Educational Services

A Taxpayers’ Perspective on School Taxes
Cape May Taxpayers Association
Educational Funding Committee

Educational services are the largest draw on property tax revenues in the City of Cape May. How that revenue is raised and spent is and should be the highest priority to every taxpayer in Cape May. To this end, the Education Committee has collected and analyzed data and other information related to the operation and funding of our schools.

TPA has also reached out to the Cape May School District in effort to establish a positive, on-going partnership with administrators and school board members. We will continue to meet with school officials, elected officials, citizens and taxpayers in this effort. We need and welcome their participation.

In this partnership we have shared information and ideas openly in an effort to identify and understand the many forces at work in the raising and spending of public funds for schools. This information must be known and used to guide the community as it responds to its responsibilities.

Cape May, like all communities in New Jersey, is charged with two essential responsibilities which reflect the shared nature of a community:

• The statutory obligation to provide a thorough and efficient education for its children, and
• The fiduciary obligation to raise and spend public funds effectively and efficiently for the common good of its residents

1. The Cape May Elementary School

The Cape May Elementary School (CMES) has long been a valued resource in and for the city.

The school facility is the closest thing to a recreation center that Cape May has to offer. Next to city hall, it is the civic heart of Cape May. Many community events are offered to the public through the city’s recreation department and directly by the school district. Its facilities are used year round by the community at large and a portion of the local school tax supports these programs.

Cape May can look with pride on the many graduates of CMES who have excelled in later years, both at the Regional District schools and beyond.

The school district has committed serious time and energy in efforts to sustain and enhance the efficiency of its programs, most notably in recent years through effective staff development and several shared services arrangements with neighboring districts.

In addition, by most measures, CMES provides a thorough educational program. The efficiency of that program however is constricted by a variety of real issues not easily resolved.

By DOE measurement of comparative cost, the Cape May Elementary School is extremely expensive. For example, comparing only the 62 K-6 districts across the State for 2006:

• The Cape May overall per/pupil cost ($14,396) is the sixth highest in the state.
• The cost of per/pupil classroom instruction ($8,407) is the seventh highest in the State.
• The student-teacher ratio (7.1) is the second lowest in the State.
• Costs ($2,111) and salaries ($1034) for operation and maintenance per/pupil are the sixth and third highest in the State.

Most coastal resort communities, such as Avalon, Stone Harbor and Sea Isle City, share this high cost-low enrollment dilemma.

However, no other community in Cape May, or anywhere else on the coast, lives with the additional burden of having 8% of its ratable base exempt from taxation, while absorbing the impact of 80% of its student enrollment residing on those exempt properties.

In recent years, the CMES enrollment numbers have been dwindling and unstable; at the end of 2005-2006 it was 149.

The Cape May School District has reported that the current enrollment, which is the base upon which funding is calculated for the FY07-08 school year, is up to 167 students. Of that number there are:

134 residents of Tax Exempt Properties
29 Cape May residents
2 Tuition students
2 students from Sending-Receiving arrangements

In addition, the percentage of students who entered and left during the last school year was 49.2%, about four times the State average. A perennial pattern of high student turnover has the effect of increasing the difficulty to both assess the effectiveness of educational programs and guide the educational development of each student over the course of a K-6 program.

The Cape May School District has indicated that this significant factor is indeed a challenge. Recent test results have appeared to show that the district’s effort to identify and address this issue have been meeting this challenge with a degree of success. Their scores in recent in language and math testing have improved, winning a Governor’s School of Excellence Award. Analysis of test scores has led to major curriculum changes. Additionally, the very small enrollment numbers have permitted staff to identify and address individual student learning needs with respect to skills tested by the state.

This challenge will remain strong as long as the conditions of very small classes and high turnover rates continue, with the additional negative effect of rendering standardized testing and other measures much less reliable in the evaluation of both individual student growth and program effectiveness due simply to small numbers and changing test populations.

Average class sizes are well below average and will continue to shrink as enrollment dwindles. This problem is compounded by the reality that as grade sizes change annually (see above), staffing needs shift. The district has recently proposed hiring a new teacher address this impact.

