Paul Mulshine, Amoral Self-Indulgence & New Jersey School Finance

On most days, I can simply laugh off a ridiculous Paul Mulshine column in the Star Ledger. Most of his claims regarding education, taxation and the intersection of the two range from flat-out incorrect to wacky and misguided. But Mulshine’s claims in his column on Wednesday June 22^nd necessitate a response.

For several years, I have been a professor where one of my primary responsibilities has been to train future school administrators. I believe strongly that well-informed well prepared and knowledgeable school administrators can and should play a critical role in guiding public education policy.  As one might figure from the name of this blog, my emphasis is on teaching school finance – an inherently political and divisive topic that often pits one district against another or even one school against another. As a result, I believe it is particularly important that leading voices in education policy in a state understand not only how policies affect their own district and children but how those policies affect children statewide – that local school administrators can think beyond the boundaries of their own school district and local constituents, and be mindful of the good of the public as a whole.

Any local school administrator would likely want to find ways to manipulate the state formula for allocating aid in a way that drives more aid to their district. And over the years, I’ve seen many twisted and unethical arguments advocated and legislated to accomplish these goals – including Jackson Wyoming – the wealthiest district in Wyoming – arguing (successfully) that it needs 30% more funding than any other district in the state simply because it is so wealthy. Kansas similarly adopted provisions which provide for more funding in districts a) with higher priced houses and b) with more children attending school in new facilities. I’ve seen more money driven to wealthier districts in South Carolina on the argument that they have more gifted children. And I’ve seen more money targeted to white schools than black schools in Alabama (still in effect) on the basis that white schools have more teachers with advanced degrees and that teachers with advanced degrees cost more (built into the state aid calculation). I’ve written on this topic in peer-reviewed research.

I’ve often been frustrated to see local public school administrators in districts advantaged by these illogical policies either sit idly by, knowing the policies to be wrong, or advocate loudly on behalf of these policies, still knowing full well that the policies are built on flimsy if not absurd arguments.  In the politics of state school finance, self-interest is often hard to overcome.  It is a rare administrator who is able to balance these conflicts well – to not take the easy way out and accept an absurd or even unethical policy position simply because it drives more dollars to their constituents. Earl Kim of Montgomery Township is one of those rare administrators.

Mr. Mulshine’s view that the only role of the local public administrator is to get more for his or her constituents, and that local bureaucrats should never take any action to the contrary – regardless of ethical considerations – is not only absurd but is indicative of much of what is wrong in politics today and society in general.  Mulshine prefers his bureaucrats to be amoral sock puppets.

Here is a clip of what Mulshine had to say about Earl Kim:

“Let me offer a hint to this overpaid bureaucrat: An employee of the school board  has no say whatsoever in such public policy matters as the proper amount of property-tax relief.”

“If he did, however, he should not be advising his superiors to take a course of action that deprives the taxpayers of tens of millions of dollars that could lower their property taxes and help keep them in their houses.”

What Earl Kim understands and what Mulshine clearly doesn’t, is that while Doherty’s “Fair School Funding” plan might drive a lot more money into Earl Kim’s district, it would only do so at the expense of the system as a whole. And that is an ethical compromise that Earl Kim seems unwilling to support. To Mulshine, however, ethics seem inconsequential, when traded for millions of dollars.

Let’s actually take a simulated look at why Earl Kim might be concerned about the Doherty plan. Let’s start with a quick look at how school finance formulas work.

Local public school districts receive varied amounts of state aid based on two major types of factors:

1. Differences in local school districts’ ability to raise local tax revenue to pay for schools;
2. Differences in the needs and costs of providing adequate educational services to widely varied student populations.

In simple terms, the current formula – SFRA – accounts for both, and the Doherty plan accounts for neither.  Aw… what the heck, all that math is too complicated anyway!

In a typical state school finance formula, there is a target amount of revenue to be raised by each school district – based on the estimated differences in needs and costs of children attending each district and other factors such as variations in competitive wages for teachers. But, even if the target funding per pupil was the same for each district, the state aid share would be very different. Why? Because some districts have far greater capacity to raise local property tax revenues than others.

Here’s a New Jersey SFRA simulated (oversimplified) example using data from 2009 and 2010. Under the 2010 SFRA, the average target budget per pupil for an Abbott district was $16,387, based on the greater needs of children in these districts and the fact that the largest Abbott districts were also in higher cost north Jersey labor markets.

