NJ School Funding Basics: “Adequacy” Budget, School Tax Levy, & the Impact of Inflation (A Case Study of Jersey City)

This article is about Jersey City’s public schools funding crisis. If you’re unfamiliar with this issue, you can read more about it here.

I’ve been attempting to de-puzzle some of the tax math that is vexing Jersey City with respect to its public school funding crisis, and have found three factors that deserve public scrutiny and understanding.

• Jersey City Public Schools’ “adequacy” budget
• Jersey City’s school tax levy
• The impact of inflation

I’m going to share some numbers about these three factors, in the hopes to further the public dialog around this issue. This post is not so much a conclusion of any discernible bigger picture but rather an attempt to lift up three very important puzzle pieces and try to better understand how they fit together.

The “Adequacy” Budget

Each year, a district has TWO budgets: (1) the budget that is passed via public vote and (2) the “adequacy” budget.

The budget that is passed is via public vote is what we typically read about in the newspapers; it’s the actual budget that is expected to be in effect for the coming year.

The adequacy budget, however, is determined by the state, via a complicated formula rooted in state law that you can read about here.  The law is called the School Funding Reform Act of 2008 (“SFRA”) and it aims to quantify, in dollar terms, what it costs to provide students in each district a “thorough and efficient education”, referred to as “T&E” by education policy experts. “T&E” is cited in the NJ state constitution, thus it’s important from both legal and policy perspectives.

SFRA lists out major components of K-12 funding aimed at addressing needs specific to the district’s community:

1. Base cost to educate a child
2. At-risk cost (cost for services for “at risk” students, where “at risk” is defined as students who qualify for free or reduced lunch)
3. LEP cost (the cost for services for “limited English proficient” students)
4. Combination cost (cost for services who are both at-risk and LEP)
5. Special Education costs
6. Security costs
7. Transportation Costs

SFRA looks at the students in the district, and it builds up a budget based on the needs of those students, within the district. The formula is, in effect, a progressive mechanism aimed at funding the needs specific to the school district. For instance, school districts with higher numbers of English language learning students will have a higher LEP cost. Districts with higher rates of free and reduced lunch will have higher at-risk costs. Districts within communities plagued by higher rates of violent crime may need higher levels of security funding. SFRA employs a “weighted student average” to build up the cost by district; you can read more about that here. [*For more details about SFRA and how it works, I recommend the Education Law Center, which writes extensively about SFRA, as well as NJ Education Aid, an education blog written by Jeff Bennett, a former Board of Education trustee in South Orange/Maplewood school district. In an attempt to not let perfection be the enemy of the good, I’ve attempted to provide a brief, broad brushstrokes explanation of how SFRA and “adequacy” function, but I recommend these other sources for more detailed insights and explanation.]

With this idea of “adequacy” in mind, let’s pivot back to Jersey City’s funding crisis.

In 2008, Jersey City’s Adequacy Budget was $503,662,712, and rather than re-type how that number is arrived at, I’ll just show you the screen shot of the calculation, pulled from the 2008/09 Hudson County district adequacy report available from the NJ Department of Education website:

Now let’s fast-forward to 2018-19. Jersey City’s SFRA-computed Adequacy Budget for 2018/19 had grown to $630,597,524. We can see that number here (in a different format from the 2008/09 report, but with the bottom line “adequacy” number included):

So — big picture, Jersey City’s Adequacy Budget grew :

• from $504 million in 2008/09…
• to about $630 million in 2018/19…
• which constituted a 25% increase of about $126 million.

Before we leave this topic of “adequacy”, two final points:

1. For the past few years, Jersey City’s APPROVED K-12 budget was below the adequacy budget. The Education Law Center wrote about that fact last year here.
2. “Adequacy” budgets are not regularly available in the public domain. I had to file an OPRA request to obtain the 2018/19 adequacy budgets from the NJ Department of Education, and transparently speaking, I don’t understand most of the details, other that the bottom line meaning of “adequacy” (which I understand in broad brushstrokes). I’m sharing here, via Google Drive, all the adequacy reports I OPRA’d, in case others are interested in digging into the details more than I am in this post. The NJ DOE was rapid in its response; you can quickly file an OPRA request with them here.

The Impact of Inflation

Now…let’s look at inflation, because a school district is laden with inflationary costs. The biggest line item expense in any school district budget is…people, i.e. salaries.  We can see these salary costs explicitly in union contract salary guides (in addition, arguably, to raises above and beyond inflation depending on the union, the guide “step”, etc.). But the main point here is: workers in general have an expectation of (or at least a hope for) year-on-year salary increases at least to cover inflation.

The Bureau of Labor Statistics (BLS) is a federal agency that publishes Consumer Price Index (“CPI”) data which is a widely used measure that tracks inflation or deflation over time. I’m not an economist so don’t want to get too into the weeds on this, but rather just want to highlight: costs of living are in a continuous rate of flux, often upwardly so, and those costs factor into school district costs as well. The costs impact expectations that teachers, paras, and other professionals in the school district have around year-on-year salary increases, and they also factor into products and services that the district must purchase (e.g. supplies, equipment, etc). For example, here’s the Bureau of Labor Statistics’ year-on-year CPI percentage change over the last 20 years, for selected categories of spending:

For the most part, the CPI’s rate of change goes up over time. And this trend factors into our public budgets too (arguably one of myriad factors).

