JC BOE Used Incorrect Tax Base Value in Its 2019/20 Budget: Explaining the Tax Math

The Jersey City Board of Education used an incorrect tax base value in its budget presentation. It then based its estimated per-homeowner school tax increase estimates on that error. This NJ.com report gives the initial report of the error:

“The 2019-20 budget will increase the school tax levy by 10 percent to $136.5 million. The school district says that amounts to a $320 increase for the owner of a home with an average, $439,000 assessment. Local activist group Jersey City Together says that number is really about $155. The group notes that the district’s budget presentation on the tax hike cites the city’s rateable base as $16.7 billion, when it’s actually $34.3 billion.”

It’s important for parents, public schools stakeholders, and taxpayers to understand the implications of using the wrong tax base value. Especially since our tax base growth – which has been rapidly increasing in value in the past few years – is one key factor in our declining state aid. The tax base is foundational to this entire school funding dialog.

JC BOE Used Incorrect Tax Base Value in Its 2019/20 Budget: Explaining the Tax Math

First…A Primer on the Tax Base.

The tax base is the sum-total of all the property in the city subject to property tax. I wrote an in-depth post about Jersey City’s tax base here if you’re interested in understanding the tax base, as a topic, in more detail (including how to find it in public documents). What’s important to know for this post is: Jersey City’s 2018 tax base value was $34,014,551,210, or $34 billion. .

But…the BOE said in its budget documents that the tax base was worth $16,659,648,010, or $16 billion. They understated the tax base by $17,354,903,200, or by $17 billion. The BOE then reported to the public – via its Public Board Docs presentation and The Jersey Journal – that the per-homeowner tax increases would be based on the $16 billion tax base value, instead of the correct $34 billion tax base value.

Let’s walk through the ripple effects caused by this error.

Understanding the Error

When the BOE strikes its budget each year, it includes information like the local school tax levy, the tax base (also called the “Rateables” which is shorthand for “property subject to tax rates”) and the average home value in Jersey City.  The idea is to show taxpayers what the new school tax expense will be, using an average home as one example.

Here’s what this data looks like in the 2019/20 proposed budget (I’ve also called out where the incorrect numbers are):

Now, with this data in mind, let’s examine the implications of an incorrect tax base (aka “Rateables”) value. I’m providing two views of the way a school tax hike is arrived at; a bullet list and also a tabular view. In both, I’ve highlighted the tax base in RED to illustrate how it’s inside the guts of this budgetary process.

Using the correct tax base value:

1-The average home value used by the BOE in this year’s budget presentation was $439,789.

2-The BOE raised the local school tax levy by $12,137,347 to $136,504704.

3-The correct tax base value is $34 billion.

4-We compute the school tax rate by dividing the levy into the tax base, or:

School Tax Levy / Tax Base = $136 Million / $34 Billion = 0.40%

5-We then take the school tax rate and multiply it times the home value, or:

    • Home Value x School Tax Rate = $439,789 x 0.40% = $1,747.
    • This represents a $155 increase over the prior year.

Here’s what the above bullet points look like in a table:

Click to enlarge in new browser window.

Using the incorrect tax base value:

Now let’s swap out the correct tax base value with the incorrect tax base value used by the BOE. We’ll keep all other facts the same:

1-The average home value used by the BOE in this year’s budget presentation was $439,789 (same as above)

2-The BOE raised the local school tax levy by $12,137,347 to $136,504,704 (same as above)

3-The incorrect tax base value used by the BOE was $16 billion. (this is a mistake)

The incorrect tax base is then used to compute an incorrect school tax rate:

4-We compute the school tax rate by dividing the levy into the tax base, or:

School Tax Levy / Tax Base = $136 Million / $16 Billion = 0.82% (this is not correct)

The incorrect school tax rate is then used to compute an incorrect school tax expense:

5-We then take the incorrect school tax rate and multiply it times the home value, or:

Home Value x School Tax Rate = $439,789 x 0.82% = $3,604 (this is not correct)

This represents a $320 increase over the prior year, but it’s based on the wrong tax base value, and this is why it’s an erroneously high increase.

Here’s what the above bullet points look like in a table:

Click to enlarge in new browser window.

What’s Next?

As of the writing of this post, the BOE hasn’t explained why it has a $16 billion tax base value in its budget presentation. But for now I wanted to share what happened from a tax/math point of view. More to come…stay tuned.

Update…

The BOE held this vote on May 13th, I published this post on May 15th, and now it’s May 17th.  I assumed we would know now, nearly 5 days after the erroneous info was published, why the BOE used the wrong tax base number in its budget presentation. That they’d provide an explanation. I was trying to avoid jumping into a rabbit hole, hoping there would be an explanation from the district.

It’s a curiosity to say the least… so some reasonable civic questions in, as a follow up, include:

1) what process was used to construct the budget and how much oversight is this BOE really providing on our funding?

2) did the BOE intend to vote on a ~$12M Levy increase with an average $155/month tax hike per homeowner or a ~$25M Levy increase with an average $320/month tax hike per homeowner?

3) if the answer to #2 is the former but they actually voted on the latter, did the BOE tip its collective hand that they would have actually been willing to pass a $320/month school tax hike on to taxpayers (a $25M Levy increase), ie did they erroneously miss out on opportunity to raise additional local funds via the school tax levy, thus preventing layoffs?

If you would like to see the computations above (in the tabular formats), you can find them in this Google Sheet that I made public here.

 

 

Posted in Advocate, JCPS Funding Crisis, Property Taxes, Public Data FAQ.