May 9 (Bloomberg) -- New Jersey’s cuts in public school aid to help close an $800 million revenue shortfall would strain budgets in the 31 poorest districts, Moody’s Investors Service said.
Any reduction would harm credit, because the districts carry low rainy-day funds and state law prevents them increasing property taxes to make up the difference. Cuts could strain already-tight financial positions and prompt short-term borrowing, Moody’s said in a May 8 report.
“Because the formula for state aid distributes more money to districts with lower income levels, those with weak demographics are most susceptible,” according to Moody’s.
Republican Governor Chris Christie’s budget for the fiscal year ending June 30 set aside $12.4 billion for the more than 600 districts, or 38 percent of the total plan, Moody’s said. State aid represents 79 percent of the neediest districts’ combined 2014 operating budgets, Moody’s said. Trenton, Camden, Newark and Elizabeth would be most vulnerable, the company said.
Christie’s administration said last month that a drop in income-tax collections caused the revenue shortfall. Treasurer Andrew Sidamon-Eristoff said May 7 that funding for education is one of the few areas with enough unspent money to cover the gap so late in the fiscal year.
The 31 neediest systems are called Abbott districts, after the state Supreme Court’s Abbott v. Burke rulings in the 1990s that sought to equalize expenditures between the richest and the poorest districts. Abbotts receive 56 percent of all state education funding, Moody’s said.
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