Census Bureau Education Finance Data: Recent Trends

In my previous post, I looked at comparative public school spending per child in FY 2008 using data aggregated by the U.S. Census Bureau, with a flashback to the 1990s and a look ahead based on budget data. In the spreadsheet attached to this post, I compare the public school revenues and expenditures of the United States, New York City, the Downstate Suburbs, Upstate New York and New Jersey in FY 2008 with FY 2007, the year before the Campaign for Fiscal Equity Lawsuit was settled, and FY 2002, the last budget before the start of the Bloomberg Administration. The output pages of the spreadsheet are designed to print on two letter-sized pages. My review of the findings is below.

For those who don’t remember what people thought were the issues of the CFE lawsuit, I can’t resist a long historical review here as background for what the data shows.

The state legislature had long manipulated the state aid formula to ensure that low spending New York City, with a large share of the state’s disadvantaged children, received far less than the share of state school aid that the state’s aid formula would otherwise have required. I have a spreadsheet showing the city’s share of state school aid below its share of the state’s public school system going back to the late 1960s and including the 1970s, when the city and its schools were in a downward spiral, and the city’s share of state school aid was always below its share of the state’s public school children. In fact, the city’s share of state school aid was always below its residents’ share of state income taxes, meaning that the city’s children would have been better off if state aid didn’t exist and every part of the state just paid for its own schools.

While the reasons why the city’s own state legislators went along with this are known only to them, 1990 Census of Population data showed that 70 percent of NYC residents over age 65 were non-Hispanic Whites, like most of the city’s legislators with clout, and 70 percent of its children under age 18 were not. While the city’s school spending was low, its Medicaid spending on services for seniors, particularly formerly middle class seniors, was sky high. That looked like horse-trading to me, and to anyone I showed the data to at the time. And of course spending on seniors in New York City was more valuable to state legislators, since many represented people who had fled to the suburbs, with their better schools and lower taxes, leaving their aging parents to be cared for by the bankrupt City of New York.

As a matter of governance, the city’s schools were organized in such a way as to get the minimum possible for the money that was spent. Ultra generous “Tier I” pensions handed out by then-Mayor Lindsay drastically reduced the share of education money available to be spent in the schools, while allowing the lucky beneficiaries, already living in the suburbs for the most part, to retire early to Florida. In the 1970s, with the city broke and the teachers’ union still powerful, the next set of contracts produced lower and lower pay for new teachers – among the lowest in the metro area by the late 1990s – in exchange for fewer and fewer hours worked – among the lowest in the country according to news reports I recall from the 1990s. In the early 1990s recession, in fact, Mayor Dinkins signed a contract that held that principals were not allowed to examine teaching materials to find out what, if anything, the teachers were actually doing. With little money available teaching materials were not bought, and school buildings were not maintained, falling into a deplorable state.

Some qualified teachers (hired at fair pay before the meltdown) tried to do their best under the circumstances, often buying their own supplies or, if they were sports coaches, basically funding the teams themselves. They were scabs and suckers from a labor relations point of view in other words. As they retired, however, they were replaced with those no one else would hire, or quickly departed for better school districts in the suburbs where most lived. Thus the quality of teachers in the city fell over time. Within the city, those with seniority quickly departed to schools with fewer troubled children and more motivated parents, leaving poor neighborhoods with a revolving door of the uncertified and unqualified.

After a partial recovery under the Cuomo and Koch Administrations, the final blows came during the mid-1990s. The state and city, as usual, had put off the consequences of the early 1990s recession until the result was fiscal disaster. Incoming Governor Pataki’s first budget slashed the city’s share of state school aid, which was already low, while increasing aid for high-spending districts in the rest of the state. The city was already reeling from the recession, with 1 million people on welfare. The result was a devastating two years for the city’s schools.

The STAR program, which sent more state aid the school districts that spent the most, diverted even more money outside the city. Once STAR passed, putting the incentive to spend in place, public school spending in the rest of New York State, already high, exploded, particularly in the years from FY 1997 to FY 2002. The STAR program is a big part of the increase of 130,000 in local government employment from 1990 to 2009 in the rest of New York State, a time when local government employment in New York City fell. Sheldon Silver agreed to the STAR program in exchange for a state bond issue to repair the city’s crumbling schools, which Pataki subsequently refused to support and the rest of the state voted down.

