The Steve Sweeney Center for Public Policy, based at Rowan University, just came out with a new report called “NJ’s Fiscal Cliff: Current Services Budget Projections, Long-Term Economic Forecast, and the Five-Year Revenue Gap.”

It’s pretty grim. The “working group”—which, unlike the state government, does multi-year budgets— says we could be looking at a budget shortfall of more than $7 billion from fiscal year 2025-2028, and that’s assuming we only give NJ Transit $500 million, far less than it needs.  The analysts project a “looming fiscal crisis.”

What does this mean for K-12 school funding?

We’ll know more when Gov. Phil Murphy gives his annual budget address on February 27th. Yet what can we learn ahead of time, especially as school districts face their own “fiscal cliff” when the COVID federal emergency aid—almost $3 billion to NJ K-12 schools—runs out next fall?

It’s not just schools clinging to the cliff’s scree; states are too and New Jersey is no outlier, having kept things afloat through $6.2 billion in federal COVID aid and a $4 billion loan we took before the feds came though. The result is when Murphy leaves office he’ll hand his successor a $4.6 billion deficit and no rainy day fund to pay for what the report calls our “Current Services Budget,” which includes schools. 

Last year’s budget came to $54.35 billion and education is the biggest piece of the pie, $10.75 billion. Murphy has promised to “fully fund” the 2008 School Funding Reform Act formula (SFRA) so next year school aid will rise to $11.45 billion.  By 2028 it will be $12.4 billion.

Here we get a wee weedy: SFRA, signed by Gov. Chris Christie, was a result of a long series of litigation by the Education Law Center, which was trying to fix a fundamental inequity in the way NJ funded its public schools: we relied on property taxes so wealthy districts, with far more tax revenue, had more money to spend per pupil than poor districts. SFRA creates a complex formula to ensure funding equity but you can boil it down three factors: The state calculates how much money is “adequate” to spend per pupil; the state figures out how much a district can rely on property taxes to pay for adequacy (“Local Fair Share”);  and the state makes it up the difference through “Equalization Aid.”  So you can think of SFRA as Local Fair Share + Equalization Aid = Adequacy Budget. 

(The formula is weighted to provide extra money for students who qualify for free or reduced lunch, students with disabilities, and English learners.)

Voila! We have equitable funding. Except there were a large number of districts that had become accustomed to getting more money from the state than the formula said they deserved and there was a dust-up. So Christie (and the Legislature) created an additional line item called “Adjustment Aid.” Those districts, about 170 of them, would still get more money, just not so much, and over a seven-year period they would wean themselves off the surplus. 

Except they didn’t because the state kept paying Adjustment Aid.  So in 2018 Murphy signed S2, which was supposed to (we’re serious this time!) get those districts off the teat during a several-year period.

Districts went nuts! How could they function (really, they couldn’t) with so much less state aid, especially since school districts aren’t allowed to have tax increases of more than 2% a year? 

So at the last minute, just as swords were drawn, the Legislature passed a bill that gave $103 million to districts like Toms River and Jersey City, putting back two-thirds of aid that had been eliminated.

The Sweeney Center assumes this will be an ongoing line item. Its estimates  of school aid include an  additional $600 million to fully fund SFRA plus another $100 million to districts affected by S2. The analysts conclude,

 “It is assumed that this additional funding will be added to the base going forward, rather than being a one-time enhancement, because reducing the districts to their original S-2 levels would mean much deeper cuts in their 2024-2025 school year budgets. Education aid is expected to continue to increase 3% in FY26 and beyond. Potential challenges in the future, including addressing learning loss resulting from the pandemic and inflationary, are likely to add pressure on the Legislature to increase school funding further.”