Bruce D. Baker, 2010 1 Taxes, Teacher Wages & School District Resource Allocation in New Jersey Bruce D. Baker.

Bruce D. Baker, 2010 1 Taxes, Teacher Wages & School District Resource Allocation in New Jersey Bruce D. Baker

Bruce D. Baker, 2010 2 Recurring Media Claims New Jersey is the most taxed state in the nation, Our taxes are driving our economy into the ground and we’re falling way behind all other states, Our teacher salaries which are completely out of control are the reason why our taxes are out of control, School districts don’t have to cut teachers to get their budgets in line because school districts waste most of their money on administration anyway. –Of course, these last two claims are entirely inconsistent, but often spouted by the same pundits (primarily talk radio). If escalating teacher salaries were the cause of escalating costs, then teacher salaries – or teachers themselves – would need to be cut.

Bruce D. Baker, 2010 3 Part I New Jersey’s Tax Burden

Bruce D. Baker, 2010 4 Take Home Point New Jersey is not, in fact, the highest taxed state in the nation. –Our property taxes are high, but our income and sales taxes are modest by comparison. –We’re also not number one in property taxes when all states are considered and when property taxes are measured as a percent of income.

Bruce D. Baker, 2010 5 State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (12-Feb-10 09:55 PM)

Bruce D. Baker, 2010 9 Part II Economic Productivity in New Jersey over the Long Run

Bruce D. Baker, 2010 10 Take Home Points New Jersey remains high in gross state product (gross domestic product – state) per capita. –Our growth has been only modest, but some of those states in our region that have outpaced us in recent years are actually states with higher tax burdens (NY). This is obviously not causal – ONE WAY OR THE OTHER! New Jersey also remains high in per capita income and has held pace over time despite apocalyptic claims that all of the state’s high income residents are exiting the state in droves.

Bruce D. Baker, 2010 11 Gross Domestic Product (state) per Capita Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/ New Jersey

Bruce D. Baker, 2010 12 Gross Domestic Product (state) per Capita (Northeast) Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

Bruce D. Baker, 2010 13 Personal Income per Capita Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/ New Jersey

Bruce D. Baker, 2010 14 Personal Income per Capita (Northeast) Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

Bruce D. Baker, 2010 15 Total State and Local Education Expenditures as a Share of Gross Domestic Product (State) in NJ Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/ This graph presents what is perhaps the strongest evidence of an increased burden associated with public education spending in NJ, but represents a period over which funding was scaled up, then leveled off (including facilities funding). New Jersey ranks 2 nd in educational effort. But, this upswing is not driven primarily by increased costs associated with certified staff salaries.

Bruce D. Baker, 2010 16 Part III Teacher Wages – Out of control?

Bruce D. Baker, 2010 17 Take Home Points Teacher salaries have actually declined with respect to non-teacher wages over time in NJ, even when comparing wages for the same number of hours and weeks worked, and at same degree level and age. Despite a mythology that all non-teachers work every day of every week of the year and that teachers work about half the year, non-teachers actually report working about 48 weeks per year compared to teachers 42 weeks. Teachers worked about 87% of the weeks worked by other non-teacher workers in NJ. Comparing different data sources (something I prefer not to do), teachers at specific experience and degree levels appear to earn an annual wage about 67% of that of their non-teaching peers – annually. Okay, but they don’t work as many weeks. So, they earned 67% of the wage for working 87% of the time. Still a significant disparity. Teachers’ annual income return to experience (or age) is well less than that of non-teachers over much of their careers. Assuming teachers and non-teachers start at a similar wage at age 23 with a masters degree (around $50k), by age 40, the average non-teacher will be earning over $100k, while the average teacher will be approaching $80k. New Jersey teacher wages for teachers in the New York metro area lag well behind New York teacher wages in Westchester, Rockland, Nassau and Suffolk counties and have grown more slowly over time. Certified staffing salaries for public schools, as a percent of total state and local expense, have declined over time!

Bruce D. Baker, 2010 18 Notes: Individuals age 25 to 40. Excludes managerial positions. Hourly wages computed from “income from wages” divided by estimated annual hours worked (usual hours per week times weeks worked last year).

