TRENTON, N.J. — One hundred and sixty-two Lakewood paraprofessionals received layoff notices this spring as the district staggered under $143 million in debt. State officials initiated a takeover proceeding in January that could strip local control of the budget, the board and the superintendent. That is not an outlier in a single distressed town. It is the leading edge of a statewide collapse.

Districts are responding to insolvency in different ways. Some are selling buildings they cannot buy back. The Jackson School District offloaded Christa McAuliffe Middle School for $40 million to a private yeshiva and Sylvia Rosenauer Elementary for $13.1 million to another religious school, shedding more than 285 positions over several years in the process.

Some are compressing classrooms. Cherry Hill plans to eliminate 72 full-time equivalent jobs and add two students to every classroom in grades one through eight. Hackensack faces a $17 million shortfall and has targeted up to 90 teaching jobs for elimination; records show the shortfall followed years of fund-balance depletions and staffing increases. West Orange anticipates cutting more than 70 positions against a $14 million to $15 million hole and has consolidated courses and restructured middle school schedules.

Some are closing buildings entirely. Jefferson Township shuttered two schools and terminated 100 staff members to close a projected $2.9 million gap for this fiscal year. Middletown closed Leonardo and Navesink elementary schools, cut 40 teaching positions and raised taxes three percent while projecting a $30 million deficit across the next four budget cycles. West Milford is closing Paradise Knoll Elementary for the second time in three years to save $2.9 million. Ocean Gate will close its only school in June after a $700,000 deficit and a $600,000 state aid reduction.

And some are charging families for what public education used to cover free. Bernards may cut 30 teachers and begin charging extracurricular fees of $50 to $200. Robbinsville eliminated its AVID program districtwide, cut 15 staff positions and removed three of four mental health clinicians after voters rejected a funding referendum in March.

The crisis reaches every type of district. Jersey City, the state's second-largest school system, faces a projected $100 million deficit that Superintendent Norma Fernandez said leaves it one crisis away from catastrophe. The district has lost $300 million in state aid over nearly a decade and may be forced to cut up to 200 jobs, though Fernandez said she is committed to eliminating as few positions as possible.

South Jersey is not immune. In Ocean County, Little Egg Harbor is replacing 81 full-time paraprofessionals and preschool aides with part-time workers who will not receive benefits. Haddonfield received a $48,000 increase yet still faces a shortfall that could mean five paraprofessional losses, 3.5 FTE cuts and the elimination of electives. Superintendent Chuck Klaus proposed a 6.02 percent tax increase costing the average homeowner roughly $471 annually.

The Health Benefits Trap

Districts are firing educators to pay for health benefits they are legally barred from reforming.

The School Employees Health Benefits Program (SEHBP) lost $333 million across the last two plan years. State treasury records show a $126 million loss in plan year 2024 and a $207 million loss in plan year 2025. Medical claims for active members rose 12 percent and prescription claims jumped 24 percent. Costs for GLP-1 weight-loss and diabetes drugs spiked 95 percent for active members and 126 percent for early retirees on a per-member basis.

The plan also shed 16,000 more members than projected, leaving a smaller and sicker risk pool. Aon's rate-setting analysis recommended a 31.9 percent total premium increase for local education active members in plan year 2026. The state treasury's March 2026 report signals that plan year 2027 will bring another double-digit increase, though it does not project a specific rate.

Districts absorbed the increases. Westwood absorbed a 32 percent premium increase after Horizon Blue Cross Blue Shield initially demanded 46 percent. Lacey took a 29 percent jump that board president Kim Klaus said would cost the district $3.5 million. Cherry Hill's business administrator Jason Schimpf told the board in March that health costs alone would add $10 million to the budget.

A treasury report from May 2025 warned of a parallel collapse in the State Health Benefits Program for Local Government. That report projects cumulative premium increases of 30 to 35 percent in 2026, roughly 40 percent in 2027, 50 percent in 2028 and 60 percent in 2029. Analysts and news reports at the time described the trajectory as a "death spiral." The May report notes that the contingent surplus reserve is fully depleted and the state has already transferred $258 million from the state employee plan to cover local government shortfalls.

