A Message from the Executive Director:
State Aid Cuts

Dear NJSBA Member,

For local school boards, the recent financial news from Trenton has been alarming – and confusing.

Let me take this opportunity to clarify the issues.

What is the aid cut for 2009-2010? For the current-budget year, the state is facing a $2.2 billion revenue shortfall. On Feb. 11, Gov. Christie issued Executive Order 14, which attacks the shortfall in part by freezing $475 million in state aid to education for the remainder of the school year.

How will the state implement the cut? The administration has determined each district’s reduction by the amount of its excess surplus and/or a targeted portion (25 percent) of certain reserve accounts. It wants districts to use these surplus funds to make up for the loss of state aid. None of the surplus would go to Trenton; instead, the districts would use their own surplus funds in their own budgets to make up for their state aid reduction. Additionally, a district would hold on to any excess surplus/reserve that is greater than its remaining state aid for 2009-2010.

Implementing state aid reductions in this way will enable all districts to avoid mid-year program cuts that would adversely affect children, according to the Christie administration.

How will the cut affect my district?The real impact of this year’s aid freeze will come next budget year, 2010-2011. That will be when the affected districts have either no excess surplus, or a reduced amount, available to control school property taxes and when they will also need to replenish their reserve accounts. Last week, NJSBA told the Assembly Budget Committee that the strategy penalizes those districts that have accumulated additional surplus because they spent less than anticipated and/or those which had put aside reserves for certain purposes.

Can we sue? Some school districts are discussing litigation, including class action suits, to contest the state aid freeze. However, Executive Order 14 cites several laws that authorize the governor to freeze state expenditures, including education aid, to ensure a balanced state budget as required by the state Constitution.

What are the prospects for change?While the governor may freeze state school aid via executive order, it’s questionable whether or not the administration can unilaterally authorize school districts to use their excess surplus to fill in the gap.

Existing statute says school districts must apply excess surplus to property tax relief in 2010-2011. So, allowing districts to use excess surplus this year (2009-2010), as the administration desires, might require a change in law. In addition, the Legislature’s Joint Budget Oversight Committee needs to approve certain inter-agency transfers of funds called for in the order.

So the Legislature might still come into play. A number of lawmakers have suggested using part of the state budget’s half-billion dollar surplus to reduce the size of the school aid reduction.

What’s the state aid outlook for next year? Acting Commissioner of Education Bret Schundler has told several committees of the Legislature that the administration will try to keep state aid level for 2010-2011. However, he admits that this would be a tall order because $1 billion in federal stimulus money, used for state aid last year, is gone. By itself, the absence of that $1 billion translates into an 11 percent state aid reduction. The administration has told school districts to prepare proposed budgets based on four scenarios: flat state aid, and reductions of 5, 10 and 15 percent.

Gov. Christie will deliver his budget message, with school aid recommendations, to the Legislature on March 16. In turn, local school districts, must submit their itemized budgets to the executive county superintendents by March 22. Budgets must be finalized by April 3 for placement on the school election ballot. That’s a span of less than three weeks.

What can school districts do? Districts need to convey two messages to lawmakers:

1. Reduce the mid-year cutback in state aid and allow districts to preserve surpluses to help control next year’s property taxes.
2. Give districts the ability to develop intelligent budgets by adjusting current timelines and eliminating the school budget referendums for 2010. Eliminating the budget vote would give districts the time to address financial issues arising from Executive Order 14 and the governor’s 2010-2011 state aid recommendations. It will also spare municipalities and school districts the time-consuming and often painful exercise of negotiating over rejected budgets that are bare bones to begin with.

To help your school board communicate these two points to legislators, NJSBA has developed sample resolutions that you may consider for adoption at your next meeting. The sample resolutions, as well as a chart showing the impact of the mid-year aid cuts on school districts, can be accessed at www.njsba.org under the “What’s New” heading.

NJSBA understands the financial challenges facing Gov. Christie and the Legislature. As an Association dedicated to the advancement of public education, we also realize the negative impact that inadequate state funding will have on our schools. We will do everything possible to ensure that public education remains a high priority for New Jersey.

Sincerely,
Marie S. Bilik, Executive Director

Copyright © 2010 New Jersey School Boards Association. All rights reserved.