Applying equitable tax effort, Abbott districts are only able to raise about $4,300 per pupil compared to wealthy districts (to 2 deciles) which can raise, on average, over $13,000 (which is actually more than they would need).  State aid, as it currently stands in NJ (and in other states with similarly structured formulas) is used to fill the gap between what can be fairly raised locally, and what is estimated to be needed to provide an adequate education.

Expressed as effective tax rates, the local share for wealthy I&J districts appears to be slightly higher when expressed relative to property values, but these districts have the lowest effective rate with respect to income – even under SFRA. Overall, the distributions are relatively fair. I’ve written previously about this.

So then, how would it work to simply give every district the same amount of state aid per pupil? The Doherty plan argues for giving every district $7,481 per pupil a) regardless of need and costs and b) regardless of ability to raise local revenue. That would be unprecedented, even in Kansas, Alabama or Wyoming.*

This table shows one perspective on the Doherty plan – if the state simply gave every district the same amount of state aid per pupil, but if we then assumed that districts would need to raise the rest on their own if they really wanted to provide an adequate education (as estimated under SFRA). That is, if high need districts like Abbott districts still wished to try to raise what SFRA projected that they needed. Abbott districts would be expected to raise $8,906 per pupil toward their $16,387 and the wealthiest districts would be expected to raise on their own, about $5,000 per pupil. This creates a nearly nine-fold difference in the effective income tax equivalent across districts! And that’s “Fair School Funding?” One can understand Earl Kim’s concern, even if the proposal would bring home millions to Montgomery Township!

Here’s what it looks like in pictures. In the first picture, we see how SFRA operates pretty much like any state school finance formula built on a “foundation formula” approach. Each district has a target revenue per pupil. And the poorest districts – those with the least local fiscal capacity – are expected to raise the least toward this total. Wealthy districts even when applying equitable tax effort can raise far more than they need!

Here’s what the Doherty plan would look like. Here, every district gets the same regardless of need or capacity. This is rather like arguing that we should distribute food stamps and other financial assistance to residents of the estates of Far Hills in equal amounts to the distributions in Camden, or that we should pave well-conditioned and little used roadways with comparable frequency to heavily worn, highly traveled ones. When we place Doherty aid on top of 2009 local revenues per pupil, we see that the lowest income districts end up having combined state and local revenue per pupil well under $10,000 and that the wealthy districts now have combined state and local revenue per pupil approaching $25,000.

Here’s how it looks with respect to children qualifying for free or reduced price lunch. New Jersey’s school finance system has been praised in several national reports, including this one, for most effectively targeting additional resources toward greater needs. And there exists a significant body of research to validate that such school finance reforms actually do matter (regardless of political rhetoric to the contrary). Indeed the Doherty plan would turn New Jersey school finance on its head – making the system among the most regressive in the nation. That is, a system where higher need districts have systematically fewer resources per pupil.

Now, I don’t expect that this proposal really has much broad-based support, and I would not have typically bothered to critique or debunk it. I’ve stated my reasons above for why I needed to take this particular issue on at this time and under these circumstances.  It would simply make no sense for a well-informed local public school administrator like Earl Kim to advocate on behalf of a policy that is so clearly wrongheaded, so obviously unfair, simply because that policy would drive money into the pockets of his constituents.

(Finally, as an interesting aside, we also know from a series of studies of property tax relief aid for wealthy districts in New York State that increasing state aid to wealthy districts is among the surest ways to increase inefficiency in school district spending.  I often use the analogy that it’s like giving out $100 gift cards to Scarsdale residents to shop at Neiman Marcus. They take the $100 and spend $500 for something they didn’t really need. That is, these policies seem to encourage inefficient spending as much if not more than they provide tax relief. Meanwhile, we might have reallocated those $100 gift cards for basic needs in nearby Yonkers or Mount Vernon.)

*Note: It is conceivable that a state would attempt to create a fully state financed education system (that is, eliminate local share) in which case there is no need to correct for differences in capacity to raise local share. But, a completely flat allocation under these circumstances would fail to address differences in needs and costs.  Relying entirely on state source revenues (sales and income taxes) can, however, reduce the stability of revenue flow to schools (property tax revenues tend to be more stable in economic downturns).