Statement of Middlesex Somerset Mercer Regional Council (MSM), the Affordable Housing Network of New Jersey, the Association of New Jersey Environmental Commissions (ANJEC), the Civic League of Greater New Brunswick, Isles, Inc., the New Jersey Chapter of the American Planning Association (APA-NJ), the New Jersey Chapter of the Sierra Club, and the New Jersey Environmental Lobby on Policy and Planning Considerations in Formulating a Remedy for Inequities in New Jersey's School Finance System.
The Middlesex Somerset Mercer Regional Council (MSM), the Affordable Housing Network of New Jersey, the Association of New Jersey Environmental Commissions (ANJEC), the Civic League of Greater New Brunswick, Isles, Inc., the New Jersey Chapter of the American Planning Association, the New Jersey Chapter of the Sierra Club, and the New Jersey Environmental Lobby submit this policy statement in lieu of more formal amicus brief to provide the Court with a set of broader policy considerations in the formulation of a remedy for inequities in New Jersey's system of funding public elementary and secondary education.
In Robinson v. Cahill, 62 N.J. 473, 519 (1973), this Court expressed doubts as to whether it was feasible to provide a "thorough and efficient system of free public schools" through a system of funding that relies heavily on raising revenues locally through local property taxation. The experience of the past 25 years has not only confirmed the Court's initial doubts, but has demonstrated that funding public education locally through property taxation profoundly and detrimentally affects other public policies in New Jersey. Among other things, it fosters local land use policies in suburban communities that exclude families with children and, in particular, low income families; that increase the fiscal incentives for the movement of commercial and industrial ratables and jobs from the cities to the suburbs, and from the inner suburbs to the outer suburbs; and that encourage development of agricultural and environmentally sensitive lands. The purpose of this policy statement is to provide the Court with information as to these types of consequences of school funding systems that rely heavily on the raising of revenues locally through local property taxation in the hope that the Court will find this information useful as it considers remedies for the current inequities in the State's system of funding public education.
The special expertise and concerns of the organizations submitting this statement are set forth in the appendix. Although very diverse, these groups share a common interest in assuring that local and state policies that affect land use and development -- whether directly or indirectly -- operate to promote equity between the rich and the poor, redevelopment of the state's cities, and discourage development of the state's agricultural and environmentally sensitive areas.
The Effect on Land Use and Development Policies of Reliance on Locally Raised Property Tax Revenues to Fund Public Education
The State's dependence on locally raised property taxes as the primary source of school funding has been a prolific generator of policy debates and lawsuits for years. A 1972 document submitted to the Governor in pursuant of Executive Order No. 5 of 1970 stated:
The burden of the property tax is excessive as compared
with other states; and it is regressive in its effect in relation to income
of property owners; but specific counties and
municipalities differ widely in the burden and impact of the property tax.
The Property Tax, Part II of the Report of the New Jersey Tax Policy Committee,
submitted to Gov. William T. Cahill, February 21, 1972.
The Report goes on to review:
. . . several "major harmful collateral effects of the
property tax. These include impairment of environmental quality generally,
especially through 'fiscal zoning', inducement to a premature spreading
out of development, reduced property values, and a very adverse effect
on housing and urban development."
The Property Tax, Part II of the Report of the New Jersey Tax Policy
Committee, submitted to Gov. William T. Cahill, February 21, 1972
The recommendations of the Report were directed toward the elimination of these "harmful side effects of excessive property taxation." Data collected today continues to demonstrate that these conditions have not significantly changed -- housing and property values are among the lowest in urban areas; fiscal zoning is still a widespread practice in developing municipalities, with vacant land zoned for offices being rezoned for the active retail and warehouse market; and planning boards throughout New Jersey are relieved because of developers' recent interest in senior-only housing.
