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Federal Reserve Bank of New York
Economic Policy Review
Precarious slopes? The Great Recession, federal stimulus, and New Jersey schools
Rajashri Chakrabarti
Sarah Sutherland

While only a sparse literature investigates the impact of the Great Recession on various sectors of the economy, there is virtually no research on the effect on schools. This article starts to fill the void. The authors make use of rich panel data and a trend-shift analysis to study how New Jersey school finances were affected by the onset of the recession and the federal stimulus that followed. Their results show strong evidence of downward shifts in total school funding and expenditures, relative to trend, following the recession. Support of more than $2 billion in American Recovery and Reinvestment Act funding seems to provide a cushion in 2010: While funding and expenditures still fall relative to pre-recession levels, they decline less than in 2009. The infusion of federal funding coincides with significant cuts in state and local support, and the authors mark sharp changes in New Jersey’s relative reliance on the three sources of aid. An examination of the compositional shift in expenditures suggests that the stimulus may have prevented declines in categories linked most closely to instruction. Still, budgetary stress seems to have led to sizable layoffs of nontenured teachers, resulting in an increase in median teacher salary and median experience level. Furthermore, high-poverty and urban school districts were found to sustain larger resource declines than more affluent and less populated districts did in the post-recession era. The study’s findings offer valuable insight into school finances during recessions and can serve as a guide to aid future policy decisions.

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Rajashri Chakrabarti & Sarah Sutherland, "Precarious slopes? The Great Recession, federal stimulus, and New Jersey schools" , Federal Reserve Bank of New York, Economic Policy Review, issue Dec, pages 41-65, 2013.
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Keywords: school finance; recession
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