LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 3421
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JULY 1, 2024
SUMMARY
Synopsis: Revises certain sections of law concerning financing mechanisms for
school facilities projects of regular operating districts.
Type of Impact: Local school district expenditure increase. County expenditure
decrease. Local school district revenue decrease. Municipal payment
in lieu of taxes revenue increase.
Agencies Affected: Local school districts. Counties. County Improvement Authorities.
Office of Legislative Services Estimate
Fiscal Impact Annual
Local School District Expenditure Increase Indeterminate
County Expenditure Decrease Indeterminate
Local School District Revenue Decrease Indeterminate
Municipal PILOT Revenue Increase Indeterminate
 The Office of Legislative Services (OLS) concludes that this bill will lead to an indeterminate
increase in debt service expenditures for regular operating school districts that enter into
agreements with county improvement authorities to construct and finance a school facilities
project on the district’s behalf. The increase in school district expenditures would coincide
with a decrease in county debt service expenditures.
 The OLS also determines that the bill will lead to an indeterminate decrease in revenue for
regular operating districts that enter into agreements with municipalities in which the
municipality remits payments in lieu of taxes to the districts to pay for debt service on school
facilities project bonds. This decrease in revenue for regular operating districts would lead to
municipalities being able to retain more revenue than is the case pursuant to current law,
leading to a municipal payments in lieu of taxes revenue increase.
 Given that the sections of law authorizing regular operating districts to enter into agreements
with county improvement authorities for the financing and construction of school facilities
projects and to enter into agreements with municipalities for the remittance of payments in lieu
Office of Legislative Services Legislative Budget and Finance Office
State House Annex Phone (609) 847-3105
P.O. Box 068 Fax (609) 777-2442
Trenton, New Jersey 08625 www.njleg.state.nj.us
 FE to S3421
2
of taxes were only recently codified into State law, the extent to which these financing
mechanisms are currently utilized across the State remains unclear.
BILL DESCRIPTION
This bill modifies certain sections of law concerning financing mechanisms for school facilities
projects that are constructed by districts other than Schools Development Authority districts.
These districts are often referred to as “regular operating districts.”
Pursuant to current State law, a regular operating district may enter into an agreement with a
county improvement authority to construct a school facilities project and to issue bonds to finance
the project. In this case, the county improvement authority is required to lease the school facilities
project to the county, which then leases it for nominal consideration to the school district for as
long as the county improvement authority bonds are outstanding. The law stipulates that a county
is not authorized to require a district to bear any portion of the cost of the bonds issued by a county
improvement authority to fund the school facilities project. County lease payments made to the
county improvement authority are to be sufficient to pay debt service on the county improvement
bonds that remains after the application of State debt service aid. This bill modifies this section
of law to remove the language that prohibits a county from requiring a district to bear any portion
of the debt service costs on county improvement authority bonds. The bill additionally requires
that district lease payments pursuant to the bill are to be sufficient to pay all debt service on county
improvement authority bonds that remain after the application of State debt service aid. The
district lease payments are not subject to any cap on appropriations or on spending or to any tax
levy cap.
Current State law also permits a regular operating district to raise bonds for a school facilities
project without the approval of the voters of the district if: 1) the school district enters into a
contract with one or more municipalities under which the municipality remits a portion of the
payments in lieu of taxes received from one or more designated properties; and 2) the amounts
remitted from the municipality to the school district are used for the full repayment of the bonds
raised for the school facilities project. This bill modifies the law to provide that municipal
remittances to school districts are to be sufficient to cover only the portion of bond proceeds that
are not supported by debt service aid provided by the State. The bill further clarifies that the total
amount of bonds, which are supported by municipal remittances of payments in lieu of taxes to a
school district for a school facilities project, are eligible for State debt service aid.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that this bill will lead to an indeterminate increase in debt service
expenditures for school districts that enter into agreements with county improvement authorities
to construct and finance school facilities projects on the districts’ behalves. The increase in school
district expenditures would coincide with a decrease in county debt service expenditures.
 FE to S3421
3
Recently enacted law, P.L.2023, c.311, provides that school districts entering into the
agreements with county improvement authorities are not required to bear any portion of the cost
of debt service on the county improvement authority bonds issued to fund the school facilities
project. Following the lease of the school facilities project from the county improvement authority
to the county, the county is responsible for providing lease payments to the county improvement
authority. Lease payments provided by the county to the county improvement authority are
required to be sufficient to pay debt service on the amount of bonds that remains after the
application of State debt service aid. State debt service aid permits a regular operating district to
receive State support for a minimum of 40 percent of approved school facilities project costs.
This bill, however, requires regular operating districts (rather than counties) to pay all debt
service on the county improvement authority bonds that remains after the application of State debt
service aid. This proposed change would lead to an increase in spending for these school districts
compared to current law and a concurrent decrease in spending for counties. Given that
authorization for school districts to enter into these agreements with county improvement
authorities was only recently codified into State law, the extent to which this financing mechanism
is currently utilized across the State remains unclear.
The OLS also determines that this bill will lead to an indeterminate decrease in revenue for
regular operating districts that enter into agreements with municipalities in which the municipality
remits payments in lieu of taxes to regular operating districts to pay for debt service on school
facilities project bonds. This decrease in revenue for regular operating districts would lead to
municipalities being able to retain more revenue than is the case pursuant to current law, leading
to a municipal payments in lieu of taxes revenue increase.
Pursuant to current law regarding these agreements, municipalities are required to provide
enough funds for the full repayment of the school facilities project bonds. This bill, however,
provides that the payment in lieu of taxes remittances from municipalities are to be sufficient to
pay for the amount of debt service that remains after the application of State debt service aid. This
would lead to municipalities having to remit a reduced amount of revenue to the school districts
with which they enter into agreements. Given that authorization for school districts to enter into
these agreements with municipalities was only recently codified into State law pursuant to
P.L.2023, c.311, the extent to which this financing mechanism is currently utilized across the State
remains unclear. The OLS notes that it is likely that this provision would not have widespread
applicability across the State as approximately 46.1 percent of municipalities have payment in lieu
of taxes agreements according to data included in the Department of Community Affairs’ PILOT
Database and Viewer for calendar year 2023.
Section: Education
Analyst: Christopher Myles
Senior Fiscal Analyst
Approved: Thomas Koenig
Legislative Budget and Finance Officer
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the
failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).


Statutes affected:
Introduced: 18A:7G-5, 18A:7G-15.1