Why the Schools are Asking for More Taxes

In the aftermath of the Board of Education's adoption of the 2010-11 budget yesterday, one of the hottest issues is the decision to raise taxes $1 million over the cap.

The adopted budget includes a 5.07 percent increase over last year's tax levy, or about a $338 increase per household, according to figures provided by the Board.

Proponents of the measure point to a looming funding cliff for the 2011-12 budget, and the exhaustion of the schools' surplus funds to compensate for $1.6 million in withheld aid this year and $3.9 million in state aid cuts for next year. The district's remaining surplus comes in the form of extraordinary aid payments from the state.

The district has approximately $2.5 million in extraordinary aid funds available for the upcoming school year – $1 million left over from an unusually large extraordinary aid payment in 2009 and $1.5 million in promised extraordinary aid for 2010-11. The question facing the Board of Education is how much of the $2.5 million they should put toward filling the $3.9 million hole in the 2010 budget.

In the budget proposal, the district would use $1.5 million of the extraordinary aid funds this year, and carry over the other $1 million to try to alleviate the predicted holes in 2011-12 school year budget. To make up for the $1 million saved, the Board proposed raising taxes $1 million, an extra 1.43 percent over cap.

According to numbers presented by Lou Carlucci (see video), Board of Education finance chair, moving the surplus forward and raising taxes this year could mean as much as a $2 million difference in lessening the number of cuts that would be needed in 2011-12.

To explain why saving $1 million could result in $2 million in fewer cuts one year later, Carlucci showed an analysis of the tax base. Each year, Bernards is allowed by state law to increase property taxes by 4 percent. Gov. Christie is is pushing for a constitutional amendment that will reduce the 4 percent limit to 2.5 percent per year. In either scenario, taxes are increased based on the amount of taxes in the previous year.

For example, if taxes were $100 in the first year, the district could raise the taxes the next year to $104, or $102.50 if Christie's amendment is ratified.

In Bernards' current scenario, the district is asking for a 5.07 percent increase (which is allowed as a special case to make up for the lost state aid money this year), meaning the district would net about $73.7 million in taxes total for 2010-11. If the Board decided to increase taxes by just 4 percent, the total number of taxes for next year would be $72.7 million.

Remembering that taxes are increased based on the previous year, the amount of taxes the district could collect in 2011-12 (assuming a 2.5 percent cap) would be as follows:

Percent Increase                     Taxes Collected                   Taxes in 2011-12
       in 2010-11                                                                          (after 2.5% increase)

4 Percent Increase                             $72.7 million                              $74.5 million

5.07 Percent Increase                       $73.7 million                               $75.5 million

As the table illustrates, the extra $1 million raised this year would allow for an extra $1 million to be raised in 2011-12 as well, even if the $1 million raised this year is spent immediately, which is currently the plan.

When you combine the extra $1 million in 2011-12 with the $1 million in extraordinary aid funds that the district could pull through, you get $2 million toward softening the gap in the school budget two years from now. This explains the Board's estimation that a 5.07 percent increase would result in $1.3 million in cuts for 2011-12 instead of $3.3 million.

In addition to having fewer cuts in 2011-12, the Board also championed the benefits of having a reserve fund available for use in any emergencies.

Not everyone in attendance at the budget hearing on March 31 was in favor of the plan. Residents expressed views ranging from supporting no increase in taxes to supporting more increases so that no program cuts would be necessary.

One resident said, "The saying goes, a bird in the hand is worth two in the bush. We put 1.7 million in the bush this year, [the amount of surplus the Board had prior to the state's decision to withhold aid,] only to have it taken away from us. I think we are nuts to put something in the budget this year … only to have the governor take it away fom us next year."

Other residents echoed the concern, fearing another state grab of school surpluses in the upcoming school year.

Superintendent Valerie Goger responded during the Board's comment session that extraordinary aid funds are technically not classified as "surplus," which is why they were not touched during the last state aid grab, reducing the risk of losing the money.