Tuesday, August 16, 2022

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7. Branching Out: When Courts Set Policy

Seal of the Supreme Court of New Jersey

In addition to the constitutional and statutory rules under which the executive and legislature budget, the New Jersey Supreme Court has taken an active role in designing state and local policies. In particular, the court’s rulings on school funding, the Abbott decisions, and the subsequent legislative implementation of these decisions have profoundly altered New Jersey’s tax regime and budget practices, leading to dramatic increases in income and property taxes.

In 1970, a Newark-based legal advocacy group, the Education Law Center (ELC), brought a case to the New Jersey Supreme Court on behalf of urban students, challenging the constitutionality of funding schools almost exclusively by property taxes.[94] The New Jersey Constitution states all students are guaranteed a “thorough and efficient system of free public schools.”[95] The case rested on the claim that over-reliance on property taxes discriminated against children in poor districts and created disparities in education quality since districts with high property values could spend more than districts with low property values.[96] The court ruled in favor of the plaintiff in Robinson v. Cahill, directing the state to find an alternative way to fund schools.

The Public School Education Act (1975) attempted to close this disparity by mandating a minimum level of per-pupil funding via a combination of local property taxes and state aid. The court was not satisfied and closed the schools.

To meet the court’s ruling, in 1976, the legislature instituted a state income tax with revenues constitutionally dedicated to a Property Tax Relief Fund to be used mainly to supplement school budgets, with smaller amounts dedicated to municipal aid and individual property tax rebates. The initial income tax was nearly flat: 2 percent on those earning less than $20,000 and 2.5 percent on those earning $20,100 and higher.

The income tax was to enable the repeal of some business taxes while lessening reliance on property taxes.[97] After the first year the Property Tax Relief Fund was in place, it failed to meet this objective. In 1977, property taxes fell by more than 17 percent, but state spending increased by 26 percent. By 1978, property taxes began increasing again by 2.4 percent. In FY 1979, revenues lagged behind appropriations by $100 million.[98] By 1981, aid for schools began to outpace income tax collections. Property taxes began growing at 10 percent annually—what they had averaged between 1962 and 1977.[99]

In the same year, the ELC brought a new lawsuit, contending the state’s remedy for schools in poor districts was insufficient. The case of Abbott v. Burke set in motion two decades of litigation over school funding, facilities construction, curriculum standards, and the provision of pre-school education in the 31 court-designated Abbott districts.

In 1990 the court required the state provide “parity aid” to Abbott districts, ensuring they spend as much as the wealthiest district per pupil. Abbott districts were also to be given “parity plus” for supplemental programs “to wipe out disadvantages as much as a school district can.”[100]

To comply, Governor James Florio implemented the Quality Education Act (QEA), ending automatic payments to wealthy districts and increasing aid to poor and middle-income districts via income-tax increases.[101] The combined funding redistribution and rate hike sparked a tax revolt that cost the governor re-election. The QEA was overturned by the court, which gave the state until 1997 to comply with its original ruling.

In 1997 Governor Christie Whitman introduced the Comprehensive Educational Improvement and Financing Act (CEIFA) in which the “thorough” portion of the constitution’s education clause was defined as delivering new Core Curriculum Content Standards, and “efficient” was defined as the cost of education in a hypothetical “model school district” (as opposed to the wealthiest district).[102] CEIFA aimed to control costs in Abbott districts by capping spending in non-Abbott districts. The act allowed non-Abbott districts to spend more only if they indicated any additional spending as “not constitutionally required on school budget ballots.”[103] Non-Abbott districts, on average, did spend beyond the cap, and thus CEIFA failed to meet the court’s test of parity aid.

In Abbott V, the court instituted “an ambitious agenda” of school reform: all-day pre-school for three- and four-year-olds, social and health services, and school building upgrades in Abbott districts.[104]

The cost of compliance with the court’s rulings is reflected in the growing progressivity of New Jersey’s income tax (table 1).















