Let’s Talk about NJ’s Education Spending Accurately

(And Does NJ Neglect Non-Education Spending?)

When New Jerseyans talk about New Jersey’s education spending, there is a widespread assumption that New Jersey’s per pupil spending is among the highest in the nation.  Not everyone knows exactly what the amount is, nor our exact ranking, but residents are correct that New Jersey’s spending is relatively high.  

There are different ways to measure education spending (more on that below), but according to the National Education Association, New Jersey’s education spending is the second highest in the United States, after New York State, at $22,557 per student.  Our spending is significantly behind New York’s $25,296 per student, but well above the national average of $14,732 per student.

Those who follow education spending more closely may know that NJ’s education spending is also the 2nd highest in the United States as a percentage of GDP.  The National Science Board pegs us at #2, at 4.46% of GDP, and even the Education Law Center (when writing for a national audience) agrees and puts us at #2, although it uses a different measure and puts our spending at 5.39% of GDP.

Despite NJ’s extremely high rate of education spending and its neglect of non-education spending (more on the neglect will appear below), several high-profile groups—including the Education Law Center and the New Jersey Policy Perspective– constantly demand more.

Some Spending Isn’t Spending

One way the Education Law Center and New Jersey Policy Perspective diminish how high NJ’s education spending is by excluding a lot of spending from our spending.

In their recent appeal for higher spending for African-American and Latino students,  Mark Weber and Bruce Baker also use a measure that excludes pension, Social Security,  and debt spending in their measure of New Jersey’s spending without telling their readers they are doing this.

For instance, Baker and Weber give the following for spending in the ten African-American majority districts they focus on.

But these measures are much lower than the NJ DOE’s “Total Spending Per Pupil” and do not include all of the money spent on education in those districts and spending categories. Total Spending Per Pupil is the comprehensive measure of district spending and includes all types of district spending, including debt servicing, and is thus a more accurate measure.

*Lawnside’s data is likely erroneous.

At the very least, people like Baker and Weber who write about cost measurements that exclude significant categories of spending should explain what they are doing.

The Education Law Center openly declares that it thinks pension spending, Social Security spending, debt aid, and everything else included in the DOE’s Total Spending Per Student don’t count as spending.

Governor Christie trots out a number he calls “total spending per pupil.” This measure was first concocted when he took office in 2010, but had never before been used by educators, legislators, school finance experts or anyone else to calculate spending on currently enrolled students. To support his fabricated narrative of high spending, the Governor includes in his numbers significant fixed and legacy costs that do not pay for the teachers, support staff, curricular materials, building maintenance or operation of the educational program for students enrolled in districts during the school year.

The ELC has been aggressive with journalists saying that pensions and debt don’t count as spending.  (See minute 5:20)

Similarly, Baker says on Twitter that he only counts “current operating expenses,” in his spending measures.

The problem is that “current operating expenses” and “legacy expenses” are terms-of-art whose meanings lack clear conceptual boundaries.

Pensions, Social Security, Pension Obligation Bonds, and Post Retirement Healthcare DO pay for teachers and support staff since “educational programs” are staffed by people who get pensions, Social Security, and post-retirement healthcare.  

The ELC swats away pensions as a “legacy cost,” when teachers (rightfully) see it as _deferred compensation_.  Likewise, the ELC categorizes debt payments for construction as a “legacy cost” when construction debt pays for the school buildings that are still being used in the current budget year.  So “legacy costs” do cover things necessary to maintain the education workforce and to give kids a physical place to learn.  Social Security payments are PAYGO entirely.

Baker thinks of pensions, Social Security, and debt servicing as something other than “operating expenses,” but if teachers didn’t get pensions and Social Security, they wouldn’t “operate” either.  If a school doesn’t have a building, then it can’t “operate.”  

However you categorize and label pensions, Social Security, post-retirement healthcare and debt, they are very large categories of state and district spending that cannot be ignored.

In FY2022, Teachers Pension And Annuity spending will be $2.9 billion, Post-retirement healthcare will be $915 million, Teachers Social Security will be $840 million, Debt Service on Pension Obligation Bonds is $268 million.  (See FY2022 Budget, H-1.)

So in conclusion, a discussion of New Jersey’s education spending better include all of New Jersey’s education spending.

