Rochester’s Broken School System

Kent Gardner argues forcefully in the Rochester Beacon that Rochester’s school system is broken and in need of radical change. Gardner’s post highlights the efforts of a local organization, ROC the Future, to bring about reform of the city’s school system. Gardner is correct – students in the city’s schools do poorly compared to others in the state, and the state designated Distinguished Educator Jaime Aquino’s recent report shows a series of failures of leadership, communication and implementation in the school district.   Here I take a close look at the dimensions of student performance in Rochester compared with other districts in Monroe County and the state outside New York City and look at what my findings suggest for possible reforms.

The Effect of Economic Disadvantage on Performance

Economic disadvantage is the strongest predictor of student performance among the socio-economic variables available for review in the data available from the state test database. The percentage of economically disadvantaged students in school districts is associated with 70% of the differences in performance on the 2018 Grade 8 New York State English Language Arts exam among school districts outside New York City.  

New York State defines economically disadvantaged students and family as those who take part in assistance programs “such as the free or reduced-price lunch programs, Social Security Insurance (SSI), Food Stamps, Foster Care, Refugee Assistance (cash or medical assistance), Earned Income Tax Credit (EITC), Home Energy Assistance Program (HEAP), Safety Net Assistance (SNA), Bureau of Indian Affairs (BIA), or Family Assistance: Temporary Assistance for Needy Families (TANF).

Grade 3 Results 

Third graders in the Rochester school system had the lowest percentage – 17% – of students passing the English Language Arts Exam of school districts in New York State outside New York City.  Among large school districts, Rochester had the highest percent of third grade students were economically disadvantaged – 93%.  Students in Syracuse performed nearly as badly – 20% of Syracuse third grade students passed. Ninety percent of Syracuse third grade students were economically disadvantaged.

Grade 8 Results

Eighty-seven percent of eighth grade Rochester School District students were economically disadvantaged in 2018, among the highest percentage in the state, and only 11.4% of 8th graders received a passing grade on the test – the lowest among the school districts studied. For districts in Monroe County outside the City of Rochester, an average of 37% of students were economically disadvantaged, and 50% passed the eighth grade ELA exam, receiving a grade of 3 or 4.

Other upstate cities also had relatively high percentages of disadvantaged students and small percentages of students passing the state exam, but Rochester’s case was the most extreme.

Five of the nine upstate cities in the chart above had a lower 8th grade passing rate than would be expected based on the relationship between student performance and economic disadvantage.  But, even if the schools in these cities had performed as well as expected based on the model, student performance would still have been poor.  In the case of Rochester, 17% of eighth graders would have passed and not 11%.  For Syracuse, 19% would have passed, not 15%.

The strong association between economic disadvantage and poor student performance found in Rochester and other upstate cities reflects other studies that find that student achievement at the school district level is strongly related to family income. For example, a group of Stanford University researchers in a study reported on by the New York Times in “Money, Race and Success: How Your School District Compares” found that sixth grade students in the richest districts are four grade levels ahead of those in the poorest districts.

How the Performance of Rochester Schools Compares with Others in Monroe County

The performance of schools within school districts varied, but the overall relationship between economic disadvantage and student performance continued to be strong. In this case, test results from grades 3 and 4  were combined, as were results from grades seven and eight, because small numbers of students attend typical elementary schools. By combining grades, random sampling variation is decreased.

Third and Fourth Grade Results

Rochester School District third and fourth grade students were both less likely to pass the ELA exam than students in other Monroe County school districts, and more likely to be economically disadvantaged.  The data for grade three and four shows that overall, more than 70% of students at all Rochester City schools were disadvantaged. At three schools, all of the tested students were disadvantaged. The performance of third and fourth grade Rochester School District students varied, ranging from six percent passing at one elementary school to 37.5% at another.

Of 17 Rochester School district schools studied, only four had passing rates that equaled or exceeded the percentage that would be expected based on a linear model of the relationship between student performance and the percentage of disadvantaged students. Among those four schools, the amount by which performance exceeded expectations was not large. Four of the 17 were in the bottom 20% of schools based on performance when the percentage of disadvantaged students was considered.

