State loans $50 million to Lakewood schools, adding to district's chart-topping debt

LAKEWOOD – The state Department of Education has agreed to loan Lakewood Schools $50 million — far less than what the district asked for but a significant sum that balloons the cash-strapped district's debt to $173 million.

The district requested $93 million several months ago as part of its current $264.6 million budget, approved in April, citing skyrocketing transportation and special education costs.

A Nov. 17 letter from Acting Education Commissioner Angelica Allen-McMillen to Superintendent Laura Winters announced the loan, noting it must be paid back within 10 years. But it offered no other comment on the request, which puts Lakewood into an even deeper state debt at a time when the district is facing rising costs and has been battling the state for more aid.

However, the letter indicated the state may provide further aid as the school year continues based on need.

District Spokesman Michael Inzelbuch issued a statement Monday that indicated the reduced loan amount would not affect students and that the district had contacted the state to discuss the matter further.

"While the district remains committed to the need for additional revenue — as opposed to a loan — as recently recommended by the comptroller — it should be noted that this letter can be seen in a positive manner," Inzelbuch said in the statement.

"Positive, as it is the earliest time over the last several years that the district has received notice from the department as to the need for additional revenues so we can continue to provide a thorough and efficient education," he added. "Positive, as there is a commitment to work with the district as to the 'District’s demonstration of need' as cited by the letter. Positive, as the letter recognizes that there may very well be 'sums that may exceed the currently approved amount.' “

Still, with the loan reduction, the budget now appears to have a $43 million hole. The shortfall would represent about 16% of the district's total budget.

The newest loan will be added to Lakewood schools’ current debt of $123 million in state aid loans dating back to the 2014-15 school year when it first borrowed $4.5 million.

The district also borrowed $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. 

Currently, Lakewood has the highest outstanding state loan balance in New Jersey. Lyndhurst school district in Bergen County has the second highest at $2.9 million. There’s no interest charged on state aid loans and loan payments are automatically deducted from the school district’s state aid payments.

Since 2014, Lakewood has received $205 million in state aid advances from the state. It has only managed to pay back $42 million.

The loan comes as school district officials have been urging the state to change its aid formula, while both an appeals court and even the state auditor agree a change is needed.

“The primary problem in Lakewood is the existing funding formula,” David Sciarra, former executive director of the New Jersey Education Law Center, said earlier this year. “In its current format, it can’t provide Lakewood the funding it needs to deal with its unique circumstances.”

More: Lakewood Schools borrow more money from New Jersey than any other district

Lakewood is one of the fastest-growing municipalities in the state — its population has more than doubled since 2000 to nearly 140,000 people. Its public schools annually face a financial crisis in part because of crushing costs to bus many Orthodox Jewish students to private schools on separate buses for boys and girls.

What sets Lakewood apart is the makeup of its student enrollment. The district has 5,164 public students and 42,307 private school students.

As presented in the 2023-24 district budget, Lakewood is set to spend $138 million on private school-related expenses. Those include $27 million for private school transportation; $55 million on resources for private schools such as security and technologies; and $53 million in private special education tuition. These expenses are state-mandated.

New Jersey decides how much money it sends each school district through a complex formula based on how many public school students are enrolled and the wealth of the district.

The district’s entire state aid is about $46 million, for both private and public school needs, according to the district.

More: Lakewood schools borrowed millions from New Jersey and still can't pay its bills

With the newest $50 million loan this year, the district will now owe the state $173 million. The district intends to pay back $17.5 million this year, but only by taking it from the school aid it receives and giving it back to the state as a loan payment.

“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,” state auditor David Kaschak wrote in a July report.

The report, 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 nonpublic school students.

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

“The funding formula for Lakewood just doesn’t work,” Mayor Ray Coles said several weeks ago. “It is a very unique district. I think the folks at the state level are waking up to the fact that the school district is more than the kids in the public schools.”

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

The appeals court decision relates to the nine-year-old Alcantara case, a lawsuit filed by Paul Tractenberg, a former Rutgers law professor and founder of the Education Law Center, and attorney Arthur Lang, a Lakewood High School teacher.

More: Lakewood can't hang on to its teachers. Officials say district needs financial lifeline

Their complaint challenged the state’s funding, claiming the district’s legal obligation to provide transportation and other services to more than 40,000 nonpublic school students required more state aid.

In the decision handed down on March 6, the three-person appellate court declared that Education Commissioner Angelica 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.

Allen-McMillan said in August the state was only then beginning a review of the district’s school finances to formulate a solution. She did not promise that the state would provide more aid, or a different formula, at the end of that review.

“This is only a preliminary estimate as the volume of information to be reviewed and complexity of the required analysis are unknown at this time,” Allen-McMillan wrote in an August 22 letter to Tractenberg and Lang.

The Department of Education and Gov. Phil Murphy’s office have declined to comment, citing the ongoing litigation.

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 get $50 million, but district needs $43 million more