Aon provides actuarial services to both plans and the treasury reports on both, but they operate under separate statutory authorities. The School Employees Health Benefits Program is frozen by P.L.2020 c.44, which prohibits the Plan Design Committee from altering benefits until December 31, 2027, barring mandatory adjustments under the act's savings-validation clause. The local government plan operates under P.L. 2011, c.78, which similarly restricts plan design changes. Both statutes limit the state’s ability to maneuver.

Credit markets have noticed the struggling districts. S&P Global downgraded Toms River Regional to A-minus from A in September 2025. They also lowered Montclair to BBB-plus from A-minus in October 2025 and affirmed that rating in April 2026. The rating agency cited depleted reserves and borrowing against future aid, alongside enrollment pressures.

State takeover proceedings have begun in Lakewood. The district operates under four state monitors whose salaries total approximately $800,000 annually, according to the district's sworn response to the Department of Education's takeover order. The district argues in that same filing that the monitors acted as passive observers, who approved the decisions now cited as governance failures. N.J.S.A. 18A:7A-55 gives the commissioner authority to appoint monitors who can override superintendents and boards on expenditures, staffing and even tax increases. The district claims the monitors did not execute that authority.

Unfunded Mandates and Federal Pressure

Nonpublic school mandates are consuming significant portions of some budgets. Lakewood spends $33 million on nonpublic busing and $80 million on special education tuition for nonpublic students. In March, the New Jersey Supreme Court denied an appeal request by the district, rejecting Lakewood’s argument that the School Funding Reform Act must account for those costs. In Jackson, nonpublic busing exploded from 655 students in 2017 to nearly 6,000 in 2026, an 816 percent increase over nine years.

The special education squeeze extends beyond nonpublic tuition. The Office of Legislative Services reports that the $420 million appropriated for extraordinary special education costs in fiscal year 2026 covers only 61.8 percent of total eligible costs. Eligible costs rose from $500.6 million in fiscal year 2023 to $679.8 million in fiscal year 2025, a $179.3 million jump.

In Passaic County, federal grant terminations added pressure. The federal Department of Education cut approximately $7.9 million in Full-Service Community School funding from eight Passaic County schools, including Passaic High School and Paterson Eastside High School. Congresswoman Nellie Pou pressed Secretary Linda McMahon to restore the funds, and requested a Government Accountability Office probe.

State Education Commissioner Lily Laux told the Assembly Education Committee on April 15 that she would reexamine every piece of the current funding formula. She also admitted that broader changes could not be made this year because the Sherrill administration had too little time to draft the budget. She told lawmakers she could not act unilaterally. "There's absolutely no way I can do this on my own," she testified.

The Committee heard similar warnings two months earlier. Deborah Cornavaca of the New Jersey Education Association testified on February 20 that legislators should contain unsustainable health care premium hikes and align state and school budgeting timelines. She also called for raising the surplus cap from 2 percent to 4 percent.

The legislature has the tools but has not used them. Senator Vin Gopal's S4861 would force county superintendents to draft consolidation plans for districts under 500 students. The bill stalled after a December 2025 hearing drew mixed reception. The 2018 S2 law lets Abbott districts exceed the two percent tax cap, which produced $541 million in local revenue increases over six years. But tax increases bring popular discontent as well as revenue.

New Jersey Education Association President Steve Beatty issued a public statement on April 24, calling Lakewood's potential paraprofessional layoffs disrespectful and saying that reducing their hours or benefits disregards the value they bring to public schools. Lakewood Education Association President Kimberlee Shaw said the 162 paraprofessionals facing layoffs are a vital part of the school community and the union will fight the reductions and any privatization attempts. The district's presentation shows paraprofessional benefits cost nearly $6.4 million annually and proposals under consideration include shorter work weeks, no health benefit eligibility and outsourcing.

Districts are selling buildings they cannot buy back, cutting positions they cannot rehire and borrowing against aid that may not arrive. The state's proposed relief is a fraction of the documented need. The legislature would need to amend P.L.2020 c.44 to permit plan design changes before 2028. But by that point some districts may have already entered the "death spiral."

Related Articles

• Jersey City School Board Approves 17% Tax Levy Amid $74M Aid Loss

• Cherry Hill Schools Face $14.5M Cuts as Tax Hike Looms Tonight

• Some NJ Districts Face Major Aid Losses Under Record School Budget

• Jersey City Seeks $150 Million in State Aid as Officials Warn Property Taxes Could Rise

• N.J. School District to Close after Voters Reject Tax Hike

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