Establishes certain mechanisms to address significant unanticipated cost increases experienced by school districts.

A5208

ASSEMBLY, No. 5208

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED JUNE 4, 2026

Sponsored by:

.Assemblywoman� ROSAURA "ROSY" BAGOLIE

District 27 (Essex and Passaic)

SYNOPSIS

���� Establishes certain mechanisms to address significant
unanticipated cost increases experienced by school districts.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act
concerning the fiscal condition of school districts,
amending P.L.2007, c.62, and supplementing chapter 22 of Title 18A of the New
Jersey Statutes.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.� Section 6 of P.L.2007,
c.62 (C.18A:7F-41) is amended to read as follows:

���� 6.��� Notwithstanding the
provisions of any law or regulation to the contrary:

���� a.���� A board of education or
board of school estimate, as appropriate, may supplement a capital reserve
account through a transfer by board resolution at year end of any unanticipated
revenue or unexpended line-item appropriation amounts, or both, for withdrawal
in subsequent school years.

���� b.��� A board of education or
board of school estimate, as appropriate, may supplement a maintenance reserve
account through a transfer by board resolution at year end of any unanticipated
revenue or unexpended line-item appropriation amounts, or both, for withdrawal
in subsequent school years.�

���� c.���� A board of education or
a board of school estimate, as appropriate, may through the adoption of a board
resolution establish the following reserve accounts:

���� (1)�� Current expense
emergency reserve account.� The funds in the reserve shall be used to finance
unanticipated general fund current expense costs required for a thorough and
efficient education, or to finance school security improvements, including
improvements to school facilities. The account shall not exceed $250,000 or one
percent of the district's general fund budget up to a maximum of $1,000,000,
whichever is greater. A board of education may appropriate funds to establish
or supplement the reserve in the district's annual budget or through a transfer
by board resolution at year end of any unanticipated revenue and unexpended
line-item appropriation amounts.� Withdrawals from the reserve may be made at
any time and shall require the approval of the commissioner unless the
withdrawal is necessary to meet an increase in total health care costs in
excess of four percent, or the withdrawal is included in the original budget
certified for taxes to finance school security improvements, including
improvements to school facilities.

���� As used in this paragraph,
"school security improvements" means school security improvements,
including improvements to school facilities, which are limited to safety and
security measures involving building monitoring and communication technology
designed to address school crime and the safety of students, staff, and
visitors to school facilities.� School security improvements may include, but
need not be limited to: security cameras to monitor the school; an electronic
notification system that automatically notifies parents in case of a
school-wide emergency; an automatic door locking system for access control; and
a badge system for school employees.

���� (2)�� Debt service reserve
account in the debt service fund for proceeds from the sale of district
property. The funds in the reserve shall be used to retire outstanding debt
service obligations of the district. The reserve shall be liquidated within the
lesser of five years from its inception or the remaining term on the
obligations. Any remaining balance shall be used for tax relief.

���� (3)�� Federal impact aid
reserve account in the case of a school district that receives federal impact
aid pursuant to section 8002, 8003, 8007, or 8008 of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. s.7702, 7703, 7707, or 7708). A
board of education may appropriate federal impact aid funds to establish or
supplement the reserve account in the district's annual budget, or through a
transfer by a two-thirds affirmative vote of the authorized membership of the
board between June 1 and June 30, for withdrawal in any subsequent school year.
Any transfer to the reserve account shall not exceed the total amount of
federal impact aid received in the fiscal year. The board, at its discretion,
may use the funds in the reserve account to finance the district's general fund
or to finance school facilities projects, in a manner consistent with federal
law. The total amount of funds on deposit in the reserve account shall not be
limited.

����
(4)� (a)� Cost
stabilization reserve account.� The funds in the reserve account shall be used
to finance general fund expenses, excluding staff salary costs, that during the
school year cost significantly more than initially anticipated in the budget
certified for taxes, including significant unanticipated increases in total
health care costs to the extent that those costs are not supported by
withdrawals made from the current expense emergency reserve account, student
transportation expenses, special education and related services expenses, and
other eligible categories of general fund expenses that may be established by
rules and regulations promulgated pursuant to subparagraph (b) of this
paragraph.� A board of education may appropriate funds to establish or
supplement the reserve in the district's annual budget.� Notwithstanding the
provisions of section 2 of P.L.1979, c.294 (C.18A:22-8.1) or any other law,
rule, or regulation to the contrary, a board of education may also establish or
supplement the reserve account through a transfer by board resolution of any unanticipated
revenue and unexpended line-item appropriation amounts, which transfer
resolution may be adopted at any point during the school year.� A withdrawal
from the reserve account may be made at any time and only after the adoption of
a board resolution detailing the specific unanticipated cost increases to be
supported by the withdrawal and justifying that the withdrawal is necessary for
the provision of a thorough and efficient education; except that the withdrawal
may require additional approval of the commissioner pursuant to rules and
regulations promulgated pursuant to subparagraph (b) of this paragraph.� �

