In 2008, New Jersey enacted the School Reform Funding Act (SRFA), with the intention of creating a new school funding formula with the goal of reducing school spending inequalities throughout the state. In an effort to reduce the possibility that school districts might experience short-term budgetary shocks, the SRFA provided temporary state funding assistance through the provision of “adjustment aid” to approximately 300 NJ schools. A decade later, the NJ S-2 Bill was enacted to eliminate the adjustment aid provision and make other adjustments to the school aid formula. What effect, if any, has eliminating the adjustment aid had on NJ schools?

Michael Hayes, Ph.D., Associate Professor at Rutgers-Camden, has authored a new report published by the New Jersey State Policy Lab which examines the short-term impacts of eliminating adjustment aid on local revenues, current expenditures, student-to-teacher ratios. Key findings of his study include:

• 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 most affluent suburban school districts had 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.
• This study found no evidence of a meaningful reduction in student performance 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, Dr. Hayes’ report makes two policy recommendations:

• State policymakers can use this approach of targeting state aid cuts in the future (e.g., state funding cutbacks due to a recession), and
• 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 allowing school districts to maintain an unassigned surplus of up to 4% of their total budget.

Download the full report here: Report Release: The Impact of Eliminating Adjustment Aid for School Districts in New Jersey – New Jersey State Policy Lab

About the New Jersey State Policy Lab: The NJSPL, housed in the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, assists the state of New Jersey and its many communities in the design, implementation, and evaluation of state policies and programs by conducting rigorous evidence-based research that considers equity, efficiency, and efficacy of public policies and programs in holistic and innovative ways. The Lab is run as a partnership between the Bloustein School in Rutgers-New Brunswick and the School of Public Affairs and Administration in Rutgers-Newark. The Policy Lab is funded by the New Jersey Office of the Secretary of Higher Education (OSHE), and the contents of this report do not necessarily represent the policy or endorsement of OSHE or the State of New Jersey.