Diminishing NJ’s Existing Spending to Argue for More Spending

Another method of diminishing NJ’s education spending is to emphasize or exclusively use Fiscal Effort, not inflation-adjusted dollars per student.  Thus, NJPP writers Bruce Baker and Mark Weber emphasize historical education spending as a percentage of GDP because the spending looks like New Jersey’s education spending has been decreasing since 2010. 

They use the measure by state GDP because if you measure NJ’s education spending in inflation-adjusted dollars per student, it increases almost every year.

Measuring education spending as a percentage of GDP even allows Baker and Weber to say things like this of the post-Great Recession period, “changes to overall state and local revenue have not translated to full restoration of funding to New Jersey’s schools,” when, in dollars-per-student, education funding levels are already higher than ever.

Fiscal Effort is Incomplete

Fiscal Effort is a valid measure for education spending, but what is potentially misleading about it is that it is subject to denominator effects due to economic expansion or contraction. Hence, changes in Fiscal Effort don’t necessarily imply anything about resources available to students.  

Hence, NJ’s Fiscal Effort grew in the 2009-2010 period because of the crashing state economy in the Great Recession, not because New Jersey was increasing education spending much at the time.

An additional limit of FIscal Effort’s meaningfulness is that student enrollment can shrink.  NJ’s student enrollment has slowly drifted slightly lower since 2006 while its overall population and economy have grown.  Hence, part of the decrease in Fiscal Effort is appropriate because we have fewer students.

Finally, the Fiscal Effort history is misleading because in the peak Fiscal Effort year of the Great Recession, New Jersey spent over $1 billion in federal stimulus money which was repackaged through the state funding formula as state aid.  As the state DOE said,  

“Approximately $1.057 billion [was] used to implement the new school funding formula enacted by the School Funding Reform Act of 2008 (SFRA).”

To their credit, Baker and Weber frankly acknowledge in a follow-up paper, “School Resources, Revenue, and Taxes,” NJ’s Fiscal Effort is extremely high relative to the national average and they acknowledged that NJ’s spending in high-poverty districts is very high, but they don’t give a state-by-state  comparison of spending in dollars per student or interstate comparison of Fiscal Effort. (See page 7).

The Tax Cap Worked

Bruce Baker and Mark Weber are correct that NJ’s Fiscal Effort has fallen from a decade ago, but a reason NJ’s Fiscal Effort has fallen is simply the 2.0% tax cap that passed in 2010.  Lower Fiscal Effort is thus not a failure of state policy, but a success. 

Prior to the 2010 tax cap, NJ’s property taxes had risen by 7% a year compared to 2000s inflation averaging 2.5%, but the tax cap capped that at 2%, with minor wiggle room upwards for health insurance, emergencies, debt, and enrollment growth.  Since inflation averaged 2% a year during the 2010s and enrollment fell slightly, the tax cap succeeded in capping the growth of school budgets.  

If education spending is your central aim of public policy like it seems to be for Weber and Baker, then the tax cap is bad since it inhibits education spending, but if you see stabilizing property taxes as a worthy goal too, then the tax cap is a good thing. 

NJ’s Budgetary Neglect of Everything Else

It’s wrong to see education spending as being “poor students versus taxpayers.”  

First, New Jersey has unneeded state aid for high-wealth districts and families.  In 2021-22, New Jersey will give $167 million to districts whose Local Fair Share exceeds 150% of their Adequacy Budgets, plus hundreds of millions more in indirect aid like TPAF, Social Security, debt servicing, and post-retirement healthcare.  New Jersey also spends tens of millions a year on “free” PreK for affluent children in Hoboken, Jersey City, and increasingly many suburbs  Some of the $120 million NJ spends on private school subsidies also are spent on behalf of very wealthy students.  Thus, there are considerable savings to be found by reducing state payments going to the rich and affluent.

Second, the issue is also “students versus low-income people in general,” or “students versus poor towns.”

I’ll start by talking about other Property Tax Relief Fund items, since it’s more clear-cut that they have been crowded out by education spending increases.

Since 2001, municipal aid has been flat-funded at $1.5 billion per year, with minimal fluctuation since 2008.  Even FY2022’s flush budget kept municipal aid frozen.  

The category “Other Local Aid” has been essentially flat-funded too.  If you visit an urban park in New Jersey, notice decay, and wonder why the state doesn’t help, the answer is that it does, but NJ’s “Grants for Urban Parks” was a grand total of $2.5 million in FY2021.  If you wish NJ’s libraries in any town had better services and wonder if the state is helping, the answer is that it does, to the amount of $7.4 million in library aid. Statewide (see H-2).

