The New Jersey School Funding Formula is Broken

Montclair receives 83% of state aid required by the New Jersey School Funding Reform Act (SFRA), according to the Education Law Center (ELC) – a two million dollar shortfall, this year alone.

Is it surprising? New Jersey’s municipal finance is in a continuous state of low-grade financial crisis – like having malaria in the blood, periodically sent into a fevered state. Hackensack’s recent revelations of a near twenty million dollar hole in their school budget seems only to differ in the vigor with which the board has turned on the business administrator and superintendent.

But there is one important difference. Hackensack receives 109% of state aid required by the SFRA.

They say, Montclair is a wealthy town. It should receive less aid than other districts. It needs to pay for Newark. Hackensack is joined by Millburn (108%), Ridgewood (111%), and Summit, which receive, according to the ELC, 128% of state aid required by law. Newark receives 97%. It’s perhaps more accurate to say, Montclair pays for Summit.

School funding in New Jersey is broken.

When New Jersey passed the 2008 SFRA, it promised to contain costs, preserve equity and fund our schools. The structure of the act is simple. A funding formula determines the level of required state funding for each district, and the total, across districts, is the budget. Nonetheless, FY2026 is the first year, ever, that New Jersey fully funded the SFRA. 

But fully-funded is a generous term. As a share of education spending, the state has declined from 38% in 2008 to 32% today. NJ would have to spend an additional $2b to meet the state’s share in 2008.

Not only did the state not fund the law, the law created winners and losers. Some districts were considered overfunded by the act. Others, underfunded. To ease the transition, the state promised to ramp up aid at underfunded districts and decrease aid at overfunded districts over time. That didn’t happen. Jersey City receives 249% of state aid required by the SFRA.

Meanwhile, towns are limited by a 2% cap on property tax increases. Governor Chris Christie introduced the cap through legislation in 2010 that promised to bend the curve of rising New Jersey’s property taxes. It was a welcome addition to our financial hellscape. Property taxes were the highest levels in the nation – a distinction, nonetheless, that we still enjoy today.

At the time, Christie also told New Jersey they couldn’t afford the proposed gateway tunnel and unilaterally refused federal funding from the Obama administration. It seems he was concerned with paying down a group of pension obligation bonds that dated to the 1990s. Former Republican Governor Christine Todd Whitman had issued the bonds to bolster pension fund returns. As zero coupon bonds, the state was not required to accrue interest expenses, so it didn’t hit the budget. The proceeds were placed with investment managers during the internet bubble, and the returns never exceeded the cost of capital. Bond Buyer Magazine called it the “deal of the year” in 1997. The Washington Post called them “Time Bomb Bonds.” By 2015, the original $2.8b obligation had performed so poorly that it had blown an almost $4b hole in the state pension system. If it had been a tunnel, it would have been like paying for it, never building it, and then being asked to pony up almost 150% more money to actually build the tunnel.

The result: no tunnel, a diversion of state funding from education to the Whitman bonds, and a legal environment that demands school districts provide a free appropriate public education while state aid is declining and unfairly distributed, and school districts are limited to 2% tax-increases.

So what can we do? Do we have to replace the SFRA? Probably. But every year, the state budget uses “budget language” to effectively replace the SFRA. By saying, “Notwithstanding the provisions of any law or regulation to the contrary,” our state legislators perpetuate our current funding predicament.

We need real change that takes our children’s education seriously and doesn’t just rewrite school funding every year to perpetuate inequities and degrade our school systems. We need transparency, so we understand the investments our community is making in our children. We need to ask, what does it mean for the state to impose a monitor to solve a crisis that it created?

So contact your representatives. Rosie Bagolie and Allixon Callazos-Gill represent us in the Assembly. John McKeon is our state senator. It’s at least a $2m problem for Montclair.