The New Jersey Supreme Court has had the opportunity on many occasions to express its concern over the inequities that an over-dependence on property taxes produces among New Jersey's rich and poor communities. Justice Hall, in the Mount Laurel I opinion, spelled out at some length the fiscal zoning pattern and its baleful consequences, in a prescient passage:
"This policy of land use regulation for a fiscal end derives from New Jersey's tax structure, which has imposed on local real estate most of the cost of municipal and county government and of the primary and secondary education of the municipality's children. The latter expense is much the largest, so basically, the fewer the school children, the lower the tax rate. Sizable industrial and commercial ratables are eagerly sought and homes and the lots on which they are situated are required to be large enough, through minimum lot sizes and minimum floor areas, to have substantial value in order to produce greater tax revenues to meet school costs. Large families who cannot afford to buy large houses and must live in cheaper rental accommodations are definitely not wanted so we find drastic bedroom restrictions for, or in complete prohibition of, multi-family or other feasible housing for those of lesser income.
This pattern of land use regulation has been adopted for the same purpose
in developing municipality after developing municipality. Almost everyone
acts solely in its own selfish
and parochial interest and, in effect, builds a wall around itself to
keep out those people or
entities not adding favorably to the tax base, despite the location of
the municipality or the demand for varied kinds of housing."
Southern Burlington County NAACP v. Township of Mt. Laurel, 67 NJ
151 at 171, 336 A2d 713 at 723 (1975)
Justice Hall connected the responsibility for paying for school costs to the kinds of development decisions made by municipalities. It can be demonstrated that this type fiscally driven zoning is a direct consequence of the reliance on locally raised property tax revenues to fund public education.
Municipalities know that in the long run the ratables created by additional housing development do not cover the additional costs of the public services and facilities needed by the residents of that housing -- and in particular, the additional costs of public education for the children who reside in that housing. The only housing that covers the associated public costs is very expensive housing, (assessed valuations in excess of $750,000) and senior housing. Housing for very low income families generate the largest gap between tax revenues and public costs. This naturally leads suburban municipalities to adopt formal and informal land use policies that discourage the development of non-luxury housing that is likely to be occupied by families with children. It especially leads them to discourage development of low income housing that will be occupied by families with children.
In addition, it leads some municipalities to engage in a kind of zoning "Ponzi scheme". Finding that tax revenues from the last housing development did not cover the additional public expenditures associated with that development, the municipality approves additional housing development to create a short-term boost in revenues to cover this deficit, even though, in the long run the additional costs associated with the new development will actually increase the gap between revenues and expenditures. These municipalities must "chase ratables" to fill the gap.
In some instances, the housing the municipalities accepted was the result of meeting the mandate set by the Court or the Fair Housing Act for low and moderate income housing. The Court and the Legislature have agreed that there is a regional housing obligation, derived from, among other things, a growth in regional employment (commercial or industrial ratables). It is often true, however, that the housing with the school children is in one municipality (or one school district), and the ratable revenues are in another. Relying on locally raised property taxes to pay for local schools creates a mismatch between the costs of public education to serve children living in inclusionary developments and ratables available to pay those costs through property taxation.
Suburban municipalities compete with each other and with urban communities for "clean" non-residential ratables that do not increase school costs. Because of the attractiveness of suburban locations, with unencumbered open land and relatively low taxes, suburban municipalities have advantages over urban areas for attracting ratables. This accelerates the decades-old urban flight, adds pressure to convert open and agricultural land to development, and undermines the goals of the Fair Housing Act and the State Planning Act. It also undermines municipalities by forcing them to make development decisions that fix their short term fiscal needs, rather than achieve their long term community goals.
Among other things, funding of public schools through locally raised revenues thwarts the objective of statewide growth management planning mandated by the State Planning Act N.J.S.A. 52:18-A 1986 et seq. Pursuant to this statute, the State Planning Commission has promulgated New Jersey's first State Development and Redevelopment Plan in 1992. The Plan carries out the statutory mandate to develop a growth management strategy that would result in revitalizing cities, promoting economic growth, protecting the environment, providing affordable housing, conserving resources, and providing adequate public facilities at a reasonable cost.
