State Aid Part 2

You've seen the headline "Hillsborough Schools to Lose 913K in State Aid Next Year". For most of my fellow residents, the reaction was likely, "Well there goes my taxes!" Yet that couldn't be further from the truth.

Before we get into why that is it's important to know how we got here. In a previous post, I explained how for years after the School Funding Reform Act (SFRA) was passed in 2008 Hillsborough was consistently underfunded in state aid. In other words, when all of the calculations were complete involving town wealth, local fair share, and "adequacy" - and a state aid figure was derived for Hillsborough - we never received that full amount. I recall regularly reporting shortfalls for several years of five and six million dollars.

This sad accounting reached a peak around the 2012-13 school year when the funding formula said Hillsborough's Local Fair Share should be around $70 million, but because of years of state aid underfunding the local tax levy was up around $78 million. That was just to keep funding programs, transportation, utilities, wages, and health insurance - nothing special.

Then something incredible happened. The very next year the SFRA formula said that Hillsborough could now afford to pay $78 million - more than a 10% jump in one year. Two years after that Local Fair Share had miraculously risen to nearly $93 million! An increase of nearly 30% in three years. Today Hillsborough's expected Local Fair Share is over $100 million.

New Jersey school districts generally have a state-imposed tax levy cap of 2% per year. This is not a cap on the tax rate or a cap on what any individual property taxpayer might pay. It is a cap on the total amount of taxes that can be collected for the general fund. (If voters have approved other funding measures - a bond issue for construction, for example - that is separate).

Here is where the disconnect comes in. The state looks at the formula - and let's pretend that we can trust the formula - and decides that Hillsborough doesn't need all of that state aid - and they want it back. That's what has been happening for the past five years. Think of it like this - the water has been running out of the tub faster than we can fill it up. 

A loss in state aid does not mean higher taxes because it CAN'T mean higher taxes. That's capped. More construction, more developments, and more ratables coming online doesn't mean increased funding for the schools because it CAN'T mean increased funding for the schools. It's capped.

Years ago I proposed a solution that would have helped Hillsborough and other districts plan better for state aid fluctuations. I will outline that in a future post.