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Precarious slopes? The Great Recession, federal stimulus, and New Jersey schools

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Abstract

While sparse literature exists investigating the impact of the Great Recession on various sectors of the economy, there is virtually no research that studies the effect of the Great Recession, or past recessions, on schools. This paper starts to fill the void. Studying school funding during the recession is of paramount importance because schools have a fundamental role in fostering human capital formation and economic growth. We exploit unique panel-data and trend-shift analysis to analyze how New Jersey school finances were affected during the Great Recession and the ARRA federal stimulus period. Our results show strong evidence of downward shifts in both revenue and expenditure following the recession. Federal stimulus seemed to have helped in 2010, however, both revenue and expenditure still declined. While total revenue declined, the various components of revenue did not witness symmetric changes. The infusion of funds with the federal stimulus occurred simultaneously with statistically and economically significant cuts in state and local financing, especially the former. Our results also show a compositional shift in expenditures in favor of categories that are linked most closely to instruction, while several noninstruction categories, including transportation and utilities, declined. Interestingly, budgetary stress seems to have led to significant layoffs for untenured teachers, leading to a rightward shift of the teacher salary and experience distributions. Heterogeneity analysis shows that high-poverty and urban districts sustained the largest falls in the post-recession era, with Abbott Districts specifically falling the furthest from prerecession trends. Of importance, the Abbott Districts were the only group in our expansive analysis to show statistically significant negative shifts in instructional expenditure even with the federal stimulus. The findings of this paper contribute valuable insight regarding schools? financial situations during recessions and can serve as a guide to aid future policy decisions.

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  • Rajashri Chakrabarti & Sarah Sutherland, 2012. "Precarious slopes? The Great Recession, federal stimulus, and New Jersey schools," Staff Reports 538, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:538
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    1. Gordon, Nora, 2004. "Do federal grants boost school spending? Evidence from Title I," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1771-1792, August.
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    1. Rajashri Chakrabarti & Max Livingston & Elizabeth Setren, 2015. "The Great Recession’s impact on school district finances in New York State," Economic Policy Review, Federal Reserve Bank of New York, issue 12-1, pages 45-66.
    2. Rajashri Chakrabarti & Max Livingston, 2021. "Tough Choices: New Jersey Schools during the Great Recession and Beyond," Economic Policy Review, Federal Reserve Bank of New York, vol. 27(1), pages 1-34, July.
    3. Rajashri Chakrabarti & Sarah Sutherland, 2012. "Abbott and Bacon Districts: education finances during the Great Recession," Staff Reports 573, Federal Reserve Bank of New York.
    4. Rajashri Chakrabarti & Max Livingston, 2019. "The Long Road to Recovery: New York Schools in the Aftermath of the Great Recession," Economic Policy Review, Federal Reserve Bank of New York, vol. 25(Dec).
    5. James A. Orr & John Sporn, 2012. "The American Recovery and Reinvestment Act of 2009: a review of stimulus spending in New York and New Jersey," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Sept).
    6. William N. Evans & Robert M. Schwab & Kathryn L. Wagner, 2019. "The Great Recession and Public Education," Education Finance and Policy, MIT Press, vol. 14(2), pages 298-326, Spring.
    7. Ravi Bhalla & Rajashri Chakrabarti & Max Livingston, 2017. "A tale of two states: the recession’s impact on N.Y. and N.J. school finances," Economic Policy Review, Federal Reserve Bank of New York, issue 23-1, pages 30-42.

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    More about this item

    Keywords

    school finance; recession; ARRA; federal stimulus; Abbott Districts;
    All these keywords.

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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