Last month, the Sterling School District in Camden County closed on a former YMCA building assessed at $5.4 million. The building, Superintendent Jack McCulley said, was purchased to become a center for the school's growing specialized programs, which draw a large number of "school-choice" students - from sending districts whose schooling is subsidized by the state.

But the day McCulley signed the settlement contract on the building he got a letter from the state notifying him that school-choice funding was being capped for the 2014-15 school year. Of the 420 seats he requested, Sterling would get only 42.

"People we hired, people we're anticipating employing, everybody will be gone - laid off; the school we just purchased . . . we'd have to turn around and sell if we can't continue with growth expected to fill the building," McCulley said.

He is also concerned that the high school's junior ROTC charter, which requires participation from 10 percent of the school's enrollment, will be revoked without additional choice students, who typically make up 50 percent of the club.

Sterling is one of many South Jersey districts grappling with news of the cap announced Oct. 3. Nearby Glassboro may have to cancel a specialized theater program, and other schools in the area are losing hundreds of thousands in expected income.

The Interdistrict Public School Choice Program, which began as a pilot in 2005 with 15 schools, was signed into law in September 2010 by Gov. Christie.

Since then, it has grown to 136 districts serving 5,500 students. State funding has followed, growing from $9.8 million in 2010 to $49 million this year - a huge price tag that the state says has grown too high.

Choice districts receive the traditional state formula aid for the students they take in, calculated as though the students were residents of those districts.

But because that funding doesn't kick in until the student's second year in the program, additional direct aid, termed Choice Aid, is also given to districts.

"It's an extremely successful program. It's an extremely popular program," said Mike Yaple, Department of Education spokesman. "It all boiled down to managing the growth and managing the cost."

Under the new regulations, existing choice districts are limited to taking on the equivalent of only 5 percent of their current total population of choice students for the 2014-15 school year. New districts will receive only 25 percent of the number of choice students they requested for 2014-15, Yaple said.

The program is widely considered a win-win for schools with low enrollment and families looking for a way out of failing districts.

"Every district has a horror story of what would happen if the cap takes effect," said Robert Garguilo, chairman of the New Jersey Interdistrict Public School Choice Association. "Schools budgeted for choice students; we posted seats we thought we could take and based programs on those numbers."

Garguilo said parents and administrators had petitioned the Department of Education and asked the Governor's Office to delay the cap for at least a year given the late notice. Most schools set their budgets in the spring and found out about the cap in October.

Garguilo also said there was a question about the legality of the cap: Nowhere in the regulation is there a provision for limiting students based on anything other than racial diversity.

"Our point is, if you want to look at some kind of growth limitation or restructuring of financing, do it in a year and get people who are part of it to have a dialogue," Garguilo said.

At Glassboro, where students from outside districts can apply for specialized programs co-taught at Rowan University, the plan to add a theater concentration to the performing arts program may have to be scrapped.

Audubon High School, which has participated in the program since 2010, gets five seats this year instead of the 30 to 35 it had been taking, assistant principal Bonnie Smeltzer said. She has held open houses and information meetings for more than 100 families in recent months.

School Choice Aid represents 4 percent of Audubon's $21.8 million budget. If the cap stays in effect, the district will take a $350,000 to $400,000 hit in the 2014-15 school year, Superintendent Edward Wasilewski predicted. "It could mean anything from program cuts to staff," Wasilewski said.

It also means Audubon, among other schools, will have to hold a lottery for seats, Smeltzer said.

Some students already enrolled in choice, graduating from elementary or middle school, might not be able to continue in their new district because they'll be applying to choice high schools with fewer spots, Smeltzer said.

"If those students aren't picked, where do the students go? They go right back to the district they left in elementary school," she said.

At Sterling, McCulley still sees a future for the empty building he wants to turn into a Camden County arts, science and technical high school under Sterling's umbrella.

"If school choice is all about kids coming and being a part of more options, more opportunities, let them do something they might be interested in," McCulley said. "All kids can learn. Don't take away their opportunity to find their niche."