Ed. Note: This is an update to NJ Ed Report’s 2021 Explainer, “How Are Schools Funded in New Jersey, and Why Are My Property Taxes So High?”

Why do we need an update? If you’ve kept up with local media you know many New Jersey school districts are facing cuts in state aid; for instance, Toms River Superintendent Mike Citta just called the $137 million decrease in state aid for 2024-25 “nothing short of legislative child abuse and neglect,” one, he says, that has caused the lay-offs of 368 staff members. Why is this happening? What has changed in the way NJ districts and the state divvy up school costs?

First, after a long delay, the state government is fully funding our 2008 school funding formula called the School Funding Reform Act, or SFRA. (More on this below.) For 2024-2025, 20% of the state’s $56.6 billion budget—or $11.6 billion— will go to school districts.

One reason the math works is the state has eliminated an important line item called “Adjustment Aid,” which compensated districts that lost money when we implemented SFRA.

At the same time, districts throughout the nation have relied on $125 billion in Covid-19 federal emergency school aid ($2.8 billion for NJ K-12 education), which runs out at the end of 2024. Despite warnings from education economists, many districts used this three-year temporary boost in revenue for recurring costs, like hiring lots of extra staff. Now there is no money to cover payroll.

Given these changes, it’s time for a revised explanation of how NJ residents pay for K-12 education.

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New Jerseyans love to complain about their property taxes —with some justification. After all, we pay the highest property taxes in the country, with the average New Jersey bill coming in at $9,803 per year. For context, the average U.S. homeowner pays $2,459 a year in property taxes. Why do we pay so much? 

The answer is school funding: New Jersey relies on local property taxes to cover 40%-50% of the costs of public education. (Federal funding is low, about 4%, due to our relative wealth; state aid covers the rest.) In addition, our cost per pupil is one of the highest in the country: The national average for 2022 (most recent numbers) was $15,633 per pupil with New Jersey the third-highest (behind New York and District of Columbia) at $25,099.  How does this all work out in individual districts? How do we decide how much to spend for each child? And where does that money come from? 

Here are some questions and answers to understanding the basics of New Jersey public school funding.

Why do we lean so much on my property taxes for school costs?

There’s a good reason why we do this: unlike other sources of revenue like income and sales taxes, real estate values are historically pretty stable (although one could argue that current housing shortages have damaged that stability).

Still, a large portion of New Jersey’s annual state budget is devoted to schools; Gov. Phil Murphy’s 2024-25 state budget allocates 21%, or $11.6 billion. of his $56.6 billion total budget, to direct aid to school districts, derived mostly from income taxes and other revenue. But the amount of state aid you get depends on your municipal wealth.

Here’s how it works: If you live in a low-income district, especially an urban one, most of your school district costs are covered by the state. If you live in a high-income district, then local property taxes pay for much of your school costs. Most people agree that this is progressive and fair: the amount of money spent on a child’s education shouldn’t depend on his or her parents’ income or a family’s ability to move into a high-quality school district.

How did we come up with this system?

Forty-three years ago the Education Law Center (ELC) sued the state in a famous set of cases called Abbott v. Burke. The premise of the case was that educational inequity is inherent in a school funding system that relies so heavily on the value of local real estate. The ELC lawyers argued that some low-income districts were spending less than wealthy districts per student and this was because the funds available from local buildings and houses that pay property taxes (called ratables) were really low in an impoverished district like Camden City and really high in a posh district like Millburn.  Not only was this clearly inequitable — it was also illegal. Our state constitution says that every student, no matter where he or she lives, is entitled to a “thorough and efficient system of schools.”

The Abbott v. Burke cases led to a series of attempts by the state to create a school funding formula that was equitable for 31 designated “Abbott districts” (now called “School Development Authority districts,” or SDA districts). The fifth school funding formula was the charm, passed by the Legislature in 2008, and is called the School Funding Reform Act, or SFRA. It was approved by the Court on the condition that it be fully funded. In this way, the Court reasoned, economically-disadvantaged children in those 31 districts would have the resources they needed to compensate for poverty (although some point out that while fair funding is necessary, it isn’t sufficient to produce educational equity. Another wrinkle: over the last 40+ years, district-by-district demographics have changed; some districts not included on the Abbott list should qualify while others like Hoboken should be removed.)

Yet until Gov. Murphy’s most recent budget, no governor has been able to allocate enough money to fully fund SFRA. How did we make the math work? Through a combination of cuts in other funding streams and the Biden Administration’s decision to send an astronomical $125 billion to U.S. states to help students recover from Covid-19’s school disruptions. That money runs out at the end of 2024.

For an example of how NJ’s school funding formula works, let’s look at Newark (an Abbott/SDA district) and its budget. On page 2 of the State Department of Education’s “User-Friendly Budget” for Newark, you can see that the total operating budget for the school year 2023-2024 is just over $1.3 billion. Of that billion+, the “local tax levy” — the amount collected from Newark residents–is $143 million. So about 11% of the school district’s annual budget comes from local property taxes. 