Increases in personnel and operating cost will continue at inflationary levels. The school district has indicated that, while it has reduced staff and cut cost wherever possible, further decreases in these expenditures as an attempted efficiency will do little but diminish necessary services making the school less effective. They are likely correct in that assessment leaving only the local property tax to support these inevitable increases in program cost.

The school district is seeking to increase revenue by preparing a campaign to attract student from other communities to attend CMES on a tuition basis. Taking in tuition students will not generate sufficient revenues to encourage efficiency even if the School Board does not increase staff and services for the tuition students. The tuition rate would have to equal the per/pupil cost to avoid passing the difference along to the Cape May taxpayers.

In addition, the district has recently adopted a reduction in the tuition rate to encourage competition. This move will actually increase this inefficiency because revenue already insufficient will be further reduced. However, in practical terms, the impact is minimal since CMES only has 2 tuition students.

Over time, the interaction between these factors, small enrollments and increasing costs, will continue to compound this condition. This inefficiency is inherent in any very small school.

In the Cape May Elementary School the above concerns compounded even further by serious flaws in Revenue Generation.

Cape May Elementary School Revenues (%)

The repeated use of available fund balances in recent years has done little but mask the seriousness of this inefficiency by providing a series of one year fixes to avoid raising taxes too much. Note in the chart above, the effect on local property taxes if fund balances were not available.

State Aid has been relatively stable; but local property taxes have, inevitably, risen as free balances are used up.

Further, and perhaps most significantly, the Federal Government has continually failed in its obligation to adequately support the services enjoyed by its employee-dependents.

In a School District where upwards of 80% or more of the enrollment in the elementary school are federal dependents residing on federally owned and tax exempt property, Federal Impact Aid support hovers around 20%.

The CMSD recently indicated that there were approximately 141 federal dependents in the elementary school in 2006. In this case, with a per/pupil cost of $14,396, the Federal burden would be $2,029,836. Federal Impact Aid for 2006 was $650,000. Further, if federal dependent enrollment tends to remain a relatively stable number while local resident enrollment decreases, the inequity intensifies.

Clearly, if the school is to continue to operate within this perfect storm of factors – small and shrinking enrollments, inevitably rising costs and the sustained inequity of inadequate Federal support, steady increases in the Property Tax are inevitable.

And, property owners will be required to sustain a system which is clearly both inefficient and inequitable. Unlike the gross inequity in the funding of Lower Cape May Regional School District, this problem and its solution are clearly in the hands of Cape May and its taxpayers.

Relief appears possible in only two directions. Working with our federal legislative delegation, Cape May should seek immediate federal support equal to the burden on the city taxpayers imposed by federal dependents.

Separate and apart from federal relief, it would appear prudent that the School District of Cape May consider a process of assessing the costs and benefits of the continued operation of the Elementary School as well as identifying alternatives measures to provide effective and efficient education for the children of Cape May.

The statutory obligation of this town to provide a thorough and efficient education for its children is not be taken lightly or compromised. That responsibility is not threatened by these either of these directions; and, in fact, the likelihood of future efficiency as well as the sustained thoroughness of the present system is clearly in doubt given all of the above.

So too, the fiduciary obligation to raise and spend public funds effectively and efficiently must be met. Too often with respect to school taxes, this obligation has been honored only in the breach.

2. Lower Cape May Regional School District (LCMRSD).

Roughly 120 students from Cape May attend LCMRSD. Cape May taxpayers annually provide about $5 million dollars for the education of these students ----One tenth of the student enrollment; one third of the LCMRSD annual Budget and a per pupil cost of $42,000 in 2005-6.

Said another way (as the chart below shows), the amount of local property tax collected for the regional school is greater than the amount of local property tax for all municipal services.

In addition, there are an undetermined number of federal dependents residing on tax exempt property within Cape May and attending LCMRSD. Due to the parameters of the Federal Impact Aid formula which is based on the assessed valuation of property within the district (which includes Lower Township, Cape May and West Cape May); LCMRSD does not qualify for Federal Impact Aid.

Therefore, assuming the same ratio of Federal dependents to the total student enrollment from Cape May, the full cost of educational services enjoyed by the employee-dependents of the Federal facility is born by the taxpayers of Cape May.

With a per/pupil cost for the LCMRSD for 2006 of $12,670, the Federal burden for the approximately 100 employee-dependents would be $1,267,000.