At the local level, Mayor Giuliani responded to the mid-1990s fiscal crisis with a pension “incentive” in 1995, which the state legislature (controlled by the teacher’s union) joyfully agreed to. It allowed thousands of qualified teachers hired before the meltdown in the 1970s to retire and head to Florida years early, while drastically inflating pension costs. Except the city didn’t actually pay those inflated pension costs at the time; Giuliani simply had the City Actuary claim the pension plans had plenty of money and didn’t need more, shifting the burden to the future (like now). The trick was repeated several times afterward.

At the time, the huge number of children of the baby boomers – the baby boom echo – was flooding into the schools, causing enrollment to rise throughout the nation, even in New York City where middle class parents continued to flee once their children reached school age. At the same time, the much smaller “baby bust” generation was leaving college during an economic boom with many more lucrative alternatives to teaching – the low year for U.S. births had been 1976; the low year for people turning age 22 was 1998. The result was a nationwide teacher shortage, with New York City – with its low funding, rich retirees, troubled students, deteriorating buildings, and low starting pay – getting the dregs. To keep a few middle class parents around, those in the know were bought up with special deal schools screened as “gifted programs” or some other way. On Staten Island, they created a new school that turned out to be almost exclusively for the politically connected. It was a time of what I have called privitization and placardization, a time I believe will come again

If you want to know what the NYC schools’ financial situation was in the mid-1990s, read this post and download its attached spreadsheet.

Back then, when those benefitting from the priorities of the time talked about the financial problems of the New York City public schools, they always blamed the excessive bureaucracy at 110 Livingston Street, and the cost of special education. But as the data shows, the city’s spending on General Administration was already low back in FY 1996, and later research showed the share of the city’s children in special education was lower than in the rest of the state. The propaganda was similar to the current accusations by state legislators and other state pols against the MTA, pointing to nickels and dimes that are spent and could be saved. Which should be no surprise, because the deeds are being done by all the same people.

Note also that in FY 1996, despite the city’s high class sizes and uncompetitive starting pay for teachers, the city’s teacher cash pay per student, at $3,664 after adjustment for the cost of living, was above the U.S. average of $3,294 if far below the Downstate Suburb average of $5,290 and the Upstate average of $5,057. The large share of teacher pay going to those about to retire (thus increasing their pensions) and the relatively large share of teacher time outside the classroom in NYC are likely explanations.

The city’s share of state school aid was also cut after 9/11, since scarce resources always seemed to be allocated to those with more clout. But once the lower courts ruled in favor of the plaintiffs in the Campaign for Fiscal Equity lawsuit, things began to change even as the appeals commenced and the lawsuit remained unsettled, as I described in this post.

Even before Mayoral Control, the city’s bureaucracy had been reformed by taking power away from the community school boards. When the rest of the state refused to borrow money to fix up the city’s failing schools, the city borrowed the money instead. After Mayor Bloomberg took over, the UFT signed a contract that had teachers actually work more in exchange for more cash pay, including more pay for the newly hired. And in the last year of former Governor George Pataki’s reign, the city’s share of state school aid actually exceeded its share of the city’s school children, for perhaps the first time ever. Perhaps he felt guilty. Or perhaps the most recent Wall Street boom bought in so much money that every other interest had already got paid.

This brings us to the period covered by the attached spreadsheet. Note that when adjusting the FY 2007 and FY 2002 figures for inflation into January 2008 dollars (the mid-point of the fiscal year), I didn’t use the actual Consumer Price Index for that month. As some may recall the CPI was wacky at the time, with a big increase in the year to FY 2008 followed by a drop, based on a wild swing in the price of oil. So I averaged the 2008 and 2009 figures to get a more reasonable (and permanent) adjustment.

FY 2008 was the first and last budget of Fieldston Prep Steamroller and ex-Governor Eliot Spitzer. He settled the Campaign for Fiscal Equity Lawsuit with the plaintiffs, which as it happens did not include the City of New York, which had been victimized by state underfunding all those years. The courts had ruled that the city was a co-defendant for the crime of its awful schools. But the plaintiffs did include the New York State Association of School boards, which had benefited from the “reverse Robin Hood” redistribution of educational resources away from the city’s school children, and the United Federation of Teachers, which had “won” the early retirement Lindsay pensions which sucked what money the city did have out of the classrooms, and the minimal hours of instruction the city’s teachers were required to perform. What happened next? Let’s look at the data.