����
(b)� The commissioner shall
promulgate, pursuant to the "Administrative Procedure Act," P.L.1968,
c.410 (C.52:14B-1 et seq.), rules and regulations as necessary related to the
establishment and maintenance of a cost stabilization reserve account.� The
rules and regulations shall include, but not be limited to:

����
(i)� limits on balances
that may exist in the reserve account;

����
(ii)� the conditions under
which a board of education is required to seek the additional approval of the
commissioner prior to withdrawing funds from the reserve account;

����
(iii) criteria for cost
increases that would be considered significant and unanticipated and for which
withdrawals from the reserve account may be used;

����
(iv) the establishment of
eligible categories of expenses for which withdrawals from the reserve account
may be used, in addition to those expressly enumerated in subparagraph (a) of
this paragraph.

���� d. (1) All reserve accounts
shall be established and held in accordance with GAAP and shall be subject to
annual audit. Any capital gains or interest earned shall become part of the
reserve account. A separate bank account is not required, however, a separate
identity for each reserve account shall be maintained.

���� (2)�� A board of education
that establishes a federal impact aid reserve account shall:

���� (a)�� report the amount of
federal impact aid received, expended, and on deposit in the federal impact aid
reserve account in its annual audit pursuant to N.J.S.18A:23-1, and in the
budget made available in a "user-friendly" format using plain language
pursuant to N.J.S.18A:22-8;

���� (b)�� report the amount of
federal impact aid received, expended, and on deposit in the federal impact aid
reserve account at each board of education meeting, and shall include the
information in the board secretary's monthly report in a format to be determined
by the commissioner; and

���� (c)�� provide any additional
supporting documentation that may be required by the commissioner pursuant to
subsection c. of section 5 of P.L.1996, c.138 (C.18A:7F-5).

����
(3)� A board of education
that establishes a cost stabilization reserve account shall:

����
(a)�� report the total
balance in the reserve account, as well as deposits into and withdrawals from
the reserve account, in its annual audit pursuant to N.J.S.18A:23-1;

����
(b)�� report the current
total balance in the reserve account, as well as deposits into and withdrawals
from the reserve account to date, as part of the board secretary�s monthly
report presented at the board of education meeting in which a board resolution
is adopted to transfer funds into the account or to withdraw funds from the
account; and

���� (
c)�� provide any
additional supporting documentation that may be required by the commissioner
pursuant to subsection c. of section 5 of P.L.1996, c.138 (C.18A:7F-5).

(cf: P.L.2016, c.100, s.1)

���� 2.� (New section) a.� (1)� As
part of the ongoing budget review process established pursuant to regulations
of the State Board of Education, a board of education may apply to the
Commissioner of Education for approval to make mid-year budget adjustments,
following the adoption of a board resolution certifying the intention to apply
for commissioner approval of a mid-year budget adjustment.� The board
resolution shall be adopted by a board no later than January 31 and confirm
that actual costs of certain eligible general fund expenses of the school
district are significantly higher than the amount that was able to be
reasonably anticipated in the budget certified for taxes, including an
explanation of any identifiable factors leading to the increase in actual costs
compared to anticipated costs, and that the expenses are required for the
provision of a thorough and efficient education.�

���� (2)� In addition to other
eligible categories of general fund expenses that may be established by the
commissioner, general fund expenses for which a board of education may apply
for a mid-year budget adjustment pursuant to this section shall include
significant unanticipated increases in health care costs and in tuition
payments for resident students attending approved private schools for students
with disabilities.�

���� (3)� The commissioner shall
establish application procedures, timelines, and evaluation criteria in a
manner to ensure that boards of education are not unduly delayed in addressing
significant unanticipated cost increases and to integrate the application
procedures into existing processes for ongoing school budget review.