As a group charter schools had a lower percentage of disadvantaged students (78%) in third and fourth grade than schools in the Rochester School District (91%).  Overall, performance of third and fourth grade students at charter schools was better than at schools in the Rochester School District when the concentration of poverty was considered.  Of the six charter schools examined, performance was near what would be expected based on the percentage of disadvantaged students at three schools. Performance at two charter schools relative to the percentage of disadvantaged students was in the top 3% of all schools.

Readers should not conclude from this finding that charter school students at some charter schools performed better than at most Rochester City schools solely because of charter school teaching methods. Other studies have shown that self-selection accounts for some of the better performance of some charter schools. Charter schools are likely to be seen as more challenging than public school alternatives and may attract parents and students seeking a more rigorous alternative. See this study for aa review the issue. The kind of analysis employed here cannot account for self-selection.

Seventh and Eighth Grade Results

Smaller percentages of eighth grade students in Rochester schools passed the 8th grade ELA exam than in other Monroe County school districts.  Between 0% and 24% of students passed the state’s ELA exam. At the same time, concentrations of economically disadvantaged students in Rochester were much higher than in other Monroe County school districts.  73% to 94% of eighth grade Rochester City School students were economically disadvantaged. Performance at five of the ten schools in the group was in the bottom 20% of schools based on the relationship between performance and economic disadvantage. Performance at the other five schools was near average.

As with third and fourth grades, a smaller percentage of seventh and eighth grade charter school students was economically disadvantaged (75%) than students in the Rochester School District (88%). Charter school performance was mixed, though overall it was significantly better than at Rochester School District schools.

Performance at one school was slightly below what was predicted.  At two charter schools, performance was average. Performance at two schools was in the top 20% of schools based on the model. Performance at the remaining charter schools was in the top two percent. Cautions again apply about the causes of the relatively good performance at two of the charter schools – self-selection may have influenced the outcomes.

Conclusions

Rochester’s school system is at a crossroads. Student performance in Rochester schools is poor, even accounting for effect of the high percentage of students who are disadvantaged. The recent report by distinguished educator Jaime Aquino documents shortcomings in leadership, communications and policy execution. These factors all call for substantial changes in current practice.

The data about charter schools is somewhat equivocal. While student performance at several charter schools was substantially better than at public schools with similar percentages of disadvantaged students, the performance of others was not above average. Because charter school students apply for admission, selection bias is a possible explanation of better performance.  It should also be noted that though most students at charter schools were economically disadvantaged, the concentration of disadvantaged students in Rochester School District schools was 13% higher than at charter schools as a group.

In the best performing schools in the region, more than 70% of students pass the state’s ELA exams, compared to 15% for third graders and 16% for eighth graders in Rochester City Schools. But, only 20% to 30% of students in the best performing districts were economically disadvantaged compared with about 90% in Rochester.

The pervasiveness of the relationship between economic insecurity and poor student performance points to the need reduce the concentration of poverty in the City of Rochester. As a city, Rochester is highly dependent on other levels of government – primarily the Federal government — for assistance in combatting poverty. The city/county anti-poverty initiative – RMAPI operates with involved entities on strategy development and coordination. It is important that RMAPI and its partners develop clear strategies implemented at a scale that is large enough to have meaningful impacts. Rochester’s Center for Governmental Research developed a series of options for policy initiatives for RMAPI in 2014, some of which the organization followed.

The most recent progress report posted on the RMAPI website describes its 2017 accomplishments. The most recent press release is dated January 2018. Although the organization made some programmatic initiatives in the 2015-2017 time-frame, its website lacks information on the current status of its efforts.

There are potential federal actions that could benefit low income families. Because poor families cannot invest in their children as much as wealthier parents, solutions like proposed refundable family tax credits could help the already existing Earned Income Tax Credit reduce income insecurity. Increasing food stamp benefits, particularly for families with children might be another approach. Because there is evidence that disadvantaged students perform better in schools that have lower concentrations of disadvantaged students, efforts to provide lower income families with access to housing in wealthier neighborhoods has been proposed as a remedy.

