NJ Auditor finds “severe fiscal distress" in Lakewood schools, recommends new funding model

LAKEWOOD – New Jersey's State Auditor has determined that the Lakewood School District suffers from “severe fiscal distress” and would benefit from additional aid, suggesting the state create a new funding category, an internal report shows.

The report, from State Auditor David Kaschak and obtained by the Asbury Park Press, pins much of the district’s financial problems on its high percentage of special education students, as well as transportation costs for non-public school students that are the highest in New Jersey.

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“Lakewood school district may be considered a district confronted by severe fiscal distress and could benefit from the creation of an additional state aid category,” the report, issued on July 11, said.

The report also laid some blame on the district’s Department of Education monitors, who have been in place for nearly 10 years and received nearly $1 million in salary from Lakewood taxpayers.

“Despite the assignment of four state monitors with total salaries of $936,667 to provide fiscal oversight, the district continues to experience fiscal issues,” the report said.

The review stated that Lakewood’s special education costs are among the highest in New Jersey, noting that 33.4% of students are classified “special education,” the second highest in the state and more than twice the average of 15.9%.

In addition, Lakewood’s transportation costs for non-public students are more than $9.7 million, well above the second-highest district, Teaneck, in Passaic County, which spends $760,000.

Kaschak declined comment on the report, stating it was meant for internal review only.

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But State Senator Robert Singer, an Ocean County Republican whose district includes Lakewood, said the report is proof that a state aid change is needed.

“We have no option but to do this,” he said about a new approach to state funding. “We have asked to change the formula. This explains why it has to happen.”

The state Department of Education and Gov. Phil Murphy’s Office declined to comment Monday, citing ongoing litigation with the district.

The report comes at a time when Lakewood Schools face their most serious fiscal issues in years, with more than $125 million in state loan debt, a long-running lawsuit over state funding and the ongoing impact of the pandemic and so-called “lost learning.”

Among Kaschak’s recommendations is the creation of a new state aid category for Lakewood similar to the “commercial valuation stabilization aid” provided to Atlantic City after its assessed property valuation declined nearly 32% from 2008 to 2015.

“Under the current law, Atlantic City school district is the only school district that meets the criteria to receive commercial valuation stabilization aid,” Kaschak wrote.

He later stated a similar category would benefit Lakewood due to its unique situation as a community with fewer than 6,000 public school students, but more than 40,000 non-public school students who require district-funded transportation under state law and other district services.

Most of the student increase is due to Lakewood’s growing Orthodox community and an overall population increase from 92,843 in 2010 to 135,138 in 2020, making it the fastest growing city in New Jersey. It is the fourth most-populated municipality after Newark, Jersey City, and Paterson.

“Lakewood school district’s nonpublic enrollment of 42,396 represented 95% of Ocean County’s nonpublic enrollment,” the report said. “From fiscal years 2014 through 2022, Lakewood school district’s nonpublic enrollment increased from 23,652 to 42,433, an overall increase of 18,781 students (79 percent). During that same period, the number of nonpublic schools increased from 88 to 164, an overall increase of 76 nonpublic schools (86 percent).”

Lakewood Board of Education Attorney Michael Inzelbuch, who is also the district spokesman, said the latest report is more proof that the schools need increased funding from Trenton.

“There is recognition for the first time ever that Lakewood is underfunded,” Inzelbuch said at the last school board meeting on Aug. 9. “The auditors were here for two years and they (revealed) …that Lakewood should be considered to get special funding.”

State education officials in May announced a new review of Lakewood Schools finances after an appeals court ordered that the Department of Education improve state funding for the district.

“Once the expedited comprehensive review is complete,” Acting State Education Commissioner Angelica Allen-McMillan wrote in a letter May 12, “the (state education) department will be better equipped on how best to ensure that Lakewood’s public school students receive the necessary education required by our state’s constitution.”

Allen-McMillan penned the letter to plaintiff attorneys related to the ongoing lawsuit.

In March, a state appeals court ruled that Lakewood public schools do not receive adequate state funding to meet their needs. The appeals court declared that the district is “severely strained” by its obligation to provide transportation and special education to thousands of non-public school students.

The appeals court decision relates to the nine-year-old Alcantara case, a lawsuit filed by Tractenberg and attorney Arthur Lang, a Lakewood High School teacher. Their complaint challenged the state’s funding of the 6,000-student district, claiming the district’s legal obligation to provide transportation and other services to more than 30,000 nonpublic school students required more state aid.

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In the decision handed down March 6, the three-person appellate court declared that Allen-McMillan must review the district’s situation and come up with a way to improve its funding. But it did not include a deadline or a more detailed requirement for how to proceed.

Meanwhile, Lakewood Schools loan debt has grown to more than $135 million, with a recent request for another $93 million that is still pending.

The loans date back to the 2014-15 school year when the district borrowed $4.5 million. Since then, school officials have also received $5.6 million in 2016-17; $8.5 million in 2017-18; $28.1 million in 2018-19; $36 million in 2019-20; $54.5 million in 2020-2021; and $24 million in 2022-23.

Singer said he has been in discussions with the Murphy Administration and hopes that legislation can be introduced to alter the state aid formula after the November election when the legislature returns to work.

“I’m working with the administration to do what we have to do and it is a work in progress,” Singer said. “The administration has been very cooperative with this.”

Joe Strupp is an award-winning journalist with 30 years’ experience who covers education and several local communities for APP.com and the Asbury Park Press. He is also the author of three books, including Killing Journalism on the state of the news media, and an adjunct media professor at Rutgers University and Fairleigh Dickinson University. Reach him at jstrupp@gannettnj.com and at 732-413-3840. Follow him on Twitter at @joestrupp

This article originally appeared on Asbury Park Press: Lakewood schools under "severe fiscal distress", auditor finds