New Jersey fully funded its School Funding Reform Act (SFRA) for the first time in fiscal year 2025, completing a seven-year phase-in under P.L. 2018, c.67. The next year, the Murphy administration introduced one-year budget provisions to reduce year-over-year aid swings: capping increases at 6 percent and decreases at 3 percent of prior-year aid, switching special education aid from a census-based method to each district's actual enrollment, and calculating local fair share using a three-year average of property values and income. Governor Sherrill's FY2027 budget proposal continues those same provisions for a second consecutive year, proposing $12.4 billion in school aid.
Temporary provisions enter second year
Under the FY2026 budget, the increase cap saved the state $385.0 million while the reduction floor cost $301.9 million, for a net reduction of $83.2 million, according to the New Jersey Office of Legislative Services and Department of Education's budget analysis. The special education categorical aid appropriation rose from $1.36 billion to $1.77 billion after the switch to actual enrollment. The budget also eliminated adjustment aid, which had held certain districts harmless during the transition, dropping to zero from $249.4 million in FY2025.
The FY2027 budget proposes increases in 400 districts, decreases in 167, and flat funding in 7, according to the New Jersey Monitor. 203 districts hit the 6 percent increase cap and 94 hit the 3 percent decrease floor.
Permanent reform proposals emerge
The New Jersey Department of Education released a December 2025 report outlining permanent policy options, based on outreach that included four public hearings, an online survey completed by more than 3,300 stakeholders, and 550 emails. The report found that 63 percent of survey respondents preferred multi-year wealth averages over single-year data, with a majority favoring five-year over three-year periods; 86 percent preferred actual special education enrollment over the census method; and 71 percent said aid losses should be limited for all districts. The report cautioned that adding more years to wealth averages causes measures to deviate from current conditions, and that limiting aid losses makes the formula less responsive to changing enrollment and requires more state funding.
Senate Bill S3917 proposes permanent statutory changes, including allowing districts below their local fair share to raise tax levies up to 7 percent (compared to the current 2 percent cap), barring state aid reductions exceeding 2 percent of a district's prior operating budget, eliminating the census-based special education method, and establishing a Special Education Funding Review Task Force.
Policy tradeoffs highlighted by research
Several advocacy and research organizations have weighed in on the formula's strengths and weaknesses. New Jersey Policy Perspective found that SFRA's local fair share calculation produces inequitable tax rates, particularly for communities of color, because it uses aggregate income rather than median income; the group recommended reevaluating the property and income rates and requiring under-adequacy districts to raise their full local fair share while the state funds the remainder.
The Education Law Center argued that prior Educational Adequacy Reports updated underlying costs but failed to assess whether formula inputs are adequate for delivering current New Jersey Student Learning Standards. The center recommends a thorough EAR informed by high-quality research and stakeholder engagement, noting that the New Jersey Supreme Court's acceptance of SFRA's constitutionality was contingent on periodic review and adjustment.
The Garden State Initiative reported that SFRA's local fair share assumptions grew faster than the 2 percent property tax cap for nearly all districts in FY25, that over 50 percent of state aid is concentrated in just 22 of 590 districts, and that caps on aid increases and decreases create a mismatch between state funding and actual enrollment changes. The group recommends slowing formula cost growth, simplifying the local share measurement, and limiting use of aid caps.
The NJDOE's own report acknowledges the central tradeoff: limiting aid losses provides stability for districts but reduces the formula's responsiveness to changing enrollment and requires additional state appropriations. That tension is reflected in the contrast between the temporary budget provisions and the longer-term proposals in S3917, which would make some of those limits permanent.