School & District Management

N.J. School Administrators Take Aim at Budget-Cap Law

By Catherine Gewertz — October 12, 2004 | Corrected: February 22, 2019 3 min read
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Corrected: Because of a typographical error, this story reported incorrect projected expenses for one special education transfer student in the Hainesport Township schools. The amount will be in excess of $100,000.

Strict new state-imposed limits on the budgets of New Jersey school districts are causing concern that districts might have to cut programs or forgo building repairs. Such worries have prompt ed a state lawmaker to introduce legislation to repeal the spending caps.

The budget restrictions, signed into law in July, lowered the ceiling on how much districts’ budgets can grow annually, from 3 percent or the rate of inflation, whichever is greater, to 2.5 percent or the rate of inflation.

Bill Baroni

The restrictions also force districts to reduce their budget surpluses from a maximum allowable 6 percent of the general fund balance to 3 percent this school year, and 2 percent in 2005-06, and limit per-pupil administrative spending to 2.5 percent annually.

Gov. James E. McGreevey, a Democrat, backed the changes as a way to lighten growing tax burdens and rein in school spending. But those limits, along with other features that restrict districts’ authority over some budget functions, have led to objections from scores of New Jersey’s 600-plus school districts.

In a survey conducted last month by the New Jersey School Boards Association, district officials expressed a range of concerns about the budget caps. Many worried that maintaining a surplus of only 2 percent or 3 percent could harm districts’ bond ratings, or put them into financial trouble when unexpected expenses surface.

“Three percent of the district’s budget will just barely cover one payroll,” said one respondent, from Jackson Township in central New Jersey. “If funds were slow from the township or state, it could prove to be a serious hardship.”

Mark Silverstein, the superintendent of the Hainesport Township schools, which enroll 650 children in grades K-8 about 20 miles east of Philadelphia, said that annual costs for a special education student who transferred into the district this fall will exceed $10,000. Luckily, the student’s home district notified Hainesport officials last spring, in time for them to build the expenses into their $7.6 million budget, Mr. Silverstein said.

With the new surplus cap, the district’s allowable budget surplus this year is $175,000, so an unexpected special education transfer could prove “a real calamity,” he said.

Minimizing Waste?

Concerns such as those led Republican Assemblyman Bill Baroni to introduce a bill last month that would restore the district spending limits that were in effect before July 1, when Gov. McGreevey signed the caps into law.

“Setting a lower cap is just harming our schools, when there is no evidence they are being wasteful,” Mr. Baroni said in an interview. “That’s no way to make public policy.”

Mr. McGreevey blames “runaway” local spending for part of the state’s property-tax spiral and cites figures that show New Jersey spends more than most states on school administrative costs. He views the spending limits as one of several prongs in his plan to address rising property-tax burdens in the Garden State.

In the same week, he signed measures that imposed the school spending caps and placed similar limits on municipal spending, as well as enacted a “millionaire’s tax,” the proceeds of which will be used for property-tax rebates.

The state also is laying the groundwork for a constitutional convention in 2006 to overhaul the property-tax structure.

“School districts and municipalities can’t keep growing their budgets every year in perpetuity,” said Juliet Johnson, a spokeswoman for the governor. “We have an obligation to the property-tax payers, one, to make sure more money is getting into the classroom, as opposed to growing bureaucracy, and two, to make sure we’re responsibly spending their hard-earned property-tax money.”

James J. Dougherty Jr., the president of the New Jersey School Boards Association, predicts that the spending caps will actually drive up property taxes.

In many districts, he said, budget surpluses have enabled officials to avoid asking local voters to approve property-tax hikes. But with reduced surpluses, that will often not be possible, he said.

The law applies to districts’ 2004-05 budgets, which local residents had voted on three months before the governor signed the measure. Surplus amounts above the newly required limit had to be given to municipalities for use in property-tax relief.

James H. Murphy, the executive director of the New Jersey Association of School Administrators, said one district in southern New Jersey had to return $250,000 of its surplus, then found it had to replace an aging boiler, which would cost about that amount. Now the district will have to borrow—and pay interest on—money for the boiler, he said.

“The law actually punishes districts for being efficient,” he said.

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