A primer on public schools and property tax caps in N.J.

New Jersey’s first property tax cap law was passed by the Legislature in 2007 and signed by Gov. Jon Corzine. The property tax levy cap was set at 4% and applied to school districts, counties, municipalities, fire districts, and solid waste collection districts. For school districts, it included a four-year sunset provision so that the consequences of imposing a tax levy cap could be assessed before the cap was made permanent. For school districts, exceptions to the 4% cap were provided for enrollment increases, state aid reduction, and health care costs. The state could also approve waivers in several other categories. 

In 2010, Gov. Chris Christie pushed for a lower tax cap. The New Jersey Legislature revised the property tax cap law, reducing it to 2%. The revised law also eliminated 14 categories of tax cap waivers. The law applies to school districts, municipalities, counties, fire districts, and solid waste collection districts. However non-school district governmental entities have more flexibility under the cap than school districts. 

Cap waivers for local government entities and schools can be obtained if the right criteria is met for:

• Capital expenditures and debt service
• Pension contributions and accrued liability
• Health care costs
• Extraordinary costs associated with a declared emergency

Public schools can also receive waivers for enrollment increases.

Waivers eliminated under 2% property tax cap

The following tax levy cap waivers were eliminated for school districts in 2010:

• Failure to meet Student Learning Standards funding for programs and services
• Energy cost increases over 4% 
• Capital outlay increases over 4%
• The appropriation of non-recurring revenues, surplus 
• Non-health insurance cost increases over 4%
• Hazardous route transportation cost increases over 4%
• Special Education per pupil costs over $40,000, increases over 4%
• Tuition changes for sending-receiving school districts, vo-tech school expenses over 4%
• Opening a new school facility
• Emergency; student health, safety, welfare

How the New Jersey Department of Education determines if a tax cap waiver is warranted

The New Jersey Commissioner of Education can decide to give school districts a tax cap waiver adjustment for enrollment increases, healthcare cost increases, and pension contribution cost increases. The enrollment increase adjustment formula takes the per pupil pre-budget year adjusted tax levy and multiplies it by:

• 0.50 for each unit of weighted resident enrollment that is an increase from the prebudget year over 1%, but not more than 2.5%; 
• 0.75 for each unit of weighted resident enrollment that is an increase from the prebudget year over 2.5%, but not more than 4%; and 
• 1.00 for each unit of weighted resident enrollment that is an increase from the prebudget year over 4%.

The commissioner can grant a 1.00 multiplier for any increase in weighted resident enrollment if the average class size exceeds 10% above the facility’s efficiency standards. Enrollment increases are determined by New Jersey Department of Education enrollment projections based on a five-year enrollment rolling average. 

A health care cost increase cap waiver adjustment is given when there is an increase from the pre-budget year for the budgeted amount for health care costs over 2%, minus any withdrawals from the current expense emergency reserve account. The adjustment for increases over 2% must not exceed the average State Educators Health Benefits Program percentage increase, which is 10.6 % for the 2024-2025 academic year.

Pension contributions that exceed pre-budget year contributions by more than 2% are granted a tax cap waiver.

Second ballot questions

Voters can vote to exceed the property tax levy cap. A special question can be placed on the ballot to exceed the tax levy cap. The cap increase proposal must be included in the preliminary budget and may not include programs and services necessary to achieve New Jersey Student Learning Standards. The ballot question must include an interpretive statement that identifies the program’s purposes and states whether voter approval will result in a permanent tax levy increase. The county superintendent must approve the proposal before it can be submitted to the voters.

In September, the New Jersey Legislature passed a bill that authorizes school districts to hold votes on cap waiver spending at special elections and the November general election. Proposals for tax levies above 2% can be voted on once a year and can be voted on during the same election when voters weigh in on capital project referendums.

Cap banking

School districts can “bank” tax cap increases and use them in any of the next three succeeding budget years. If a school district increased its tax levy by 1%, it could use the remaining 1% tax levy cap in any of the next three succeeding budget years and could raise its property tax levy by 3%; the usual 2% plus the 1% it did not use previously. 

The county superintendent must approve the use of a banked cap. The board of education must fully use unused tax authority from the earliest prior years before using unused tax authority from the prebudget year.

State aid

Under a bill approved by the New Jersey Legislature in May, school districts that have seen state aid cuts since the 2020-21 school year are allowed to raise their tax levies by up to 9.9%, with hikes capped to the amount of state aid the district has lost over that period.

Sources: New Jersey School Board Association, Tax Foundation, New Jersey Principals and Supervisors Association, New Jersey Department of Treasury