The Plan remains largely unimplemented. Local officials are stymied in their efforts to implement many of the Plan's comprehensive goals because they are forced to participate in the "ratables chase": pursuing their community's fiscal goals at the expense of other community, regional and state goals.
The Effect on School Finance Equity of Land Use and Development Policies Driven by Reliance on Locally Raised Property Tax Revenues to Fund Public Education
The local land use policies fostered by a school finance system that relies on locally raised property taxes exacerbate inequities in the public school system. Cities cannot produce the money needed from their emaciated tax base to invest in their children's education, because of the decline of industry and the flight of many individuals and companies to the suburbs. The result is a significant difference in the amount of money available to be spent on education in urban versus suburban districts. The current legislation does nothing to address this underlying development problem and pits urban and suburban school systems against each other.
As urban areas have lost much of their ratable base to the suburbs, there has been increasing pressure to raise taxes on the few remaining taxpayers, adding more reason for their departure, and creating an ever decreasing ratable base. The enormous disparity is described by the figures below:
1995 Equalized Valuation per Public School Pupil by Legislative
District
Highest $755,462
Lowest $130,537
1996 New Jersey Legislative District Data Book, Center for Government
Services, Bloustein School of Planning and Public Policy, Rutgers
As can be expected, this disparity creates enormous pressure on the State
to make up the difference:
1995-96 State Formula Aid as Percentage of Net School Budget by Legislative
District
Highest 79.3%
Lowest 8.5%
1996 New Jersey Legislative District Data Book, Center for Government
Services, Bloustein School of Planning and Public Policy, Rutgers
As suburban municipalities' growing school population force them to consider
building new schools, there is more competition for state capital aid:
although the capital fund has not been cut this year, it has not been
increased, forcing the State to slice smaller and smaller pieces of the
pie. Suburban municipalities are thereby pitted against urban municipalities,
which are in desperate need of capital aid to replace or rehabilitate
ancient and crumbling schools.
Another advantage that suburban municipalities have is a greater bonding capacity to meet school construction costs. Their growing tax base allows them to attract a favorable rating and provides a source for repayment of debt. In addition to having a decreasing tax base, urban areas have an older infrastructure, with a longer history of capital financing, leaving them with less capacity to bond and an equal if not greater need to spend.
The advantages of the suburbs are temporary, however. There are already indications that the forces within the existing system that are destroying the urban tax base, and therefore their ability to provide an equitable education for their children, are at work on the older suburbs as well. In the long run, reliance on locally raised property taxes to fund public education drives a "slash and burn" approach to development that moves inexorably to greener pastures. It is only a matter or time before more suburban municipalities find themselves in the same fiscal plight as the current "special needs" districts, new development having moved on and existing development chafing under the increasing tax burden.
Data for the last 10 years shows that property taxes have gone up at much
higher rates than the Consumer Price Index:
New Jersey Property Tax Levy
Dollars in Millions (000,000s)
Source: 1996, Public Affairs Research Institute of New Jersey, Inc.
In addition, New Jersey property taxes, as a percent of state and local taxes has increased since 1985, when it was 41.0% and the total levy was $5,582.40, to 44.8% in 1993, when the total levy was $11,748.00. (Source: 1996, Public Affairs Research Institute of New Jersey, Inc.)
Implications for Remedies in Abbott V. Burke
As it takes up remedies in the present litigation, the Court is called upon to consider what are necessary conditions for a system of funding school finance that will assure equal educational opportunities for all children in the State of New Jersey. This bears both on the directions the Court gives to the parties as to what constitutes compliance with the mandate of the Education Clause of the New Jersey Constitution and also on the terms of any interim remedy granted by the Court itself. We urge the Court to give its serious consideration to eliminating reliance upon locally raised property taxes as a primary means of funding public education.
