was clear teachers are paid considerably less than other comparably educated workers. There's no evidence this "wage penalty" has gone away -- quite the opposite, in fact.

If we want good candidates to consider becoming teachers, we need to make sure school districts have enough money to pay them well and give them decent working conditions -- which, fortunately, just happen to be the same as student learning conditions. Paying teachers well is a good policy choice, and state aid formulas should be set up to support that choice.

- The calculations and data used in any plan that distributes state aid to school districts should be completely transparent and easily accessible to the public.

One of the complaints about the recent Murphy plan from "loser" districts is that they have no way of knowing why their state aid is being cut. Here, for example, is the superintendent of Freehold Regional High School on Twitter:
Unbelievable state will not release multipliers so can see how aid determined. equalized value up 4% income down.5% BUT ability to pay up 8.3%?? Public deserves transparency. Formula flawed.
It's a fair point: if a district is going to take a hit, it should at least know why. And yet getting the particulars of state aid plans in New Jersey requires putting in Open Public Records Act requests to get even the most basic information, such as property tax valuations. And this state is actually better than many others in releasing school finance data.

Of course, it's not just the governor who needs to be held accountable. In the past, NJ legislators have put out their own proposals -- but often without any explanation as to how they arrived at their aid distributions to districts.

When aid plans aren't transparent, stakeholders will inevitably assume decisions are being driven solely by politics. Better to release a plan with all the details spelled out.

- States have an obligation to look carefully at the costs of school "choice."

Charter schools in New Jersey are solely approved by the state -- yet hosting districts are required to raise revenues to support them. It's increasingly clear that this places a fiscal burden on districts, because charters are redundant systems of school organization that cannot access the same economies of scale as public school districts. In addition, school districts are restricted in how they can respond to enrollment decline.

If you believe that there is an inherent value in school "choice," that's fine. But it makes little sense to insist on district consolidation as a way to save money, yet also promote charter school growth, which is the exact opposite of consolidation.

New Jersey has done little to assess the additional costs imposed by charters on school districts, and the state is not alone. We need to be much more clear about how "choice" is affecting the entire school funding system.

As I said, in the coming weeks I'm sure I'll have more to say about this years round of New Jersey school funding aid. Plus, there's some major work coming soon on the state's funding formula -- stand by...

* Aid formulas should also make reasonable attempts to correct for differences in population density, labor market pressures, district size (so far as that is not under the control of the district), and so on. These are the wonky, technical details that can make a big difference in how the program works.

** Let's save the details on this for another day, as it's a big, complex topic. I'm just trying to get to some overall principles here.


Nancy Flanagan said...

A school newspaper editor at a local HS recently asked to interview me on the topic of school finance, which I took to be an excellent sign of student engagement in civic issues. She asked some good questions and had done some homework. When we finished, she said she wished she understood why some districts in MI get more resources than others--that she had a primer, with easy-to-understand facts and ideas about school funding in Michigan. So I offered to write one. I finished it last night; it's three pages in length.

Today, I read this and was ridiculously pleased to see how many things you say here were in my primer.All the key points--money matters, some kids need and deserve more funding, charters always upset the local funding ecology, starving public schools and teacher salaries never leads to better outcomes--were there. There was one huge difference, however.

Her HS gets the statewide per-pupil foundation grant of $7871. When I told her that several states (NY, CT, NJ, AK) were at or near $20K per student average (using a different funding formula), she was astonished. I also explained COL differences and other variables--but the gap between states is glaring. I also told her, of course about ID, AZ, OK and MS--and how their starvation-level funding impacted outcomes.

I plan to send her a link to this blog, not only because it validates my own principles, but because you explain things more completely, and the cartoon is killer. Thank, JJ.

Duke said...

Thanks, Nancy. Let us know when you publish that primer!

StateAidGuy said...

This is a good post.

I agree that state aid should be more predictable and transparent. The NJ DOE, for reasons I cannot fathom, is like an information lockbox. For years in the pre-S2 era, I was extremely frustrated by them for not releasing Uncapped/pre-Adjustment Aid aid levels, for implicitly denying that the concept of Uncapped Aid even exists, and for needlessly confusing the state about what the size of the true deficit. The DOE, for reasons I cannot even guess at, also never updated the state aid streams in the public State Aid Summaries, keeping a district's apparent Equalization Aid, Adjustment Aid, and Categorical Aids the same every year. Even in 2019-20 the DOE does this -- for instance, Jersey City's Equalization Aid has been frozen (in the State Aid Summaries) at $270 million for years, even though the real amount (which is in the semi-private State Aid Notices) is updated.

