Assemblyman John DiMaio said shifting costs to the state would reduce most residents' tax bills because New Jersey’s income tax is more progressive than its property taxes. (Hal Brown for New Jersey Monitor)
Assembly Republicans on Wednesday proposed boosting state aid to schools in a bid to offset New Jersey’s high property taxes and fully fund its schools for the first time since the state enacted its funding formula in 2008.
The proposal would require the state to provide enough direct aid for every school district in the state to reach what’s known as adequate funding, while requiring localities to offset property tax collections based on the amount of aid received.
“Every additional dollar of state aid must go to lower school property taxes by a dollar-for-dollar basis, and the state would provide more aid than without this bill because of the adequacy target,” Assemblyman John DiMaio (D-Warren), the chamber’s minority leader, said at a Statehouse press conference.
Adequate funding is defined as the amount needed to provide students with a thorough and efficient education.
The Assembly GOP’s school funding plan comes less than a week before Gov. Phil Murphy is scheduled to present his budget for the new fiscal year to the Legislature.
DiMaio said shifting costs to the state would reduce most residents’ tax bills because New Jersey’s income tax is more progressive than its property taxes.
He said he expects the bill, which is backed by business groups and is expected to be introduced Monday, to reduce property taxes by 7% on average in its first year. That would amount to a reduction of roughly $1.2 billion statewide based on 2021 property tax tables, the latest available.
DiMaio added the measure would reverse cuts to state school equalization aid made under a 2018 law that pulled state funding out of districts that were overfunded according to the state’s funding formula. It’s not clear how much that reversal might cost.
The bill would appropriate $2.95 billion, DiMaio said, with $2.1 billion meant to lift school funding to adequate levels. The remainder would pay for miscellaneous costs, and any unexpended funds would be appropriated to the Schools Development Authority, which oversees school construction in some of the state’s poorest districts.
“We have a duty to make New Jersey more affordable for the people of New Jersey,” he said.
The measure would allow districts to raise school tax levies at the local level to meet administrative costs added by enrollment growth.
The proposal has raised some red flags among education advocates, who questioned how reducing school levies by an amount equal to the additional state aid received would bring funding to adequate levels.
“I’m a little concerned that linking these state aid increases to property tax reductions might be a kind of zero-sum game where districts may not actually be getting to the adequate funding levels that are required by the formula,” said Danielle Farrie, research director at legal advocacy group the Education Law Center.
Farrie added that tying state aid to aid received in prior school years flies against the intent of the funding formula.
While additional aid might be appropriate in some circumstances — say, to prevent a fiscal cliff — additional aid meant only to reduce the share of education costs a district is responsible for isn’t, she said.
“If the formula says they need less, I’m a little uncomfortable dumping all of that money back into these districts because that money is not related to the needs of the students in some cases,” she said.
A revenue rout?
Assembly Republicans’ proposal comes as New Jersey’s tax collections have begun a decline predicted by Treasury officials at the outset of the fiscal year that ends July 1.
DiMaio said the program would initially be funded by withdrawing money from the state’s $6.8 billion surplus.
“The money was raised by the gross income tax, and it belongs in schools,” DiMaio said.
New Jersey’s income tax revenue is constitutionally dedicated to property tax relief.
Lawmakers are also poised to allow a corporation business tax surcharge on firms with profits of $1 million or more to expire at the end of the calendar year.
The change is expected to reduce total collections by more than half-a-billion dollars in the fiscal year, and overall collections are expected to decline by 3.2%, about $1.6 billion, in the current fiscal year.
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