School districts — and their taxpayers — have known that cuts in state aid for K-12 education have been occurring since 2018. What they didn’t know is that soaring real estate values would add to the shock by increasing the region’s fair-share calculation.
The result has been that a majority of the county’s 18 school districts have lost a significant amount of state aid, with the aggregate total lost coming to millions of dollars.
Unless something significant changes, the need for more taxpayer support for the schools is likely to be a constant source of rising property taxes at a time when home ownership is less accessible than ever for many of the county’s permanent residents.
A quick look at the numbers illustrates the depth of the challenge the school districts face.
In the 2017-2018 school year, the year immediately prior to 2018’s Senate Bill 2, which modified the school funding law to eliminate adjustment aid, Cape May County school districts received $66.5 million in state aid for K-12 education. In the 2024-2025 school year, state aid to the districts will be $42.8 million, provided Gov. Phil Murphy’s budget is approved. That is a drop of $23.7 million in aid.
But total aid to school districts statewide did not go down during that period, it increased. Total aid in 2017-2018 was $8.1 billion, and in 2024-2025 it is set at $11.6 billion, an increase of $3.5 billion, or 43%.
The funding crisis is already visible in a number of county school districts.
The Dennis Township School District is dealing with a $1.9 million shortfall in its 2024-2025 budget. Last year the district asked taxpayers to allow a hike of $1.3 million in the school tax levy. A referendum measure to allow the increase failed.
The Wildwood School District, which hosts one of the county’s five public high schools, introduced a $24 million budget for the next school year following the loss of more than $700,000 in state aid. Last year the district saw a $2.1 million reduction in state aid and was forced to eliminate 18 positions.
The full impact of the state cuts is still playing out in individual district budgets. State aid dollars were lost in the 2024-2025 budgets in 11 of the county’s 18 public school districts. The county-run Special Services District is budgeted with an alternate method.
Two things are causing the funding crisis.
Loss of Adjustment Aid
In 2009, adjustment aid was introduced to help certain school districts deal with changes in the state education funding system. The new aid formula would have meant significant reductions in aid for many rural and lower-populated districts, especially in the southern counties.
The state responded with something called adjustment aid, often called hold-harmless aid, for nine years. This aid blunted the impact of the new formula until another fateful decision in 2018.
In that year the state made the decision to phase out adjustment aid over the next six to seven years. The process was somewhat obscured during the pandemic, as money flowed to K-12 districts from federal legislation aimed at helping schools deal with learning loss and supporting much needed building modifications and improvements.
The state action to eliminate adjustment aid, known as Senate Bill 2 (S2), is a big part of the reason state aid has been reduced, but it is not the only culprit.
Rising Property Values
State funding is also impacted by rising property values. An increase in property values results in a change in the perceived ability of a school district to meet its fair share of education expense. Cape May County has witnessed a frenzied real estate market since the start of the pandemic that has driven up the equalized value of real estate by more than $35 billion since 2018.
As towns see equalized valuations rise — Wildwood saw its valuations jump by $700 million in a two-year span — the state’s local fair share calculation increases the amount the local district should contribute and reduces aid from the state. The equalized value is largely the aggregate true value of real estate in a municipality. It reflects sales volume and prices and is not limited to the more static assessed value of a town’s property.
The loss of adjustment aid and the surge in property valuation created a perfect storm for some school districts, resulting in sharp decreases in aid.
Consolidation
With the passage of S2 in 2018 the state also sought to drive under-enrolled school districts to consider consolidation. Studies were done, but very few regional districts were formed. School consolidation never gained a great deal of traction.
In Cape May County, the only regional school district is Lower Cape May Regional, which is supported by school taxes in Cape May City, West Cape May and Lower Township. The nature of the support, based as it is on property values, has been a source of a number of complaints by Cape May City taxpayers that they must pay too great a proportion of the LCMR tax levy given the few students that the city sends to the district.
A recent consolidation study on the Woodbine, Dennis Township and Middle Township school districts considered five scenarios, including the consolidation of the three districts into one regional district.
The study concluded by saying input should be sought from community stakeholders regarding the analysis and the social, curricular and financial implications.
But David Salvo, superintendent of the Middle Township School District, said in an email, “There are no plans for consolidation/regionalization at this time.”
Trenton Bills
An effort is underway in Trenton to reform the education funding formula in ways that would allow districts to meet their fair share of aid, reduce the impact of wild shifts in property values and move more education costs into formulaic aid.
School officials have pointed to the shift in property values that impact their aid levels, noting that the surge in value is not taxable beyond the 2% levy state cap. School officials have testified that they have no ability to raise revenue unless given an exemption from the 2% cap. The danger to taxpayers in this proposal is the risk of runaway tax rates based on property values that the taxpayer also cannot realize as revenue.
District 1 Assemblyman Eric Simonsen issued a statement that says he will support bills to help districts facing state aid cuts immediately. Simonsen said he would prefer a completely new school funding formula, and that he is aware of the struggles in many of the school districts in the state as they try to “weather the S2 storm a little longer.”
Both Simonsen and District 1 Assemblyman Antwan McClellan sponsored a bill to extend the deadline for certain school districts losing aid to submit budgets for 2024-2025.
Another bill with all Democratic sponsors (A4161) establishes a Stabilized School Budget Aid Grant program. The purpose of the bill is to provide grants to eligible school districts for up to two-thirds of the district’s state aid reductions for 2024-2025.
Even if both bills pass, they are for one year only. They work to alleviate some of the immediate pain but do not resolve the school funding problem in a county like Cape May, which has experienced the loss of millions in adjustment aid and must deal with continued increases in property values.
