A Tale as Old as Time

At Issue

By Althea D. Ford, NJBIA Vice President of Government Affairs On Aug 28, 2025

The FY2026 state budget reminds me of a familiar nursery rhyme, but in this version it’s not the little dog with the ears so short that’s gone missing: 

Oh where, oh where, has the tax cap gone? Oh where, oh where can it be?

With limited adjustments for school district enrollment growth, retirement system contributions and health costs, the 2% cap on property tax levy increases, a law enacted in 2010, is supposed to limit runaway local tax increases in a state already burdened with some of the highest property taxes in the nation. 

To be clear: the tax cap is still law. However, with a new law, and a new program that has the effect of law for the next year, the state defies tax sensibilities, rendering affordability harder to achieve for all taxpayers, especially our state’s job creators who pay almost 50% of all property taxes. 

A new Tax Levy Incentive Aid program, funded at $20 million, offers a one-time exception to the existing 2% property tax levy cap for school districts that meet specific criteria. Eligible districts that increase their levy can receive state aid equal to the lesser of $1 million or 5% of the additional levy above the cap – provided the funds go to retain classroom staff or fund student-direct programs. And all this can be done without going to the voters via a referendum. You read that correctly – this initiative incentivizes districts to raise local taxes so they can qualify for additional state aid. 

The tax implications for this program are significant. With 281 school districts identified as eligible, several districts have already entertained if not adopted double-digit tax levy increases as part of this initiative.

Then there is the universal preschool program law. Even with the best intentions – ensuring children have access to early education opportunities – not only are existing resources to execute the program not being adequately utilized, but districts will be permitted to exceed the 2% tax levy cap to fund noncompulsory education.

The new preschool law does not require school districts to collaborate with licensed childcare providers, who have professional expertise, adequate facilities and existing infrastructure to support young children, through a mixed-delivery model. Without substantive and mandated coordination of public and private resources, the licensed provider community will continue to be negatively affected by state-funded preschool, and we risk the closure of their facilities, which also support infants and toddlers, and provide other important care services to youth. 

As lawmakers clamor for affordability, the 2% cap, one of the few stopgaps against local property tax increases, has functionally eroded under their watch. 

To access more business news, visit NJB News Now.

Related Articles: