The Impact of the Great Recession on School District Finances: Evidence from New York

51 Pages Posted: 6 Jan 2012

See all articles by Rajashri Chakrabarti

Rajashri Chakrabarti

Federal Reserve Bank of New York

Elizabeth Setren

Massachusetts Institute of Technology (MIT)

Date Written: December 1, 2011

Abstract

Despite education’s fundamental role in human capital formation and growth, there is no research that examines the effect of the Great Recession (or any other recession) on schools. Our paper begins to fill this gap. Exploiting detailed data on school finance indicators and an analysis of trend shifts, we examine how the Great Recession affected school funding in New York State. While we find no evidence of effects on either total revenue or expenditure, there were important compositional changes to both. There is strong evidence of substitution of funds on the revenue side — the infusion of funds from the federal stimulus occurred simultaneously with statistically and economically significant cuts in state and local financing, especially the former. On the expenditure side, instructional expenditure was maintained, while other categories such as transportation, student activities, and utilities suffered. Important heterogeneities in experiences are also observed by poverty level, metropolitan area, school district size, and urban status. Affluent districts were hurt the most; the New York City metro area, especially Nassau County, sustained the largest losses in terms of both revenue and expenditure. Our findings promise to facilitate an understanding of how recessions affect schools and of the role policy can play in mitigating the consequences.

Keywords: school finance, federal stimulus

JEL Classification: H40, I21, I28

Suggested Citation

Chakrabarti, Rajashri and Setren, Elizabeth, The Impact of the Great Recession on School District Finances: Evidence from New York (December 1, 2011). FRB of New York Staff Report No. 534. Available at SSRN: https://ssrn.com/abstract=1979694 or http://dx.doi.org/10.2139/ssrn.1979694

Rajashri Chakrabarti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://nyfedeconomists.org/chakrabarti

Elizabeth Setren

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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