Ian Rosenblum, Acting Assistant Secretary, Office of Elementary and Secondary Education (January 28, 2022)

Summary

This is a letter dated January 28, 2022 to Ian Rosenblum, Acting Assistant Secretary of the Office of Elementary and Secondary Education at the United States Department of Education, from Angelica Allen-McMillan, Ed.D., Acting Commissioner of New Jersey. The letter follows a January 11, 2022 call and explains how local tax effort fits into New Jersey's maintenance of equity (MOEquity) obligations under section 2004(b) of the American Rescue Plan. It argues that New Jersey's wealth-equalized school funding formula, which expects each district to raise a local tax levy, meets the conditions in the Department's October 1st FAQ memorandum for treating local revenues as State funds for MOEquity purposes. It concludes that the total of each LEA's levy and State support should be considered when determining maintenance of equity.

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                                                   January 28, 2022

Ian Rosenblum, Acting Assistant Secretary
Office of Elementary and Secondary Education
United States Department of Education
400 Maryland Ave, SW
Washington, DC 20202
Ian.Rosenblum@ed.gov

Dear Mr. Rosenblum:

Thank you for providing the opportunity for New Jersey to expand on the conversation from our January 11,
2022 call regarding New Jersey’s financial commitments under the State maintenance of equity (MOEquity)
requirements in section 2004(b) of the American Rescue Plan. During the call, you asked for a more thorough
explanation of local tax effort in New Jersey and how it fits in to the determination of maintenance of equity as
outlined in the guidance published by the United States Department of Education (USED) in the October 1st FAQ
memorandum.1

As you know, New Jersey’s school funding law is progressive in that it provides more funding for school districts
with higher needs in terms of student and district incomes. The core of the formula is the state’s wealth-
equalized aid that is provided to ensure fiscal equity for school districts. The allocation of New Jersey’s wealth-
equalized funding includes local revenues as part of the calculation of local needs. The goal of equalizing funding
across all school districts in the state according to local needs aligns with the MOEquity requirements as stated
in the second paragraph below question 17 of the FAQ:

        Consistent with the purpose of the MOEquity requirements to ensure fiscal equity for high-need
        LEAs and highest-poverty LEAs, if the State includes such local revenues as part of its
        determination of State funding to meet a “guaranteed” funding level or as part of a
        “equalization” funding structure in order to ensure fiscal equity for LEAs, the State may consider
        the local revenues to be State funds for MOEquity purposes only and part of the calculation to
        determine any reduction of per-pupil funding.

Importantly, under New Jersey’s current school funding formula, the calculation of wealth-equalized aid
provided to districts requires a shared contribution, wherein each district is expected to raise a certain amount
in general fund local tax levy each year. The determination of each district’s expected local tax levy contribution
is based on local ability to pay, as measured by district income and property value. This amount is then
subtracted from the district’s “adequacy budget”2 in order to determine Equalization Aid; if the local fair share

1
 Located here: https://oese.ed.gov/files/2021/10/Maintenance-of-Equity-updated_10_1_21-FAQs.Final_.pdf
2
 This is the amount that the New Jersey School Funding Formula calculates that a district will need to spend in the current
year based on the district’s enrollment and student demographics.
Ian Rosenblum, Acting Assistant Secretary
January 28, 2022
Page 2


is greater than the district’s adequacy budget (i.e. the district can fully support its own students locally), the
district receives zero dollars in Equalization Aid. This “equalization funding structure” that was created “to
ensure fiscal equity for LEAs” meets USED stipulations in the October 1st FAQ memorandum to allow that a
state “may consider the local revenues to be State funds for MOEquity purposes only.”

Conceptually, this funding structure is similar to the school finance policy in Wyoming, a state in which USED
allowed the inclusion of local property taxes in its MOEquity calculations. That state’s “foundation program
guarantee” is analogous to New Jersey’s adequacy budget, as they both quantify the resources that school
districts require to provide adequate educational opportunities to their students. With respect to local
contribution, Wyoming requires school districts to impose a tax levy at a specific rate. Similarly, New Jersey
calculates that districts can raise certain levy amounts based on each school district’s fiscal capacity. Once that
amount is determined, the state provides school aid to support the difference. Both Wyoming’s and New
Jersey’s school finance policies rely on shared responsibilities between the states and local school districts for
contributing financially to support educational opportunities.

In addition, the FAQ stipulates that the state may include local revenues for MOEquity determination so long
as they “are part of a State’s “guarantee” for education under State law”:

        …In some instances, however, local revenues, such as property taxes or taxes on mineral rights,
        are part of a State’s “guarantee” for education under State law (e.g., a certain amount of
        funding is “guaranteed” to each LEA on a per pupil basis, a portion of which is generated locally
        depending on local financial capacity).

Because the New Jersey Constitution (Article VIII, Section IV) mandates a thorough and efficient system of
education (T&E), and because school district budgets represent each district’s determination of the spending
necessary to provide T&E, state statute (N.J.S.A. 54:4-75) and case law mandate the provision of the full amount
of a school district’s certified levy to the school district, with no exceptions. Current law (N.J.S.A. 54:4-76) then
provides a solution for municipalities if funds in their treasury are insufficient to meet this demand.

These levies are “guarantee[d] for education under State law” once they are struck by the school board, and
effectuated by the local taxing authority, typically through the municipality. The levy amounts are determined
through the district budget process that begins well before the start of the fiscal year (N.J.S.A. 18A:7F-5) making
the amounts to be collected both known and required to be made available to school districts.

Although districts determine the amount of local levy based upon the specific needs of the district to meet T&E,
they do so within the statutory boundaries. Each district “shall have a required local share” that is based, in part,
on each district’s wealth relative to all others and “no municipal governing body… shall certify a general fund
tax levy which does not meet the required local share” (N.J.S.A. 18A:7F-5 (b)). Further, the statute sets “the tax
levy growth limitation” which restricts how much each district can increase their levy (N.J.S.A. 18A:7F-38).

Districts, however, determine the amount of local levy necessary, within the statutory parameters, and are
assured receipt of these funds from the local taxing authority once the levy is struck by the board of education.
For this reason, the total of each LEA’s levy and state support should be considered when determining
maintenance of equity for each LEA.
Ian Rosenblum, Acting Assistant Secretary
January 28, 2022
Page 3


I look forward to hearing from you and am happy to provide any further information you require.

                                               Sincerely,




                                               Angelica Allen-McMillan, Ed.D.
                                               Acting Commissioner


AAM/kd


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