School district downgraded after bankruptcy talk

The Toms River Regional School District in New Jersey was downgraded by S&P Global Ratings after its contentious 2026 budgeting process led to talk of a bankruptcy filing. 

The school board refused to adopt a budget for 2026 and instead instructed staff to consult with attorneys and begin the Chapter 9 bankruptcy process. Last week, the state adopted a budget on the district’s behalf, raising property taxes to fill the district’s $22.3 million deficit. 

In response, S&P lowered its rating on the district’s outstanding general obligation bonds to A from AA-minus and placed the district on CreditWatch with negative implications. 

“We believe there is ongoing governance risk that the district could indicate an intention to file for bankruptcy in the future, fail to adopt future budgets, or experience a significant reduction in reserves,” S&P analysts wrote in the rating report. “Risk management, culture, and oversight factors negatively weigh on our rating.”

The district, in an emailed statement on the downgrade, took the opportunity to further criticize the New Jersey Department of Education. 

“Our credit rating slightly decreasing down to an A rating is yet another fallout of the district being pushed to the brink of bankruptcy after the NJDOE took over $175 million in aid from our district over eight years,” the statement said. “Fortunately, this does not affect any of our existing debt obligations, but is disappointing nonetheless.”

“Any potential bankruptcy filing was averted after the NJDOE imposed a 12.9% tax increase this year and owned the revenue shortfall they created,” the statement said, “but the damage has been done — not only to our taxpayers, but now [to] our credit rating.”

S&P’s analysts agreed the state’s actions averted the immediate risk of a bankruptcy; however, the district’s actions suggest an unwillingness to balance future budgets, they said. 

The district’s prior budget was balanced “by the skin of its teeth” through a one-time land sale, according to the district’s website.  

“The CreditWatch placement with negative implications reflects our view that over the next 90 days, there is a one-in-two chance that we could lower our rating further, potentially by multiple notches,” S&P’s analysts wrote, adding, discussions with the district’s management could further damage the agency’s view of its governance. 

This is the second year in a row that the NJDOE had to adopt a budget on behalf of the Toms River school board. 

“This troubling pattern indicates deeper and systemic concerns about the ability of the board and district administrators to meet their most basic responsibilities,” the NJDOE said in a statement. 

On Monday, the district described its bankruptcy threat as a “strategic move” and said Toms River — the largest Republican-led town in New Jersey — is being politically targeted with higher taxes, while neighboring school districts get state aid.