As Spitzer’s budget Director Paul Francis admitted to Daily News reporter Bill Hammond at the time, the Steamroller agreed to a deal that actually cut New York City’s share of state education funding, in large part through the creation of back-door funding via son-of-STAR (aka the Bruno check, modeled after the Bloomberg check, modeled after checks sent in New Jersey, which is now bankrupt). I took his word for it, but three years later this is the first time I’ve seen actual numbers on what was actually spent. After adjustment for inflation, the city’s state aid per student increased 2.7% from FY 2007 to FY 2008 while the Downstate Suburbs got an 8.6% increase and Upstate New York got a 7.5% increase. Federal education aid fell relative to inflation from FY 2007 to FY 2008, but New York City and Upstate took the hit as the Downstate Suburbs got more. The city’s share of New York State’s federal education aid had previously increased after 9/11, in contrast with the city’s state aid after the disaster.

As a result of the settlement of the Campaign for Fiscal Equity Lawsuit and the first and last budget of Eliot Spitzer (and Dean Skelos, I guess), therefore, the New York State Association of School Boards, representing high spending schools outside New York City, got a higher share of total state education funding (including back-door funding) at New York City’s expense. Not what might have been expected, eh?

Now in fairness to the rest of the state, New York City has been getting relatively richer in recent years, and a fair formula might have caused its state aid to fall. For example, from April 2000 to April 2010, according to Current Employment Survey data from the Bureau of Labor Statistics, private employment fell by 8,900 in the portion of the New York metro area inside New York City and 185,100 in the suburbs, in the rest of Downstate New York and New Jersey. The city’s job count has started to grow again, while the suburban job count has not. With many members of younger generations preferring walkable urban environments, of which there are few economically viable ones remaining in the U.S., the people moving into many parts of New York City are more affluent than those they are replacing. As suburban housing starts to hit 50 years old (as much of the city’s housing did during the 1960s and 1970s), the reverse is true in many other parts of the metro area – those moving in are less affluent than those moving out.

As I wrote Daily News reporter Bill Hammond back in 2007, I’m not the sort of person who would want to do to other parts of the state what other parts of the state did by my children’s generation in my community ten to 20 years ago. So if a fair formula holds that the city should get less, it should get less. We don’t need to kick parts of the state facing difficulties when they are down, and I have friends and relatives in many other parts of the state. On the other hand, the timing of the rest of the state accepting a more fair formula when it benefits them, after rejecting it for 40 years when the city was in need, is certainly unjust in its own way.

So the city’s share of state education funding was cut as the Campaign for Fiscal Equity Lawsuit was settled. What else happened? Just before Eliot Spitzer was revealed as Client 9, in early 2008, he signed legislation restoring the Lindsay pensions for New York City teachers, allowing those 55 years old to walk out the door seven years early without paying an extra dime. The State Assembly, led by Sheldon Silver, had passed that legislation repeatedly as I recall. The State Senate, then led by Dean Skelos, also passed the bill – without a single “no” vote – as its Republicans and Democrats vied for teacher union money and support in a special election for an open seat in Upstate New York. A deal was cut for the UFT to support the Republicans, and passage of the 25/55 pension plan followed. The state legislature had passed the deal before, I believe, but this time Mayor Bloomberg provided everyone with political cover by agreeing to it. Presumably in exchange for the possibility of teacher union support in his aborted non-campaign for President. I can’t think of any other reason, unless Bloomberg actually wanted to devastate the schools financially and undo-plus any good he had done, without getting anything in exchange.

Which leads us into the FY 2002 to FY 2008 comparison, the Bloomberg Mayoral Control era prior to budget cuts due to the recession and the even greater diversion of funds from the classroom to the retired. The data show that the city’s total school revenues rose by 46.9% between those years, adjusted for inflation and the change in the relative cost of living. It’s federal revenue increased 35.8% compared with an increase of 19.5% in the Downstate Suburbs, 15.5% Upstate, and 19.8% in New Jersey, part of that aforementioned post-9/11 federal aid shift. But the city received relatively more state aid as well, with its per-student allotment rising 33.3% after adjustment, compared with 15.9% in the Downstate Suburbs and 19.0% Upstate. (It is possible that these figures do not include the Bruno check, which was sent directly to state residents).

