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CHRISTIE ADMINISTRATION’S STEALTH TAX WIPES OUT SCHOOL AID INCREASES

April 15, 2013

Governor Christie’s proposed FY14 State Budget contains a special “assessment” or tax on 493 school districts that wipes out the small aid increases many of those districts were initially notified they would receive.

The Administration’s special tax is contained in language buried deep in the Governor’s budget. According to the Governor’s proposal, any district “that received their State support for approved [school construction] project costs” through the State Schools Development Authority [SDA] “will be assessed an amount that represents 15% of their proportionate share” of the principal and interest payments for State-issued school construction bonds. The State will not collect this special tax but will deduct or withhold the tax from the districts’ state school aid payments.     

Though the administration hasn’t publicized this tax, districts and school supporters have not been fooled. Many complaints about this “debt service assessment” were lodged during recent Senate and Assembly Budget Committee public hearings on the FY14 proposals. Legislators joined district representatives and advocates in questioning the legality of the tax and chastised the Governor for touting aid increases to districts that in fact would be eliminated by the tax.

If the Governor’s proposal is included in the final FY14 Budget, districts that received State grants from the SDA to cover a portion of their school construction projects in the past will now have to pick up some of the interest and principal payments on the bonds issued by the State to support the school construction program.

This special tax will be charged even though the statute authorizing the school construction grant program – the Educational Facilities Construction and Financing Act (EFCFA) – requires the State to pay the principal and interest on bonds issued to support the grant program and does not authorize the State to pass a portion of those payments to districts. 

In fact, the grant agreements entered into between the SDA and districts do not allow the State, at some future time, to withhold districts’ school aid to pick up the State’s tab on school construction bonds.

An ELC analysis [To access charts, click the sixth tab, entitled “FY14 Debt Service Assessments,” located above the title, “Governor’s FY14 State Aid.”] of the Governor’s proposal shows that the special tax will be withheld from 493 districts, reaping a total of $34 million for the State Treasury. The tax withholding ranges from $49 to $1 million per district. 

In 294 districts, the amount of tax to be withheld will exceed the state aid increase they are slated to receive under the Governor’s FY14 school aid proposal. Of those districts, 157 are middle income, 102 are higher wealth, and 15 are vocational districts.

As a result of the tax, five districts – Barnegat, Egg Harbor Township, East Brunswick, Jackson Township, and Lenape Regional – will face a school aid deficit of over $400,000. For 48 districts, the tax is more than twice the size of their state school aid increase. For 215 districts, the tax is imposed on budgets that will have no increase in state school aid in FY14.

“The Governor is trying to sneak an unauthorized, stealth tax into the budget that will hit public schools in middle-income communities the hardest,” said David Sciarra, ELC Executive Director. “We will be working hard to ensure Legislators remove this tax from the budget. If the Governor wants to tax school districts for school construction projects, he should make the proposal in a bill through the usual legislative process.”     

 

Related Stories:

NJ DISTRICTS STILL REELING FROM GOVERNOR CHRISTIE'S $1 BILLION FUNDING CUT IN FY11

GOVERNOR CHRISTIE'S FY14 BUDGET: ANOTHER YEAR OF CUTS TO NJ PUBLIC SCHOOLS

 

Press Contact:

Sharon Krengel
Policy and Outreach Director
skrengel@edlawcenter.org
973-624-1815, x 24