School Funding & Property Tax 202: The School Tax Levy

This is part of series about school funding, property tax, and community in Jersey City. To read other posts in this series, click here

In my previous post, I wrote about the tax base: what it is, how we can find its value in public records, and how Jersey City's value compares with other towns and cities in NJ. We saw that Jersey City's tax base is the largest in the entire state, at $34.6 billion in 2018.

Now let's look at the tax levy. We can glean insight into spending priorities in a community by looking at their tax levies.  For example, in Jersey City in 2018, about 50% of the total tax levy went to the city, another 26% went to the county, and only 24% went to the public schools. There are varying reasons for different allocations in different towns and cities, but the funding ultimately reflects the priorities, and vice versa as cycles of spending repeat over time in a structural fashion.  Disrupting such structural funding patterns can sometimes require external pressure, as is happening in Jersey City in 2018/19 with the state reducing public school aid...if the state's aid goes down, and we don't replace it with local school funding, our local schools will not be funded. And this will lead to more cuts...as we lower expenses to match available revenues (since all government programs must be funded with available revenues).

Jersey City taxpayers must decide in the coming months: do we want to increase local school taxes to fund the schools, or not increase local school taxes and continually cut the schools budget? Understanding the levies, and what exactly we are funding, is key to helping us understand the implications of what lies ahead.

Let's get civic & break it down.

Base vs. Levy vs. Rate...

A quick primer on key tax terms...

The tax levy simply means "the amount raised by taxes to fund the budget." We raise these funds from the tax base. Think of the tax base as a basin of water, and the tax rate as a valve, or spigot, and the tax levy as the water that is released from the basin. The larger the rate, the looser the spigot...and MORE levy funds are allowed to flow from the tax base. The smaller the rate, the tighter the spigot...and LESS levy funds are allowed to flow from the tax base.

The "levy" is an aggregate, citywide term, meaning the only place you'll find the "levy" is in city budget document. You won't see the levy on your tax bill. You will, however, see the tax rate on your tax bill, because the RATE is what is used to compute your tax bill...but...the rate is dependent on the levy.

So...this is all a little bit interconnected, but we can endeavor to untangle the pieces a bit, look at each in isolation, and also put them back together as an interconnected whole to glean insight into the bigger picture. In my next post I'll look at the rate in more detail, but for now let's look more closely at the levy.

First steps to understand the levy.

Let's go back to what each of us is most familiar with...our own property. You get a bill in the mail, and it contains a rate, and that rate is multiplied times your home's value, the result of which is your tax expense. THAT tax expense - YOUR tax expense - is a tiny, fractional sliver of the tax levy.

But what happens next, after you send your bill into the government?  What happens to your check once it arrives at City Hall? How is it used to help fund the government? Actually, what are we funding, anyway? And also...how are they even coming up with the rates you see on your bill in the first place?  These are all reasonable questions that are core to understanding how, and how well, our local government is functioning.

The "Tax Levy" is the sum-total of property tax...

...that funds the services used by the community.

The first step of figuring out "where does the levy come from?" is figuring out: what services are needed?  Fire, police, road maintenance? Residence response centers? After school programming? Parades and festivals?  Schools?  These are all services that we, the public, consume. Arguably, some of these are imperative needs (like police, fire, and schools). And some of these are wants (like parades and festivals). Ultimately, what we fund is a community decision, and it reflects our priorities as a community.

Once the priorities of "what to fund" are established, the next step is determining how to fund it all. Some funds are reliably predictable, like user-based fees such as marriage licenses, building permits, parking fines, and so on. These are recurring services consumed in the ordinary course of civic life. Other funds can be sought out...are there grants for after-school programming? Are local citizens groups helping pay for parades and festivals? Are there federal grants for locally-based programming that can be applied for? How much aid is the state of NJ providing this year?  And so on.

When all revenues are locked in, the final bucket of funding to lock down is the tax levy. The tax levy can be thought of as "the funding of last resort" because it is used to cover all expenses that other sources of funding (e.g. fees, grants, aid, etc) won't cover. Once this tax levy amount is known, we divide the tax levy into the tax base, and voilà!  We have the new tax rate. Recall that our property tax rate formula is:

Property Tax Rate = Tax Levy / Tax Base

It's not uncommon for taxpayers to know the tax rate, but be unaware of the tax levy or tax base. That's because the tax rate is what is applied to our property in order to compute our tax expense. I'll go over more about the rate in my next post, "103: The Tax Rate."

The Budgeting Process: A Simple Example

(The basic nuts & bolts to illustrate the math...)

The Tax Levy is open, public data

Tax Levy details are published on city & state websites

Since the tax levy and the tax base are interconnected, we find them in the same open documents available on city and state websites. So, if you've read my previous post about the tax base, this next section may seem familiar.

There are two primary locations to learn about the tax levy, and this applies for any municipality in NJ, including Jersey City.

Source 1: The User Friendly Budget. This is a variation of the typical budget document that municipalities are required to submit to the state each year as part of the budgeting and reporting process. The budget is called "user friendly" because it contains more detail and specificity than the long-form budget that is also available on the city website.  Tax levy data is accounted for in the "UFB-1 Tax Impact" tab of the User Friendly Budget.  The User Friendly Budget was put into place in 2015 as part of a GASB (Government Accounting Standards Board) update that I wrote about here.  You can access Jersey City's User Friendly Budget via MS Excel download at this link, which is located on the "Financial Reports" page of the city website.  A quick note: the municipal levy is comprised of the municipal purpose tax, the municipal library tax, and the municipal open space tax. Similarly, the county has a 2-line item break-out.

