Understanding New Jersey School State Aid Funding

Every year, as they work to develop the proposed budget for the next academic year, school officials wait to receive a critical number from the New Jersey Department of Education: the amount of state aid they will receive for the following year.

That figure is determined by the current school funding formula, passed into law as the School Funding Reform Act of 2008.

Sixteen years have passed since the SFRA was instituted, and there is a widespread acknowledgement that it is time to review the formula. The Murphy administration has stated its intent to have the formula reevaluated, and in March, the Senate Education Committee held hearings on the school funding formula; the NJSBA was among those that testified.

With possible changes to this crucial formula being contemplated, it is useful to have an understanding of the SFRA and how it currently operates.

Historical Overview When instituted, the SFRA was the latest in a long line of school funding measures.

More than 100 years earlier, in 1875, the New Jersey state constitution was amended to promise all students a “thorough and efficient education.” However, funding was left to local governments, which financed schools through property taxes.

By the 1970s, the state Supreme Court ruled, in Robinson v. Cahill, that poorer school districts didn’t have the necessary tax base to meet the “thorough and efficient” standard, and it was the responsibility of the state to rectify the situation. The decision was the first in a series of court decisions that has shaped how New Jersey funds its schools.

The Abbott rulings are probably the best known of these decisions. In 1985, the state Supreme Court issued its first Abbott v. Burke ruling, finding that students in poorer districts were not receiving the education guaranteed by the constitution, and the state committed to providing additional funding to districts to address the disparities.

Over the next few decades, there were multiple funding formulas and additional Abbott litigation. The state Supreme Court found several of the funding formulas to be unconstitutional. This is the context in which the SFRA was developed and adopted. In 2009, shortly after the funding formula was adopted, the state Supreme Court found the SFRA to be constitutional.

Basically, the SFRA asked the question: What will it cost each district to provide an education that adequately meets the threshold of being “thorough and efficient”? That is referred to as the “adequacy budget.”

In the broadest terms, the state calculates the adequacy budget, then calculates the “local cost share,” or what it thinks the local taxing authority can raise for the school budget. The difference between the adequacy budget and the local cost share is covered by the state through equalization aid. There is also something known as categorical aid that figures into the picture.

But within that broad overview, there is considerable complexity.

The Adequacy Budget That adequacy budget starts with a baseline of what it would cost to educate one elementary school student with no external factors considered. Various weights are added for each individual student for whom a weight applies.

For example, the state recognizes that it costs more to educate middle school and high school students, therefore a weight is added for those students.

Likewise, the state understands that there are extra costs involved in educating “at risk” students, including those children who are eligible for free and reduced price meals and those who are English language learners.

There is also a “geographic cost adjustment” that reflects the difference in costs in different areas of the state.

The total of the costs of each student comprises a district’s “adequacy budget.”

The Local Cost Share: How Much Does the Local District Pay? The state considers two variables in figuring a local cost share (often termed the local fair share): property values and the income of a district’s residents. The aggregate property value and income of the district are separately multiplied against rate multipliers, added together and then divided by two to get a final local cost share.

Once the local cost share is determined, the state provides the difference in equalization aid. Theoretically, the aid is the difference between the adequacy budget and the local cost share. However, it would be more accurate to say that the local cost share is the difference between a district’s adequacy budget and equalization aid.

The difference is subtle but important. A popular misconception is the state derives what is an adequate budget; then determines what a district can afford to pay and provides the difference in equalization aid. In reality, the state derives what is an adequate budget and then determines how much equalization aid can be provided. The difference is left to the school district to address through the local cost share. The state is able to do this because it is the state that determines the wealth rate multipliers for property values and incomes.

Categorical Aid The SFRA created aid categories separate from the adequacy budget, including (but not limited to) special education, extraordinary special education, security aid and transportation. In addition, from time to time, the governor has created other categories to address specific issues.

A Look at A Sample District State Aid Document Within 48 hours after the governor’s annual budget address, the NJDOE sends documents to each district detailing the calculations for the state aid the district will receive.

We will take a look at how the state aid formula works based on an actual unnamed regional high school in the state, and we will examine the state aid allocations for the following categories:

• Enrollment (page ENR).
• Equalization aid (page EQA).
  • Adequacy budget.
  • Local fair share.
• Transportation aid (page TRN).
• Special education aid (page CAT).
• Security aid (page CAT).

Enrollment Below is an example of how enrollment weights are applied to the calculations for students of different grade levels. The higher the grade level, the more it is expected that the cost of educating a student becomes more expensive. The first-year figure is from the SFRA, subsequent figures come from the NJDOE’s Educational Adequacy Report.

Weight for Grade Levels

The first step is to determine the enrollment growth rate for the district, or how many students it has added to (or lost from) its population. The state estimates enrollment for the following year by looking at the previous six years of enrollment data.

