As Gov.-elect Mikie Sherrill prepares to take office, one of the most immediate challenges she will inherit is New Jersey’s increasingly unstable school funding system.
The Department of Education’s 2026 school funding report makes clear that stability is the top priority for districts statewide. Schools are facing unpredictable aid changes driven by property value fluctuations, rising special education and transportation costs, escalating health insurance expenses and local tax-levy limits. Amid Sherrill’s first budget, uncertainty remains high for districts trying to plan responsibly.
A primary driver of instability is the way property values affect state aid. Equalized valuations can rise sharply due to reassessments or redevelopment, not because residents suddenly have greater financial capacity. These increases raise a district’s local fair share and can trigger significant state aid reductions. The education department’s report confirms that this volatility is distorting the funding formula. Communities that appear wealthier on paper often have no greater ability to support their schools, yet they still face sudden budget shortfalls.
The report also highlights broad support for special education funding improvements. In all, 86% of stakeholders favor basing aid on accurate student enrollment rather than outdated Census estimates. The department has moved in this direction for 2026, and proposed legislation would make the change permanent. This shift would improve fairness and ensure that funding more accurately reflects students’ needs.
Extraordinary special education costs continue to strain district budgets. Eligibility for extraordinary aid has more than doubled, according to the education department report, while the median tuition for specialized placements now exceeds $87,000 per student. At the same time, reimbursement rates have fallen to about 52% from approximately 84%. As a result, districts must absorb a growing share of these unpredictable expenses, often to the detriment of general education programs.
Transportation costs, particularly for special education routes, are also increasing faster than inflation. Still, the state covers only about 30% of transportation expenses. The funding formula hasn’t kept pace with the cost of providing required services, forcing districts to divert resources from classrooms.
Health insurance costs add another layer of pressure. Districts are experiencing steep increases in medical and prescription drug premiums, frequently in the double digits. These expenses consume larger portions of local budgets each year, limiting the ability to invest in instructional programs, staffing and student supports. Unlike many other costs, health insurance expenses are largely beyond district control, and they must be paid to meet contractual and legal requirements.
Compounding these challenges is the state’s annual 2% property-tax levy cap. Many districts can’t raise sufficient local revenue to offset state aid losses or rising costs, even when financial pressures intensify. The education department report shows that high-need, state aid-dependent districts are hit the hardest, weakening the very communities the funding system was designed to support.
The department’s report recommends several steps to improve stability, including multiyear averaging of property values, limits on year-to-year aid fluctuations, and adjustments to levy caps that reflect cost pressures. These measures would give districts greater predictability, allowing them to budget responsibly and maintain essential services. With a more stable foundation in place, the state can then consider thoughtful, long-term modernization of the funding formula.
The department’s own data reinforce what school leaders have been saying for years: New Jersey needs a funding system that reflects real costs, protects districts from volatility and provides stability for students and communities. Sherrill has an opportunity to bring clarity and balance to a system that too often creates uncertainty. Doing so will be essential to ensuring that schools across the state can focus on their core mission: educating students.
