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The Great Recession was marked by a downturn in housing prices, employment, and business activity, each of which led to reduced tax revenues and larger budget gaps.
These shortfalls impacted the ability of state and local governments to fully fund schools.
Chakrabarti and Sutherland investigate the downturn’s effect on New Jersey school finances, finding strong evidence of downward shifts in total school funding and expenditures, relative to trend.
The authors find that budgetary stress likely led to sizable layoffs of nontenured teachers; they also observe that high-poverty and urban school districts sustained larger resource declines than more affluent and less populated districts did.
However, support of more than $2 billion from federal American Recovery and Reinvestment Act funding limited damage to New Jersey’s budget; importantly, it helped preserve funding levels closely associated with student instruction.
The study offers valuable insight into how school districts fare during downturns and serves as a useful guide for future policy decisions.
About the Authors
RajashriChakrabarti is an economist at the Federal Reserve Bank of New York; SarahSutherland is a research associate at the Bank.
The views expressed in this summary are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.