Economic Policy Review
A Tale of Two States: The Recession’s Impact on N.Y. and N.J. School Finances
February 2017 Volume 23, Number 1
JEL classification: H4, I21, I28
Authors: Ravi Bhalla, Rajashri Chakrabarti, and Max Livingston

Although schools play a crucial role in human capital formation and economic growth, relatively few studies consider the effect of recessions (and in particular the Great Recession) on schools. This article helps fill this gap by comparing and contrasting the effects of the Great Recession on school districts in New York and New Jersey. In fact, it is the first article to compare the impacts of the Great Recession on schools in different states. The authors find that the two states had very different experiences in the two years following the recession. While total school funding in New York did not shift from its pre-recession trend, New Jersey funding experienced economically and statistically significant downward shifts from its trend. Both states received increased federal funding from the stimulus package but New York school districts saw a much larger boost from the stimulus than did New Jersey school districts. On the expenditure side, New York maintained instructional expenditures (the expenditure category most relevant to student learning) while New Jersey sustained cuts in this category. New York districts cut transportation, student activities, and utilities more than New Jersey districts, while New Jersey districts made cuts to instruction, instructional support, and pupil services, which were kept on trend in New York. The findings from this comparison promise to further our understanding of the effects of recessions on schools and the role that policy can play in shaping these effects.
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