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Breaking Down School Funding in Governor Sherrill’s Proposed FY27 Budget

Flat lay of US dollar bills with calculator and notebook for budgeting.

Last month, Governor Mikie Sherrill released her first state budget proposal, including increases to PK-12 education funding that follow the state’s school funding formula while continuing some modifications that limit volatility and improve the distribution of resources.

In public testimony provided to both the Assembly and Senate Budget Committees, Education Law Center expressed general support for the Governor’s proposal along with recommendations for improvement.

The Governor’s F27 budget increases K-12 state aid by over $370 million. Four hundred school districts will receive a state aid increase, while 167 districts are facing state aid cuts, and a handful of districts are flat-funded. The budget largely follows the School Funding Reform Act (SFRA), applying a 3.6% inflation increase to the formula’s parameters. But it also makes some significant modifications to the formula through budget language:

  • State aid increases are capped at 6% over the previous year, and state aid reductions are capped at 3%;
  • Special education funding is based on districts’ projected enrollment of classified students, not the statewide average;
  • The Local Fair Share calculation of local funding requirements uses three-year averages of property and income data, rather than a single year.

ELC registered support for these proposed changes, as well as the Governor’s investments in preschool funding, but recognized that a fully funded formula with no caps on state aid increases would be preferable. ELC urged the Legislature to take additional steps to make permanent the budget changes and other necessary fixes by enacting legislation to amend the SFRA.

ELC also raised additional school funding challenges that need to be addressed. As school districts across the state struggle with increasing costs and budget deficits, increasing academic and socio-emotional demands on staff and students, and pressure from taxpayers to minimize property tax increases, the state’s school funding formula needs to adapt to these changes and ensure that all students have access to adequate funding and resources.

To achieve that goal, the first step is to accurately define how much it costs to educate students to meet state standards. After more than two decades, and given the myriad ways that the education system and society more broadly have changed in the last quarter century, a significant reexamination is needed of the resources that are necessary for districts to deliver a “thorough and efficient” (T&E) education today. ELC recommends that the Legislature begin planning for the FY29 Educational Adequacy Report, the three-year review which gives the Commissioner and Governor the responsibility for making sure formula costs are updated.

Second, the state, through the funding formula, must accurately assess local communities’ ability to raise revenue to cover identified costs and supplement local funding with state aid so that every student is adequately funded. About half of school districts are currently not raising their local “fair share,” often despite high property tax rates, leaving them spending below adequacy, or the amount the state has determined is needed to achieve state standards.

With nearly half of school districts now spending below adequacy targets, ELC’s testimony points to the state share of funding that is required to support districts’ adequacy budgets, which declined from 38% in 2008-09 to 31% in 2025-26. This declining state share increases the property tax burden on communities across the state and, in some instances, results in state aid cuts even as district costs increase. A plan to increase the state share to previous levels, while also modifying the Local Fair Share calculation to improve year-to-year predictability and more accurately reflect a community’s ability to pay, will improve both equity and affordability.

ELC also provided several other recommendations for the FY27 budget:

  • Increase Extraordinary Special Education Aid to more fully reimburse school districts for high-cost special education placements;
  • Include a significant investment in the NJ Department of Education’s Division of Early Childhood Education to ensure new and existing preschool programs are operating effectively and efficiently, are adequately funded, and are reaching the low-income students who most benefit from high-quality preschool;
  • Include new funding for capital projects in the SDA districts and increase the funding available for emergent projects and capital maintenance;
  • Allow waivers of the 2% property tax cap for districts that are raising less than their fair share and have the capacity to close local funding gaps to prevent cuts to necessary programs and services.

“The core structure of New Jersey’s school funding formula is sound. It follows fundamental school finance principles by linking funding to state standards and recognizing differences in local communities’ ability to pay,” said Robert Kim, ELC Executive Director. “But after nearly two decades, we need to consider additional modifications to make sure funding aligns with needs and that the required revenue is reaching all students at appropriate levels, ensuring their access to high-quality educational opportunities.”

View ELC’s data dashboards for state and district details of the Governor’s proposed FY27 education budget. Read ELC’s A Roadmap for Improving New Jersey’s School Funding Formula series of reports here. 

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Press Contact:
Sharon Krengel
Director of Policy, Strategic Partnerships and Communications
skrengel@edlawcenter.org
973-624-1815, x240