In part, the organizational failures in the Rochester City School District may reflect the difficult conditions within which they operate. But, students at city schools do not perform well, even considering the concentration of economically insecure students who attend them. Given the lasting consequences of student failure, community expectations demand better. The Distinguished Educator’s report demonstrates that the district must make a sharp course correction if it hopes to meet the needs of Rochester families.

At the same time, as long as the concentration of poverty in Rochester continues to be very high, efforts to substantially improve student performance at city schools are likely to be only marginally successful.  The performance of students in Rochester City school reflects the nexus of income inequality and organizational failures. Ameliorating the problem will require a multi-pronged approach that addresses both problems.




New York’s Local Revenue Sharing Aid Program is Broken:  How to Fix It

Most New Yorkers are aware that the state has a cap on local property taxes that has effectively slowed their growth.  But few know that residents of a few large cities benefit from a multi-million-dollar infusion of state dollars that limits property taxes, while residents of smaller cities, towns and villages get far less help.  Because of this, residents of smaller cities pay a substantial property tax penalty compared with their suburban neighbors, one that residents of Buffalo, Rochester and Syracuse do not pay.

Among New York’s 25 most highly taxed municipalities, the State’s $714 million AIM revenue sharing program has a highly variable impact on property tax burdens. Without AIM aid, the property tax on a $150,000 home would be $4,500 in Buffalo and $4,827 in Binghamton.  With AIM aid, the Binghamton homeowner would save about a thousand dollars while savings to the owner of a similarly valued home in Buffalo are nearly three times that. Within the Rochester MSA, AIM saved owners of a $150,000 Rochester home $2,043 while Genevans with a comparable home—and a higher tax rate than Rochester without AIM—save only $735. Why should the tax break vary so much?

Residents of villages with high tax burdens fared even worse.  In Ellenville, the tax on a $150,000 home would have been $4,155.19, but AIM only provided a benefit of $38, bringing the property tax bill down to $4,118.

Note the data in this report is from the New York State Comptroller’s Office, Financial Data for Local Governments, 2017.

City taxes, except for Rochester, Syracuse and Buffalo are typically far higher than in surrounding suburbs.  In the Albany metropolitan area, for example, residents of the City of Albany owning a house valued at the metropolitan area median price would pay $1,788 more than in the neighboring town of Colonie.  Schenectady residents pay $2,624 more than in the neighboring Town of Niskayuna.  Residents of Utica pay $1,786 more than New Hartford homeowners.  In effect, the state’s property tax structure imposes a substantial penalty on people who chose to live in most of its cities.

The AIM program provides enough aid to even out disparities in property tax burdens between large cities like Buffalo, Rochester and Syracuse and their surrounding suburbs, but falls far short of providing enough help for smaller cities like Albany, Troy and Geneva.    The gap in property tax rates between Rochester, Syracuse and Buffalo and their suburbs is about $2 or less.  For most cities, AIM does relatively little to reduce the gap between cities with high tax rates and lower tax rates in towns and villages surrounding them. For most cities the gap is $10 or more – $1,500 on a $150,000 home.  The gap between Buffalo’s property tax rate and neighboring towns was $1.22.  For neighboring Niagara Falls, the gap was $14.63 per thousand of full value.  The gap between Syracuse’s property tax rate and neighboring towns was fifteen cents.  For nearby Utica, the gap was $13.48.

In a recent post “AIM Aid Needs an Overhaul” in the Beacon, Kent Gardner argues that “We would think that AIM aid would be driven by a formula based on community need. If that’s the case, the formula seems to work poorly.” The existing AIM program reflects a series of past legislative bargains, responding to perceived needs that were identified many years ago that may no longer exist.  The practice of allocating aid based on a combination of prior program funding and additional criteria results in a jumbled funding pattern.

