Jersey City set to lose $51 million in NJ education aid; how this connects to rising school tax

NJ's Department of Education released its state education aid summaries for the 2023/24 academic year and Jersey City is set to lose another $51 million next year. This will amount to $276 million in state aid reductions since the "S2" law was passed in 2018. Jersey City will likely lose $134 million by the time S2 plays out over the next one to two years. The S2-related cuts are tied to Jersey City's tax base growth, which has soared in recent years. I wanted to share a quick update on the latest state aid cuts along with a quick primer on the connection between tax base growth, state aid reductions, and school tax hikes.

Jersey City property tax payers are now shouldering a much greater share of the school funding paradigm than in previous years; there is important context as to why. We can frame this with three key points:

  1. Jersey City's tax base has been growing rapidly in the past 10 years.
  2. As the tax base grows, state aid is triggered, per NJ's school funding law, to go down.
  3. As state aid goes down, local school tax must fill the gap or the schools will be defunded.

1. Jersey City's tax base has grown over 40% since 2018.

The equalized (aka estimated market) value of Jersey City's base has been steadily growing, from $34 billion in 2018 to $53 billion (before appeals) and $49 billion (after appeals) in 2023. New Jersey's School Funding Reform Act of 2008 ("SFRA") defines school districts as primarily funded by two sources:

(a) "local fair share" of school tax (this is funding that can be funded from the equalized value of the tax base)


(b) state aid

As the tax base equalized value goes up, "local fair share" goes up too...this triggers state aid to go down. The NJ School Boards Association has a more detailed write-up on SFRA here.

2. As Jersey City's "local fair share" has risen with tax base growth, state aid has decreased.

While Jersey City's tax base grew by over 40%, its state education aid was reduced by 200%. Jersey City's total state education aid in 2018/19 was $407 million; in 2023 the proposed aid number has fallen to $134 million. This is a cumulative $270+ million reduction in state aid since the 2018/19 school year, as shown in the red bar chart.

Jersey City has already lost all of its "adjustment aid" (the blue portion of the second bar chart) and will likely lose all of its "equalization aid" (the orange portion of the second bar chart). The equalization aid is the aid that is directly tied to tax base growth. I wrote about these two types of aid last year here.

I should note: not shown here (because it is not reflected in the NJ Department of Education's state aid notices that I'm using as the public data basis for this post) is the $89 million of "maintenance of equity" funds that the state cut last year, but then returned to Jersey City as required by the U.S. Department of Education. I wrote about the maintenance of equity funds here.

3. As state education aid to Jersey City has decreased, the school tax has gone up to fill the gap and fund the schools.

The "S2" law was passed in the summer of 2018. In the spring of 2019, in the face of a $27 million state aid cut, Jersey City's local board of education raised the local levy by only $12 million and layoffs ensued.

Since 2020, in light of the passage of S2, successive boards of education have voted to increase the school tax levy to make up for the cuts in state aid. You can find all BOE budgets online here.

The line and area graphs in this section show a longer X-axis than the charts above. This is to show how flat the school tax levy was in comparison to the equalized tax base growth, particularly from 2012 onward. Additional critical context includes: from 2010 through 2018, Jersey City was not allowed to raise its local school levy more than 2% each year. This was due to a state-mandated "2% levy cap." In 2021, then-BOE President Mussab Ali explained this nuance to the other public officials and the public in a joint meeting between the City Council and BOE trustees (the meeting is viewable on YouTube here).

Had the state allowed Jersey City's board of education to increase its local school levy more than 2% each year, the larger school levy hikes from 2020 through 2023 may not have been required (larger incremental increases between 2010 and 2018 may have staved off the larger increases that are needed during S2). Important context also includes: Jersey City Public Schools were under state control until 2022.

Tax base growth, state aid cuts, and school tax are linked.

The state is forcing the community of Jersey City to rapidly absorb a larger and larger share of the school budget through the funding of the school tax levy after years of disallowing levy growth despite tax base growth. This paradigm is not easy for the average taxpayer to see, let alone understand in depth absent time and focus to learn it; yet it is all akin to fiscal tectonic plates that have been shifting underneath Jersey City for years. It was a partial driver in the third and fourth quarter 2022 school tax hikes in Jersey City (the schools drove about 50% of the 2022 tax hike and the city drove the other 50% of the tax hike as I detailed here).

This paradigm is very important for the community of Jersey City to understand. Because children are at the center of this paradigm and children are harmed when schools are defunded, especially when a majority of those children qualify for free and reduced lunch.

This dialog is critically important to our city's kids.

To help invite more taxpayers into this topic, I digitized the state aid summaries from 2018 through 2023 and visualized it in Tableau:

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