Opinion ID: 2424209
Heading Depth: 1
Heading Rank: 21

Heading: The State Aid Reductions

Text: The substantive intricacies of the SFRA formula were examined in full, first in the Master's report to the Court and thereafter in Abbott XX. 199 N.J. 140 [971 A. 2d 989]. The basic principle underlying the formula, though, is there is an acceptable method for determining the level of spending required to provide a student, accounting for his or her educational needs, a thorough and efficient education as mandated by the State Constitution. The FY 2011 Appropriations Act modified the established funding formula for the current fiscal year and set forth a method of determining and allocating the reductions to State aid funding. [13] Stip. ¶ 51. The modifications to the funding of the SFRA formula were effectuated by way of the Appropriations Act, were to apply only to FY 11, and were not permanent amendments to the original SFRA statute. Wyns, 13 T 23:20-25:23. [14] Significantly, there was a difference of $1.601 billion between full SFRA funding, pursuant to the parameters for K-12 State formula aid in N.J.S.A. 18A:7F-43 et seq., and the modified K-12 State formula aid provided through the FY 11 Appropriations Act. Stip. ¶ 65. If the formula had been funded according to the original SFRA parameters, the districts would receive $8.451 billion in State aid, however, the modifications pursuant to the FY 11 Appropriations Act resulted in an allocation of $6.849 billion in State aid, which was a 19% reduction from the fully funded original SFRA formula. D-124 at 19. Of the total allocated State formula aid in FY 11, the former Abbott districts received $3.933 billion or 57.4%. Stip. ¶ 118. The reduction to State formula aid for FY 11 was the product of several steps. First, the FY 11 Appropriations Act modified three factors in the SFRA formula: the Consumer Price Index (CPI), the State aid growth limits, and the allocation of Educational Adequacy Aid. Stip. ¶ 51. Specifically, the CPI was set to zero, the State aid growth limits were set to zero for all districts, and each district's allocation of Educational Adequacy Aid funding was held at the 2009-2010 level. Stip. ¶¶ 53-56. Under the original SFRA formula parameters, the CPI would be 1.6, the State aid growth limits would cap the aid increases for districts spending under adequacy at 20% and for districts spending over adequacy at 10%, Dehmer, 7 T 105:4-106:3; see also N.J.S.A. 18A:7F-47(d), and Educational Adequacy Aid was designed to bring the former Abbott districts meeting certain criteria, which were spending below adequacy, up to adequacy within three years of SFRA's implementation through a combination of increased local levy and additional State aid. Abbott XX, supra, 199 N.J. at 229 [971 A. 2d 989]; Dfs.' Post-Trial Br. ¶ 21, Mar. 14, 2011 (citing N.J.S.A. 18A:7F-58(b)). As a result, the modified version reduced the total State aid by way of the modified formula by $520,276,732. Wyns, 13 T 63:18-64:12; D-120 at 11. In other words, it reduced the sum of Equalization Aid, Educational Adequacy Aid, Security Aid, Adjustment Aid, School Choice Aid, Special Education Categorical Aid and Transportation Aid, which would have otherwise been provided pursuant to the original formula. Stip. ¶ 57. The modified SFRA formula was then run for each district, or calculated with the above modifications, and a dollar allocation figure was determined for each of the districts. Wyns, 13 T 37:8-11. Second, for each district, a reduction amount was calculated equal to the lesser of either (a) the amount equal to 4.994% of the district's adopted 2009-2010 general fund budget, or (b) the sum of the district's initial 2010-2011 allocation of State aid pursuant to the modified formula. Stip. ¶ 57. Third, the reduction amount calculated from (a) or (b) in step two, whichever was less, was then subtracted from the figure derived from the modified SFRA formula in step one. Ibid. The resulting dollar figure is the actual dollar allocation to the district for the 2010-2011 school year. Wyns, 13 T 37:12-18. By limiting the reductions of State aid to no greater than 4.994% of each district's 2009-2010 general fund budget, which included both State and local