By Michael S. Hayes
In 2018, New Jersey implemented the S-2 bill, which aimed to reduce adjustment aid to school districts in the state. The objective of this policy was to end a practice of “overfunding” school districts, which had it not been for the adjustment aid would have been negatively impacted starting in the 2008-09 school year by a new school aid formula. My policy research report investigates the types of school districts affected by the elimination of adjustment aid. Additionally, I examine the short-term impacts of eliminating adjustment aid on local revenues, current expenditures, student-to-teacher ratios, and student performance in New Jersey school districts.
The study found that the most affluent suburban school districts were the most likely to experience a complete elimination of their adjustment aid during the 2018-19 school year, while primarily urban school districts with the least affluent students were most likely to maintain their adjustment aid after the implementation of the S-2 bill. The school districts that lost their adjustment aid experienced, on average, a 10% reduction in total state aid. In response, these school districts reduced current expenditures on instruction and support staff by about 0.9%, in lieu of raising additional property tax revenues. This reduction in current expenditures resulted in only a small increase in student-to-teacher ratios.
The study found no evidence of a meaningful reduction in student performance following the elimination of adjustment aid for any subjects and grade-levels. Overall, these findings are not surprising because the school districts that had their adjustment aid eliminated in the 2018-19 school year are districts that depend the least on state funding and have the highest performing students in the state.
Based on these findings, the report makes two policy recommendations. First, state policymakers can use this approach of targeting state aid cuts in the future, for example, in response to state funding cutbacks due to a recession. Second, the state government should incentivize school districts to fund their own “rainy-day” or “budget stabilization” funds to help buffer themselves from future state aid reductions. One way to do this is by allowing school districts to maintain an unassigned surplus of up to 4 percent of their total budget.
In conclusion, this study provides valuable insights into the impact of eliminating adjustment aid on New Jersey school districts. The findings suggest that eliminating adjustment aid does not have a significant negative impact on student performance, but it can lead to reductions in current expenditures on instruction and support staff. Policymakers should take these findings into account when making decisions regarding the allocation of state aid to school districts and should provide incentives for districts to build up their own budget stabilization funds.