A Closer Look at Jersey City’s School Tax Rate. Part 2: Statewide Comparisons & the Role of the Tax Base

This is the second in a 4-part series about 2018 school tax rates, with a focus on Jersey City. This series will use public data that I have visualized in Tableau here. To read the first post in the series, click here.

“How does Jersey City’s school tax rate compare with the rest of New Jersey?”  The answer: Jersey City has a comparatively low school tax rate compared with the rest of the state. We can see this from several different perspectives, which I’ll detail below. Also, we can glean insight into why Jersey City has such a low school tax rate by looking at the role of the tax base in the school tax formula.

Let’s dig into the public data.

School Tax Rates: NJ State Average vs. Jersey City

There are 565 municipalities in NJ, each of which has a school tax “rate”. Recall that the school tax rate is computed as follows:

School Tax Rate = School Tax Levy / Tax Base Value

The average school tax rate among all 565 municipalities in New Jersey is:

1.40%.

Jersey City ranks near the bottom of the list; its school tax rate is:

0.36%

In fact, if you ranked all the municipalities in order, from highest school tax rate to lowest school tax rate, Jersey City would rank 532nd out of 565 in the state. Listed below are the 40 towns and cities in NJ with the lowest school tax rates. Some of these towns don’t even have a school tax levy, thus their school tax rate is 0%.

What about bigger cities? How does Jersey City compare?

Now let’s look at this through the prism of the tax base; how does Jersey City compare to other big municipalities in New Jersey, like Edison and Newark?

Jersey City has the largest tax base in the entire state; in fact it’s nearly double the size of the second-largest, Edison Township. Here are the 10 largest towns and cities in the state, as sorted by tax base value, and their respective school tax rates:

10 Largest NJ Municipalities, Ranked by Tax Base Value

We can see that, except for Ocean City and Hoboken, Jersey City’s school tax rate is much lower than larger municipalities in NJ. If we sort this “top 10 tax base” list from highest to lowest by school tax rate, here’s what we see:

The 10 largest municipalities (as measured by tax base value), ranked in order of school tax rate (highest to lowest rate).

The reason any of this is worth writing about is: Jersey City is in the midst of a devastating public school funding crisis; this, despite having the largest tax base in the state from which to draw public monies to fund the schools.

Why is Jersey City’s tax rate so low?

A major factor driving Jersey City’s school tax rate down is the tax base. To understand this, we have to revisit numerator/denominator math. Recall that the school tax rate formula is:

School Tax Rate = School Tax Levy / Tax Base

Let’s look at the denominator of this formula – the tax base – over the past several years. It’s been growing rapidly:

Now let’s look at the numerator – the school tax levy. That has been relatively flat over the same time period (the chart below is from a previous post on CivicParent):

Bringing it together – Basic Division Math with the School Tax Levy & Tax Base

So the basic divisional math of the school tax rate is illustrating a very problematic, structural problem in Jersey City: our tax base (the denominator) is growing very rapidly, but the school tax levy (the numerator) – the money that is needed, and in fact mandated by the state, to fund our schools – is not growing at nearly the same rate. Basic division dictates: if your denominator grows faster than your numerator, then the ratio, or fraction, decreases over time. And this is exactly what’s happening with our school tax rate.

Jersey City has a structural, fiscal imbalance reflected in a DECREASING SCHOOL TAX RATE as shown below:

There are two ways we can look at Jersey City’s decreasing school tax rate:

  1. Jersey City has been locally defunding its public schools over time by growing its tax base at a much greater pace than the school tax levy.
  2. Jersey City has been locally defunding its public schools over time by not growing its local tax levy at the same rate as the tax base.

These two views are like two sides of the same coin. The state has arguably been part of the problem; it imposed a 2% growth cap on Jersey City’s school tax levy until recently, so even if the BOE had wanted to address this local funding problem in years past, it was legally restricted from doing so by the state. This prohibited the proactive growth of the school tax levy, while Jersey City’s tax base grew.

The state finally removed this restriction in the summer of 2018, when it passed NJ S2.  Starting last spring, the BOE could have raised the local school tax levy to any amount needed. The BOE chose to raise the local levy by only $12 million, which was not enough to counteract the trend (Jersey City’s school tax is set to fall – yet again – in 2019, which I’ll explain in my next post).

This local fiscal imbalance is masked, in part, by the complicated overlay of state “adjustment” aid, which for the past 10 years has subsidized Jersey City’s local fiscal imbalance. But, as adjustment aid is removed in phased increments over the next 5-6 years from Jersey City, the curtain will be pulled back even further on this local fiscal imbalance.

How do we fix this structural imbalance reflected in the school tax rate?

This is not an easy problem to solve; it’s not like replacing a shutter on the side of your house. This is a complicated, structural problem, like needing to shore up a support beam in the middle of your house that is being eaten up by termites. Part of the solution requires building the scaffolding needed simply to assess the problem; that scaffolding must include public awareness and education about this issue.

Here are some closing observations:

  • The Jersey City Board of Education cannot control the denominator of the school tax rate, ie the tax base; that is more or less the purview of the city administration (eg city planning, zoning, etc) and the city council.
  • The Jersey City Board of Education can control the numerator of the school tax formula, ie the school tax levy.
  • Beginning in 2019 (last spring), the Board of Education was finally authorized, by the state, with legal authority to raise the school tax levy as high as it needed to (ie the 2% cap was removed). So the Jersey City Board of Education can, if it wants, choose to increase the school tax rate going forward…whether it will remains to be seen with next year’s budget process.

I’ll get into the school tax levy in more detail in my next post (the 3rd of this 4-part series). Until then – check out 2018 property tax data, including school tax rates, tax base values, and tax levies, in my Tableau visualization here.

Posted in Data Visualizations, JCPS Funding Crisis, NJ Education Data, NJ Property Tax Data.