The time is now for changing the over dependence on locally raised property taxes to fund local schools. The hole that municipalities are trying to fill by chasing "clean" ratables will only grow, as will the number of municipalities caught in the spiral.
The fate of cities and suburbs are interconnected. Local land use practices, which, in large measure, reflect current tax policies, have produced unmanageable growth rates in both directions -- declining cities and burgeoning suburbs -- both of which adversely affect the quality of urban and suburban education system. The current school funding legislation appears to produce clear winners and losers, but is actually producing, in the long run, losers on all sides.
It is clear that the result has been devastating to cities: abandoned factories, shops and houses, deteriorating public infrastructure, and populations relatively underserved by their high rate of taxes. Unmanaged growth in the suburbs has also had its costs: sprawling new communities must find the money to reproduce the infrastructure (including schools) that has been left behind in the cities. These spiraling costs lead suburban communities to try to halt residential development (raising the cost of housing) because of the costly school children who will move in, and to woo even more arduously the "revenue-producing" commercial development (away from cities or their neighbors, if need be) to balance their local budgets.
It is not just the education system that suffers: housing, natural resources, community facilities, transportation, and infrastructure systems suffer as well. Having to pay for schools sets most suburban planning boards against housing; not having to pay for roads, on the other hand, makes them cavalier about new commercial development. In the end, a system of funding public schools through locally raised property taxes not only creates an inequitable education system, but also creates suburban traffic jams, environmental degradation, loss of farmland and open space, continued disinvestment in cities, and inefficient public services.
Any proposal for reforming school funding must be evaluated in light of its effect on development in cities and suburbs. Without this connection as part of any new policy, school funding will fail to produce enough money to pull the cities up to an equitable system. The suburbs will continue to suck away resources in their never-ending chase to pay for new infrastructure. Only a real release from property tax over-dependence, a real release from the "ratables chase", will allow cities to compete, or even better, to cooperate, with suburban communities on a more equal footing. It is the only solution that will produce sustainable results.
The results that can be expected from such a change in the school funding system would include, but not be limited to:
- Schools could improve everywhere, because cities would have more funding and suburbs could reduce costs by phasing growth to a more manageable rate.
- If city schools improved and city tax rates came down, cities would become more attractive to development, thereby aiding immeasurably the results of revitalization investment and reducing growth pressure in the suburbs.
- Suburbs could look more favorably on housing development of various kinds, reducing housing costs, supporting an adequate workforce, increasing our competitiveness, etc.
- The costs of infrastructure could be reduced throughout a region by reducing the need to duplicate facilities in the suburbs, when capacity is available in the cities.
- With less competition for ratables, suburbs could cooperate more with their neighbors to achieve common goals, such as corridor planning, natural resource protection, infrastructure construction, centers planning to support public transportation, and other regional goals.
This list is not complete, but is intended to suggest the range and magnitude of changes that can be brought about by changing the property tax system. The product of school funding reform must be changed from creating winners and losers. The current system overall is too costly for every community.
One standard for evaluating any compliance plan should be how it will affect the "ratables chase". Will the new proposal release communities from their dependence on property taxes to fund education? Will it support an equitable education for cities and suburbs and support legitimate community development goals? If a proposal were to meet this standard, it would produce better schools, transportation services, natural resource protection, affordable housing, and other public benefits at the same time. A more comprehensive policy meeting this standard would achieve more long-lasting results: reverse investment decisions that favor suburban development and refocus public policy on redevelopment, rather than suburban sprawl.
Revising school funding mechanisms attracts passionate debate from all sectors. Considering the education system broadly, as a piece of the public's infrastructure, and developing solutions that address the underlying problem of long-term urban disinvestment, is what is necessary to achieve sustainable school finance equity. There is nothing more important than our children's education and future quality of life. With a comprehensive, regional approach, we will be able to afford both.
