New Jersey school districts are set to receive a record $12.4 billion in state aid under the newly signed 2027 budget. Many education leaders say they are in no mood to celebrate, because the money will not stretch as far as they need. Weeks before the school year begins, districts are again bracing for staff and program cuts, driven above all by soaring health-insurance premiums.
It is a strange position: more state money than ever, and tighter budgets anyway. The state constitution requires a "thorough and efficient" education, but this budget season that mandate competed with property-tax relief, pension payments, and expanded mental-health services. One item that stung some administrators was a $120 million bailout for Jersey City, tucked into supplementary legislation Gov. Mikie Sherrill signed alongside the roughly $60.7 billion budget for the fiscal year that began July 1.
Health Insurance Is the Immediate Wound
An outdated school funding formula is only part of the problem. Transportation, utility, and special-education costs have squeezed district budgets for years. What has turned a chronic strain into a crisis is health insurance. The state's School Employees' Health Benefits Program is facing premium increases of more than 30%, and a March report from the state Treasurer's Office found deep structural problems and called for significant reform.
"Normally, we are most concerned with the formula," said Betsy Ginsburg, executive director of the Garden State Coalition of Schools, a nonpartisan advocacy group. "But the proximate cause of anxiety for districts is really health insurance. That is what has all districts over the barrel."
The pressure reaches even districts that did comparatively well. The Toms River Regional School District, one of the state's largest at about 15,000 students, received $31.7 million in aid, a 6% increase. That is the maximum allowed under the state's cap, and the district still projects a roughly $3 million shortfall.
"We've been at bare bones for a few years now," said Michael Citta, the Toms River superintendent. Bus drivers, custodians, paraprofessionals, and teachers "have been dealing with sacrifices for a decade," he said, and one of his jobs this fall will be keeping morale up anyway. "If the government wants to solve these issues, they should talk to the school leaders that have been pulling rabbits out of their hats every year," he said, adding that he was not blaming any single party. "I think it's been like this for a long time."
Why the Caps Do Not Fully Protect Districts
For 2027 aid, Sherrill used a three-year average of district wealth to set each district's local share from property taxes, and, as former Gov. Phil Murphy had done, capped aid cuts at 3% and increases at 6% to smooth out the year-to-year swings that make budgeting hard. The caps help, but Toms River shows their limit: a district can hit the maximum increase and still come up short when costs rise faster.
The formula itself is the deeper issue. After the 2008 School Funding Reform Act left some districts under- and over-funded, a 2018 Murphy law began shifting money back toward under-funded schools through "equalization aid," which directs more state help to needier districts based on demographics and tax base. That approach has repeatedly split Democratic and Republican lawmakers.
The Districts With No Room to Grow
Some systems carry burdens most do not. Dozens of towns fall inside New Jersey's state-protected Highlands region in the north or the Pinelands in the south, areas where development is tightly restricted. Those towns cannot easily expand residential or commercial development to grow the tax base that funds their schools, even as costs climb.
Jefferson Township in Morris County, a Highlands district with fewer than 3,000 students, is one of them. To shrink a projected deficit from $4.8 million to $2.9 million for 2026-27, the district is counting on money from a future sale of its central office building. "This is not a guaranteed or permanent solution," outgoing superintendent Jeanne Howe wrote in an email to NJ Spotlight News, adding that lasting relief "will require a revision of the school funding formula that accounts for districts heavily impacted by the Highlands and Pinelands Acts."
What Comes Next
Sherrill, a Democrat who took office in January, and Education Commissioner Lily Laux both say the formula must be modernized, though time constraints ruled out major changes for this budget cycle. Lawmakers in both parties say they want to update the formula and address the health-benefits program's premium spikes.
Ginsburg argued for a clear order of operations: fix health benefits first, since it is the most immediate pressure, then move quickly to the formula. Otherwise, she said, districts will cut again next year in ways families feel directly. "Instead of 22 kids in their class, they might have 27 kids." The harder question, she said, is one lawmakers keep deferring: deciding "what a thorough and efficient education really costs today in 2026 for New Jersey. If we come face-to-face with the real cost of that, then we come face-to-face with some hard decisions that may not be politically palatable."
Sources
NJ Spotlight News: Despite record funding, school districts prepare for tighter budgets
New Jersey Department of the Treasury
New Jersey Department of Education
