A 5205 — Concerns school district finances regarding unanticipated cost increases and unused leave liabilities.*

A5205 A5208 ACS ASSEMBLY COMMITTEE SUBSTITUTE FOR ASSEMBLY, No.Nos.

5205 and 5208 STATE OF NEW JERSEY 222nd LEGISLATURE   INTRODUCEDADOPTED JUNESEPTEMBER 4,14, 2026     Sponsored by:

AssemblywomanAssemblywomen Brennan and Lopez         SYNOPSIS      EstablishesConcerns certain valuation and reporting mechanisms related to school district liabilitiesfinances forregarding certainunanticipated accumulatedcost increases and unused leave.leave liabilities.

  CURRENT VERSION OF TEXT      AsSubstitute introduced.as adopted by the Assembly Education Committee.

   AAn  Act  relatedAn toAct accumulatedconcerning unusedthe leavefiscal incondition of school districts, amending P.L.2007, c.62, and supplementing chapterchapters 2322, and23, chapterand 30 of Title 18A of the New Jersey Statutes.

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

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

     a.   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.   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) (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.

     (2) (2)   Debt service reserve account in the debt service fund for proceeds from the sale of district property.

     (3) (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.

     (4)  (a)  LeaveCost liabilitystabilization reserve account.  The funds in the reserve account shall only be used to finance thegeneral paymentfund ofexpenses, accumulatedexcluding unusedstaff sicksalary leave,costs, accumulatedthat unusedduring vacationthe leave,school andyear anycost othersignificantly liabilitiesmore forthan accumulatedinitially unusedanticipated absencesin the budget certified for whichtaxes, anincluding employeesignificant mayunanticipated beincreases compensated,in upontotal health care costs to the employee’sextent retirementthat those costs are not supported by withdrawals made from athe State-administeredcurrent orexpense locally-administeredemergency retirementreserve systemaccount, orstudent upontransportation separationexpenses, fromspecial employment,education asand applicable. 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 costsunanticipated cost increases to be supported by the withdrawal. withdrawal     and (b) justifying Thethat commissioner shall promulgate, pursuant to the "Administrativewithdrawal Procedureis Act," P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations as necessary relatedfor to the establishmentprovision and maintenance of a leavethorough liability reserve account.  The rules and regulationsefficient shall,education; at a minimum, establish limits on balances that may exist in the reserve account.

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.

     (5) (a)  Leave liability reserve account.  The funds in the reserve account shall only be used to finance the payment of accumulated unused sick leave, accumulated unused vacation leave, and any other liabilities for accumulated unused absences for which an employee may be compensated, upon the employee’s retirement from a State-administered or locally-administered retirement system or upon separation from employment, as applicable.  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 costs to be supported by the withdrawal.       (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 leave liability reserve account.  The rules and regulations shall, at a minimum, establish limits on balances that may exist in the reserve account.

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

     (b) (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;

     (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).

P.L.2016, c.100, s.1)        2.2.  (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.

 (New     section)b.   a.  (1)  A schoolboard district shall, in the annual audit required pursuant to N.J.S.18A:23-1, calculate and report the total value of accruededucation’s liabilitiesapplication for compensateda absencesmid-year ofbudget districtadjustment employees.  The reporting required pursuant to this paragraphsection shall beinclude: consistent with the generally accepted accounting principles established by the Governmental Accounting Standards Board.  The annual audit shall also include test measures to ensure that a district is maintaining proper documentation with regards to the tracking of the value of accrued liabilities for compensated absences of district employees.

     (2) (1)  Athe schoolboard districtresolution shallcertifying maintainthe aboard’s currentdesire scheduleto apply for commissioner approval of accrueda liabilitiesmid-year forbudget compensatedadjustment absencesas thatrequired details: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.  (New section)  a.  (1)  A school district shall, in the annual audit required pursuant to N.J.S.18A:23-1, calculate and report the total value of accrued liabilities for compensated absences of district employees.  The reporting required pursuant to this paragraph shall be consistent with the generally accepted accounting principles established by the Governmental Accounting Standards Board.  The annual audit shall also include test measures to ensure that a district is maintaining proper documentation with regards to the tracking of the value of accrued liabilities for compensated absences of district employees.