Bankruptcy threat continues to haunt New Jersey school district

Toms River Regional School District has been downgraded again by S&P Global Ratings for its refusal to pass a fiscal 2026 budget.

After the school board threatened to declare bankruptcy, New Jersey adopted a budget on its behalf in early July. S&P lowered the district's rating by two notches in response to the affair.

On Tuesday, S&P cut the rating to A-minus from A, with a negative outlook, arguing the district has a high likelihood of future budgeting hurdles.

"Given recent history, if the district were to fail to adopt another budget we could lower the rating by multiple notches," S&P's analysts wrote.

Toms River blamed the state for its predicament, just like it did after the previous downgrade.

"Toms River Regional Schools' credit rating moving from A to A-minus is the direct result of State Bill S2, the millions of dollars in cumulative losses it has imposed on our district during its seven-year run, and the state of New Jersey's unwillingness to reconsider the clearly flawed funding formula on which the bill is based," a statement from the school board said.

The statement referenced a July press release which called the bankruptcy threat a "strategic move" and said Toms River ? the largest Republican-led town in New Jersey ? is being politically targeted with higher taxes and lower state aid.

Fiscal 2026 was the second year in a row that New Jersey had to adopt a budget on behalf of Toms River. The FY 2025 budget entailed a decrease in state aid, a 9.3% tax increase and a $12 million revenue shortfall that the district filled with a land sale, according to S&P. The FY 2026 budget included a tax increase of more than 12%.

S&P called the district's "extraordinary tax rate increases and land sales" an unsustainable method of balancing its budget.

Toms River has several factors in its favor, according to S&P's analysts.

The rating report referenced healthy reserves, a "mature, primarily residential community with household effective buying income slightly stronger than Ocean County and national levels" and a "manageable debt-and-liability profile with no plans to adopt additional debt and limited retirement liabilities."