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N.Y. Federal Reserve Bank Weighs Recession's Impact on School Finances

The recession forced both New York and New Jersey to make changes in how they allocated education finances, but the results were strikingly different between the two states, according to reports released by economists at the Federal Reserve Bank of New York.

The recession is officially considered to have begun in December 2007, the report notes. In New York, statewide spending on instruction showed little difference between 2008-09, the first school year after the recession's start, and 2009-10. However, there was a drop in spending on transportation, utilities and maintenance in districts in New York over the same period, according to the data. The region that saw the largest drop on spending relative to trend was relatively affluent Long Island.

In contrast, New Jersey had more severe cuts in both instruction and in transportation and other non-instructional spending. And the New Jersey regions that showed the largest drop in spending compared to previous trends are home to the state's poorest districts.

The Federal Reserve Bank posted its New York report Monday, and the report on New Jersey today. The federal reserve bank also released a document in slide form that compiles key factors from both reports.

Rajashri Chakrabarti, a regional economist for the reserve bank and the lead author on both reports, explained to me that both reports measured spending against previous trends. Using data from prior years, the economists were able to estimate what spending would have been, had the economy remained healthy. A downward deviation from that trend line was noted as a decline, even if there was little change in absolute numbers.

Chakrabarti said that both states showed a shift towards federal funding and away from state and local funding soon after the passage of the American Recovery and Reinvestment Act, which funneled $5.6 billion to New York and $2.2 billion to New Jersey in federal economic-stimulus funds.

She said that high-poverty districts in New Jersey had the biggest declines in instructional spending compared to trend because those districts had extensive capital improvement programs that were planned in better economic times and that had to be paid for. In contrast, more-affluent districts in New York saw the largest drop compared to previous trends, because with few poor students, they did not get as much stimulus dollars as other districts.

The bank does not offer any policy prescriptions, but it does plan to follow school finances as part of its charge to monitor its local economy, Chakrabarti said. The bank is one of 12 in the country, each of which is in charge of monitoring a different region.

But with the bulk of the stimulus money spent and the economic recovery still very weak, "the future may not be that rosy" for finances in the region, she said.

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