Anyway, S2 does have a pathway for what an aid-losing district's losses will be:

a school district or county vocational school
district in which the State aid differential is positive shall receive State school aid in an
amount equal to the district’s State aid in the prior school year minus a percent of the State
aid differential according to the following schedule:
(1) 13 percent in the 2019-2020 school year;
(2) 23 percent in the 2020-2021 school year;
(3) 37 percent in the 2021-2022 school year;
(4) 55 percent in the 2022-2023 school year;
(5) 76 percent in the 2023-2024 school year; and
(6) 100 percent in the 2024-2025 school year.

Since state aid is dynamic (especially for an Equalization Aid district) due to a district's own demographic and tax base changes, plus the annual tweaks to the Local Fair Share multipliers, a district's Adjustment Aid one year can be different from what it was the previous year and therefore there is _some_ unpredictability, although it would not be a large budgetary amount for most districts except the ones whose Adjustment Aid totals are large. (Freehold Regional got 191% of its Uncapped Aid/+$2,255 pp in 2018-19, so it does have a pretty large deficit)

I agree, the DOE must release Uncapped Aid amounts well in advance of the March budget, but the Freehold Regional superintendent opposes all state aid redistribution from his district and he, the Old Bridge superintendent, the Toms River superintendent, and the Brick superintendent have attacked the legitimacy of SFRA itself, said blatantly wrong things about SFRA, and denied the budgetary necessity of redistribution. In contrast to most North Jersey aid-losing districts, they have painted their districts as victims of an abusive, arbitrary, cruel school funding law.

For instance, they've said that the lack of a reval allows some districts to keep more state aid. That's 100% untrue without a kernel of truth. Brick and Toms River have also said that SFRA isn’t sensitive to Hurricane Sandy’s damage, which also is completely untrue (it’s just that the districts are overaided anyway) Wildwood City’s superintendent has also said that SFRA doesn’t take into account Wildwood’s high-FRL rate, which is also totally untrue.

They've exaggerated the effects of PILOTing, which I agree is a distortion, but no matter what NJ did with its PILOT law, Toms River, Old Bridge, Freehold Regional, and Brick would not gain any state aid even if Jersey City lost a few tens of millions more and the ceiling of state aid were lowered for underaided/heavy PILOT districts like Atlantic City and Newark.

Finally, the Toms River, Brick, and Wildwood superintendents don’t acknowledge how damn favorable SFRA is to them due to their having so much second-home property. The median district in NJ would pay a Local Fair Share that equals a 1.4% tax rate. Brick and Toms River would pay 1.2% and Wildwood City would only pay a 0.8% tax rate (and that last amount disregards WC’s Send-Receive districts)

StateAidGuy said...

I fear that by undermining the legitimacy of SFRA so much, the superintendents of Brick, Old Bridge, Freehold Regional, and Toms River will make it even harder for their communities to accept paying their full Local Fair Shares.

About the DOE ... some of the lack of transparency is probably their fault (like the non-release of Uncapped Aid), but the lately in the release of state aid is probably an executive branch decision. The governor could release state aid earlier in the year if he wanted to.

About Steve Sweeney and the legislature …

“Of course, it's not just the governor who needs to be held accountable. In the past, NJ legislators have put out their own proposals -- but often without any explanation as to how they arrived at their aid distributions to districts.”

Sweeney and his team did explain the methods of distribution in 2017-18, 2018-19, and in S2, but it is the media’s fault for not picking it up because it is too technical and too much of a detail for them.

For 2017-18, IIRC every district that was getting less than 70% of its Uncapped Aid got 20% percent closer to that target.
For 2018-19 the attempt was to get every district to 58% funding and indeed over 100 districts got this exact amount.
In 2018-19 there were 16 mostly large districts who got less than 58% because the budget did not allow their increase to that level and their increases were capped. Woodbridge was the lowest funded in percentage terms, at 42%. (I don't think any of these districts complained because they were so happy to have increases and they knew that in the future they would have the largest proportional increases in NJ)

For 2019-20 S2 was followed, where every district’s gain is equal to its percentage of the 2019-20 statewide deficit, so a district whose deficit was 1% would gain 1% of all new aid.

New aid cannot be predicted in advance because it depends on the economy, tax increases/decreases, and the governor’s budgetary priorities. I think it is just realistic that S2 guarantees that new aid is allocated fairly, but acknowledges it cannot promise how much new aid there will be.