School Funding Fixes Needed For FY25: Legislature Must Act Now To Prevent Steep Cuts That Will Harm Students

Amendments to school funding law needed to protect districts from unsustainable cuts, provide year-to-year predictability in state aid, and ensure districts can meet local funding obligations

This is the second in a three-part series. Part I reviews education funding in the FY24 NJ State Budget. Part III underscores the need for an in-depth review of the school funding formula in the next Educational Adequacy Report to ensure funding aligns with current curricular standards and educational best practices.

Though the New Jersey Governor and Legislature struck a deal on the current year’s State Budget just a few months ago, it is abundantly clear that lawmakers must take immediate steps to prevent a second budget season marked by uncertainty and unexpected budget cuts in school districts across the state.

With the passage of the FY24 State Budget, New Jersey is now as close as it has ever been to fully funding the state’s school finance formula, the School Funding Reform Act (SFRA). Though the majority of school districts received a state aid increase, others are tackling the 2023-24 school year with less funding due to the implementation of Senate Bill 2 (S2), an amendment to the SFRA that reduces state aid in over 150 districts across the state. The state aid cuts in Governor Phil Murphy’s proposed FY24 Budget were so high and unexpected in some districts that the Legislature stepped in and returned two-thirds of the proposed cuts in a separate bill (S3732) well before the budget passed.

But the S2 formula amendment remains intact. That means many school districts will face even larger cuts next year when S2 requires a 100% reduction in state aid above the amount required by the SFRA, compared to the 76% reduction originally planned for this year.

“To prevent another budget season where districts are facing untenable cuts that will hurt students, educators and communities, the Legislature must act now to amend S2,” said Danielle Farrie, Education Law Center Research Director. “Our school districts need both a more realistic timeline for implementation of S2 cuts and tools to raise the necessary local revenue.”

Education Law Center is calling on the Legislature to enact the following amendments to S2:

1. Lift the 2% tax cap for any district whose school levy is below their Local Fair Share (LFS)

LFS is the SFRA’s determination of how much of a district’s adequacy budget – the amount required to provide a thorough and efficient education – should be funded through local revenue as opposed to state aid. To reach and maintain adequate funding, districts must be able to raise their LFS annually. Many districts across the state are raising less than their LFS but are prevented from raising taxes because of the 2% property tax cap. Lifting the cap would allow districts to increase their tax levy without voter approval and could significantly reduce the amount of time it would take to reach adequate funding. This is especially important for S2 districts facing state aid reductions, as it would allow them to raise taxes to offset their revenue losses and prevent cuts to essential programs and services.

2. Cap the total amount of state aid a district can lose in one year

Much of the turmoil surrounding the FY24 State Budget concerned districts that were expected to absorb significant and unexpected state aid cuts. Despite knowing the S2 timeline over which state aid cuts were to be spread, fluctuations in the economy resulted in cuts that were well beyond predictions. For example, many districts facing cuts saw a significant increase in their municipal property valuation due to the pandemic’s effect on the real estate market. Under the LFS formula, this shifts more responsibility for funding schools to local taxpayers, which can in turn trigger state aid reductions in those districts.

Many districts would not have been able to absorb those losses without cutting programs and staff, increasing class size, or reducing other services that students rely on. An annual cap on state aid cuts relative to the district’s total operating budget would ensure that no district is forced to make unreasonable adjustments in a single year. Capping cuts at a percentage of a district’s total operating budget, instead of as a percentage of state aid, ensures a degree of fairness among districts that have varying levels of state support.

These commonsense adjustments will help ensure that all school districts across the state have the resources they need to provide a high-quality education for their students. However, these amendments must not compromise Governor Murphy’s and the Legislature’s commitment to fully fund state aid in the FY25 Budget for those districts that are entitled to state aid increases, even if there is less aid available to be reallocated from other districts. The Legislature’s “lame duck” session in late 2023 and early 2024 is the perfect opportunity to pass legislation that makes sure no school district receives a budget shock in the Governor’s proposed FY25 State Budget.

Read Part I of this series here. 

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Sharon Krengel
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