A Wall Street rating agency warned dozens of New Jersey school districts could find themselves in an increasingly stressed financial position because of a bill the governor vetoed earlier this month.
Proposed Senate Bill 4289 would have allowed those districts that lost state financial aid related to 2018 changes to the school funding formula to make up for losses by raising taxes beyond the annual 2 percent increase cap, without voter approval. Gov. Phil Murphy rejected the measure, arguing that the money could be found by imposing his controversial millionaire’s tax proposal, which has been twice blocked by the state Legislature.
“The governor believes there are other avenues to address the issue of school funding, including a tax on residents making more than $1 million per year, who are in a better position to help fund our education system than the already overburdened middle class,” Darryl Isherwood, a spokesperson for the governor’s office, said in a Thursday afternoon statement.
MOODY’S INVESTORS SERVICE; DISTRICTS’ FINANCIAL STATEMENTS
Moody’s, in its weekly credit outlook, warned that the measure was perhaps the only option for school districts to make up for losses without raiding their reserves. The agency suggested that the veto could lead to a “credit negative” for school districts in the future, meaning they could see their credit rating dragged down.
“New Jersey school districts also have difficulties reducing their expenditures. Most districts in the state have unions for teachers, administrative and other operating services,” the report reads. “Cutting positions within the fiscal year can be difficult because of legal contracts between the districts and unions.”
The Vernon Township, Great Meadows Regional, Ocean Township, Monmouth Regional, Springfield Township and Neptune City school districts would be the hardest hit, with the amount of state aid that they would lose clocking in at the equivalent of 10 to 62 percent of their current budget—meaning that amount of expenses would no longer have revenue to support them.
The bill’s main sponsor, Senate President Stephen Sweeney, D-3rd District, said in a Thursday statement that the Moody’s report “confirmed” what lawmakers, education officials and proponents of the measure “have been saying for weeks.”
“It was fiscally irresponsible for the governor to veto legislation that would have provided the same cap relief to suburban and rural districts that are losing adjustment aid,” the Senate president said.
The 2018 changes to the school funding formula required that “overfunded” school districts would lose state dollars in order to shift that money to so-called “underfunded” districts that are not receiving the amount of aid determined under the formula.
Upwards of 50 school districts that lost money would have benefited from S4289, according to legislative advocates.
The Jersey City school district, which lost $150 million of state aid, was allowed to enact a 1 percent employer payroll tax to make up for the difference, but that has since been mucked in courts.
