NJ School Funding Formula Needs Overhaul, Education Chief Says

New Jersey’s school funding formula has grown outdated and needs to be overhauled to give districts more predictable aid, state Education Commissioner Lily Laux told the Assembly Budget Committee during a Trenton hearing April 15.

Laux said the formula, enacted in 2008, served its original purpose but no longer reflects what schools actually need. Years of steep aid swings have forced some districts to close schools, she said, and the state needs a fresh look at how it calculates funding levels across the board.

“This question of how we are looking at what schools really need is one that I think requires all of us to look carefully to say, are there better ways to do it,” Laux told the panel.

The hearing came as Gov. Mikie Sherrill has proposed a record $12.4 billion in formulaic school aid for the coming July-to-June fiscal year. That number is big. But the size of any single budget line doesn’t fix the structural problems Laux described, and lawmakers on the committee pressed her on what changes would actually look like in practice.

Under New Jersey’s current system, school districts are responsible for raising a portion of their own funding through local property taxes. The state then fills the gap, providing whatever aid is needed to give students what the state constitution calls a thorough and efficient education. The size of each district’s local “fair share” is calculated using property values and income levels, among other factors, as reported by New Jersey Monitor.

The problem is that formula hasn’t kept pace with reality. The phase-out of transitional aid, which started in 2018, combined with property reassessments and a pandemic-era surge in housing prices, produced wild swings in state aid that hit some districts hard. A district whose property values shot up suddenly found its local fair share recalculated upward, meaning less state money flowing in, even if the community’s actual tax burden hadn’t changed proportionally. That mismatch, playing out across multiple budget cycles, is what Laux called outdated.

She said she’d still give the formula a passing grade overall. “The implementation and the reality of how it supports our schools today is something that needs another look,” she said.

Lawmakers have taken some steps. The New Jersey Legislature has at times allowed certain school districts to exceed the state’s 2% cap on property tax hikes to close funding gaps, and budget language in the current fiscal year caps most aid decreases while limiting increases to 6%. Sherrill’s spending proposal maintains those provisions. The formula also now uses a rolling three-year average of property values and calculates special education aid based on actual enrollment rather than a statewide average, which advocates said was long overdue.

None of that has fully quieted concerns about fiscal stability. School districts across New Jersey have also been hammered by soaring health benefit costs. Premiums on the School Employees Health Benefits Program are expected to rise by double digits again this year, piling pressure on already-strained budgets. According to the New Jersey Department of Education, districts must manage rising personnel costs even as their state aid amounts remain subject to formula swings they can’t fully predict year to year.

Assemblyman Bill Spearman, a Democrat from Camden, defended the state’s practice of directing larger aid amounts to urban school districts during the hearing. Urban districts tend to have lower property wealth, which limits how much local tax revenue they can raise, making them more dependent on state funding to meet constitutional requirements.

Laux didn’t disagree with that underlying principle. Her argument was about how the formula delivers on it, not whether it should.

Changes to the formula would require legislative action, and lawmakers have talked about overhauling it for years without producing comprehensive reform. Laux’s appearance before the committee signals that the Sherrill administration is at least willing to engage that conversation publicly, even if no specific legislation is on the table yet.

School closures in some districts have added urgency. Districts don’t close buildings because of abstract policy debates. They close them because the money isn’t there.