In this example, the growth rate is -1.21%. The growth rate is then applied to the October 2023 resident enrollment census from the Application for State School Aid.

The October 2023 ASSA resident enrollment is 6,595 students x the growth rate -1.21% = 6,515 students. This number of students will be used in some state aid calculations.

As noted in the above chart, the weight for a high school student is 1.15. The projected weighted enrollment is: 6,515 students x 1.15 = 7,942 students. This weighted enrollment figure will be used in future aid categories.

Equalization Aid There are three parts to the equalization aid: calculation of the adequacy budget, calculation of the local share and the difference is the equalization aid. Let’s review some key definitions.

• Adequacy budget: For every school district, the state calculates what would be the necessary funding level to provide a “thorough and efficient education” to every pupil in that district.
• Local fair/cost share: The state then calculates the local fair share, or what it believes the local taxing authority would be able to raise.
• Equalization aid: The difference between the adequacy budget and the local fair share, if one exists, is covered by the state through equalization aid.

Example:

Adequacy Budget

Local Cost Share The local fair share is based on two key areas:

• Equalized valuation (property valuation) as of 10/01/23: $7,820,811,126
• District income (local aggregate income) as of 2021: $2,676,947,186

Remember, both the equalized valuation and district income are multiplied by a multiplier and then divided by two. This multiplier is standard among all districts in this calculation. The equalized multiplier for equalized valuation is provided by the state as well as the personal income.

This is an area that the NJSBA testified about in the Senate Education Committee hearings in March. The NJSBA believes that a five-year average (rather than a one-year figure) should be used when calculating the district’s equalized valuation and district income. This would help mitigate any anomalies that could occur in a one-year period.

• Equalized valuation: ($7,820,811,126 x 0.012707978) /2 = $49,693,348
• District income: ($2,676,947,186 x 0.050601493) /2 = $67,728,762
• Local cost share/ fair share: $117,422,110
• Equalization aid (Adequacy budget minus local cost share): $6,578,310

Transportation Aid Transportation aid is funded by student counts and mileage from the annual District Report of Transported Students. The funding is broken down by the following:

For the regular student count, the base amount for fiscal year 2025 is $539.58 and the average mileage amount is $14.22.

For special education students, there is the same breakdown as the regular students with a different per student base amount ($3,758.97 for fiscal year 2025) and an average mileage amount of $7.17.

Example:

• Regular students: 5,688.5 x $539.58 = $3,069,401.
• Regular students’ mileage: (5.2 avg. miles X $14.22) x 5,688.5 = $420,630.
• Special education:176.5 x $3,758.97 = $663,458.
• Special students’ mileage: (8.3 avg. miles X $7.17) x 176.5 = $10,504
• Total transportation aid: $4,163,993.

Special Education Aid

Special Education and Speech Classification Rates

In addressing special education, the school funding law sought to discourage overclassification by districts. Consequently, special education aid is not dependent on the number of special education students a district has.

Instead, it is assumed that an average of 15.9% of every district’s student population is classified as special education. NJSBA has testified that the actual number of special education students should be used in determining special education aid.

Example:

• Total resident enrollment
• (from the ENR page listed above) 6,515 students.
• At the state average of 15.9% 1,036 students.
• State rate per student ($21,868 X .98480 (geographic cost adjustment)) x 1/3 of 1,036. The 1/3 calculation is set by the NJDOE.
• Total special education aid: $21,535 X 1,036 = $22,310,260 x 1/3 = $7,436,963

The NJSBA has testified that a revision of the SFRA should replace the current method of funding with a formula more aligned to the districts’ current actual enrollment.

In this case, if you assume the actual percentage of special education students in the district (17%), the calculation would be different.

There would be 1,107 special education students, rather than 1,036 students. Funding for those extra 71 students at $21,535 a head would reap the district an additional $1,525,985.

Security Aid Security aid has two parts. The first is the baseline cost a district receives for each pupil in the district. On top of that, districts receive additional security aid for low-income concentration rates.

Both amounts are set by the state. The rate per student for fiscal year 2025 is $96 and for low-income concentration, it is an additional $14.54.

Example:

• Full-time equivalent resident enrollment 6,515 X $96 = $625,440.
• Projected low-income students: 788.
• Low-income concentration rate: 12.0850%.
• Low-income rate (12.0850% X $14.54) X 100 = $176.
• Projected low-income students 788 X $176 = $138,688.
• Total security cost 764,128 X (GCA) .98480 =  $752,513.

These are a few examples of how the elements of the current funding formula operate.

When the governor presented the proposed budget for fiscal year 2025, he announced that for the first time in the state’s history, the school funding formula had been fully funded.

The NJSBA is appreciative of the significant resources that the state is dedicating to public education but also believes that the funding formula urgently needs adjustments.

The NJSBA will continue to advocate on behalf of the state’s boards of education, will closely monitor any proposed changes and will keep members informed about any possible changes to the SFRA.