Dianne Brake, President
Middlesex Somerset Mercer Regional Council
for:
Affordable Housing Network of New Jersey
Association of New Jersey Environmental Commissions (ANJEC)
Civic League of Greater New Brunswick
Isles, Inc.
Middlesex Somerset Mercer Regional Council (MSM)
New Jersey Chapter of the American Planning Association
New Jersey Chapter of the Sierra Club
New Jersey Environmental Lobby
Appendix 1
Affordable Housing Network of New Jersey: The Affordable
Housing Network of New Jersey is a statewide association of more than 200
non-profit housing and community development corporations, individuals
and other organizations that support the creation of housing and economic
opportunities for low- and moderate-income New Jerseyans. The Network's
mission is to enhance the ability of CDCs to create and preserve long-term
affordable housing and to build strong communities by providing networking
and support services, capacity building and resource development, and education
and public policy advocacy.
American Planning Association -- New Jersey Chapter (APA-NJ): The New Jersey Chapter of the American Planning Association is an organization of about 700 professional and citizen planners, including about 50 planning students. The Chapter represents a portion of APA's 28,000 members nationwide. The Chapter's mission is to promote sound planning as a process essential to improving the quality of life of the citizens of New Jersey.
Association of Environmental Commissions (ANJEC): The Association of New Jersey Environmental Commissions promotes the public interest in long-term natural resource protection and sustainable development by advocating appropriate public policies, coordinating organizations interested in environmental issues, and establishing and supporting environmental commissions. ANJEC offers its 2000 members an environmental library, an information and referral service, regular seminars and conferences and a quarterly newsletter. Environmental commissions are active in nearly 350 municipalities and four counties.
Civic League of Greater New Brunswick: The Civic League of Greater New Brunswick, formerly the Urban League, (original plaintiff in the Mt. Laurel II decision) is a 501(c)(3) non-profit organization. The League is a civil rights organization serving Middlesex and part of Somerset Counties. Its membership is comprised of individuals from diverse backgrounds, primarily African American and Hispanic in origin. The League serves as an advocate for this population in the areas of employment, housing, health and community development. The League was founded in 1945.
Isles, Inc.: Founded in 1981, Isles, Inc. is a non-profit organization that designs and implements innovative community development programs in the Trenton area. Isles addresses the critical needs of food, housing, environmental improvement and job-training by promoting self-reliance and community empowerment. Its programs provide the framework for citizens to become involved and promote change in their communities. Training, education, and leadership development are vital to Isles' five programs of Affordable Housing, Community Gardening, At-Risk Youth Job Training, Environmental Education, and Brownfields Restoration.
Middlesex Somerset Mercer Regional Council (MSM): Founded in 1968, MSM Regional Council is a non-profit planning and research organization dedicated to enhancing the quality of community life in central New Jersey. With over 500 corporate, municipal, county, and individual members who are interested in protecting the public interest over the long term, MSM pursues its mission through data collection, policy research, public education, and dispute resolution. MSM produces an annual 200-page data book on the 32 municipalities within the region, and publishes books and reports on land use, growth management, and regional cooperation. MSM convenes seminars and roundtables, bringing together the major decision-makers from the public and private sectors to find win/win solutions to complex public policy issues.
The New Jersey Chapter of the Sierra Club: The New Jersey Chapter of the Sierra Club is the state branch of one of the oldest environmental organizations in the nation. The Chapter's 20,000 members in New Jersey are concerned with the preservation on natural and environmental systems and recreational resources, and promotes the proper management of land use in the built environment.
New Jersey Environmental Lobby: The New Jersey Environmental Lobby is an organization representing some 150 local and statewide groups, as well as roughly 1000 individual members. For almost thirty years, we have been serving the public interest by promoting wise stewardship and conservation of our land, air, water and other natural resources. We also foster environmental protection of urban and rural amenities so as to secure an improved environment and enhance the quality of life, particularly in New Jersey.