- School taxes are expected to rise significantly in many New Jersey communities due to the temporary lifting of a 2% cap on tax levy increases.
- The lift affects 281 school districts deemed not to be paying their fair share of school costs. The state will provide additional aid to districts raising taxes above the cap.
- Inflation, declining state and federal aid, and the 2% cap have put a strain on school budgets, leading to discussions of school closures, program cuts and staff layoffs.
School taxes are about to rise significantly in many New Jersey communities, as a decades-old rule that held down property tax increases is about to lifted temporarily in some places.
Gov. Phil Murphy's administration identified 281 of the state's 590 operating school districts that were not taxing their residents enough to pay for schools and were not spending enough money to adequately educate their students. Those schools were recently notified that they may be eligible to exceed the state-mandated 2% cap on local taxy levy increases for the upcoming school year, if they had exhausted other avenues of balancing their budgets.
Nineteen of those districts are in Monmouth County and 18 are in Ocean County.
As an incentive for schools to raise local taxes this year to fill in the gap, the New Jersey Department of Education will give an additional boost of state aid to schools. The state aid will be worth 5% of the local taxes raised above the 2% tax cap.
Officials in Trenton have cut state aid to schools over the last decade, a move aimed at forcing schools to become more self-reliant. But the most dominant factor in the equation has less to do with shrinking state aid and more with the cost of living.
"The real kicker at the end of the day has been the ongoing inflation," said Marc Pfeiffer, a senior policy fellow at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.
Declining federal and state aid to school in the years since the COVID-19 pandemic, the state's 2% cap on tax levy increases, and that ongoing inflation have squeezed schools and local governments in New Jersey, he said.
As a result, Middletown school officials have discussed closing a school. Jackson School District recently announced the sale of one elementary school and intentions to merge its two high schools into one building by September. Toms River Regional intends to sell its administration building to Ocean County government to close a budget gap.
And just recently, Lacey's Board of Education discussed selling a school and eliminating funding for sports and courtesy busing rather than raise taxes beyond the tax cap. That possibility drew hundreds of residents to a school budget meeting.
Time is running out for school district officials to finalize their plans for the 2025-26 school year. They have until May 19 to submit their certified school budgets to county tax officials.
The school districts in Monmouth County that may be eligible to raise taxes above the cap are: Asbury Park, Belmar, Deal, Eatontown, Freehold Borough, Freehold Regional, Hazlet, Howell, Keansburg, Keyport, Long Branch, Manalapan-Englishtown Regional, Matawan-Aberdeen Regional, Middletown, Neptune City, Neptune Township, Red Bank Borough, Union Beach and Upper Freehold Regional.
In Ocean County, the school districts that were notified of their potential eligibility to exceed the cap are: Barnegat, Berkeley, Brick, Central Regional, Jackson, Lacey, Lakehurst, Lakewood, Little Egg Harbor, Manchester, Ocean Gate, Ocean Township (Waretown), Pinelands Regional, Plumsted, Point Pleasant Borough, Stafford, Toms River Regional and Tuckerton.
In the face of budget shortages, "all options must be considered," said Timothy Purnell, executive director of the New Jersey School Boards Association.
School board members in many of these communities and faced with difficult choices: either substantially raise taxes or make deep cuts into programs and staffing, he said.
"Staff layoffs and increased class sizes, cuts to programs and services, reductions in extracurricular programs, elimination of courtesy busing, and even school closures are some of the difficult options they might consider," said Purnell. "While no board wants to place an additional burden on their taxpayers, the ability to raise more local revenue is a tool many boards would welcome in order to maintain a high-quality educational program."
Some school districts are doing exactly that. Keyport's Board of Education agreed to take advantage of the state's one time tax incentive program. The board is considering a budget that, if approved, would raise school taxes by 12.5%.
The tax bill hikes coming to residents in some of these affected communities could have serious impacts, said Manish Bhatt, a senior policy analyst at the Tax Foundation, a nonpartisan tax policy organization.
"Stability in the tax code generally is important," he said. "We shouldn't have large swings in tax liabilities from year to year. Taxpayers should be able to — with relative confidence — project how much they're going to need to pay in any given tax."
Inflation drives up costs
While New Jersey's 2% tax levy cap provided that stability in tax bills for years, inflation drove up prices for insurance, energy, construction costs and wages. In 2022, the Consumer Price Index, a measure of inflation, for the New York and northern New Jersey metro area was more than 6%, according to the U.S. Bureau of Labor Statistics. For 2023 and 2024, the CPI predominantly remained between 3 and 4%,
Costs quickly outpaced the 2% tax cap. Many school districts, strained by the ever-tightening squeeze of the tax cap and inflation, are now at a breaking point.
Tax caps are not bad policy, despite the challenges faced by so many New Jersey schools, Bhatt said. However, the tax cap law must have built-in "release valves" that account for inflation and population growth, he said. Without that, a sudden spike in taxes will hurt residents, particularly people on fixed incomes and lower-income renters who are least able to absorb the change, Bhatt said.
"These kinds of large swings in tax liability could have some real consequences for people in the state, and often those that are least able to bear the economic difference between what's due this year versus what was due last year," he said.
The tax cap in New Jersey has kept annual increases relatively low, but also so low that they have not reflected the natural growth of communities and costs, said Pfeiffer, of the Bloustein School at Rutgers University.
"The circumstances we have in 2025 are really different from what we had in 2010" when the 2% tax cap was adopted, Pfeiffer said.
The mechanisms behind how New Jersey schools are funded and the interplay with the tax cap needs to be revisited, said Purnell, of the School Boards Association. Schools need "additional flexibility" to be able to raise taxes enough for local residents to pay their fair share of educational costs and provide students with a thorough education, he said.
"After more than 15 years with the current (school funding) formula, it is time to modernize it in a way that makes it more equitable, predictable and transparent," Purnell said.
Amanda Oglesby is an Ocean County native who covers education and the environment. She has worked for the Press for more than 17 years. Reach her at @OglesbyAPP, aoglesby@gannettnj.com or 732-557-5701.