Many worthy things get tiny amounts of money. The Newark Museum gets $500,000. (see H-2)

The ten host towns for the school districts (below) that Baker and Weber focus on have all seen their municipal aid cut.  (these amounts are not inflation adjusted, but inflation was 27.45%)

The NJ State Government also retains $660 million a year in energy taxes that it originally only collected on behalf of municipalities, a practice which only began in 2001.

The flat-funding of municipal aid and retention of energy taxes pressures municipalities into doing things which are highly detrimental to low-income people, like levying high fees for permits and high fines for infractions.  

Baker and Weber rightly condemn high taxes in their focus towns (even though they contradict themselves by calling for additional state aid to be spent, as opposed to being used for tax offsets), but where those towns are overtaxed is on the municipal side more than than school side.  The ten towns Baker and Weber focus on have higher than average school taxes (by 0.22 points) but their municipal taxes are excruciatingly high (by 1.02 points).  Municipal Overburden is mostly about municipal taxes.

Also relevant to the Property Tax Relief Fund, New Jersey comically kept property tax values used to calculate the Homestead Benefit frozen at 2006 levels.  Also, while the state recently lifted the property tax deduction from $10,000 to $15,000, increased breaks for veterans, created a new $500 per household rebate, raised the EITC, the state’s direct tax rebates program that most residents use has still been neglected.

General Fund Items Affected Too

The majority of New Jersey’s state education money comes from the income tax, but education has started to get moneys that previously went to the General Fund.  As mentioned, starting in 2006, New Jersey raised the sales tax by a cent, and applied half a cent of sales tax to education (which was against Jon Corzine’s original proposal).  In 2017 New Jersey transferred the lottery to pensions, most of which goes to the Teachers Pension And Annuity Fund (TPAF).

The sales tax and lottery transfers are large amounts of money.  The FY2022 Sales Tax Dedication is $882 million and the Lottery Transfer to TPAF is $852 million.  (See the FY2022 Budget, C-8 and H-2)

Thus, indirectly-but-definitely, education spending is related to New Jersey’s underfunding of General Fund obligations too.  

For instance, New Jersey’s subsidy for public higher education is merely average for the 50 states (ranked 22nd in 2018), despite New Jersey being a very wealthy and high-tax state.  New Jersey Transit has serious budgetary woes and must use the capital budget for operating expenses.  New Jersey has been raiding affordable housing funds and green energy funds for years too.  New Jersey has not so far come up with money for transformative recreational opportunities like the Essex-Hudson Greenway or Jersey City’s 6th Street Embankment.

Capping the highways that damaged towns like East Orange (seen below), Irvington, Orange, and Newark are not on the drawing board because of fiscal limits.

Education spending also crowds out municipal and county budgets by being so high. New Jersey’s 1.45% average school property tax rate is higher than the 1% national average for schools, municipalities, and county governments combined, despite NJ having relatively high-value real estate.

It’s impossible to say definitively if budgetary neglect is due to crowd-out by other spending or insufficient taxation — the Transportation Trust Fund tax cuts of 2016 were bad for the General Fund — but because tax cuts also have a role doesn’t mean that education crowd-out doesn’t have a role too.

NJ’s Inadequate Budget Conversation

There are valid reasons to want to increase education spending, especially for underaided school districts and PreK for low-income children, but conversations about New Jersey’s existing spending must acknowledge that spending has increased significantly for decades and that our spending is already high in comparison to our state income and GDP.

Arguments that leave education spending in isolation, apart from the rest of the Property Tax Relief Fund in the New Jersey budget, are incomplete because they deny how neglected New Jersey’s other obligations are.  Opposition to even higher education spending in poorer districts isn’t about keeping taxes lower (though I admit that is a motivation for Republican politicians), but also about preserving other state services, many of which are highly important for low-income persons and communities or which enhance quality-of-life here for everyone.  

My position that increasing NJ’s education spending would do less good than increasing spending elsewhere is subjective.  You can agree or disagree.  Mark Weber, Bruce Baker, the New Jersey Policy Perspective, and the Education Law Center obviously want more spending.

New Jerseyans can decide for themselves what they want, but something every education-watcher and NJbudget-watcher should know is that there are multiple ways to measure education spending and advocates for higher education spending may be using measures that make NJ’s education spending look lower than it is.