TESTIMONY

REGIONALIZATION AND SHARED SERVICES: What Works.

Presented to the Joint Committee on Consolidation and Shared Services
By Eva Nagy
NJSBA Vice President for Legislation/Resolutions

Good morning, Chairman Smith, Chairman Wisniewski and members of the committee. My name is Eva Nagy, and I am the Vice President for Legislation/Resolutions for the New Jersey School Boards Association. We welcome the opportunity to discuss the issues of consolidation and shared services.

In spite of what you might have read in a recent newspaper story, NJSBA supports regionalizing school districts. However, we also believe in self-determination by local voters; regionalization is not something that should be foisted upon them by representatives in Trenton. In addition, we believe communities that explore consolidation should perform feasibility studies to demonstrate to taxpayers that the regionalization will save money.

That's because in some cases regionalization can reduce taxes, and in some cases it can increase taxes.

As legislators, you've heard the simple solution from some in the press and public: Fewer school districts means fewer school administrators, and therefore property taxes would go down.

It's a simplistic solution, and one that, unfortunately, can prove wrong. Simply reducing the number of school districts does not guarantee across-the-board property tax relief. There are a number of efforts that could ease the property tax burden throughout the state. Consolidation is not one of them.

We need to look no further than the most recent statewide study of regionalization, a 1999 report by the state Assembly Task Force on School District Regionalization. The authors of the report recommended that school district mergers remain a local decision. They also concluded, and I quote:

"Not every school district is conducive to a regionalized agreement ... School regionalization does not automatically reap major savings or improve the quality of education. In fact, some studies have shown the converse."

The Task Force found cases of small, one-school districts that operated extremely efficiently--and cases of large districts that didn't. In short, you can't make the connection between regional school districts and lower property taxes.

That's because there are a host of other cost-drivers that must be taken into account.

• One major issue is the impact on salary scales.  State law (N.J.S.A.18A:6-31.4) requires that the teachers contract that was in place in the largest school district before consolidation becomes the new contract for everyone in the newly formed regional. This could have a serious financial impact when a K-12 school system is formed by merging a large regional high-school district and its smaller elementary-school feeder districts. When we compare the salary guides of smaller K-6 and K-8 districts to large K-12 districts, we find the larger districts consistently have higher salaries.  In short, any savings in administrative costs would most likely be counteracted by the rank-and-file staff "ramping up" to a better-paying contract. Where does the funding come from to cover these increases? 

Earlier this month, our Association sponsored a forum on consolidation.  Speakers included supporters of the concept, including Dr. Ernest Reock, former director of the Rutgers Bureau of Government Services. But even Dr. Reock noted that the estimated cost savings that he cited in his studies on school district consolidation did not take into account changes in salary grades. As he noted, quote: “Salary grades almost always go up.”

The 1999 Assembly Task Force study also noted that creating new, larger school districts could result in more student transportation costs--another cost that could offset any savings from eliminating one or more superintendent positions.

• Tax Apportionment is another major obstacle to regionalization. Virtually every time that school districts explore regionalization, they find it changes the apportionment of costs, or the total amount that each community pays toward public schools. Whether apportionment is based on the number of pupils or total valuation of each community, we typically find that one town's taxes will go down, while the tax in another district goes up. When you regionalize, there will be winners ... and there will be losers.

In the past 20 years, only three districts have regionalized. But that doesn't mean that school officials aren't interested in consolidation. Historically, the plans die on the vine. Or, if they do reach the voters, the proposals meet defeat at the polls.

Financial factors played a role in stopping recent regionalization initiatives between Andover Regional and Green Township in Sussex County ... and in West Morris Regional, Chester Township Consolidated, Mendham Township, Mendham Borough and Washington Township in Morris County.  Recently, the Farmingdale school district in Monmouth County responded to residents’ suggestions, and explored merging with neighboring Howell Township. The district found that the merger would result in sharply increased costs for Farmingdale property taxpayers.

Other studies have found savings so limited as to not make the change worth the effort. This experience was shared by Lakeland Regional High School, Ringwood and Wanaque in Passaic County; as well as Boonton Township and Mountain Lakes in Morris County.

Apportionment and salary guides are two of the major obstacles to regionalization. There are more:

• Schools districts risk losing any cost-savings they achieved in the area of employee benefits. We've documented numerous cases where districts saved millions by negotiating third-party health benefit contracts.  But what happens to those cost savings when a district takes on a larger district's contract settlement? Who picks up the tab for the increase?

• School district debt is another issue. Many school board members say a major impediment to merging is the neighboring district's outstanding debt. This could be a obstacle especially when consolidation proposals involve fast-growing suburban districts that have taken on major construction and renovation projects.

