A5205: Concerns school district finances regarding unanticipated cost increases and unused leave…

ASSEMBLY, No. 5205 STATE OF NEW JERSEY 222nd LEGISLATURE INTRODUCED JUNE 4, 2026 Sponsored by: Assemblywoman ROSAURA "ROSY" BAGOLIE District 27 (Essex and Passaic) SYNOPSIS Establishes certain valuation and reporting mechanisms related to school district liabilities for certain accumulated unused leave. CURRENT VERSION OF TEXT As introduced. AAn Act related to accumulated unused leave in school districts, amending P.L.2007, c.62, and supplementing chapter 23 and chapter 30 of Title 18A of the New Jersey Statutes. Be It Enacted by the Senate and General Assembly of the State of New Jersey: 1. Section 6 of P.L.2007, c.62 (C.18A:7F-41) is amended to read as follows: 6. Notwithstanding the provisions of any law or regulation to the contrary: 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. 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) 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. The account shall not exceed $250,000 or one percent of the district's general fund budget up to a maximum of $1,000,000, whichever is greater. A board of education may appropriate funds to establish or supplement the reserve in the district's annual budget or through a transfer by board resolution at year end of any unanticipated revenue and unexpended line-item appropriation amounts. Withdrawals from the reserve may be made at any time and shall require the approval of the commissioner unless the withdrawal is necessary to meet an increase in total health care costs in excess of four percent, or the withdrawal is included in the original budget certified for taxes to finance school security improvements, including improvements to school facilities. As used in this paragraph, "school security improvements" means school security improvements, including improvements to school facilities, which are limited to safety and security measures involving building monitoring and communication technology designed to address school crime and the safety of students, staff, and visitors to school facilities. School security improvements may include, but need not be limited to: security cameras to monitor the school; an electronic notification system that automatically notifies parents in case of a school-wide emergency; an automatic door locking system for access control; and a badge system for school employees. (2) Debt service reserve account in the debt service fund for proceeds from the sale of district property. The funds in the reserve shall be used to retire outstanding debt service obligations of the district. The reserve shall be liquidated within the lesser of five years from its inception or the remaining term on the obligations. Any remaining balance shall be used for tax relief. (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. s.7702, 7703, 7707, or 7708). A board of education may appropriate federal impact aid funds to establish or supplement the reserve account in the district's annual budget, or through a transfer by a two-thirds affirmative vote of the authorized membership of the board between June 1 and June 30, for withdrawal in any subsequent school year. Any transfer to the reserve account shall not exceed the total amount of federal impact aid received in the fiscal year. The board, at its discretion, may use the funds in the reserve account to finance the district's general fund or to finance school facilities projects, in a manner consistent with federal law. The total amount of funds on deposit in the reserve account shall not be limited. (4) (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. d. (1) All reserve accounts shall be established and held in accordance with GAAP and shall be subject to annual audit. Any capital gains or interest earned shall become part of the reserve account. A separate bank account is not required, however, a separate identity for each reserve account shall be maintained. (2) A board of education that establishes a federal impact aid reserve account shall: (a) report the amount of federal impact aid received, expended, and on deposit in the federal impact aid reserve account in its annual audit pursuant to N.J.S.18A:23-1, and in the budget made available in a "user-friendly" format using plain language pursuant to N.J.S.18A:22-8; (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; 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). (cf: P.L.2016, c.100, s.1) 2. (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. (2) A school district shall maintain a current schedule of accrued liabilities for compensated absences that details: (a) total liabilities for compensated absences to date; (b) year-over-year change in the total liability for compensated absences; and (c) projected future payments for compensated absences based on employee retirement schedules, turnover rates, and the terms of collective bargaining agreements. b. The superintendent, or a designee, shall provide the board of education with monthly and quarterly financial reports containing the information maintained pursuant to paragraph (2) of subsection a. of this section. c. The Commissioner of Education, or the executive county superintendent as the commissioner's designee, shall examine a school district's level of liabilities for compensated absences, and whether the district is sufficiently prepared for the fiscal impact of making future payments of the liabilities, as part of the ongoing budget review process established pursuant to regulations of the State Board of Education and as part of the comprehensive review under the New Jersey Quality Single Accountability Continuum pursuant to section 11 of P.L.1975, c.212 (C.18A:7A-11). d. As used in this section, "liabilities for compensated absences" means leave time that is required to be recognized under Governmental Accounting Standards Board Statement No. 101, Compensated Absences, or any subsequent statement on compensated absences published by the Governmental Accounting Standards Board. 3. (New section) Notwithstanding any law, rule, or regulation to the contrary, a collective bargaining agreement or other contract that includes provisions related to payments for liabilities for compensated absences shall incorporate: a. a clear statement of the district's obligations to make payments related to liabilities for compensated absences; and b. an analysis of the fiscal impact of the district's obligation to make payments related to liabilities for compensated absences at the time of approval of the contract or agreement. 4. This act shall take effect immediately and shall first apply to the first full school year following the date of enactment. STATEMENT This bill establishes certain valuation and reporting mechanisms related to school district liabilities for accumulated unused leave. The bill requires a school district, in its annual audit conducted pursuant to current law, to calculate the total value of accrued liabilities for compensated absences of district employees. Under the bill, the annual audit would 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. As defined by the Governmental Accounting Standards Board, a compensated absence is leave for which employees may receive compensation in the form of cash payments when the leave is used for time off; other cash payments, such as payment for unused leave upon termination of employment; or noncash settlements, such as conversion to defined benefit postemployment benefits. The bill also requires a school district to maintain a current schedule of accrued liabilities for compensated absences that details: various information on total liabilities; year-over-year changes in the total liabilities; and projected future payments for compensated absences based on employee retirement schedules, turnover rates, and the terms of collective bargaining agreements. Under the bill, the superintendent, or a designee, is required to provide the board of education with monthly and quarterly financial reports containing this information. The bill further requires the Commissioner of Education, or the executive county superintendent as the commissioner's designee, to examine a school district's level of liabilities for compensated absences, and whether the district is sufficiently prepared for the fiscal impact of making future payments of the liabilities, as part of certain existing review processes. The bill requires a collective bargaining agreement or other contract that includes provisions related to payments for liabilities for compensated absences to incorporate: a clear statement of the district's obligations to make payments related to liabilities for compensated absences; and an analysis of the fiscal impact of the district's obligation to make payments related to liabilities for compensated absences at the time of approval of the contract or agreement. Finally, the bill permits a board of education to establish a leave liability reserve account. Funds in the reserve account may 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. The bill directs the commissioner to promulgate rules and regulations as necessary related to the establishment and maintenance of a leave liability reserve account. The rules and regulations are required to, at a minimum, establish limits on balances that may exist in the reserve account.