AIM As a Source of Municipal Revenues

AIM is an important source of revenue for cities.  In a few places, particularly large cities like Rochester, Buffalo and Syracuse, state revenue sharing through AIM generates far more revenue than property taxes — in the case of Buffalo and Syracuse, about twice as much.  For many others, AIM aid is important, but is a smaller contribution than are local property taxes.  In Albany, AIM provides revenues equal to 22% of what local property taxes generate.  In Binghamton, AIM generates 25% of what local property taxes provide.

For towns and villages, AIM aid is less significant, averaging less than 3% of local property tax revenues.

Differences in Local Tax Burdens

Municipal taxes vary substantially in New York State. Homeowners in the first quartile paid about $550 in municipal taxes in 2017 (not including school or county taxes).  Those in the highest quartile paid about $4,100.  AIM revenue sharing aid did reduce taxes in high tax municipalities more than in low tax locations, but the assistance was not large enough to substantially reduce the difference in taxes.

Much of the difference in property tax rates between communities reflects regional differences in property values.  Home values in the Albany-Schenectady-Troy metropolitan area are about 50% higher than those in other metropolitan areas.  Values in Nassau and Westchester Counties are about double those in Albany-Schenectady-Troy and triple those in other upstate metros.

Because of the large differences in regional housing prices, tax equity between municipalities should be addressed regionally – within counties, rather than statewide.  Statewide comparisons overwhelm differences in tax rates within housing markets, distorting our understanding of tax impacts within them.  It should be noted that housing prices vary significantly even within counties.  City housing prices in most cases are lower than in suburban areas.
Property taxes are based on wealth derived from property ownership.  But, residents typically pay taxes from their incomes.  Median household incomes vary across the state, but not as much as housing prices.  Incomes in Albany-Schenectady-Troy are about 20% higher than in Utica-Rome and Buffalo, and about 13% higher than in Rochester and Syracuse.  Household incomes in Nassau County are 60% higher than in Albany-Schenectady-Troy, while incomes in Westchester area about 33% higher.  Municipal (City, Village and Town) municipal property taxes per household are similar in Binghamton, Syracuse and Rochester but taxes in Buffalo-Niagara Falls were about 30% higher than in most other upstate metros.   Per household municipal property taxes in Nassau and Westchester were about almost twice as has as in most upstate metros.  Overall, property tax per resident by cities, towns and villages tracks household income more closely than home values.

Within metropolitan areas, the difference in household incomes is much greater than the differences between metros would suggest.  In the Rochester metropolitan area, median incomes range from $31,700 in the Village of Penn Yan to $110,544 in the Town of Pittsford.  In the Albany-Schenectady-Troy metropolitan area, the range is from $34,495 for the Village of Cobleskill to $105,398 for the Town of Niskayuna.
All upstate cities, except for Saratoga Springs had median incomes per household that were lower than the upstate average.  But large cities like Buffalo, Yonkers, Rochester, Syracuse get far more than can be justified based on median household income relative to other cities.

Although Buffalo, Rochester and Syracuse each have about the same household incomes, Buffalo gets more aid per household ($1,458) than either Rochester ($1,024) or Syracuse ($1,290).  Niagara Falls ($835), Lackawanna ($844), Rome ($708), Utica ($686), Troy ($614) and Binghamton ($463) also get less aid per household, despite having similar median household incomes.  Jamestown, which is the city with the lowest median household income gets $358 per resident compared to Buffalo’s $1,458, even though its median household income is lower.

On average, AIM benefits per household were much smaller for villages and towns than for cities, averaging $17 compared with $756 for cities.  But, like AIM assistance for cities. AIM assistance for towns and villages with similar median household incomes varied substantially.  For example, the Village of Kaser in Rockland County had a median household income of $17,564 and received $17 per household in AIM assistance.  Two towns in the Adirondack forest preserve received much more.  The Town of Newcomb, with a median household income of $46,500 received $752 for each household, and the Town of Long Lake which had a median household income of $55,795 received $766.