Bruce D. Baker, 2010 19 Notes: Individuals age 25 to 40. Excludes managerial positions. Hourly wages computed from “income from wages” divided by estimated annual hours worked (usual hours per week times weeks worked last year).

Bruce D. Baker, 2010 20 Teacher Hourly Wage as % of Non-Teacher Hourly Statewide Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007

Bruce D. Baker, 2010 21 Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007 Based on Statewide Model for worker 40yrs old, 40hrs for 40 wks Regression Model Estimates of Teacher & Non-teacher Wages

Bruce D. Baker, 2010 22 Hours Worked Last Year Year Non-Teachers Teachers Share 1990 47.82 41.7487% 2000 48.33 42.2187% 2005 48.50 42.9288% 2006 48.84 42.8788% 2007 48.78 42.6087% Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007

Bruce D. Baker, 2010 23 Annual Teacher Wages and Non-Teacher Wages at Fixed Age/ Experience, Location and Degree Level TEACHERS (NJDOE Data)Non-Teachers (Census Data) Masters Degree with 10 yrs. (Nwk CBSA) Masters Degree with 10 yrs. (Nwk CBSA) Masters Degree, 35 yr. Old, (Nwk Metro) Masters Degree, 35 yr. Old, (Nwk Metro) Teacher % of Non-Teacher YearExper. Const.Exper GrowthExper. Const.Exper Growth 2000 $ 70,732 2001 2002 $ 50,542 2003 $ 52,057 $ 53,852 2004 $ 53,865 $ 58,014 2005 $ 55,682 $ 62,489 $ 85,404 $ 92,74465% 2006 $ 57,563 $ 66,590 $ 85,279 $ 93,25867% 2007 $ 59,373 $ 70,437 $ 89,064 $ 95,59567% 2008 $ 61,189 $ 74,139 $ 90,708 $ 98,65467% Data Sources: Non-Teacher Wages from US Census 2000, American Community Survey 2005 - 2008 based on regression model of wages controlling for age, location, degree level and year. Teacher wages based on NJDOE Personnel Files also using regression model controlling for experience, degree level, location, position type and year.

Bruce D. Baker, 2010 24 Data Sources: A) NJDOE Certified Staffing files B) State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (22-Mar- 10 09:55 AM) New Jersey Elementary and Secondary Certified Staffing Wages as a Percent of State and Local Expenditures

Bruce D. Baker, 2010 25 Returns to Experience/Age for Teachers and Non- Teachers (at fixed degree level, location) Data Sources: Non-Teacher Wages from US Census 2000, American Community Survey 2005 - 2008 based on regression model of wages controlling for age, location, degree level and year. Teacher wages based on NJDOE Personnel Files also using regression model controlling for experience, degree level, location, position type and year.

Bruce D. Baker, 2010 26 Teacher Salaries in NY and NJ Counties in NY Metro Area (BA Degree with 10 Years) Data sources: Based on statistical model of individual teacher level salaries from NJDOE and NYSED certified staffing (personnel master) files. Model includes salary as a function of year, total experience and degree level.

Bruce D. Baker, 2010 27 Teacher Salaries in NY and NJ Counties in NY Metro Area (MA Degree with 10 Years) Data sources: Based on statistical model of individual teacher level salaries from NJDOE and NYSED certified staffing (personnel master) files. Model includes salary as a function of year, total experience and degree level.

Bruce D. Baker, 2010 28 Teacher Salaries in NY and NJ Counties in NY Metro Area (MA Degree over First 30 Years, in 2007) Data sources: Based on statistical model of individual teacher level salaries from NJDOE and NYSED certified staffing (personnel master) files. Model includes salary as a function of year, total experience and degree level.

Bruce D. Baker, 2010 29 Teacher Salaries in NY and NJ Counties in NY Metro Area (MA Degree over First 10 Years, in 2007) Data sources: Based on statistical model of individual teacher level salaries from NJDOE and NYSED certified staffing (personnel master) files. Model includes salary as a function of year, total experience and degree level.

