A New Jersey school district is threatening to file for bankruptcy after years of state funding cuts, escalating a showdown with Gov. Phil Murphy's administration and causing outstanding debt to sell off.
The board of the Toms River Regional School District on the Jersey Shore opted not to pass a budget that would raise taxes at its June 30 board meeting. Instead, school board president Ashley Lamb has authorized district staff to consult with bankruptcy attorneys and begin the process for filing for Chapter 9 protection, she said.
The move would provide the district "protection from creditors while developing a debt-adjustment plan," Lamb said
Investors in the municipal bond market, where the Toms River district has sold debt, appear to be taking the threat seriously. The district's bonds, which don't trade frequently, are trading cheaper. A security due in 2037 with a 3% coupon traded at a yield as high as 4.9% on Thursday morning, which is about 1.55 percentage points more than AAA debt. The bonds traded in late June at a 1.35 percentage-point spread.
School district officials say its state aid has been cut by
Such a filing would be an unusual step, given that public-sector bankruptcies are very rare. Since November 2022, just two governments have filed for Chapter 9,
Its most recent deal, an $11.5 million refunding in 2024, was insured by BAM Mutual.
Toms River, the largest Republican-led town in the state, has been fighting lawmakers in Trenton on funding for its schools for years. A land sale in the school year ending in 2024 helped the district achieve a balanced budget "by the skin of its teeth," according to its website. The district entered this academic school year $26.5 million short.
Much of the debate centers on property taxes. Residents saw a more than 9% tax increase last year for schools, and Lamb said this year's proposed hike would boost levies by a cumulative 22%.
New Jersey homeowners already pay the second-highest property tax in the country, according to
S&P lowered the district's rating outlook to negative in September, citing "ongoing budgetary pressure" and the use of one-time mechanisms to fill deficits, the analysts led by Tyler Fitman said in a 2024 report.
Reductions in state aid have already caused Toms River's school district to lose 250 staff and faculty members, its attorney said. The district says it's spending money efficiently.
The district, with over 14,000 students, criticized the drop in state aid in its 2024 financial report.
"The district continues to pursue all means of addressing the loss of state aid, including through legal and legislative channels, given the glaring and known material flaws in the state aid formula that continue to generate unjust allocations," according to the