• We also question transferring the purchasing and procurement authority from individual school boards to a county superintendent. Could existing, multi-year contracts be cancelled in favor of newer, larger ones? If so, is there any guarantee that savings in existing contracts can, or will, be matched? We also question the level of staffing in the County Superintendent offices. Can the Department of Education provide adequate resources to meet the challenge of making operating decisions for all of the public schools across the state?

We all seek a solution to high property taxes. From the NJSBA's perspective, the root of the problem lies in the fact that New Jersey's state aid to local schools is among the lowest in the nation. The State of New Jersey covers 38 percent of the cost of public education, where the average state pays 50 percent. We believe the remedy is moving toward a more progressive, state-level revenue source to fund schools--one that is matched dollar-for-dollar by a decrease in property taxes.

But this committee is charged with exploring consolidation and shared services. You're looking for solutions, not resistance. That’s why we propose the following changes to encourage cost efficiency and consolidation where it brings educational and financial benefits.

If indeed we move toward regional districts, three important points need to be stressed.

1) We must remove financial barriers to consolidation

To take consolidation proposals beyond the planning stage, the Legislature should create a state aid program, or amend current statute, to mitigate the spikes in property taxes that typically result from regionalizing school districts.

We believe incentives at the state level would enable communities to study the educational and financial impact of mergers. Such incentives have been available in the past, most recently through grants provided by the Regional Efficiency Program Incentives (REDI) program. A large number of school districts conducted studies of regionalization as a result of the grants.

Such feasibility studies are an essential first step for communities to identify the benefits and the drawbacks of school district mergers. Without them, citizen will not be armed with the information they need to determine the value of consolidation.

2) We should encourage, but not mandate, consolidation

For consolidation to work, we need the buy-in from the communities that will be affected. 

The Assembly's own Task Force on School District Regionalization supported this concept, saying that: 

"The decision to regionalize should be made on a case-by-case basis, since it is apparent through the testimony received by the Assembly Task Force that school district regionalization does not necessarily result in cost-savings across the board."

3) We should focus on shared services

The Task Force made it clear that once districts are in regional systems, it can be an overwhelming task to withdraw. Rather than locking school districts into regional systems, the Legislature could achieve great "bang for the buck" by encouraging shared services among school districts and municipalities.

Last year in my home county, the Somerset County Business Partnership estimated that shared services among school districts, municipalities and county agencies saved county taxpayers $13.6 million. To the south of us, the Middlesex Regional Educational Services Commission generated $29 million in savings last year to school districts in 12 different counties. And in 2001, the Regionalization Efficiency Aid Program recognized 352 new shared-service agreements involving local school districts.

More can be done. These types of cost-saving efforts can be implemented through current configurations—without forcing consolidation and risking higher costs and changes in tax rates.

School districts are keenly interested in sharing services. The potential for growth is enormous. The state Legislature should give priority to establishing an incentive program, similar to REDI and REAP, that would give schools and municipalities the tools to realize the full benefit of shared services.

The New Jersey School Boards Association is currently engaged in a year-long study of shared services among school districts and municipalities. The project will identify best practices, as well as legislative and regulatory obstacles to shared services. We look forward to sharing the result with the Legislature.

In early 2004, Governor McGreevey charged Education Commissioner William Librera with developing plans to abolish non-operating districts and encourage consolidation–or at least consolidating services–among small districts. But in news reports, Librera himself showed that the Department of Education had learned the lesson of past regionalization campaigns. “Blanket endorsement of regionalization doesn’t work,” he said, adding that, “Blanket indictments of small schools doesn’t work … We cannot go in with a one-size-fits-all solution” (Star-Ledger 1/14/04)

Time and again, we've seen that consolidation is not the cure-all for high property taxes. Regionalizing school districts sounds like a simple solution, but the reality proves otherwise. If you decide that New Jersey has too many school districts, that's one issue. But suggesting that reducing the number of districts automatically yields great cost savings is an entirely different story.

We ask the Legislature to work toward meaningful change ... change that is proven to lower property taxes, change that not only safeguards the ability of voters to determine what occurs in their communities, but also safeguards the quality of our public schools.

I thank you for inviting me to testify today, and I would be happy to answer any questions you may have.

NJSBA CORE BELIEFS ON CONSOLIDATION AND SHARED SERVICES

NJSBA believes shared services continue to provide a flexible, collaborative, cost-effective method to enhance educational opportunities for all students, and must remain a local option.

NJSBA believes school districts are most effectively managed at the local level. Local school boards represent their communities and, therefore, are uniquely qualified to address the needs of their students and staff. Effective local school district management requires the cooperation of the state to provide support, technical assistance and necessary resources.