Reforming AIM Revenue Sharing

Reducing the large disparity in tax rates between cities, towns and villages with high property taxes and those with lower tax rates should be a priority for reform of the current AIM revenue sharing program. Cities have been coping with losses of population for many years.   Public concerns about public safety, deteriorating housing stock and school quality as well as racial, ethnic and religious fears can discourage home buyers from considering city locations.  Attaching a significant property tax penalty to cities and other high tax municipalities further deters housing consumers.

This table compares municipal tax rates for cities and towns (including special districts) in metropolitan areas.  It also shows the 2017 municipal property tax based on a median priced home (source: www.zillow.com) in the metropolitan area.  (Note that school and county taxes are not included here.  Village taxes were also not included because village taxpayers also pay town taxes, which would have made calculations much more complex.)   For example, in the Buffalo metropolitan area, the municipal tax on a median priced home in Buffalo, Erie County would have been $296 more than the average for towns in the Burralo-Niagara Falls MSA.  But, home owners in smaller cities in the MSA saw much larger differences.  Residents in Niagara Falls would have paid $1,868 more, while residents of Tonawanda would have paid $1,598 more than average town residents.

To make the state’s AIM revenue sharing program more effective, the State legislature could consider increasing assistance to high tax municipalities.  As a hypothetical example, the legislature could provide enough additional revenue sharing aid to reduce the maximum tax rate differential to thirty percent more than the average for towns (including fire districts) within a metropolitan area or county.

This table shows that increasing AIM aid to ensure that the municipal property tax rate for every locality in a county to no more than 30% more than the average for towns, villages and special districts  in a metropolitan area or county would even out the burden on in different localities.  The most dramatic case is that of the City of Schenectady, which would see taxes on a median priced home decrease from $3,504 to $1,274. Troy taxpayers would have substantial savings as well – about $1,800 on a median priced home.   Utica taxpayers would save nearly $1,500.  Again, note that there are variations in median home values within counties.  Home values in most cities are lower than in most suburbs.

Conclusions

Currently, New York property taxes impose a substantial penalty on residents of municipalities with high taxes.  Cities, other than Rochester, Syracuse and Buffalo, face a significant disadvantage in attracting homebuyers because property taxes in cities are typically thousands of dollars higher than in surrounding communities.  High property tax rates can reduce home values in a municipality because tax rates factor into their affordability.

Remedying the problems with AIM would be simple, though politically difficult.  A uniform approach to cities, towns and villages that provides enough funding to reduce the tax penalty for living in high tax cities and other localities to a few hundred dollars for a typical taxpayer would go a long way to resolving the problem.  The approach should focus on differentials within housing markets – metropolitan areas or counties, not against statewide averages, since home buyers and owners are primarily interested in tax differentials within the areas that they might consider choosing.

The cost of making AIM more effective would be $510 million.  But the important point is that an effective revenue sharing reform would not add to overall state and local spending. Instead, by reducing local tax bills and moving costs to the state, it would even out tax burdens paid by residents for local government services.  $510 million is a significant amount of money for state government to raise.  But the cost should be viewed in context.  Last year, state school aid increased by $995 million.  And, a reform to AIM need not be implemented all at once.  Instead, it could be introduced gradually.

The State’s AIM revenue sharing does not address another large inequality that results from local government reliance on property taxes to pay the cost of local services.   Because property taxes tax the value of homes and other real property in a community, they do not reflect ability to pay, which, for households, depends on income.  Because there are large income variations within every municipality in the state, some homeowners face a substantial burden in paying property tax bills.

The state does offer one program, the STAR tax credit, that provides property tax relief to homeowners.  The program has one income sensitive element, available only to seniors, that provides additional assistance to homeowners with incomes below $86,300. Additionally, homeowners who itemize deductions receive larger deductions if they have larger property tax bills.  But the state could consider additional mechanisms to aid low income householders with high property tax burdens by extending property tax deductions to non-itemizers or by structuring the STAR tax credit to be more progressive.