Jersey City's 2018 "User Friendly Budget" is located on the city website

Source 2. The NJ Division of Local Government Services "Property Tax Information" page. NJ provides property tax data in annual spreadsheet (e.g. .CSV, MS Excel files) for years as far back as 1998. The site is updated annually with new files that are added to the existing list of files. You can access that link here.

Our property tax funds 3 areas of government

Those are: 1-Schools, 2-City, and 3-County

Our property taxes fund three different tax levies.

If you look at your tax bill, you'll notice a "Distribution of Taxes" section that shows the breakout of a rate by certain categories, which may include: County Tax, District School Tax, Local School Tax, County Open Space, Municipal Tax, Municipal Library, and Municipal Open Space. What this breakout is effectively showing you is that your tax bill is paying for a combination of SCHOOL, COUNTY, and CITY services. What is *not* visible on your tax bill is the total tax levy being funded; that information is visible in each separate budget, or you can see a sum-total of each levy included in the User Friendly Budget (which I referenced in my previous post in this series, "101: The Tax Base").

Jersey City's 3 Levies

Some initial observations...

2018 Jersey City Public Schools Levy

Here is the summary of operating revenues for Jersey City's 2018 Public Schools budget.   What's notable is how small the local revenues are as compared to the state revenues. The local levy in 2018 was only $125 million, or about 22%, of the $550 million operating budget. Yet the state aid was over $420 million, or about 75% of the $550 million operating budget. As I wrote about here, Trenton legislators have already decided to incrementally lower Jersey City's state aid by $150 million+ over the next 7 years. As that aid is reduced, the local school tax levy will need to grow...this is a big structural challenge, and one of the reasons I'm writing this series. We need, as a community, to understand and grapple with this needed local school tax levy growth.

2018 Jersey City "Municipal" Levy

Here is the summary of revenues for Jersey City's 2018 municipal budget ("municipal" is the local, city or town government).   You can see, there are many sources of funding, including existing funds ("surplus"), local revenues (e.g parking permits, marriage licenses), "special" revenue items which include abatement fees aka PILOTs, and delinquent taxes (these are taxes that were due in a prior year).

A note on the abatement PILOT funds. Those total $140 million in 2018, and are located in the "Section G - Other Special Items" line item of the budget page shown below.  None of those funds support the public schools.

2018 Hudson County Levy

Here is the summary of revenues for Hudson County's 2018 County budget.   The county budget is funded by the 11 municipalities within Hudson County, which include:  1) Bayonne, 2) Hoboken, 3) Jersey City, 4) Kearney, 5) Union City, 6) West New York, 7) Guttenberg, 8) Secaucus, 9) Harrison, 10) East Newark, 11) North Bergen, 12) Weehawken. In 2018, Jersey City's share of the Hudson County tax levy was $135 million; we can find this information on the User Friendly Budget, which I referenced above. Each town and city throughout NJ will have its own User Friendly Budget, including the 11 other municipalities in Hudson County.

Different towns have different spending priorities

These spending priorities are reflected in the tax levies.

In Jersey City, 50% of property tax goes to the city. Only 24% of property tax goes to the schools.

In Jersey City, about 50% of the 2017 tax dollars went to the city, another 26% went to the county, and only 24% went to the public schools. We can contrast Jersey City's funding priorities with other municipalities in NJ, and we'll see a different mix...for instance, in Montclair, the schools received 56% of the tax dollars, the city received 26%, and the county received 17%.  These allocations are reflections of myriad factors that ultimately reflect the community's priorities.

You can compare and contrasts any town in NJ below, which is taken from tax data on the Division of Local Government Services website.

Over time, a greater share of Jersey City's tax dollars have gone to the municipality (City Hall).

We can also see how spending priorities have changed over time, by looking at how these levy allocations have changed over time. For instance, in Jersey City, the city started receiving a greater proportion of tax dollars starting in the mid-2000's. This trend flat-lined from 2010 to 2012, then up-ticked again in 2013.

Again, you can compare and contrasts any town in NJ below, which is taken from tax data on the Division of Local Government Services website.

Jersey City has a "local school tax levy gap"

Our local school tax is too low

Jersey City's "local levy gap" has created a financial emergency for our public schools.

There are myriad reasons why a community may distribute its tax dollars differently among school, city, and county services. What I want to emphasize here is: we should understand this allocation. Ultimately, the community should be driving the allocation. And, at times, the allocation may be forced to undergo a change, as is happening in Jersey City.

In Jersey City, the schools receive the smallest allocation of tax dollars. This means they are the least supported type of service in our city, in terms of local taxpayer dollars. As I explained here, the retraction of state education aid represents a threat to our school system, and ultimately our city; state aid must be replaced with the funders of last resort...the local taxpayers, otherwise our schools will collapse due to lack of funds.

The question for taxpayers is: are we willing and able to increase our school tax levy, and if we are, do we need to change how much we are giving the city? These are important questions with huge impact. They require a community-wide dialog, and consensus around our spending priorities.

In my next post I'll peel back one more layer of the onion, and dive into the tax rate. I'll provide that link once it's published.

Additional reading:

"School Funding & Property Tax 201: The Tax Base" by CivicParent
"The Great Abbott Tax Freeze" by NJ Education Aid