By Danielle Farrie
In 2009, when the New Jersey Supreme Court signed-off on the constitutionality of the State’s newly enacted funding formula – the School Funding Reform Act (SFRA) – the Justices accepted the State’s commitment to provide the aid required by the formula for three years and then review and retool the formula to ensure optimal operation going forward.
Yet, in the current school year, more than half the state’s students attend schools that have less funding than what the formula defines as necessary for a constitutional “thorough and efficient” education. As a result of funding cuts during former Governor Chris Christie’s two terms, the number of New Jersey school districts funded below “adequacy” under the SFRA has grown from 136 to 187. Large gaps in state formula aid, lagging local revenue, and restrictive property tax caps have taken a toll: more students are now educated in inadequately funded schools than when the SFRA formula was first implemented in the 2008-09 school year. View interactive tools examining state aid and local funding in below adequacy districts.
On three occasions over the last decade, the State has failed to rigorously review and retool the formula to meet changes in education costs and policy, even though this review is required by the SFRA law. A comprehensive review would no doubt have resulted in higher district adequacy levels and therefore even more districts below adequacy.
There are three major issues State lawmakers and administration officials must address to put the SFRA back on a path to full adequacy funding:
1. The Three-Year Formula Review
The SFRA is unique in requiring the Commissioner of Education to conduct a thorough “look back” analysis every three years to determine whether the formula is continuing to meet the needs of students. Based on that analysis, the Commissioner can recommend adjustments to the base student cost, weights for low-income and English language learner (ELL) students, and categorical aids for preschool, special education and security. The Supreme Court relied on the State’s commitment to rigorously review the formula “to keep the SFRA operating at its optimal level.”
The three separate reviews conducted by the State since 2009, including the 2019 Educational Adequacy Report (EAR) issued by Governor Phil Murphy’s administration, did nothing more than update the base cost, weights and aid amounts using more recent salary and benefits data. These reviews did not evaluate the impact of changes to the State’s content and performance standards and new programmatic mandates. As a result, the formula’s current adequacy levels do not accurately reflect district needs and obligations, but rather are largely based on costs derived from fifteen-year-old studies.
The next SFRA review must be issued by the Commissioner in time to be incorporated into the FY23 State budget. It is imperative that the upcoming analysis is rigorous and thorough and determines whether the formula’s resource models make it possible for districts to deliver current academic standards and meet new mandates, including standardized testing, anti-bullying requirements and lead testing. Based on this analysis, the Commissioner can propose appropriate adjustments to the base costs and weights for at-risk and ELL students that account for more than increases in salary and benefits.
The review also offers a long overdue opportunity to examine preschool education costs. With the expansion of preschool beyond the 31 Abbott districts, a thorough analysis of current costs is needed to determine whether preschool per pupil aid amounts are sufficient to provide a high-quality program in district, private provider or Head Start classrooms. For many reasons, – including growing salary obligations as preschool teachers gain experience and move up the salary scale, a policy change on funding for wraparound services, and program expansion to communities outside the urban centers – this requires in-depth study to ensure all preschool programs, whether new or decades-old, have the resources necessary to meet the state’s exemplary quality standards.
2. Special Education Funding
The SFRA uses the controversial census-based system for funding special education. Districts are not funded based on the actual number of students classified as special education, but rather on the statewide average classification rate. Districts also receive per pupil funding using the average excess cost for special education students. This system ignores significant variations in both overall classification rates and the uneven distribution of high- and low-cost disabilities across districts.
The SFRA law mandated a review of the census funding method, resulting in an 2011 independent study. The study made no conclusive findings, but instead recommended that the State: 1) fully fund special education based on the census method; 2) collect data in a manner suitable for further study; and 3) conduct an analysis of special education enrollment patterns and costs.
Many districts identify special education underfunding as a major problem. There is widespread agreement that a detailed analysis of the census method is long overdue to determine whether this method should be continued or replaced with a funding system based on actual pupil counts and special education costs related to classification category.
3. Local Fair Share
Like other finance formulas, the SFRA assigns responsibility for raising the revenue required for adequate funding to both the State and local communities. When developing the SFRA, the Administration decided to maintain the same system for determining State contribution and “Local Fair Share” (LFS) that was used in the prior formula. The SFRA law did, however, commit to a review of the Local Fair Share (LFS) in the new formula. But in 2010, this requirement was eliminated by the Christie Administration.
The LFS calculation has placed more of a burden on communities over the past decade. Under the SFRA, the State’s share of the wealth-equalized portion of the adequacy budget, known as Equalization Aid, is fixed and indexed only to inflation and enrollment growth. If the per pupil costs in the formula grow faster than inflation, which they typically do, the burden for providing additional revenue falls to the local taxpayer. From 2009 to 2020, the State share of a fully funded SFRA adequacy budget fell from 38% to 34%. If the State share had remained at the 2009 level, nearly a billion dollars in funding for the SFRA would have shifted from the local taxpayer to the State.
Another problem is the effect of property tax caps. There are now 167 districts with local revenue below their LFS, up from 136 districts in 2009. Many of these districts are unable to reach their LFS because the tax cap prevents them from raising taxes by more than 2% annually.
A total of 510 districts saw their LFS increase by more than 2% this year. In fact, the state average increase in the LFS from 2018-19 to 2019-20 was 7.5%, well over the 2% increase imposed by the cap. The tax cap prevents these districts from raising the local revenue required for adequacy. The tax cap impact is even more acute in districts facing state aid cuts under recent amendments to the SFRA in Senate Bill 2 (2018). For districts below adequacy, the state aid cuts combined with limitations on new local revenue will drop them even further below adequacy.
Finally, the SFRA did not provide relief to districts in municipal overburden, that is, with a total tax burden well above the state average. While the Legislature recently exempted districts in municipal overburden from state aid cuts under Senate Bill 2, the SFRA fails to recognize that these districts lack the local tax capacity to raise enough revenue to fully fund their adequacy budgets.
A study of the LFS in the SFRA is urgently needed. The Legislature should empower a task force, with sufficient expertise, to examine the impact of the LFS on districts’ ability to provide a thorough and efficient education.
Restoring New Jersey’s Leadership on School Funding
New Jersey is a national model for adequate school funding. However, a fair funding system must be responsive to changes in curriculum and other policy matters. So that New Jersey remains a leader in fair funding, lawmakers and State education officials must take immediate steps to ensure that the core components of the school funding system are meeting the needs of students, schools and educators.
Danielle Farrie is Research Director at Education Law Center.
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