Jersey City’s School Funding Crisis: Where Are We Now?

Jersey City is in the midst of a structural, multi-year school-funding crisis that has already led to one year of increased school taxes combined with school budget cuts. Given the disparity between what the State of New Jersey dictates that the Jersey City Public Schools should spend on each student and the local resources that Jersey City chooses to spend on its public schools, this destructive combination will likely result again in the years ahead.

This funding crisis has been a long time coming, rooted in both state and local decision-making stretching back over a decade. Where are we now, and what can taxpayers expect over the next six to 12 months with respect to state aid and school funding? To answer these questions, let’s review some history.

NJ is cutting Jersey City’s “adjustment aid”

A driving force behind Jersey City’s current fiscal crisis is the reduction of a special category of state education aid called “adjustment aid,” which was granted to some districts including Jersey City Public Schools in 2008 when the state adopted the School Funding Reform Act (“SFRA”). The SFRA established local funding mandates or “local fair shares” that estimated a community’s capacity to fund its public schools via a property tax; the estimate is based on the district’s total tax base value and aggregate resident income.

Adjustment aid was intended to provide temporary financial assistance to districts that needed time to “adjust” to the new SFRA funding paradigm. In Jersey City’s case, the adjustment was required because in 2009, Jersey City’s local school tax levy (that is money for the public schools paid for by property taxes) was only $86 million while its local fair share was deemed to be $196 million.

Unfortunately, Jersey City never “adjusted” for many reasons. What is worse, the disparity between its local fair share and its property tax coffers has only grown. Whereas in 2009 this discrepancy was $110 million, as of the 2018-1019 school year it had ballooned to $275 million ($399 million mandated by the SFRA versus $124 million in school tax levies.) Put another way, in the last ten years, Jersey City’s local fair share has increased 103 percent, but its local school funding—derived from property taxes—has grown only 44 percent.

In July 2018 state lawmakers voted to force Jersey City and other districts with excess adjustment aid to finally adjust. They passed NJ S2, legislation that, beginning with the 2019-20 school year, lays out the phased reduction of adjustment aid to districts like ours. For the 2019-20 school year, Trenton reduced Jersey City’s adjustment aid by $27 million. The remaining $248 million in excess adjustment aid will be phased out over the next five years.

Local Government’s Response

NJ S2 served as a wake-up call. In November 2018 the city council authorized a new payroll tax dedicated expressly to funding the schools. This assessment was levied beginning in January 2019 and has raised $27 million through August.

In addition, the Jersey City Board of Education raised the local school tax levy by $12 million, from $124 million in 2018-19 to $136 million for the current school year, 2019-20.

State Aid Considerations for 2020-21 and “Local Fair Share”

The 2020-21 schools budget will be decided by the district administration and by the board of ed in Spring 2020. If NJ S2 is implemented as scheduled, another estimated $25 to $35 million of adjustment aid may be withdrawn from Jersey City in 2020-21 for a cumulative two-year reduction of over $50 million.

In addition to the adjustment aid cuts, taxpayers can expect Jersey City’s local fair share to continue to increase. As it does, so will the pressure to fund a greater share of the schools budget locally—via property taxes.

What’s Ahead

As we look towards the 2020-21 school year and beyond, two key questions face Jersey City taxpayers.

First, how much will the dedicated payroll tax generate for the 2020-21 school year? Last year, the tax revenues covered the initial $27 million adjustment-aid cut spurred by NJ S2. Will this source of funding keep pace with state cuts in the future?

Second, as the city continues to grow, how will the Jersey City Board of Ed respond to the local fair share targets as outlined in the SFRA formula?

Only time will tell. The 2020-21 budgeting process will begin in February 2020 after the governor releases his preliminary budget with preliminary state aid numbers. In March and April the board of ed will respond with a local budget that factors in the preliminary aid numbers, and by June the budget will be finalized.