���� b.� A board of education�s
application for a mid-year budget adjustment pursuant to this section shall
include:

���� (1)� the board resolution certifying
the board�s desire to apply for commissioner approval of a mid-year budget
adjustment as required pursuant to subsection a. of this section;

���� (2)� documentation detailing
the specific categories of general fund expenses for which actual costs are
significantly higher than the amount that was able to be reasonably anticipated
in the budget certified for taxes, the magnitude and nature of the cost
increases, and that the cost increases were not able to be reasonably
anticipated at the time of budget approval.� The commissioner shall provide
guidance on the forms of acceptable documentation to be submitted as part of
the application process;

���� (3)� an explanation of any
identifiable factors that prevented the district from anticipating the cost
increase upon adoption of the budget and an affirmation that the request for a
mid-year budget adjustment is not the result of poor planning or error;

���� (4)� an explanation of the
impact that the cost increase will have on the district�s financial position
and whether the board is projecting a year-end deficit in the general fund as a
result of the significant unanticipated cost increase; and

���� (5)� actions that the board
has taken to date to mitigate the significant unanticipated cost increases.

���� c.� The commissioner shall
review applications for mid-year budget adjustments submitted pursuant to this
section and determine the appropriate scope of adjustments to be made,
including:

���� (1)� advising the board on the
implementation of all adjustments to the budget that may be made pursuant to
other sections of law, including the authority to transfer amounts among line
items and program categories in accordance with section 2 of P.L.1979, c.294
(C.18A:22-8.1) and section 3 of P.L.1979, c.294 (C.18A:22-8.2) and to make
withdrawals from reserve accounts established pursuant to section 6 of
P.L.2007, c.62 (C.18A:7F-41); and

���� (2)� directing such budgetary
reallocations and programmatic adjustments as necessary to support the significant
unanticipated cost increases of the school district, provided that the
budgetary reallocations and programmatic adjustments do not hinder the
provision of a thorough and efficient education.

���� d.� Mid-year budget
adjustments determined necessary by the commissioner pursuant to subsection c.
of this section shall be presented to the board of education and subsequently
approved by a recorded roll call majority vote of the board�s full membership.�
Any adjustments approved by the board of education shall be reported to the
executive county superintendent.�

���� 3. �This act shall take effect
immediately and shall first apply to the first full school year following the
date of enactment.

STATEMENT

���� This bill authorizes a board
of education to establish a cost stabilization reserve account and to apply to
the Commissioner of Education for mid-year budget adjustments for significant
unanticipated cost increases.

���� Under the bill, funds in a
cost stabilization reserve account would be used to finance general fund
expenses, excluding staff salary costs, that, during the school year, cost
significantly more than initially anticipated in the budget adopted for the
school year.� Costs for which withdrawals from the account may be used include unanticipated
increases in total health care costs, student transportation expenses, special
education and related services, and other eligible categories of general fund
expenses that may be established by rules and regulations of the Commissioner
of Education.� A board of education may appropriate funds to establish or
supplement the reserve in the district's annual budget or through a transfer by
board resolution of any unanticipated revenue and unexpended line-item
appropriation amounts.� A withdrawal from the reserve account may be made at
any time and only after the adoption of a board resolution detailing the
specific unanticipated cost increases to be supported by the withdrawal and
justifying that the withdrawal is necessary for the provision of a thorough and
efficient education.�

���� The bill requires the
commissioner to promulgate rules and regulations as necessary related to the
establishment and maintenance of a cost stabilization reserve account.� The
rules and regulations would include, but not be limited to: limits on balances that
may exist in the reserve account; the conditions under which a board of
education is required to seek the additional approval of the commissioner prior
to withdrawing funds from the reserve account; criteria for cost increases that
would be considered significant and unanticipated; and the establishment of
additional eligible categories of expenses for which withdrawals from the
reserve account may be used.

���� The bill also permits a board
of education to apply to the Commissioner of Education for approval to make
mid-year budget adjustments to address significant unanticipated cost increases
in general fund expenses, including increases in health care costs and in
tuition payments for resident students attending approved private schools for
students with disabilities.� The commissioner is directed to establish
application procedures, timelines, and evaluation criteria in a manner that
ensures boards of education are not unduly delayed in addressing the cost
increases and to integrate the application procedures into existing processes
for ongoing school budget review.� Boards of education are required to provide
various materials to justify the need for a mid-year budget adjustment.

���� The commissioner is required
to review applications for mid-year budget adjustments and determine the
appropriate scope of adjustments to be made, including: advising the board on
the implementation of all adjustments to the budget that may be made pursuant
to current law, including the authority to transfer amounts among line items
and program categories and to make withdrawals from reserve accounts; and
directing budgetary reallocations and programmatic adjustments as necessary to
support the cost increases of the school district.