New Jersey Loses its Way on Equity in Education Funding

Victor K (Flickr)

In New Jersey, the best of intentions go awry when education policy ignores how property taxes impact needy communities.

Regularly near the top of state rankings of education spending, New Jersey is often seen as a bastion of progressive school funding policies. True, the state spends quite a lot on education, especially in high-poverty, urban areas. But look at where some of that money comes from, and a far more troubling picture starts to emerge.

EdBuild recently released Building Equity: Fairness in Property Tax Effort for Education, a report comparing property tax rates in poorer and more affluent communities. Of the 18 states we studied, New Jersey stood out for its notoriously high property taxes — and for how much more poor and middle class communities were paying compared to the most affluent. Here, we take a closer look at how New Jersey’s tax policy ended up harming the very communities that the state’s education policy was meant to benefit.

Progressive intentions

New Jersey’s generous school funding system is a result of decades of litigation and orders from the state Supreme Court. The Abbott cases, beginning with Abbott v. Burke in 1981, challenged the constitutionality of the state’s wide funding disparities between poor urban and wealthy suburban districts. As a result, the state started giving extra funding to particular urban districts — an ad-hoc way of making the system more equitable.

In 2008, New Jersey tried to standardize a generous and progressive funding policy by enacting a new education funding formula. The formula prescribes at least $11,000 for every student — more than any other state’s policy — and additional funding for low-income students, English-language learners, and special education students. Low-income students in particular get about 50% more funding.

New Jersey’s approach to school funding is supported by a large and growing body of evidence showing how more money can benefit students in need. Studies show that additional funding can close achievement gaps between low-income students and their more affluent peers. New Jersey’s formula is also designed to provide that extra money on a sliding scale, so that low-income students living in areas of concentrated poverty get more funding. This is in line with research showing that kids growing up in such communities face challenges above and beyond those associated with poverty alone.

Though implementation of this policy hasn’t been perfect, New Jersey now nearly leads the pack when it comes to education spending. Even after accounting for the state’s high cost of living, New Jersey spends over $18,500 per student when all the state funding is taken into account.

Abbott’s double-edged sword

When it comes to how the state distributes education funding, New Jersey’s reputation for progressiveness is well deserved. But there’s a more troubling picture on the other side of education funding: where the money comes from. EdBuild’s latest report found that New Jersey’s property taxes for education are very high, and the tax burden is regressive — it falls most heavily on the communities that are less able to pay. (For more on New Jersey’s property taxes for education, read our case study, beginning on page 48 of the full Building Equity report.)

Ironically, it was the state’s response to Abbott that produced both its progressive funding formula and its regressive property tax system. Initially, the state simply set aside extra money for the 28 “poorer urban” districts (out of New Jersey’s nearly 600 total districts) named in the case. But even in 1981, those 28 districts (later expanded to 31) weren’t an exhaustive list of New Jersey’s needy communities. And since the first case, some “Abbott districts,” like Hoboken, have grown much wealthier, while some non-Abbott districts, like Atlantic City, have seen student poverty rates spike. As a result, “Abbott aid” isn’t reliably reaching New Jersey’s neediest students.

Apart from this special aid, the state’s current funding formula, with its extra funding for low-income students, is meant to ensure that students have the funding they need wherever they attend school. But the formula was passed on the eve of the Great Recession and hasn’t been fully funded since 2009. This school year, New Jersey’s education system as a whole received nearly $1 billion less than what the formula calls for.

Cuts to state education aid almost always hurt poor districts the most, and New Jersey is no exception. When state aid goes down, districts are left to make up the difference from local property taxes, and property-poor districts must tax themselves at higher rates than wealthier districts in order to raise enough money.

While court mandates have protected Abbott districts from the steepest cuts, most of New Jersey’s poor and middle-class districts were not so fortunate. Our analysis suggests that poor, non-Abbott districts are paying far more than their fair share of local property taxes. Even with the extra funding for Abbott districts, New Jersey’s property taxes are markedly regressive. When we focus on non-Abbott districts, the trend gets even worse. By every measure of local wealth — general property value, income, home values — it’s the communities that can least afford it that are paying more than their fair share.

Fair funding and fair taxation

New Jerseyans have long been frustrated by their high property tax bills. And they’re right. The state’s taxes are strikingly high. Even worse, New Jersey’s high property taxes fall most heavily on poor and middle class communities while exempting the state’s most affluent. New Jersey has made a concerted effort to provide the low-income students with the resources they need to succeed. But the state’s property tax system only adds to the struggles of needy families and communities.

New Jersey is a clear example of how progressive intentions can go awry when it comes to education funding. Even an ambitious funding formula is not enough to guarantee that poor and middle class communities come out ahead. When so much of education funding comes from property taxes — a frequently regressive form of taxation — equitable education funding and fair taxation don’t always go hand in hand. Without a system that encourages a fair distribution of the tax burden, it’s the kids in the poorest communities who will pay.

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