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How Schools Are Financed

How Schools Are Financed

This paper researches how PatersonSchool District in PassaicCounty, state New Jersey is financed. It reports the state obligation to finance the chosen district and gives main sources of funding used by the state and local governments to fund Paterson. It also discusses taxes allowable for use to fund the Paterson schools.

According to Education Funding Report, Paterson School District, New Jersey, is one former-Abbot school districts in the state located in low-wealth areas (Cerf, 2013).  About forty years ago, New Jersey public schooling almost exclusively depended on funding from local property taxes. That actually meant that property-rich districts dramatically outspent districts that were short of property. Hence, students that came from economically advantaged families outachieved their peers from less wealthy families. This forced poor districts to seek redress from the courts, first in Robinson v Cahill, then in the form of Abbot v Burke.  In the lawsuit Robinson v Cahill, the court ruled out that the then system prevented lots of school children from getting the opportunity to study which was guaranteed by the state’s constitution (DiFrancesco & Gagliardi, 2001).

In Abbot v Burke, the argument was simple and clear: closure of the spending gap would lead to closure of achievement gap. As the argument won in the court, the funding considerably increased, especially in the former-Abbot school districts. Thus, the case Abbot v Burke caused the court to declare the then funding formula unconstitutional and change it. The case resulted in a new funding formula adoption. The new formula “ensures that the most disadvantaged district in the state can spend at the same rate as the most affluent state” (DiFrancesco & Gagliardi, 2001).

While New Jersey uses its fiscal revenues to fund the schools, state aid has been the major source of expenditure growth in high-need, low-performing former-Abbot districts (Cerf, 2013). The Public School Education Act of 1975, which specified how state was supposed to prepare students for adequate functioning in a societ, was funded by the New Jersey Gross Income Tax of 1976 (DiFrancesco & Gagliardi, 2001).  The funding formula was revised as a result of Abbot v Burke. Then, on January 13, 2008 the School Funding Reform Act of 2008 was signed by Governor Corzine. It increased the aid provided by state from 2 to 20 per cent depending on a school district.

PatersonSchool District, similarly to other school districts in New Jersey, is funded with a mix of local property taxes and aid from the state which is formed by income and sales taxes. As a high-need, economically disadvantaged school district, Paterson receives additional funding compared to  schools situated in economically favourable districts. According to the data provided by the National Centre for Education Statistics, local and state school funding covers nearly 93 per cent of school education expenditures. On the state level, the source of this funding is income and sales taxes, while on the local level the school gets funding from property taxes. The latter are set by local officials, the school board, and citizens (PBS, 2008). 

While property tax remains the major source of Paterson school district funding, there are different views as to its relevance. The supporters of property tax funding say that it is more transparent than the income tax while the opponents say it is rather complicated. Reschovsky criticizes the property tax as a source of funding “because of its use of overlapping layers of local governments such as cities, counties, and school distrcits”. In Reschovsky’s view, the primary source of funding should be income tax (Reschovsky, 2004 in Ladd & Fiske, 2012, p. 367). As for the property tax revenue, it is calculated using the following formula:

Property tax revenue = (jurisdiction-levied tax rate)*(property taxable value) (Ladd & Fiske, 2012, p.374).

It is worth mentioning that in New Jersey, there are tax and expenditure limitations in relation to school funding. It means that New Jersey imposes certain restrictions on local governments’ aggregate spending. At the same time, educational spending in the state is aamong the highest across the country. By 2005-2006, expenditures on education in Abbot districts, with Paterson among them, reached the status of parity with wealthy non-Abbot districts, and even exceeded them. The data for 2005-2006 state that in Abbot districts there was spent more funds annually per one student by $1,000 compared to high-wealth and middle-wealth districts (Ladd & Fiske, 2012, p.266).

According to the latest data, there is a new trend in the funding of New Jersey’s school districts, Paterson in particular. There is a move to reduction of local property taxes amount and greater reliance on state aid. In 2008, the School Funding Reform Act was signed by Governor Corzine that provided for increases in funding through state aid to New Jersey schools, Paterson among them. Yet, Paterson faced $80 million cost reduction in 2010, which led to numerous layoffs and considerable program cuts. It got $20 million of state aid for the period of 2011-2012, but that did not bring it back to what it was prior the drastic cut several years before. Also, Paterson was not among the schools to get aid increases in Gov. Christie’s plan.

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Today Paterson faces the reality: it is one of the school districts that constitute 16 per cent of schools which will be given reduced funding under the state budget. So, in 2012-2013 Paterson public schools are getting $863, 244 less in funding by the state aid than they received in 2011-2012. While the cut certainly affects the Paterson school district, it still remains the district that spends more than others in New Jersey, namely, over $ 20, 000 per one student annually (Malinconico, 2012).  The distribution of Finances for PatersonSchool District is shown in Table 1 below.

In summary, Paterson remains one of the best-funded Abbot districts in New Jersey. With funding exceeding $20, 000 per each student, it gets its finance from both local property taxes and state aid, which is based on income and sales taxes. Despite the fact that Paterson faces reductions in funding this year, it has managed to reach the parity in funding with high-wealth school districts and even exceeded their funding rate per one student.

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