Times Union Op-Ed: State’s Unfair City Aid Formula Needs Revising

I’ve been looking at how well the State’s local revenue sharing works.  It doesn’t work well.  I wrote an Op-Ed that appears in the Albany Times-Union this weekend:  It may be found here:  https://www.timesunion.com/opinion/article/State-s-unfair-city-aid-formula-needs-revising-13709884.php

I’ll have a longer piece that takes a closer look at this on my blog next week.




Misconceptions About People in Poverty: Are Work Requirements Effective?

This is an expanded version of the essay, “False Stereotypes Harm People in Poverty” that appeared in the Rochester Beacon, containing additional information relating to the five largest upstate metropolitan areas.

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Misconceptions about people in poverty appear to drive proposed changes in social welfare policy, particularly the work requirements either being promoted by the Trump Administration and discussed or implemented in several states. A fuller understanding of factors underlying the problem of poverty suggests that these policies will be counterproductive, neither reducing the incidence of poverty nor helping those individuals and families targeted by these new policies.

The concentration of poor black and Hispanic people in central cities has allowed politicians to characterize the poor as “others”- people unlike white suburban majorities in upstate metropolitan areas, and to disparage them as dishonest, lacking in ambition and willingness to work.

For example, Ronald Reagan claimed the existence of a “welfare queen”, who supposedly cheated the government of $150,000.  Josh Levin, in “The Welfare Queen” describes Reagan’s line of argument, “When he ran for president in 1976, many of Reagan’s anecdotes converged on a single point: The welfare state is broken, and I’m the man to fix it. …. In Chicago, they found a woman who holds the record,” the former California governor declared at a campaign rally in January 1976. “She used 80 names, 30 addresses, 15 telephone numbers to collect food stamps, Social Security, veterans’ benefits for four nonexistent deceased veteran husbands, as well as welfare. Her tax-free cash income alone has been running $150,000 a year.”

The story was untrue.  The real welfare queen had defrauded the government of $8,000 using a few false identities.

Reagan was not alone in stoking resentment against poor beneficiaries of government assistance.  Donald Trump more recently claimed that, “I know people that work three jobs and they live next to somebody who doesn’t work at all. And the person who is not working at all and has no intention of working at all is making more money and doing better than the person that’s working his and her ass off.”  Trump also claimed in 2011, the existence of “a food stamp crime wave.”  Neither of these claims was supported by evidence.

Like much of the public, Trump believes that most black people are poor.  The New York Times reports that, “Trump also said to black voters: “You’re living in poverty; your schools are no good; you have no jobs.”

Those who see people in poverty as “others” are more likely to ascribe their condition exclusively to lack of personal responsibility, ignoring other factors, like education, disability, racial discrimination and family structure.  These beliefs often lead to support for coercive government assistance policies for the poor, such as work requirements for medical, food and housing assistance.

Poverty in Upstate Metropolitan Areas

More than one in seven (540,000) residents of five upstate metropolitan areas – Albany-Schenectady-Troy, Buffalo-Niagara Falls, Rochester, Syracuse and Utica-Rome – lived in poverty in 2016, roughly comparable to the national average of 15%.[1]

Most people view poverty as primarily a problem of the central cities.  Concentrations of poverty in upstate New York cities are far higher than in suburban areas. But the concentration of poverty in upstate cities does not tell the full story.  In each metropolitan area, about half of people in poverty live outside central cities.  In the Rochester and Syracuse Metropolitan areas, more than half lived outside central cities.

For example, in the Syracuse metropolitan area, 34% of city residents live in poverty, while 11% of those living outside the city are poor.  But, the population of Syracuse is only 21% of the metropolitan area total.  As a result, more than half (55%) of the people living in poverty in the Syracuse metropolitan area live outside the city of Syracuse.

Other metropolitan areas show similar patterns.  55% of poor people in the Rochester MSA live outside the City of Rochester.  49% of poor residents of the Albany-Schenectady-Troy MSA live outside central cities.  47% and 43% of poor residents in the Utica-Rome and Buffalo-Niagara Falls MSA’s live outside central cities.

Because about only one in ten people living outside central cities in upstate metropolitan areas is poor, the suburban poor are relatively invisible despite their relatively large numbers, while those living in central cities, with higher poverty concentrations, are much more visible.