NJSBA believes that regionalization must be voluntary, driven by the educational needs of each community’s students, and reflect the will of the local citizenry. Research shows regionalization does not necessarily lead to economic benefits or increased student achievement.

NJSBA believes that school board elections must remain independent and apart from partisan elections because our children’s education is not a partisan issue.

NJSBA believes that it is in the best interest of communities and public education for proposed school budgets at or below the state-mandated spending cap to be granted automatic state/local approval.

NJSBA POLICY ON CONSOLIDATION AND SHARED SERVICES

The NJSBA has been involved in an ongoing internal dialogue on the issue of school district consolidation and shared services for many years and has a multitude of policy statements in its Manual on Positions and Policies on these issues. The Manual is a compilation of policy statements written and voted on by NJSBA members through a process called the Delegate Assembly, wherein each school board in the state may submit resolutions for consideration and is allotted one vote per school board on each resolution. Policy may also be formulated at the NJSBA Board of Directors. The following are the policies on school district consolidation and shared services:

• The NJSBA believes that school districts' sharing of services and cooperation with municipal and county governments can benefit all parties and should be encouraged and facilitated, including but not limited to, joint purchasing and insurance.
• The NJSBA believes that the State departments and agencies should encourage sharing of services by providing technical assistance, and the paying of financial incentives directly to the participating school districts, and municipal and county governments. [Authority: DA 12/91-CR QEA, DA11/95 CR Shared Services, DA 5/01-SR, DA 11/02-4 DA 5/06-SR]
• The NJSBA believes that it should work with the state department of education and other state associations to identify models of shared management services through the consolidation of administrative positions; and encourage districts to explore the sharing of management services by consolidating positions which could include but not be limited to the chief school administrator, business administrator, curriculum supervisors and special education supervisor. The state department of education should establish guidelines to ensure protection for participating districts and personnel. [Authority: DA 11/95-CR Shared Services, DA 5/01-SR, DA 11/01-SR, DA 11/01-SR, DA 11/02-3, DA- 5/06-SR]

• The NJSBA believes that when districts determine after thorough study that regionalization would provide educational and/or financial benefits to the districts involved, they should be encouraged to regionalize. [Authority: DA 10/79-CR Regionalization, DA 12/80-CR Deregionalization, DA 12/91-1, DA 11/98 SR]
• The NJSBA believes that the Commissioner of Education and the State Board of Education should be prohibited from ordering the merger, consolidation or regionalization of two or more existing school districts without a prior public referendum in each of the affected districts approving such action provided that any such legislation should not permit the denial of rights guaranteed under the Constitution of the United States or the State of New Jersey. [Authority: DA 5/72-1, 1a, DA 10/79-CR Regionalization, DA 12/80-CR Deregionalization, BD 1/81, DA 11/98-CR (School Finance)]
• The NJSBA believes that prior to the submission of a regionalization proposal by any district or districts which desire to join with any other district or districts and become an all-purpose or limited-purpose regional school district, all of the districts involved should be required to participate in a study of the proposed regionalization. The study of the proposed regionalization shall include, but not be limited to the following factors: enrollment trends, goals, philosophy, board member apportionment, racial balance, education program, tax rates, and long-range implications of regionalization. All findings and conclusions of the study shall be forwarded to the County Superintendent who shall consider these in his/her determination as to the advisability of regionalization. State aid should be provided for regionalization studies. [Authority: DA 12/80-CR Deregionalization, DA 12/91-1, DA 11/98-CR (School Finance)]
• The NJSBA believes there should be a ten-year phase in of any increase in the tax levy of a constituent member of a newly-formed regional school district that results from the manner in which costs are apportioned among the members of a regional school district under current statute. [Authority: DA 10/79-CR Regionalization, DA 12/91-1, DA 11/98-CR (School Finance)]
• The NJSBA believes that annual school elections, including the election of candidates, should not be conducted on or near the date of any partisan election. [Authority: BD 5/05, BD 5/06]
  

Fact Sheet - New Jersey School Districts by Grade Organization

School Districts

K-6................................................................................................... 62

K-8................................................................................................. 222

K-12............................................................................................... 220

7-12.................................................................................................. 16

9-12.................................................................................................. 31

County Special Services Districts......................................................... 8

County Vocational School Districts.................................................... 21

Send-All (non-operating) districts....................................................... 23

Total School Districts................................................................................... 603

Other Education Units
Educational Services Commissions..................................................... 11
Jointures.............................................................................................. 3

Total Local Education Agencies.................................................................. 617