resources but excluded federal aid, the State attempted to treat districts equitably and not disadvantage those most reliant on State aid. See Summations, 15 T 37:2-5; Plfs.' Post-Trial Br. ¶¶ 50-51, Mar. 14, 2011. In other words, in an effort to impose the reductions equitably, districts which relied more heavily on State aid and districts which supported their school budgets primarily through local resources experienced aid reductions of less than 5% from their 2009-2010 general fund budget. Stip. ¶ 57. By allocating reductions in this manner, the districts with the highest concentrations of at-risk students had the smallest percent reductions of State aid in comparison to other districts which received significantly less State aid and thus had substantially higher percent reductions in State aid. Dfs.' Post-Trial Br. ¶ 396; see also D-94. The total reduction of 4.994% from all of the districts' 2009-2010 general fund budgets was equal to $1.081 billion. Wyns, 13 T 45:5-10; Dehmer, 8 T 39:10-18. The reduction of $1.081 billion is also the difference between the K-12 State aid received in FY 10 and FY 11, a 13.6% reduction. D-109 at 11. The sum of the reductions resulting from the modification to the SFRA formula, $520 million, and the sum of the reductions of 4.994% from each district's general fund, $1.081 billion, resulted in the $1.601 billion underfunding of the original SFRA formula in FY 11. Wyns, 13 T 64:16-21. The fourth step required determining the methodology for allocating the reduction amount, from the lesser of (a) or (b) from step two above, among the various statutory categories of SFRA aid. Wyns, 13 T 38:7-16. Specifically, [t]o determine the level of appropriation for each line item of formula aid in the FY 2011 Appropriations Act, the Commissioner was authorized to establish a hierarchy of the formula aid categories in the SFRA formula among which the reduction amount from step two would then be allocated. Stip. ¶ 60. The funds allocated to districts through the formula aid line items included in the hierarchy were unrestricted general fund revenue, and reductions in these formula aid categories did not affect the manner in which the districts could then budget or expend the allocated funds. Stip. ¶¶ 63-64. The established hierarchy reduced each district's State aid in the following order: (1) Adjustment Aid, (2) Transportation Aid, (3) Security Aid, (4) Equalization Aid, and (5) Special Education Categorical Aid. Stip. ¶ 61. This pecking order required reducing the first category to zero before carrying over any reduction amount left to the subsequent category, and so on, until the reduction amount was fully exhausted. If the reduction amount was exhausted by applying it to the first category only, then the remaining aid categories were left intact. As a result, each line item for formula aid in the State budget was reduced by the sum of the aid reductions in each category of all districts. Stip. ¶ 62. Accordingly, the total reductions in each category from the original fully funded SFRA formula for FY 11 were as follows: Adjustment Aid was reduced 38.63%, Transportation Aid was reduced 76.78%, Security Aid was reduced 61.89%, Equalization Aid was reduced 11.05%, and, additionally, Educational Adequacy Aid was reduced by 70.09% and Choice Aid was reduced 0.39%. [15] P-129. Essentially, the hierarchical method was implemented to ensure the cuts were spread equitably among all the districts. Wyns, 13 T 42:21-25. If the State had instead chosen to implement overall cuts for only one aid category, such as Equalization Aid, the less affluent districts relying more heavily on that type of aid would have been disproportionately affected as compared to wealthier districts, which may not even receive Equalization Aid under the formula. Ibid. While the method employed by the State ensured the poorer districts had lesser State aid reductions, the wealthier districts, whose allocation of State formula aid was less than 4.994% of their 2009-2010 general fund budgets, lost all of their State aid for FY 11. Id. at 42:1-12; D-124 at 17-19. Consequently, 59 districts, 43 of which were DFG I or J districts, received no formula aid for FY 2011. Stip. ¶¶ 58-59; D-124 at 17-19.