Race

Many people believe that people living in poverty are primarily members of racial minorities, even though overall, in most upstate metropolitan areas most poor people identify as “white, non-Hispanic or Latino. Overall, 64.6% of all residents of upstate New York[2] living in poverty identify as white, not Hispanic or Latino.

  • In upstate New York, only in the Buffalo-Niagara metropolitan area did non-white residents make up most people living in poverty.
  • In the Albany-Schenectady-Troy, Syracuse and Utica-Rome metropolitan areas, more than six in ten people in poverty identified as “white alone, not Hispanic or Latino.”

Because of the high concentration of poor people in central cities, city residents living in poverty are more visible than those living in suburbs.  In upstate metropolitan areas, more than 60% of people in poverty outside central cities identify as “white alone, not Hispanic or Latino.”  In central cities, the picture differs. Only about 25% of central city residents in poverty identify as “white only.”

In the Rochester metropolitan area, 19% of city residents living in poverty identify as white, non-Hispanic or Latino, while outside Rochester, 81 percent of poor residents identify as non-Hispanic/Latino whites.  In the Syracuse metropolitan area, 25% of city residents living in poverty identify as non-Hispanic or Latino white, while outside Syracuse, 76% of poor residents identify as white alone, not Hispanic or Latino.

Similarly, there is a commonly held belief that most minority group members are poor.  But, in the United States, and in upstate New York metropolitan areas, most black and Hispanic residents do not live in poverty.  More than six in ten lived above the poverty line in 2016.

  • About nine of ten white, non-Hispanic or Latino households do not live in poverty.
  • The fact that a much larger percentage of minority residents of upstate metropolitan areas live in poverty than people who identify as white is a real problem, but the common perceptions that most poor people are minority group members, and that all (or most) blacks are poor are not true.

Work

In upstate metropolitan areas, a much smaller percentage of people over 16 living in poverty than those not in poverty worked full or part-time during 2016.  More than 80% of people between 16 and 64 not in poverty worked in 2016 in upstate metropolitan areas, while between 40% and 50% of those in poverty worked. Note that this data includes people who are disabled, caregivers and those in schools and colleges.

A Brookings Institution report notes that most of those who do not work nationally are caregivers (15%), students (13%), disabled (22%), or early retirees (6%).

Poor people who work in upstate metropolitan areas were much more likely to work part-time than full-time in 2016.  In contrast, most workers who were not in poverty worked full-time. About 80% of working people in poverty in upstate metropolitan areas reported working part-time in 2016.  In contrast, only about one-third of working people not on poverty reported that they worked part-time.

People in poverty work part-time for a variety of reasons, but the largest number – 33% — worked part-time involuntarily in 2016.  Caregivers (23%) and students (21%) were the next largest groups of part-time workers in poverty in 2016.

The high percentage of people who work less than full-time year around is the result of several factors.  A study by the Center for Budget Priorities points out that these include:

  • Low wage jobs often have irregular work schedules.
  • These jobs often lack paid sick leave or other paid leave.
  • Job turnover is high among low paid workers.
  • Many low paid workers are unable to find affordable child care arrangements.
  • Some low paid workers lack stable housing arrangements.

Work Requirements for Safety Net Programs

Stereotypes about people in poverty and their relatively low participation in the labor market have spurred policy proposals that make SNAP (food stamp) and Medicaid benefits conditional on beneficiaries participating in worker training or gaining employment.

President Trump’s Council of Economic Advisors (CEA) claims that employment levels of people on major government assistance programs are low: 60% of Medicaid recipients, 60% of SNAP (food stamps) recipients, and 52% of housing assistance recipients who were working age and not disabled worked less than 20 hours a week, or not at all.

The Council argues that “expanding work requirements, similar to those in place in TANF, to the three non-cash welfare programs discussed here (Medicaid, SNAP and housing assistance) would affect the majority of program recipients and require major increases in the work effort of non-disabled working-age adults, potentially helping recipients and their families.”