As it should. Newark students deserve as high a quality of education as Millburn students, just 10 miles away. Speaking of Millburn, the school district’s annual operating budget for 2023-2024 (for 4,200 students compared to Newark’s 50,000) is about $106 million and local property taxes kick in $96 million, or over 90%.

How does our school funding formula work?

Every year the state calculates an “Adequacy Budget,” i.e., what it should take to educate a typical child for one year. Then the state calculates how much a district can rely on property taxes; the higher the aggregate income and property valuations, the higher the school tax. That’s called “Local Fair Share.” 

For towns that can’t meet the adequacy budget through property taxes, the state kicks in a funding stream called “Equalization Aid.” So you can think of SFRA as Local Fair Share + Equalization Aid = Adequacy Budget. 

The formula also adds extra “weights” for students eligible for free and reduced lunch (a proxy for economic-disadvantage), students with disabilities, and English Language Learners; also, older children get more money than elementary school-aged children. 

There used to be another line item called “Adjustment Aid,” which was intended, after the passage of SFRA, to give “over-aided” districts a kind of “hold harmless” period. This aid has just been phased out through the 2018 passage of a bill called S2, resulting in some school districts, particularly in South Jersey, struggling to balance their budgets. This task is made harder by a law passed under former Gov. Chris Christie limiting annual tax increases for school districts and municipalities to 2 percent. Over the last two years the NJ State Legislature has passed last-minute bills that have given these budget-broken districts some extra aid but some argue this is not sustainable: Instead, NJ should eliminate the 2 percent tax increase cap; a proposal to do this is currently before the Legislature. (In 2024 districts were given the one-time chance to raise taxes up to 9.9%, which helps but doesn’t recoup all their Adjustment Aid.)

(It is also worth noting that many, although not all, of these districts have a long history of under-taxing homeowners. For example, Toms River’s Local Fair share in 2023-2024 was $251 million but it only taxed residents $176 million for school costs. This is a major reason for this district’s shortfall.)

For a deeper dive, don’t miss Jeff Bennett’s discussion of NJ’s 2024-2025 state school aid.

So does all the money in the state education budget go to those 31 Abbott/SDA districts?

Much of it does, although every school district in NJ gets some state aid. In order to raise the money to satisfy the State Supreme Court’s Abbott decisions, just about all our income taxes go towards education, as well as a half cent of sales taxes and some money from the lottery. (In 2021, over 100% of income taxes went to schools because Gov. Murphy borrowed $4 billion to cover some under-budgeted costs ).  Also, those 31 districts get free facilities support through an agency called the School Development Authority (which has a rocky history). 

This is  how SFRA tries to infuse fiscal equity into a school system so fragmented–583 operating school districts, not including public charter schools— that the late Assemblyman Alan Karcher wrote a book called New Jersey’s Multiple Municipal Madness.

How can I figure out how much state aid my district gets?

This information is publicly available through the Department of Education’s “User-Friendly Budgets.” First select your your county and your local school district and go to the second page of your local  budget where you’ll see two categories: “General Fund Revenues from State Sources” and “Special Revenue Fund Revenues from State Sources.”  Add those together and you’ll see most of the state’s contribution to your local district. 

On the top line of page 2 is “Local Tax Levy.” This is the amount of property taxes collected by your municipality that go to your school district.

Does Our Funding Formula Create Educational Equity?

Certainly, NJ’s progressive school funding formula sends badly-needed money to our neediest students. However, this hasn’t erased the proficiency gaps, which are among the worst in the country. Also, NJ students suffered some of the biggest drops in proficiency rates due to lengthy Covid-19 school closures; according to last year’s standardized tests only about 42% of third-graders are on grade level in reading, a critical benchmark for future academic success.

Is there a way we can lower the costs of K-12 schooling and, thus, lower my property taxes?

Start with this: It is impossible to separate school funding from state politics. Remember that NJEA, the state teachers union, speaks loudly and carries a big stick, rendering legislators, both Democrat and Republican, loath to offend the union’s leaders. (Just see what happened to former Senate President Steve Sweeney!)

Yet our school infrastructure remains inefficient and expensive, largely due to NJ residents’ fondness for local control. Example: Bergen County has 70 municipalities and 76 school districts. Does one county really need 76 superintendents and 76 business administrators and 76 school boards? 

No. And so many governors have tried –and failed–to push districts to consolidate in order to find cost efficiencies (especially for special education, a primary cost driver of local school budgets).

Yet some have argued that we need to spend more, not less, convinced that more money is the key to equitable student outcomes, and that consolidation won’t yield cost savings. Currently there is little consensus. 

In addition, this year school districts will face the “fiscal cliff,” the cessation of the federal emergency Covid aid that will lapse in January 2025. Despite warnings from analysts, many districts across the country chose to spend that money on recurring costs like payroll and districts will most likely have to lay off staff members. 

What can you do? Learn who your state representatives are and hound them. Run for your local school board. Write op-eds and letters to the editor of your local paper. Talk to your neighbors. 

And keep learning. What other questions do you have for NJ Education Report? Put them in the comments section and we’ll answer them for you.