TRENTON—Executive Order 14, which freezes $475 million in current-year state school aid, will have a serious and negative impact on school district budgeting in 2010-2011, a representative of the New Jersey School Boards Association testified to the Assembly Budget Committee Wednesday.
“Local boards of education understand the impact of the Great Recession on jobs, personal income and, consequently, the state’s sales, corporate and income tax revenues,” Michael Vrancik, NJSBA director of governmental relations, told the lawmakers. “They also know—firsthand—how the economic downturn affects the local property taxpayers who cover the vast majority of school costs.”
For the current school year, the state aid freeze created by Executive Order 14 may not affect school programs, according to NJSBA. That’s because it will not exceed the excess surplus and portions of reserve accounts on hand in school districts.
“For next school year, 2010-2011, Executive Order 14 will create a very different scenario,” explained Vrancik.
In the testimony, NJSBA provided the following facts to the committee:
• Some 500 school districts have accumulated excess surplus as a result of financial prudence. Many of them feel that Executive Order 14 penalizes them for responsible fiscal management. For 2010-2011, these districts will not be able to use the excess surplus to control property tax levies, as directed by state law. “They tell us that the aid freeze and resultant use of surplus will leave them with three options: seek higher property taxes or cut education programs or implement a combination of the two,” said Vrancik.
• Executive Order 14 also authorizes school districts to tap into certain accounts, such as capital reserve, to make up for the state aid loss. “In the interest of sound financial management, districts should replenish these reserve accounts next year,” he said. “But such prudent action could force a district to direct less of its limited resources to the classroom.”
Impact on Districts Vrancik provided examples of Executive Order 14’s impact next year on a wide variety of school districts, including Bernards Township, Greater Egg Harbor Regional, Montgomery, Paterson and Pennsauken.
“A school district’s excess surplus comes from all of its revenue sources—federal, state and local,” said Vrancik. “In Lumberton, Burlington County, state aid makes up 38 percent of the district’s annual revenue. Yet, Executive Order 14 will eat up 100 percent of its excess surplus
“The same problem faces South Brunswick, where a state aid freeze of $5.3 million will require the use of surplus—the overwhelming majority of which was generated by locally contributed tax revenue.”
He continued, “Paramus, in Bergen County, will incur a state aid loss of over $1 million, not because its financial needs have changed, but because it happens to have excess surplus. Using that surplus to fill the state aid void means that it will start the 2010-2011 with a budget gap. That gap can only be addressed through property taxes or by program cuts.
“We realize that Governor Christie had limited options in dealing with the current-year budget deficit. And yes, a far worse scenario would have been implementing the aid cuts in a way that would hurt school programs this year. However, if other options were available, they should have been pursued.”
“For school districts, one of the most difficult aspects of this cut is that it comes mid-year and will have unanticipated consequences for their finances in 2010-2011,” said Vrancik.
“The situation adds to the uncertainty already facing districts as they try to develop their school budgets for 2010-2011. They are not likely to know the administration’s state aid recommendations until mid-March. That will leave them only five weeks before they have to present proposed budgets to voters—in an extremely volatile atmosphere.”
“The Legislature can resolve some of this uncertainty for school districts. And that is, by eliminating the requirement for school budgets within cap to go to referendum this year,” he testified.
“It’s a change that will give districts much needed time to work with the changes created by Executive Order 14, as well as potential issues arising from the state aid recommendations. And it will spare municipalities and school districts the time-consuming and, often, painful exercise of negotiating over rejected budgets that are bare bones to being with.”
The New Jersey School Boards Association, a federation of district boards of education, advocates the interests of school districts, trains local school board members, and provides resources for the advancement of public education.
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