In 2008, New Jersey enacted the School Reform Funding Act (SRFA), with the intention of creating a new school funding formula with the goal of reducing school spending inequalities throughout the state. In an effort to reduce the possibility that school districts might experience short-term budgetary shocks, the SRFA provided temporary state funding assistance through the provision of “adjustment aid” to approximately 300 NJ schools. A decade later, the NJ S-2 Bill was enacted to eliminate the adjustment aid provision and make other adjustments to the school aid formula. What effect, if any, has eliminating the adjustment aid had on NJ schools?

Michael Hayes, Ph.D., Associate Professor at Rutgers-Camden, has authored a new report published by the New Jersey State Policy Lab which examines the short-term impacts of eliminating adjustment aid on local revenues, current expenditures, student-to-teacher ratios. Key findings of his study include:

• The school districts that lost their adjustment aid experienced, on average, a 10% reduction in total state aid. In response, these school districts reduced current expenditures on instruction and support staff by about 0.9%, in lieu of raising additional property tax revenues. This reduction in current expenditures resulted in only a small increase in student-to-teacher ratios.
• The most affluent suburban school districts had a complete elimination of their adjustment aid during the 2018-19 school year, while primarily urban school districts with the least affluent students were most likely to maintain their adjustment aid after the implementation of the S-2 bill {Hayes notes that there are some anomalies: some of the “most affluent and highest performing districts” received adjustment aid through 2019 but there are relatively less affluent and less resourced districts that never got adjustment aid in the first place, most likely due to the “complex and multifaceted” formulas used in SFRA.)
• This study found no evidence of a meaningful reduction in student performance for any subjects and grade-levels. Overall, these findings are not surprising because the school districts that had their adjustment aid eliminated in the 2018-19 school year are districts that depend the least on state funding and have the highest performing students in the state.
• Losing adjustment aid had no statistically significant impact on student academic growth: “On
  average, the elimination of adjustment aid is expected to decrease 3rd grade ELA standardized test scores by 1.455 points. This is a very small decrease because the average test score for 3rd ELA standardized test score is 756 points. A 1.455 reduction is equivalent to less than a -0.2% reduction in mean test scores…[N]one of the other regression results for 5th, 8th, or 11th grade ELA test scores are practically or statistically significant.”

Based on these findings, Dr. Hayes’ report makes two policy recommendations:

• State policymakers can use this approach of targeting state aid cuts in the future (e.g., state funding cutbacks due to a recession), and
• The state government should incentivize school districts to fund their own “rainy-day” or “budget stabilization” funds to help buffer themselves from future state aid reductions.

One way to do this is allowing school districts to maintain an unassigned surplus of up to 4% of their total budget.

One important caveat, which Hayes only alludes to: the loss of adjustment aid (through a law called S-2) didn’t start until 2018-2019 school year. Starting in 2020-2021, school districts began receiving large amounts of federal emergency COVID-19 aid, which will run out in November 2024. This one-time aid to schools (intended to be spent on learning loss but often spent on non-COVID-related items) may have delayed the full impact of S-2. Hayes may want to consider a follow-up in 2026 or so.