2008 Corzine 2009


<10K 0% 0% 0% 0% 0% 0% 0% 0%
<$20K 2% 2% 1.9% 1.4% 1.4% 1.4% 1.4% 1.4%
$20.1K -$35K 2.5% 2.5% 2.375% 2.212% 1.75% 1.75% 1.75% 1.75%
$35.1K-$40K 2.5% 2.5% 2.375% 2.212% 1.75% 1.75% 3.5% 3.5%
$40.1K – $50K 2.5% 3.5% 2.375% 2.212% 1.75% 1.75% 5.525% 5.525%
$50.1K-$70K 2.5% 3.5% 3.325% 2.975% 2.45% 3.5% 5.525% 5.525%
$70.1K-$75K 2.5% 3.5% 5% 4.25% 3.5% 5.25% 5.525% 5.525%
$75.1K-$80K 2.5% 3.5% 5% 4.25% 3.5% 5.25% 6.37% 6.37%
$80.1K-$150K 2.5% 3.5% 6.4% 6.013% 5.525% 6.37% 6.37% 6.37%
$150.1K-$400K 2.5% 3.5% 6.65% 6.58% 6.37% 6.37% 6.37% 6.37%
$400.1K-500K 2.5% 3.5% 6.65% 6.58% 6.37% 8.97% 8.97% 8%
>$500.1K-$1,000,000 2.5% 3.5% 6.65% 6.58% 6.37% 8.97% 8.97% 10.25%
>$1,000,000 2.5% 3.5% 6.65% 6.58% 6.37% 8.97% 8.97% 10.75%
Table 1

Between 1998 and 2007, the state dedicated $62 billion in income-tax revenues to schools. Last year, $11.5 billion was budgeted for schools, or 35 percent of the total budget. In spite of this spending, revenues have not met all of the costs of the Abbott rulings. In the past 15 years, governors have relied increasingly on debt, issuing over $11 billion in school facilities construction bonds.

New Jersey has the second-highest per-pupil spending in the nation. In 2004, average spending per pupil was $16,888, compared to $8,306 on average nationally for districts with over 15,000 students.[105] The majority of spending has been concentrated on the 31 Abbott districts. Since 1998, on average, 53 percent of school aid has been awarded to Abbott districts, with 47 percent of school aid spread across the remaining 580 school districts.[106] State aid comprises nearly 78 percent of Abbott school budgets, with property tax revenues accounting for 14 percent and federal aid making up 8 percent on average (see figure 8). The reverse is true of the remaining school districts. On average, non-Abbott schools rely on property tax revenues, which comprise 72 percent of spending. State aid represents 24 percent of school budgets, on average, with the federal share averaging 4 percent (see figure 9).

Figure 8

Figure 8

Figure 9

Figure 9

While Abbott IV and V required poor districts to spend as much per pupil as wealthy districts, middle-income districts were not subject to the same mandate.

Income tax dollars from those living in middle-income districts were dedicated to better-funded school districts, producing an inequity between Abbott and middle-income districts.[107]

The Abbott decisions have been criticized on several grounds. First, the decisions have not achieved the stated goal of equity, since 49 percent of poor students live outside of the Abbott districts.[108] To remedy this, Governor Corzine successfully changed the school funding formula in 2009. The new formula distributes state aid to districts based on the individual proportion of low-income, special needs, and limited English proficiency students, tying aid to the student, not the district.[109] While the change eliminates the Abbott district distinction, Abbott districts still receive over half of state aid. In addition, by tying aid to the student, those children eligible for Abbott aid in a given school district bring with them the requirements of the Abbott decisions. For example, a non-Abbott school district with an Abbott child would have to provide full pre-school for “Abbott aid” students. In one sense, the formula change is a means to impose the costs and requirements of the Abbott decisions on non-Abbott districts.

Evaluations indicate that in spite of the redistribution of resources to Abbott districts, outcomes have barely improved.[110] (See case study: “Has Abbott Worked?”) A more significant criticism is that the court broadly misinterpreted New Jersey’s constitution, which states, “The Legislature shall provide for the maintenance and support of a thorough and efficient system of free public schools for the instruction of all the children in the State between five and eighteen years.”[111] The court abbreviated this language and broadened its intent, arguing the constitution guarantees a thorough and efficient “education” rather than a thorough and efficient “system” of free schools, leading the court to become involved in setting curriculum standards.[112] Further, the court ignored explicit language and expanded education to three- and four-year-olds.[113]

New Jersey illustrates the dynamic of policymaking—past policies generate unintended present consequences. Unintended consequences often lead policy makers to undertake more interventions, producing more distortions,[114] making piecemeal reform difficult, if not ineffectual. New Jersey’s only possible route to reform is to simplify the current framework and return to the institutional environment under which it developed into a thriving economy during the 19th and 20th centuries.

For New Jersey to regain its position as an economic leader, it must restore competition and direct democracy in its local governments and in the state government. Reform of New Jersey’s fiscal institutions and the restoration of the classical principles of public finance and competition are the keys to reestablishing an environment in which entrepreneurs, businesses, and individuals can create, contribute, and flourish.

[94] Elaine M. Walker and Dan Gutmore, “The Issue of Civic Capacity in Urban Educational Reform: The Case of New Jersey’s Thirty Poorest Districts,” Journal of Negro Education 71, no. 1-2 (Winter-Spring 2002): 62.