The biggest factor in rising NYC school revenues, however, was the rising contribution by city residents themselves – one reason perhaps why property tax rates are 18.0% higher than when Mayor Bloomberg took office. The NYC school system’s local government revenue per child, adjusted for inflation and the cost of living, increased 68.0% from FY 2002 to FY 2008, compared with an increase of around 30.0% in other parts of New York State and in New Jersey, and about 18.0% nationwide.

Going back to 1997, it is clear what should have happened to school finance in New York State. Spending in the rest of the state, where it was already high, should have been kept where it was relative to inflation rather than exploding, while spending in the city, where it was low, should have risen. Instead spending exploded in the rest of the state from FY1997 to FY 2002, when STAR funding was rising fastest, and kept rising from FY 2002 to FY 2008, albeit at a slower pace than spending in the city. The latter period saw an inflation-adjusted increase in total per-student spending of 16.8% in the Downstate Suburbs, and 12.1% in Upstate New York, along with 27.8% in New Jersey and 13.8% nationally. But New York City closed the gap, with a 33.7% increase in spending.

How was in the increase in spending allocated during the Bloomberg era? The level of instructional (teacher) wages and salaries per student determines how much teachers can be paid and how small class sizes can be, with a tradeoff between the two. From FY 2002 to FY 2008, instructional wages and salaries per student increased 20.6% for New York City, more than the 11.5% in the Downstate Suburbs, 5.7% in Upstate New York, 16.2% in New Jersey, and 5.6% nationally – but less than overall spending increased in New York City. So while the increase spending on teachers was announced with great fanfare, that clearly was not the top priority. In fact, NYC instructional wages and salaries per student has already risen quite a bit in New York City from 1997 to 2002 after adjustment for inflation, presumably due to rising class sizes.

The spending that really increased during the FY 2002 to FY 2008 period was spending on instructional benefits, including health care benefits and pension contributions. This exploded 81.7% in New York City, after adjustment for inflation, and also rose 64.9% in the Downstate Suburbs, 66.0% in Upstate New York, 55.4% in New Jersey and 35.4% nationally. The cost of benefits also soared for non-instructional workers, by 97.6% for New York City, 64.6% for the Downstate Suburbs, 81.7% for Upstate New York, and 58.6% in New Jersey.

In addition to the ever-rising cost of health care, benefit costs were inflated by the deferred cost of past pension incentives and the series of retroactive pension enhancements granted to New York’s public employees even before the 25/55 plan for teachers was agreed by Mayor Bloomberg and signed by former Governor Spitzer. The largest passed the New York State legislature in 2000, and was described as costing nothing because the stock market was expected to soar in subsequent years. To evaluate the intelligence (or honesty) of that assertion, look at this chart showing how massively overpriced stocks were relative to what businesses earned at the time (they still are now, by more than this chart implies because earnings are being held up by soaring federal debt).

So even before the 25/55 deal cut by the United Federation of Teachers, restoring the Lindsay pensions, a rising share of money was going to the pensions and health care of the retired rather than the classroom, but this was covered up by rising expenditures overall. Debt service was rising as well, as the city borrowed to repair its schools. From FY 2002 to FY2008 the amount the NYC schools paid in interest payments increased 121.7%, compared with an increase of 27.1% in the Downstate Suburbs, 9.2% Upstate, 29.0% in New Jersey and 31/6% nationally. Despite rock bottom interest rates which may not last. Bloomberg called the shift in funding to debt service and the retired an “uncontrollable expense,” as a result of his decisions it will be even more out of control going forward.

The schools are facing severe budget cuts this year even though (and you’d never know this from the propaganda) total public school spending in NYC is going up. With NYC taxpayers paying more (or other public services being cut more) to make up for falling state aid. And now the United Federation of Teachers, rather than the Manhattan Institute, would like to pretend that all the money is going to the bureaucracy. Once again this is not the reality. Actually, NYC spending on General Administration per child fell 40.2% adjusted for inflation from FY 2002 to FY 2008, compared with increases of 34.8% in the Downstate Suburbs, 31.2% in Upstate New York, 0.1% in New Jersey and 5.7% nationally.

