S-1701 – One Board Member’s Perspective   Spring 2005

In an effort to put the brakes on the ever-increasing property taxes in NJ, the legislature hastily passed a law called S-1701 in June of 2004.   It’s backers described S-1701 as a way to provide short-term property tax relief and to provide greater accountability to the local voters on approval of the annual budget in the April school elections by requiring local school boards to follow a new set of stringent guidelines when preparing their budgets.  S-1701 was passed with very little debate in the legislature. It contains largely symbolic gestures that undermine the control that locally elected school boards have to provide students in their communities with a quality education.  It will force local school districts to adopt imprudent financial practices and in many cases could result in higher costs.

This law adds an additional layer of administrative oversight for school budgets by giving veto power to the county superintendents and line-item veto power to the Commissioner of Education. This is both inefficient and inappropriate.  It does nothing to curtail the rising costs of health insurance, special education programs and utility costs.  These costs  alone can easily bring the budget up 4 to 5% and above the allowed cap.  As a result, in the next several years, schools will be forced to cut both regular education programs and facility maintenance and/or reduce staff. 

The following are the major provisions of S-1701, according to the NJ School Boards Association:

Surplus—S-1701 requires school districts to reduce surplus to 3% in previously approved 2004-05 budgets and to 2% in 2005-06 and to appropriate the money for municipal property tax relief.  School districts set aside surplus for unanticipated expenses, such as emergency building repairs.

Hazardous-route transportation—The law severely reduces the budget cap adjustment that helped school districts pay the cost of busing students across busy highways or along streets without sidewalks. The change may force some districts to eliminate hazardous-route busing, a service that safeguards children.

Voter/community control—The law restricts the use of second-ballot questions through which voters could authorize expenditures of local funds for specific programs or services.  It also requires the state government to approve many school district budget transfers that, previously, have been routine matters handled by local school boards. 

Administrative spending limits—S-1701 imposes administrative spending limits, even though the state’s own data shows that there are fewer administrators in New Jersey schools now than in 1989-90.  (In contrast, the number of teachers has increased by 30% during the same period, according to the state Department of Education.)

Operating Budget Spending Limits   Tightens the annual cap on school operating budget increases by: reducing the base growth to 2.5% or CPI, whichever is higher.  This law fails to recognize the recent double-digit cost increases in health insurance and fuel, as well as current contractual obligations.

The reduction in the allowable surplus to 3% this year and 2% thereafter does not allow boards to save for a rainy day emergency and will create real cash flow issues.   In the past, the state maintained a rainy day fund that local districts could draw upon in emergent conditions.  A state level rainy day fund is not provided with this bill however.  Reducing reserves to 2% leaves smaller School Districts like Fair Haven, with only an estimated $180,000 surplus next year, vulnerable to unexpected expenses that could undermine the whole budget. Borrowing to meet operating expenses is an inappropriate funding policy.  Keeping such limited funds in surplus will also undermine local districts ability to do long range planning and has already negatively impact bond ratings in some districts.  According to the law, any funds in excess of the allowable surplus must be returned to the taxpayer as short-term property tax relief.   Prior to the enactment of S-1701 the Department of Education told districts that their surplus minimum should be at least 3%, in accordance with strong fiscal practice.

New Jersey’s school finance law of 1997 allows local school boards to propose one or more “second ballot questions.” These questions seek voter approval of expenditures for specific programs not included in the basic budget using local funds.  S-1701 restricts these questions so that they can no longer address the retention of existing programs and services and cannot contain anything that is required for a “thorough and efficient” education, as defined by the state.  This avenue of decision-making with local revenues no longer exists because of S-1701.  It promotes a static system and inhibits district flexibility.

The capping of Administrative spending costs in S-1701 may make for a good sound bite, however when you scratch the surface you find that administrative costs are made up of more than just administrator’s salaries.   Included in these costs are Legal fees, which are unpredictable from year to year, telephone, mailing, election costs, photocopying fees, technology, professional development and time spent on evaluations and management of instruction.  Although many schools remain below the state regional average, all are capped at the same low level and no appeals are allowed. 

In addition to the new stringent operating budget caps, some waivers called Statutory Growth Limitation Adjustments (SGLA’s) that allow districts to exceed cap are being eliminated or greatly reduced.  For example, this year schools were given a temporary SGLA for domestic security and insurance costs.   This SGLA will not be allowed in the 2007-08 school year. In Fair Haven, in the post-911 world and as the result of neighboring Rumson’s school plans showing up on a CD in Iraq, security guards are now posted at our school entrance. This expenditure will not “go away” in future years.  Additionally, health insurances costs in Fair Haven are up 18% this year and similar increases are expected in the foreseeable future.

Property Taxes, State and Federal aid are the revenue sources that are required by law to support our public schools.  State aid has remained almost flat since the 2000-2001 school year.    Flat funding results in higher local taxes just to maintain current programs.   There has been no consideration paid to increasing enrollments or costs associated with implementation of core curriculum programs and the additional teaching staff needed as a result.   Four years of flat funding, when coupled with S-1701, is an accident waiting to happen.  Children are the ones who will suffer and the loss will be immeasurable.  

During the last decade, state and federal aid has been steadily declining.  In 1995, 26% of schools were considered too wealthy to be considered for basic state aid.  By 2003, that number had jumped to 44%.  During this same time, State and Federal aid for mandated excess costs for special education programs has dwindled from approximately 62% in 1995 to 38% in 2003. These excess costs have now been shifted to the local level and are one of the key drivers pushing up property taxes.

S-1701 is bad public policy and attempts to put a band-aid on a gushing wound, The arbitrary caps it places on school spending are a serious threat to educational quality statewide. It is hypocritical to expect local school boards to operate in an unrealistic world, when the legislature and Governor passed it’s biggest budget increase in state history just this year.  Real Property tax relief will only be possible once state aid increases to schools and real cost-containment reforms are provided. 

If property tax relief is the goal of the Governor and Legislature, they should look no further than the School Construction Corporation (SCC).  It was created in 2002 to manage school construction projects, primarily for the State’s Abbott districts.   Of it’s $8.6 billion budget, $6 billion was earmarked for the state's 31 poorest school districts.  Recent reports detail gross financial mismanagement and abuse.  There have been enormous cost overruns, project changes, overpayments, and wasteful spending that has nearly bankrupted the program, five years ahead of schedule. According to a recent analysis by the Star-Ledger, school construction projects that have been managed by the SCC have cost an average of 45% more than the projects managed by 19 local school districts built during the same period,. By the SCC’s own estimate, the corporation will be bankrupt in 2006, at which time only half of all planned school construction projects will be completed. Additionally, construction project managers and architects hired by the SCC are paid, on average, two to three times as much as those hired by local school districts. 

The public school system has long been the stalwart of American society.  It is a sad day when politics trumps giving our children, our future, the education they deserve.  To sit back and witness our schools decline would be height of irresponsibility. The net impact will be large class sizes, deteriorating school buildings and eventually, lower test scores.  This fly’s in the face of No Child Left Behind.  Further, when it is estimated that property tax savings will be insignificant, the risk is not worth the reward.

Kelly Zaccaro, Fair Haven Board of Education