Bruce D. Baker, 2010 30 Note regarding benefits & bias Corcoran and Mishel point out here: http://epi.3cdn.net/05447667bb274f359e_zam6br3st.pdf that http://epi.3cdn.net/05447667bb274f359e_zam6br3st.pdf that –“…overall K-12 teacher compensation was 27.5% greater than teacher wages alone, while overall professional compensation was 23.5% greater than professional wages. These differences in benefit shares translate into a benefits “bias”of 2.8 percentage points in 2006.” That is, benefits would close little of the overall gap in wages, even if the bias is somewhat larger in NJ. Costrell and Podgursky show about a 5% (slightly less) differential (10% non-teachers, 15% teachers) in the value of pensions, a portion of benefits. This too would close only part of the teacher to non-teacher wage gap in New Jersey, even if we assume New Jersey benefits for teachers to be much greater than other employee benefits.Costrell and Podgursky

Bruce D. Baker, 2010 31 Part IV District Resources and the Growing “Administrative Blob”

Bruce D. Baker, 2010 32 Take Home Points Classroom instructional spending as a share of budgets has remained relatively constant over time, and poor urban districts are in line with other NJ districts in this regard. Total administrative expenses as a share of school district budgets have remained relatively constant for nearly 15 years and large poor urban and Abbott district administrative expenses are in line with (and lower than) other districts. School level administrators are a relatively small share of school personnel. Not shown here, but also relevant is the fact that school level administrative salaries are only marginally higher than senior teacher salaries. As such, it is highly unlikely that one can cut substantially close budget gaps by cutting “administrative fat” alone. District and school level administrative salaries in New Jersey have been flat for a decade. They are not increasing dramatically. Private independent school headmaster compensation tends to be much higher than a) superintendent salaries of the district where the private school is located and b) large city superintendent salaries.

Bruce D. Baker, 2010 33 Percent of District Budgets Allocated to “Classroom” Instruction over Time Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2006.

Bruce D. Baker, 2010 34 Percent of District Budgets Allocated to “Classroom” Salaries for Instruction over Time Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2006.

Bruce D. Baker, 2010 35 Percent of District Budgets Allocated to Total Administrative (District and School Level) Expense Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1998 to 2006.

Bruce D. Baker, 2010 36 Percent of District Budgets Allocated to Total Administrative (District and School Level) Expense Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2005. (not weighted for district enrollment)

Bruce D. Baker, 2010 37 Elementary School Staff per 100 Pupils Data Source: NJDOE Staffing Files 2006-07

Bruce D. Baker, 2010 38 Middle School Staff per 100 Pupils Data Source: NJDOE Staffing Files 2006-07

Bruce D. Baker, 2010 39 High School Staff per 100 Pupils Data Source: NJDOE Staffing Files 2006-07

Bruce D. Baker, 2010 40 District Level Administrative Salaries in New Jersey Data source: NJDOE Staffing Files. Includes cumulative salaries of individuals by job code because some district level administrators hold positions across multiple districts, collecting more than one salary.

Bruce D. Baker, 2010 41 District Level Administrative Salaries in New Jersey ECWI Adjusted ($1997 constant) Data source: NJDOE Staffing Files & NCES State ECWI (http://nces.ed.gov/edfin/adjustments.asp) 2006 to 2008 ECWI not available. Assumed at average rate of change from 1997 to 2005. Includes cumulative salaries of individuals by job code because some district level administrators hold positions across multiple districts, collecting more than one salary.http://nces.ed.gov/edfin/adjustments.asp

Bruce D. Baker, 2010 42 Top 100 Superintendent Salaries in New Jersey & ECWI Adjusted Salaries ($1997 constant) Data source: NJDOE Staffing Files & NCES State ECWI (http://nces.ed.gov/edfin/adjustments.asp) 2006 to 2008 ECWI not available. Assumed at average rate of change from 1997 to 2005. Includes cumulative salaries of individuals by job code because some district level administrators hold positions across multiple districts, collecting more than one salary.http://nces.ed.gov/edfin/adjustments.asp

Bruce D. Baker, 2010 43 School Level Administrative Salaries in New Jersey Data source: NJDOE Staffing Files