So let’s look at the impact of inflation from 2008/09 to 2018/19, to tie this back into the picture of “adequacy” for our city’s school kids.

• In 2008/09, the BLS reported an average annual CPI of 215.
• In 2018/19 the average annual CPI had increased to 251.
• So the total inflationary increase over this period was (251-215)/215 = 16%.

If we tie this 16% inflationary increase back into our 24% adequacy budget increase, we can surmise, roughly speaking, that inflation is an important factor to consider in our school funding paradigm.

Jersey City’s School Tax Levy

Now let’s look at Jersey City’s school tax levy over this same period, 2008/09 to 2018/19. I wrote a separate post about the school tax levy here, so please check that out if you need a primer on what the school tax levy is and how it’s funded.

• In 2008/09, Jersey City’s School tax levy was $91,773,145…
• And by 2018/19 it had increased to $123,593,307…
• Which is a 10-year increase of 34% increase of about $32 million.

The local levy is a technical term for “amount raised by property taxes” and so the school tax levy is the amount we all pay in taxes that help fund the public schools. An important note here is: when you pay your tax bill, you’re writing one check, mailing it to the city (or it’s being automatically paid to the city via your mortgage), but when the city gets your money, it then turns around, keeps some of it, and also shares some your payment with the County and the Schools. Your property taxes help fund three distinct, separate local governments called the Municipality (e.g. Jersey City), the County (e.g. Hudson County), and the Schools (e.g. Jersey City Public Schools).

We can see that Jersey City’s local school tax levy increased 34% from 2008/09 to 2018/19…a pace that exceeded inflation. But…how did levy growth compare, dollar-for-dollar, with adequacy growth?

Adequacy Budget + Inflation + School Tax Levy = Related Puzzle Pieces in Funding Crisis

To understand the levy and its impact, let’s recap the facts thus far. We can see that, from 2008/09 to 2018/19:

• The adequacy budget for Jersey City’s 30,000 kids increased $120 million, or 24%,
• Inflation increased about 16% over this time period, and
• Jersey City’s primary local funding mechanism, the school tax levy, increased $32 million, or 34%.

These three facts help shed light on a structural weakness in the way our city funds and supports our schools. The size of our local levy is, structurally speaking, too small compared with our adequacy budget. The pace of growth in the levy (34%) exceeded the pace of total inflation (16%), but the local levy’s dollar-for-dollar growth came nowhere close to covering our adequacy budget. Meaning: our local levy growth of $32 million was woefully “inadequate” when compared with the SFRA Adequacy budget growth of $120 million. We can see this visually below, by charting the 2008/09 versus 2018/19 amounts for both “Adequacy” and the local levy:

There are many reasons as to the “why” our local levy is so inadequate, including:

• The local levy was disproportionately low in 2008/09 when SFRA was first implemented. In fact this is why “Adjustment Aid” was first introduced, to help a district like Jersey City “phase in” to the local funding requirements of SFRA.
• In 2010, the state passed a 2% local levy cap that restricted local school boards from passing local levy increases greater than 2%. In effect, the state limited Jersey City’s capacity to address this local funding problem.
• But, related to the point above, the state did grant certain exceptions to the 2% levy cap, including “Banked Cap“, which allowed districts to exceed the 2% levy cap if certain costs (e.g. district healthcare) required it. Jersey City did not always avail itself of its allowable banked cap, meaning it didn’t increase it’s local levy even when it had explicit permission to do so. This nearly occurred last year…in the lead-up to the budget approval process in April 2018, a group of concerned parents with Jersey City Together pushed the Board of Education to spend its allowable banked cap, which resulted in a local levy increase above and beyond the 2% cap.
• Similar to the point above about banked cap, the Board of Education didn’t always increase the local levy cap to the full 2%, even though it was allowed to. If we look at the local levies for the past 10 years, we can see varying rates of increase, some less than 2%:

Next Steps

We are expecting massive cuts in state aid to Jersey City’s Public Schools budget – potentially as much as $27 million in 2019/20 alone. As those state revenues go away, we must come to grips with whether we (a) replace them with local revenues or (b) continue to budget ourselves into a fiscal ditch that is increasingly “inadequate” with respect to SFRA.

One thing is clear: we must focus on local revenues if are to meaningfully address the funding problem. The alternative is to keep cutting away from our district’s adequacy requirements.

As a parent I see under-funding as an insidiously complicated problem. It’s complicated through a confined, quantitative prism, given the interplay of state aid, local taxes, and the SFRA funding formula. But then when we layer on the politics, the various stakeholder groups, and so on, the complications seem to take on infinite twists and turns.

As a parent though I’m confident in one assertion: we need a solid public school system in Jersey City. And that requires funding. Just like we cannot run a car without gasoline, we cannot run a school system without adequate funding. And…in my opinion we should not be striving to “make do” on less each year.  We should be aiming to fund our schools as if our kids truly matter. Because they do matter, all of them, in every school in the city.

More to come on this in the coming weeks but for now wanted to share these thoughts and insights.