Gov. Murphy on July 24 signed S-2, which makes major changes to the state’s school funding formula. The legislation, which takes effect in 2019-2020, will immediately repeal the enrollment growth aid caps and will eliminate adjustment aid over a seven-year period while allowing adjustments to the tax levy cap for certain school districts.

“The balanced approach will provide more equitable funding distribution through the school funding formula,” stated a news release from the governor’s office.

In addition, the changes will base state aid on the most current data concerning student population and local tax ratables.

Over 60 percent of the state’s school districts have been considered “underfunded” due to the enrollment growth caps and because state aid allocations have not reflected student population growth since the current school funding law was enacted in 2008. In addition, more than 180 districts receive adjustment aid, a statutory provision designed to prevent aid reductions when the school funding system was implemented, but which the Legislature originally intended for phase-out.

Under S-2, districts that received adjustment aid and/or in which enrollment declines or increased community wealth were not previously factored into their state aid allocations would experience reductions of “overfunding” through 2024-2025 as follows:

School YearReduction of ‘Overfunded’ Aid*

(*Note: The reductions are applied to “overfunding,” not total state aid.)

Three groups of school districts would be exempt from the reductions:

  • County vocational school districts;
  • SDA (former Abbott) districts that spend below adequacy and with municipal tax rates that exceed the state average; and
  • Non-SDA districts that spend below adequacy by at least 10 percent and with municipal tax rates exceeding the state average by more than 10 percent.

Additionally, in the case of an SDA district spending above adequacy and whose municipal tax rate exceeds the state average, the total state aid reduction would be limited to the amount by which the district is spending above adequacy multiplied by the percentage above adequacy for the corresponding school year.

School districts receiving less than what the School Funding Reform Act (SFRA) calls for would receive an increase in state aid. Specifically, each district would receive a proportionate share of the total state aid reduction from “over-funded” districts and any additional revenue included in the annual appropriations act for the purpose of providing direct state aid to school districts.

For school years 2019-2020 through 2024-2025, a school district that is spending below adequacy and experiences a reduction in state school aid must increase its general fund tax levy by 2 percent over the prior school year. It also permits an SDA district that is taxing below its local share to increase its tax levy in an amount greater than the tax levy growth limitation.

SFRA Enactment Adjustment aid and state aid growth limits were included when the original School Funding Reform Act (SFRA) was enacted in 2008. Districts which were due to receive less funds than in 2007 were “held harmless” with adjustment aid making up the difference. Conversely, districts which were due large aid increases had a state aid enrollment growth limit imposed. Under-adequacy districts could not see their aid increased by more than 20 percent; over-adequacy districts were capped at 10 percent growth.

NJSBA is hopeful that S-2 will bring stability to the school funding process. For the past two years, a number of districts had their final state aid figures changed from the numbers they were originally directed to use in budget development–with some experiencing severe last-minute cuts that were opposed by NJSBA.