However, under the present formula which requires that Cape May taxpayers provide one third of the cost of the regional district, the unmet Federal burden is $4,300,000 for FY2005-6

From the larger perspective, the inequity of the Regional funding formula is well documented. So too are the aggressive efforts of City Council and the Taxpayers Association to somehow remedy the defect. The Gagliardi Study of 2005-06 and the frustrated plan to forge a local coalition to seek negotiated modifications in the formula are commendable. These efforts should continue.

The situation in which the taxpayers of Cape May find themselves is not the consequence of relative wealth, viewed incorrectly by many in a “they can afford to pay our bills” mentality. It is the aftermath of stale legislation, well beyond its productive life in economic realities never envisioned by its authors.

It is also not unique across the State of New Jersey, where towns everywhere are finding themselves strapped beyond reason by the antiquated reliance on property tax while protecting the sacred cow of “Local Control”.

How to end this problem? Pulling out is theoretically available, as are voluntary negotiations for more equitable sharing arrangements. But, this scenario depends on the courage of the majority to do the right thing and derail their own gravy train. Unlikely, since most of the residents of Lower Township are probably enjoying this accidental socialist experiment in the redistribution of wealth.

In the short term, Federal legislators must step up to this issue. It is within their power and responsibility to solve a large portion of this problem.

The Coast Guard is an inseparable component of the Cape May Community on cultural, social and security levels. But, bluntly, the Federal government has not been a good neighbor when it comes to economic responsibilities – especially with regard to the Regional District funding. Every year its employee-dependents enjoy the benefits of a multi-million dollar education paid for by the property taxpayers of Cape May. Federal legislation intended to assist host communities is willfully under funded every year, and its loopholes are clearly known but never filled.

Our Congressman and our Senators must be brought to this issue and fix what they can fix --either by amendments to the current law or special annual appropriations to offset the Cape May tax burden. In this way, while the flawed system will not be fixed, its burden will be borne by the agencies and entities responsible for the cost.

The City of Cape May should also seek revision to the regional funding formula for LCMRSD consistent with recent Supreme Court decisions regarding the equity of regional formulae.

The best and, perhaps last, hope to fix this broken system will be much more difficult. Further, and more aggressive, efforts are necessary to educate State legislators and the Governor on their responsibilities to fix the problems created by their predecessors.

The vagaries of tax bases and rates across 567 municipal taxing agencies, 611 school districts and numerous other taxing entities is the heart of this problem. Permitting such a system to exist is the root cause of anomalies such as the Cape May Regional funding formula, and countless other across the State.

The State Legislature must be brought to this issue to do the right thing:

• Statutory changes to broaden of the tax base so that the cost of government services is borne more evenly and more fairly across a wider base of revenue resources, and
• Statutory changes to reduce the number of taxing entities by terminating and consolidating the glut of public education authorities.

In the face of virulent special interest sworn to uphold the status quo, this will not be easy or soon in coming. But, it is the only way. Legislators and Governors have sworn to pursue this goal. We must hold them to it and help them in their effort.

PROPOSED STRATEGY

PURPOSE

Educational Services are the largest draw on property tax revenues in the City of Cape May.

Property Tax is the Lynchpin of Cape May’s sustained economic vitality.

With this much at stake, the careful assessment of the costs and benefits of how much we all spend and what we all get must be the only justification for that tax.

Have we done all we can to insure that this tax is fairly raised and prudently
spent?

The Taxpayers Association alone has neither the resources nor the authority
to do this in a unilateral fashion. It can only be, and perhaps must be, the catalyst toward a sustained process by which this public policy issue is confronted and addressed.

As this catalyst, the TPA will begin the full and open public discussion of the problems surrounding the funding of public education in Cape May in the following manner:

PLAN

Identify Stakeholders

• Taxpayers
• Residents
• Parents
• Chamber of Commerce
• Local Elected Officials
• State and Federal Elected Officials
• Community Partners

Educate Stakeholders on the WHAT and the SO WHAT of the Problems

Seek Stakeholder Interest in the Problems

Together, Stakeholders Identify Solutions

Together, Stakeholders Identify Strategies to Achieve Solutions

Together, Stakeholders deploy Strategies