Senators take first steps to rework state’s school funding formula

Lawmakers on Thursday began exploring broad changes to New Jersey’s school funding formula meant to abate steep swings in state aid seen in recent years and allow some districts to more quickly meet their share of school funding.

A new bill before the Senate Education Committee would retool New Jersey’s system of school funding for the first time since lawmakers approved legislation to begin phasing out a specific type of state aid in 2018. It would allow larger property tax hikes in certain districts and limit reductions to state aid in others.

“This is the start of a conversation, but my goal is to get something done and make sure that we have something that works,” said Sen. Vin Gopal (D-Monmouth), the panel’s chair and the bill’s prime sponsor.

Districts who cannot fund their local fair share — the portion of school funding a district is responsible for — would be allowed to raise tax levies by up to 7%, instead of the 2% cap typically imposed under present law.

Certain districts, called SDA districts after the state Schools Development Authority, where the state is required to fund all construction and maintenance costs, would be allowed to raise taxes up to their local fair share, regardless of the size of the increase.

Districts whose tax collections are enough to cover their local fair share would remain subject to the 2% cap, though the bill would permit all districts to raise taxes outside of the cap to meet health benefit and pension costs, as well as those related to rising enrollment.

Gov. Chris Christie enacted the 2% cap on property tax hikes to slow the growth of New Jersey’s highest-in-the-nation property taxes in 2010, and though the limit has successfully slowed property tax growth, it’s also prevented some districts from raising revenue fast enough to cover budget gaps following dramatic shifts in state aid.

“Boards of education don’t want to go out there and just increase taxes willy-nilly,” said Jonathan Pushman, director of government relations for the New Jersey School Boards Association. “They need this tool so they can have an honest and open, transparent conversation with their taxpayers, with their communities, to see what they can do, how much they can afford, where they can cut, and where they may need to invest.”

Allowing districts to raise levies by 7% a year could be too little to allow some districts to meet their local fair share in a timely manner, said Education Law Center research director Danielle Farrie, noting, for example, that it would take North Bergen nine years to meet its current local fair share under a 7% cap.

But some lawmakers are likely to balk at the prospect of steep property tax hikes even if they broadly support the bill’s other provisions.

“I think the tax increase is going to be a heavy lift, but if you’re interested in pulling some of these things out that we need to get done right now, I’ll cosponsor it,” said Sen. Declan O’Scanlon (R-Monmouth), the chamber’s GOP budget officer.

The legislation, which the committee discussed without a vote Thursday, would bar the state from reducing aid to a given district by more than 2% of the district’s prior budget each year.

Some districts have faced outsized cuts fueled partly by spiking property values, inflation, and shifts in enrollment as the state moved in recent years to phase out a type of state school funding called adjustment aid. The cuts prompted broad outcry from some areas of the state and have helped fuel a push for change.

The bill would bar the state from reducing aid to districts in municipalities whose equalized total tax rate is at least 10% more than the statewide average so long as their spending is at least 10% below adequate funding.

“Any elimination in dramatic fluctuations is a help to everyone,” said Betsy Ginsburg, executive director of the Garden State Coalition of Schools.

SDA districts could not face aid cuts if their municipality’s tax rate is more than the statewide average and the district is spending below adequacy.

It would require the commissioner of education to engage members of the public to determine whether the department’s method for deciding a district’s local fair share and its ability to pay it properly account for residents’ ability to pay.

It would call on the commissioner to review school budget timelines, districts’ ability to anticipate shifts in state school aid, and methods of expanding preschool funding, among other things.

The legislation would also expand extraordinary special education aid. Under current law, the state funds up to 90% of per-student costs above $40,000 for students with disabilities.

The bill would lower that threshold to $35,000 and require the state to cover all costs above that level after a five-year phase-in from 80% in the first full school year after the bill takes effect.

“One student can totally disrupt a small district’s budget when they have to pay that money,” said Francine Pfeffer, associate director of government relations for the New Jersey Education Association.

Numerous witnesses praised provisions requiring the state to study whether it should average districts’ property values across multiple years to prevent steep swings in aid in a single year, arguing that multi-year averages would smooth out annual impacts.

The move to tweak the state’s funding formula is set to precede an effort to mandate New Jersey’s roughly 600 operating school districts begin merging to cut down on administrative and other expenses. Gopal said he expects that push to begin in 2025.

“Any district that’s 500 students or less, we can’t operate anymore,” Gopal said. “We need to merge health care contracts, waste management, snow removal. All of that can help on this affordability issue, but at the same time, denying a child mental health, special education, music, arts, I don’t think that should be an option just because our crazy crisis of inflation right now.”