There were other priority shifts during the Bloomberg Administration, but those that were positive are unlikely to outlast the UFT’s 25/55 pension deal and the recession. NYC instructional spending on things other than wages and benefits, including teaching supplies, increased 47.2% from FY 2002 to FY 2008. Opponents of the Campaign for Fiscal Equity lawsuit had contended that the city’s prior low spending on supplies probably meant its children had a “library full of classics,” but it actually meant 25 torn textbooks with pages missing for a class of 34. That problem had been solved. Spending on “Instructional Staff Support” increased 106.7% from FY 2002 to FY 2008, but remained much lower than the U.S. average. I’ll bet it has been cut since. Spending on Student Transportation increased 47.6% after adjustment for inflation from FY 2002 to FY 2008, while the city’s funding for MTA student transportation didn’t increase a dime. This was over Bloomberg’s objections. The school bus industry is politically organized and motivated by one thing – getting more government money – and has its hooks into the city’s political class. Much of its increase in spending may have gone to its own pensions.

Today, the Bloomberg Administration is hailed as an example of successful reform in public education. The schools are better, better organized, and most people believe its leaders are actually trying to do right by the students, with at least mixed success. In the 1990 to 2000 period New York City’s share of the state’s population was much lower for school-aged children than for those under at 5, according to Census of Population data, and lower for those middle-school aged than those elementary school age. The reason, as I saw in person among my peers and friends of my own children, is that those parents who could fled the city when their children reached school age, or spent their parenting years desperately trying to work the system to get their kids into the limited number of schools where an actual education was on offer. Now fewer parents are leaving, and more schools are considered acceptable by those with aspirations for their children. With enrollment nonetheless shrinking for demographic reasons, with teacher pay up (if not up quite as much as for the retired) and the large baby boom echo generation now exiting college in a recession, the city now has more qualified teaching applicants than it knows what to do with.

The Bloomberg Legacy, however, will probably be defined by soaring pension and retiree health care costs in a tax revenue scarce environment. It will probably, therefore, be exactly the same as the Lindsay educational legacy. The book isn’t closed, in other words, until the shift of funds out of the classroom to the retired is complete.

The United Federation of Teachers is looking to use its leverage and the city’s increasing fiscal desperation (just wait until next year) to get the city to agree to much less in education for a little less money, with all sacrifices by future members. And the 1970s pattern is beginning to reassert itself. Already the city has agreed that teachers will not have to show up before Labor Day, but new teachers will have their take home pay cut 5.0% compared with those who came before throughout their careers. That is the first of many such deals, as a desperate city tries to stay solvent but cutting education – at a much higher level of education spending than before.

In an effort to buy off the yuppies, the “fair student funding formula,” which the union objects to because it inhibits teachers with seniority from leaving the schools of the poor behind, may be sacrificed next. And as qualified teachers with seniority leave those schools, they will likely become dumping grounds for teachers now being paid to do nothing, because no principal wants to hire them.

With the incentive provided by Race to the Top funds apparently sufficient to shake things up, there has been a flurry of debate about school reform nationwide over the past few months. I see it as whistling past the graveyard. Politicians elsewhere cut deals for retroactive pension enhancements as well, and in lower tax jurisdictions even less money was set aside to pay for them. While New York City is facing a repeat of the 1970s in education, much of the country is facing educational collapse for the first time. Randi Weingarten, now head of the national union rather than just its New York branch, surely knows how much future money her generation of teachers has made off with, and how much worse things will be not only for future generations of less educated Americans but younger and future members of the union, who were also sold out. Thus the desperate attempt to secure more money from a bankrupt federal government, change the subject, or try to pretend that the union is on the side of the children as the cuts to the classroom come down.

What are we to make of this? Spending in the portion of New York State outside New York City, which was high, is now even higher. We were robbed, and will be robbed again, because they can’t afford it, and will try to make us pay for it, because those who benefit from it take money off the top. New York City school spending, which was low, is now high, but mostly for the retired. As everything else is cut to pay for this, we’ll be robbed again. If the decline in the quality of the city’s schools over the next decade is what I expect, it will call into question whether the United Federation of Teachers would ever allow a decent school system in NYC. Or if it will just keep promising it for more money – then take it away by diverting the money to richer pensions, time after time. Like Lucy promising Charlie Brown he’ll get to kick the football.

In 20 years, with the U.S. falling farther and farther behind other nations, there may be another call for even more education spending, with a promise of improved schools. It should be viewed with suspicion. The producer interests have too much power, and too little conscience. Who knows? By then perhaps even charter schools will have evolved into a network of politically powerful private organizations similar to the school bus companies in New York City today – although for the next 20 years, until the cost of the 25/55 deal is finally paid for, they may become the only schools in NYC where an actual education is on offer.

Census Public School Finance Per Student FY02 FY08.xls64 KB