[95] The “thorough and efficient clause,” Article I, Section IV of the State Constitution reads, “The Legislature shall provide for the maintenance and support of a thorough and efficient system of free public schools for the instruction of all the children in the State between the ages of five and eighteen years.”

[96] The case was part of a wave of school reform touched off in California two years earlier. In 1971, in the Serrano v. Priest decision, the California court determined the local property tax is not a just way to fund education because poor districts will naturally lag in funding behind their wealthier counterparts.  Several states, including Hawaii, California, Florida, Wisconsin, and Michigan have education systems that are nearly entirely state-funded, with no funding decisions made at the local level. See William N. Evans, Sheila E. Murray, and Robert M. Schwab, “Schoolhouses, Courthouses, and Statehouses after Serrano,” Journal of Policy Analysis and Management 16, no. 1 (Winter, 1997). Since Serrano v. Priest, a general trend has emerged in which state funds to school districts are determined by districts’ perceived needs rather than their number of students. Funds may be allocated based on students’ income levels, number of English language learners, students with disabilities, or other factors that may help determine the necessary resources for education. In the Serrano decision, spending was capped in wealthy districts and a portion of their property taxes was redistributed to increase spending in low-income districts.

[97] Richard C. Keevey, “State Fiscal Changes: The Long Road from Planning to Implementation,” Public Budgeting and Finance, Winter 1981: 27.

[98] Ibid., 33. The budget was balanced with prior-year surpluses, one-time revenues, and appropriation adjustments.

[99] Ibid., 30.

[100] See Abbott v. Burke II, 119 N.J. 287, 575 A.2d 359 (1990).

[101] Deborah Yaffe, Other People’s Children: The Battle for Justice and Equity in New Jersey’s Schools (New Brunswick, NJ: Rutgers University Press, 2007).

[102] Ibid.

[103] Ibid.

[104] Ibid.

[105] http://www.state.nj.us/treasury/omb.

[106] There is a range of total aid awarded in individual Abbott districts. Under Abbott IV-V, each district must present its case to the Department of Education. Hoboken City receives the least of the Abbott districts, with 25 percent of its funding coming from state aid. Camden City, by contrast, receives the most, with 90 percent of its school budget comprised of state aid, representing over $500 million in FY 2008. See http://www.state.nj.us/education/guide/2008/abbott.pdf.

[107] To remedy this inequitable distribution in non-Abbott districts, schools in all districts are permitted to apply for eight different types of supplemental formula aid.

[108] New Jersey Fiscal 2009 Budget in Brief, http://www.state.nj.us/treasury/omb.

[109] The act proposes state aid flow through two channels: wealth-equalized aid, allocated based on districts’ ability to raise revenue, and categorical aid, based on the number of students in each district requiring special funding. Each district would be given a base amount of aid determined by the number of students enrolled in preschool, elementary, middle, and high schools. Additional aid would be give for the number of at-risk students, bilingual education, special needs children. Aid would be adjusted for the cost of education in different geographic areas of the state.

[110] Herbert J. Wallberg’s analysis of “high-poverty, high-performance” school districts, also known as “outliers,” indicates that successful student performance is contingent on factors other than dollar resources, including: strong principal leadership and teacher commitment, experimentation with teaching methods, high expectations and focus on achievement and academic success, and decentralized budgeting and management. See Eric Hanushek, Courting Failure: How School Finance Lawsuits Exploit Judges Good Intentions and Harm Our Children (Stanford: Hoover Press, 2006), 80-99.

[111] New Jersey Constitution, art. 8, sec. 4, para. 1.

[112] Paul Mulshine, “Abbott Funding: New Jersey’s Court needs a preschool education,” The New Jersey Star Ledger, March 29, 2009, http://blog.nj.com/njv_paul_mulshine/2009/03/abbott_funding_new_jerseys_cou.html.

[113] Peter J. Maze, “New Light on New Jersey’s ‘Thorough and Efficient’ Education Clause,” Rutgers Law Journal, Vol. 38: 1087 (2007): 1140-1141. New Jersey has provided supplemental funding to local schools for education since 1817, but abuses by the legislature, including tapping into the state’s School Fund, culminated in the “Act to Make Free the Public Schools of the State in 1871,” providing the rationale and method for state funding to local school districts.  Examining the debates that led to the 1875 Constitution’s “thorough and efficient” language reveals the framers were not departing, but rather supporting, the 1871 act. Specifically, that a free public education is guaranteed for children aged 5 to 18—through a statewide property tax distributed to school districts based “solely on the population of school-aged children,” regardless of the wealth of the county or municipality.

[114] See Sanford E. Ikeda, Dynamics of the Mixed Economy: Toward a theory of Interventionism (London: Rutledge, 1997).