It all began on Tuesday, March 10th when newly-elected Governor Mike Sherrill presented her FY 2027 Budget Proposal to a joint session of the NJ State Legislature. What followed was a series of public hearings over the next three months where representatives of every department in state government, Treasury officials, school districts and members of the public shared their issues and expertise with members of the Senate and Assembly budget committees. Following months of discussions, and negotiations, the Legislature passed the Fiscal Year 2027 State Budget on Tuesday, June 30, just hours before the constitutional July 1 deadline. Governor Sherrill signed it soon thereafter, effectively bringing a close to the state’s busiest legislative season.
Budget Overview
The budget document itself is approximately 360 pages of balance sheets, allocations, and legal direction that forms the framework for how the state will function over the next year. Broadly speaking, the budget totals $60.7 billion with a further $30.5 billion appropriated in federal funds, bringing the total operating budget to just over $90 billion. This represents the largest budget in state history, and a 3.7% increase from the previous year, which is actually less than the annual inflation for that same time period.
That number includes a $6 billion surplus and, critically, a $7.3 billion payment to the state’s pension system – the sixth such “full pension payment” in a row. It also cuts the structural deficit from $3 billion to $1.35 billion. Addressing this challenge was an expressed goal of the Governor from her first days on the job.
In terms of education funding, as expected the budget includes $12.4 billion in direct K-12 formula aid – an increase of over $370 million from last year. It fully funds the school funding formula and keeps in place the mitigation measures implemented over the last two budget cycles to help control the impact of funding losses to certain individual districts. The budget also includes another $1.4 billion in pre-school aid, $15 million in high impact tutoring funds, and $582 million in childcare assistance funds. It includes $660 million for the National School Lunch Program and $260 million for school breakfast programs.
Education Funding Details
The budget bill retains the K-12 formula aid amounts and policies reflected in the Governor’s March proposal and March 2026 state aid notices as follows:
- $12.4 billion in formula aid – an increase of over $370 million from FY26;
- Maintaining guardrails for a three percent cap on year-to-year decreases in state aid and a six percent cap on increases in aid;
- Utilizing actual special education enrollment to calculate special education aid;
- Utilizing multi-year averages for property wealth and income when calculating a district’s local share;
- $420 million for Extraordinary Special Education Aid;
- $15 million for High-Impact Tutoring;
- Preschool education aid will have expanded authorized uses including the expansion to new districts, expansion of current programs and workforce initiatives;
- $350 million would be made available to the Schools Development Authority (SDA) for current construction projects, and an additional $50 million in appropriations to support capital grants in SDA districts;
- $3.5 million in additional funding for charter school facilities projects is funded in a supplemental appropriations bill (S-4538) that was passed along with the budget;
- $1million for the NJDOE to expand the Clayton Model Pilot Program focused on universal, social emotional learning for grades K-5;
- $500,000 to NJDOE to continue the School Lead Filters Grant program;
- $500,000 to the NJDOE to establish an Educator Employment Web Portal created in legislation, P.L. 2025, c. 208
Other Budget Issues
Beyond education, the budget expands the Child Tax Credit by 25% and includes some $4.1 billion in property tax relief. This includes adjustments to the “Stay NJ” program. The maximum benefit under that program of $6500 for seniors remains the same for those with income up to $100,000. Above that amount, however, the benefit now falls to $5000 for those making up to $150,000 and $4000 for those making up to $200,000. Previously that $6500 benefit applied to anyone earning up to $500,000.
Additional details, including legislative sponsorships of a variety of individual budget resolutions for local and county level priorities, will become clearer in the coming weeks.
School-based Mental Health Pilot and Transition from NJ4S to SPARK
A significant budget provision for schools is the funding of existing mental health support programs including the NJ4S (NJ Statewide Student Support System) housed in the Department of Children and Families (DCF). The School-based Youth Services program also continues to be funded at $39 million for those districts receiving that specific program aid.
Due to strong member goals in the mental health area, NJPSA’s Government Relations team strongly advocated to maintain the current NJ4S program during any transition to a new student mental health program. During her budget address in March Governor Sherrill announced her intention of replacing NJ4S with a new program called SPARK (School-based Partnerships for Access and Resilience for Kids program) focused on longer-term and higher acuity student mental health needs.
At the outset, NJPSA members clearly shared their experiences, scope of mental health issues in their schools, thoughts on the effectiveness of the NJ4S program, and their recommendations to support students in the future in a March 2026 survey. This survey guided NJPSA’s advocacy over the next few months leading up to the June 30 budget deadline.
The end result is the passage of S-4413 (Scutari)/A-5235 (Carter), currently awaiting Governor Sherrill’s signature, which establishes a SPARK pilot program to begin in January 2027 which will last for 18 months. During the course of the pilot, the current NJ4S regional hub system will continue to provide student mental health services to schools. The FY 2027 budget includes funding for NJ4S services ($40 million), funding for the SPARK pilot program ($8 million) and the continued funding of School-based Youth Services as noted above. The accompanying legislation (S-4413/A-5235) defines the parameters of the pilot program for 10 school districts to serve as an implementation tool to prepare for a statewide transition to the SPARK program potentially 90 days after the conclusion of the pilot and issuance of a report and recommendations for statewide expansion. NJPSA is awaiting the Governor’s action on this legislation before reporting on the details of this program.
Health Benefits Action
Governor Sherrill has signed into law A-5330/S-4507 (Reynolds-Jackson/Ruiz), legislation that authorizes the Director of the Division of Pensions and Benefits to initiate a temporary transfer of funds between the retired school employees reserve account to the active school employees reserve account for health benefits provided pursuant to the School Employees Health Benefits Plan. P.L. 2026, c. 28 authorizes this temporary transfer if the available funds for health benefits for active employees and their dependents fall to a level that is insufficient to cover 10 days of anticipated payments from the fund. If the Director makes such a transfer, he must notify the School Employees’ Health Benefits Commission within 30 days of the transfer. This legislation became necessary to provide options to the Treasury to act to keep the active employees’ fund solvent to pay claims and avoid a mid-year rate increase to employees and boards of education while more permanent solutions are considered.
The law limits the amount of money transferred between funds to an amount necessary to cover 30 days of anticipated payments (claims) from the fund. This loan must be repaid within 120 days following the date of transfer unless the Director determines that an extension is necessary. The extended timeline cannot exceed 365 days from the date of transfer. Other safeguards for the retirees’ fund include transparency provisions that require monthly reporting of any transfer amounts, outstanding balances of all initiated transfers, any repayments and the current balance of the funds.
NJPSA is currently working with other statewide education organizations and state government officials to address the rising cost of health benefits for school employees and the SEHBP.
The NJPSA Government Relations team will continue to report on the details of the State Budget and education-related legislation. Please do not hesitate to reach out if we can help you to understand any part of the budget or related legislation.