Bruce D. Baker, 2010 44 School Level Administrative Salaries in New Jersey ECWI Adjusted ($1997 constant) Data source: NJDOE Staffing Files & NCES State ECWI (http://nces.ed.gov/edfin/adjustments.asp) 2006 to 2008 ECWI not available. Assumed at average rate of change from 1997 to 2005.http://nces.ed.gov/edfin/adjustments.asp

Bruce D. Baker, 2010 45 Executive Compensation in Private and Public Schools in New Jersey (2006-07) Note: Private school headmaster compensation from Guidestar.org, IRS 990 for 2006. Local Superintendent compensation for district that is geographic home to private school. Supt. Comp based on 2006-07 (1 yr later than Headmaster Comp.). Headmaster and Supt. Comp. include salary and cash-basis benefits (not health-care, retirement contributions, etc.). Big City Supts. Includes Newark, Camden, Jersey City, Paterson and Trenton.

Bruce D. Baker, 2010 46 Part V State Revenues, Expenditures and Debt over Time

Bruce D. Baker, 2010 47 Per Capita Revenue, Expenditure & Debt Data Source: State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (22-Mar-10 09:55 AM) 2001-2002 revenue shock

Bruce D. Baker, 2010 48 State General Revenues and Expenditures Data Source: State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (22-Mar-10 09:55 AM)

Bruce D. Baker, 2010 49 Per Capita Debt Across States Data Source: State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (22-Mar-10 09:55 AM)

Bruce D. Baker, 2010 50 New Jersey Education Spending & New Jersey Education Outcomes

Bruce D. Baker, 2010 51

Bruce D. Baker, 2010 55 Part VI Notes on Tax and Expenditures Limits

Bruce D. Baker, 2010 56 TELs & Student Teacher Ratios David N. Figlio –SHORT-TERM EFFECTS OF A 1990S-ERA PROPERTY TAX LIMIT: PANEL EVIDENCE ON OREGON’S MEASURE 5 –National Tax Journal Vol 51 no. 1 (March 1998) pp. 55-70 I use a comprehensive panel of school districts from Oregon and Washington, with annual data from before and after Oregon imposed its limitation in 1990. Controlling for unobserved heterogeneity, I find that Oregon student-teacher ratios have increased significantly as a result of the state’s tax limitation.

Bruce D. Baker, 2010 57 TELs & Teacher Quality David N. Figlio and Kim S. Rueben –Tax limits and the qualifications of new teachers –Journal of Public Economics Volume 80, Issue 1, April 2001, Pages 49-71Journal of Public EconomicsVolume 80, Issue 1 This paper examines the impact of local tax limits on new teacher quality. Using data from the National Center for Education Statistics we find that tax limits systematically reduce the average quality of education majors, as well as new public school teachers in states that have passed these limits. The average relative test scores of education majors in tax limit states declined by ten percent as compared to the relative test scores of education majors in states that did not pass limits. This relationship is strengthened if we control for school finance equalization reforms or examine tax limits passed in two different periods.

Bruce D. Baker, 2010 58 TELs & Student Outcomes Downes and Figlio working paper: –http://ase.tufts.edu/econ/papers/9805.pdfhttp://ase.tufts.edu/econ/papers/9805.pdf In this paper, we find compelling evidence that the imposition of tax or expenditure limits on local governments in a state results in a significant reduction in mean student performance on standardized tests of mathematics skills.

Bruce D. Baker, 2010 59 Massachusetts Prop 2 ½ David M. Cutlera,*, Douglas W. Elmendorfb, Richard Zeckhauserc –Restraining the Leviathan: property tax limitation in Massachusetts –Journal of Public Economics 71 (1999) 313–334 Proposition 2 ½, a ballot initiative passed in Massachusetts in 1980, sharply reduced local property taxes. We examine why voters supported Proposition 2 ½, using data on votes for the Proposition and for overrides of it a decade later. We find two reasons for the Proposition’s support: people perceived agency losses from the difficulty of monitoring government, and people judged government to be inefficient because their tax burden was high. By the 1990s, people either regretted the severity of the Proposition’s constraints or felt that its mission was accomplished.

