A School Board Member’s Guide to NJ’s New School Funding Formula

A School Board Member’s Guide
to NJ’s New School Funding Formula

On Jan. 13, Gov. Corzine signed into law the School Funding Reform Act of 2008, the state’s new school-funding formula. To help school board members communicate about the new system, NJSBA has prepared a list of frequently asked questions.

How will the new funding law affect my district’s proposed budget for 2008-2009?

For 2008-2009, state aid increases will range from 2 percent to 20 percent. You can find your district’s percentage and dollar increases at NJSBA’s School Funding Web page and selecting “District-by-District State Aid Profiles, by county” from the left-hand column.

Why are some districts receiving larger increases than others?

Your district’s aid is based on numerous factors. Among the most significant are –

Enrollment increases or decreases.
Your district’s wealth compared to that of other communities.
The number of students in special education and the number “at risk” due to poverty.
Your district’s current spending level as compared to its “adequacy budget.” (Your district’s adequacy budget is the expenditure level that the formula says is necessary for it to provide a thorough and efficient education.)
Whether your community’s school property tax levy is above or below its “fair share,” that is, the amount that the formula says it should contribute toward the adequacy budget.

How is my district’s state aid calculated?

Here’s a simplified explanation of how the formula works:

Step 1: Your district’s adequacy budget. The formula assigns a dollar figure to the cost of educating each student. For 2008-2009, it will use a per-pupil adequacy amount of $9,649 for an elementary school student. The adequacy number increases for students in the middle and high school grades. Weights are added to represent the cost of educating each special education pupil, every “at-risk” student, and every limited English proficient student. The formula applies a regional cost adjustment, by county. The per-pupil numbers are then added together, resulting in your district’s adequacy budget.

Step 2: Your district’s “fair share.” This figure determines how much your district must contribute toward its adequacy budget through local property taxes. To do this, the state calculates the district’s wealth, relative to that of other communities. The wealth calculation is based equally on two factors: your community’s property values and the income of its residents.

Step 3: Subtract your “fair share” from the adequacy budget. The result is your district’s state “equalization aid.” Other types of state aid will be distributed on a “categorical” basis—that is per pupil, regardless of community wealth. These categorical aids include some special education funding, all transportation aid and a new program, school security aid.

Step 4: Adjustment. If your district’s equalization aid and its categorical funding fall short of the total state money it received in 2007-2008, then it is eligible for “adjustment aid.” Adjustment aid will ensure that your district receives at least a 2 percent increase in state aid for 2008-2009.

My district currently spends above the adequacy budget. Will this formula force it to reduce its spending?

A district may spend more than its adequacy budget. However, a district will receive no state aid for expenditures above the adequacy budget.

My business administrator tells me that the state funding we can budget in 2008-2009 is about 2.8 percent greater than our current state aid. Yet, the Department of Education’s aid profile shows a 10 percent funding increase for my district.

Your BA is correct. Approximately 120 school districts will have to direct a portion of their aid increase toward reducing their communities’ school property tax rates. Districts in this category meet two criteria: They currently spend more than their adequacy budgets, and they have school tax levies greater than their fair share. Such districts will be able to retain at minimum a portion of their aid increase equivalent to the rate of inflation (approximately 2.8 percent).

But I thought this was supposed to be a school funding formula, not a property tax reduction bill.

We did too. An adequate, reliable and sustainable funding formula is NJSBA’s goal. We’re all for property tax reform, but education aid should go to the classroom first. In fact, when the state provides more aid to school districts, it allows them to reduce the amount of local property taxes needed to retain or add needed programs. So, in essence, state aid is property tax relief, and this rigid giveback provision is an unnecessary complication. However, a number of legislators insisted on it as a trade-off for their support of the plan.

My district is slated for a 20 percent increase in aid. How much will we have to direct toward property tax reduction?

None of it. You may budget all of your aid increase in 2008-2009. Districts slated for 11 percent to 20 percent state aid increases are spending below their adequacy budgets and, therefore, are not subject to the giveback provision. In districts slated for aid increases of 10 percent or less, board members should ask their business administrators if, and how much of, the increase must be applied to property tax reduction.

When the governor calls this a “unified” funding formula, what does he mean?

The School Funding Reform Act of 2008 is designed to apply to all school districts—Abbott and non-Abbott. The state Supreme Court had declared the previous formula, the Comprehensive Educational Improvement and Financing Act (CEIFA), unconstitutional as applied to the 31 Abbott districts. So, for the five years (1997-98 through 2001-02) that CEIFA operated, it was used only in the non-Abbott districts.

One of the administration’s methods to attain a constitutionally valid funding formula is by giving added weight to the education of at-risk students, nearly half of whom live in non-Abbott districts. Additionally, the system will distribute a larger share of state aid on an equalized (or wealth-factored) basis and less on a wealth-blind categorical basis.

Governor Corzine has presented the new law to the state Supreme Court for a preliminary ruling on its constitutionality. However, a court decision is not needed for the formula to go into effect.

Why did New Jersey establish a new funding formula?

Part of the administration’s reason for designing a new funding system was to attain a unified formula. The other was to save local school districts from annual uncertainty over state aid.

In 2002, because of chronic revenue shortfalls, New Jersey all but abandoned the CEIFA formula. Since then, state school aid has been set through the Legislature’s annual budget process, rather than by a consistent formula. The result was six years of stagnant state aid that did not keep up with rising costs in many districts. In addition, without a funding formula, the state made no adjustment for enrollment growth/decline or for changes in districts’ relative wealth.

So, what’s the good news?

A $530 million statewide increase in education aid will result in a significant infusion of funds to many moderate- and middle-income districts. The School Funding Reform Act recognizes the additional resources needed to educate at-risk students. It factors full-day kindergarten, rather than half-day kindergarten, into the adequacy budget. In addition, it guarantees that no district will lose state aid in the future unless its enrollment declines by 5 percent or more within one year.

What’s the bad news?

Major concerns about the law include a change in special education funding and the size of the adjustment aid increases.

The new law will distribute approximately two-thirds of special education aid on a wealth basis. Up to now, school districts have received special education aid for each eligible student regardless of community wealth. A September 2007 NJSBA study showed no correlation between disability and wealth and recommended against distributing special education funding on a wealth basis. School districts currently provide 57 percent of the cost of state and federally required special education. This provision may increase that share for many districts.

The 2 percent guaranteed aid increase for 2008-2009, while better than a cut, will not cover the growth in fixed costs borne by many districts during the past six years of flat funding.

Where did NJSBA stand?

From the start, NJSBA called for adequate review and deliberation. However, the administration remained committed to gaining final legislative approval before the start of the new legislative session on Jan. 8.

During committee hearings and in meetings with individual lawmakers, NJSBA cited opposition to basing special education aid on community wealth, forcing some districts to direct part of their aid increases to property tax reduction, and other provisions.

NJSBA did not support the bill because of these concerns. However, as a strategy, it did not ask the Legislature to postpone action. Such a move would likely have jeopardized the $530 million aid increase and/or the guaranteed 2 percent adjustment. It also could have resulted in no formula at all and another year of flat funding for all districts.