Bruce D. Baker, 2010 60 Massachusetts Prop 2 ½ Phil Oliff and Iris J. Lav HIDDEN CONSEQUENCES: LESSONS FROM MASSACHUSETTS FOR STATES CONSIDERING A PROPERTY TAX CAP –http://www.cbpp.org/archiveSite/5-21-08sfp.pdfhttp://www.cbpp.org/archiveSite/5-21-08sfp.pdf A tax cap won’t make government services cost less. A cap does not prevent employee health insurance costs, special education costs, or other costs beyond localities’ control from rising much faster than the cap allows. Nor does it hold down the cost of heating buildings, buying gas for police and fire vehicles, and operating schools buses when the world price of oil is skyrocketing. When these things occur, as they have in Massachusetts, other services have to be cut to fit total expenditures under the cap. Claims that caps will produce large savings through “efficiencies” are overblown. There are fewer efficiencies to realize from squeezing down revenues than cap proponents generally suggest. One person’s “efficiency savings,” such as the elimination of a police or fire station, may represent the loss of a critical service for another person. Ultimately, a property tax cap is highly likely to lead to reductions in basic community services and a deterioration in the quality of life in many communities — particularly in communities that cannot routinely override it.

Bruce D. Baker, 2010 61 Massachusetts Prop 2 ½ Phil Oliff and Iris J. Lav HIDDEN CONSEQUENCES: LESSONS FROM MASSACHUSETTS FOR STATES CONSIDERING A PROPERTY TAX CAP –http://www.cbpp.org/archiveSite/5-21-08sfp.pdfhttp://www.cbpp.org/archiveSite/5-21-08sfp.pdf Tax caps can be particularly harmful if adopted during a weak economy. Proposition 2½ took effect during a period of extraordinary economic growth — the “Massachusetts Miracle.” State revenues were rising, which allowed the state to boost aid to compensate for constrained property taxes, and construction was expanding, which allowed communities to raise their property tax revenue by more than 2.5 percent per year. If a state were to adopt a property tax cap during an economic slowdown or a period of weak state revenue growth, a major sustained infusion of state aid would not be possible and property tax revenue growth would be more constrained. As a result, schools and other services dependent on the property tax would have to be cut much more severely than in Massachusetts. State aid can’t be relied upon to fill the gap. Even when state policymakers fully intend to expand state aid to fill local funding gaps created by a cap, a recession or fiscal crisis will usually derail this plan. State aid to localities in Massachusetts has fluctuated greatly with the business cycle and with state policy decisions. In any other state that might implement a cap, local government and school budgets are likely to become more volatile.

Bruce D. Baker, 2010 62 Massachusetts Prop 2 ½ Phil Oliff and Iris J. Lav HIDDEN CONSEQUENCES: LESSONS FROM MASSACHUSETTS FOR STATES CONSIDERING A PROPERTY TAX CAP –http://www.cbpp.org/archiveSite/5-21-08sfp.pdfhttp://www.cbpp.org/archiveSite/5-21-08sfp.pdf Changes in school enrollment can have a big impact. The adoption of Proposition 2 ½ coincided with a decline in Massachusetts’ K-12 enrollment, allowing schools to operate with less revenue. If another state adopted a property tax cap during a period of steady or rising enrollment, it would be forced to impose much more extensive cutbacks in teachers, classes, and programs than those seen in Massachusetts. Without effectively targeted state aid, low-income communities will fall even further behind. Massachusetts has a highly targeted system of aiding local governments. The influx of state aid seems to have shielded low-income communities somewhat from Proposition 2 ½’s tendency to exacerbate differences in services between high- and low-income communities. But when state aid has receded as a result of economic downturns or state policy decisions, the poorest communities have had to make the largest budget cuts. In states that do not have a system of school aid that is targeted as effectively as Massachusetts’, students in low-income communities are likely to fall increasingly behind students in schools that have greater resources. Wealthier communities will override a tax cap more frequently than poorer ones. This has contributed to a growing spending gap between local governments in high-income communities and all other communities, despite Massachusetts’ progressive system of state aid. This is likely to occur in other states that implement a cap.

Bruce D. Baker, 2010 1 Taxes, Teacher Wages & School District Resource Allocation in New Jersey Bruce D. Baker.

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Bruce D. Baker, 2010 1 Taxes, Teacher Wages & School District Resource Allocation in New Jersey Bruce D. Baker.

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