The CEA substantially overstates the number of poor people who receive government assistance who do not work. A Center for Budget and Policy Priorities analysis of the workforce participation data from the Council of Economic Advisors concluded it was based on a significant methodological error.  The CEA report looked at “whether an individual receiving assistance worked in a single month (December 2013), ignoring the fact that many workers have unstable jobs and receive help when they are between jobs.

A report by the Brookings Institution, “Work Requirements and Safety Net Programs” shows  42 percent being out of the labor force and roughly 11 percent unemployed in the one-month snapshot – leading to more than half of the group being labeled “not working” in the one month snapshot – [but] roughly 29% are out of work and just one percent are persistently unemployed over two years, meaning fewer than one third are not working consistently.”

Many people in poverty work less than full-time year around involuntarily.  If their work is seasonal or they have been subject to layoffs and recalls to employment, they would be likely to be subject to potential denials of benefits at those times when they were out of work – precisely the times that assistance would be most needed.  The Center for Budget Priorities report points out that

“SNAP participants often experience periods of joblessness and are more likely to participate in SNAP when they are out of work. Individuals who participated in SNAP at any point over a 3.5-year period from 2009 through 2013 worked most months over this period but were more likely to participate when they were out of work.

  • They participated in SNAP in over two-fifths of the months that they were working (44 percent).
  • They participated in SNAP in 62 percent of the months in which they were not working, a time when their income was lower and their need for help affording food was higher.”[4]

To be sure, personal responsibility can be a factor in poverty. Single parents are much more likely to encounter poverty, for example. It certainly makes sense to implement policies that educate and remind people of the difficulties faced by single parents, encourage family planning, and hold absent fathers responsible for a share of the cost of raising children.

Instituting additional work requirements for participation in programs like SNAP and Medicaid would likely reduce participation levels and would increase administrative costs associated with compliance requirements.  Many of those who could lose benefits would lose assistance when they most need it.  Brookings found that For those who qualify for exemptions, satisfy waiver requirements, or work enough to meet the requirements, there are still significant informational and administrative barriers to compliance. Program participants must understand how the work requirement policy relates to them, obtain and submit documentation, and do so at the frequency prescribed by the state (Wagner and Solomon 2018) …. These continuing roadblocks to participation, with attendant informational and transactional costs, are likely to result in lower take-up among the eligible population and disenrollment (Finkelstein and Notowidigdo 2018).”

An analysis of the implementation of work requirements for Medicaid in Arkansas by the Kaiser Family Foundation found that recipients lost benefits because “Many Medicaid enrollees [were] still not aware of program changes despite substantial outreach.  In addition, an online reporting requirement is proving difficult for many enrollees due to limited knowledge of the requirements as well as lack of computer literacy and internet access,”

The fundamental question that these approaches raise is whether the government should condition access to essentials for human life, such as government provided food or health care coverage for unemployed poor people, on participation in training programs or gaining employment.  If such an approach is an acceptable incentive, why not limit public schools, police and fire services to those who work as well?

Because of false stereotypes about people in poverty that emphasize their differences from white suburban majorities, attitudes of much of the public to programs like SNAP and Medicaid and the poor people who receive assistance from them are negative.  Politicians have fostered these attitudes by promoting ideas like the “welfare queen” who supposedly abused the system, and people who don’t work who do better than those who “work his and her ass off.”  They use these stereotypes to promote punitive approaches to policies that help people in poverty pay for food, receive medical care and find housing.  These coercive policies are not responsive to the practical obstacles  confronted by individuals and families in poverty. Instead, they will further harm some who need assistance.

[1] Note that the official measure of poverty does not reflect the market value of food stamps or tax benefits like the earned income tax credit.

[2] Residents of counties outside the New York City metropolitan area.




Misconceptions About People in Poverty: The Push for Work Requirements

Misconceptions about people in poverty appear to drive proposed changes in social welfare policy, particularly the work requirements either being promoted by the Trump Administration and discussed or implemented in several states. A fuller understanding of factors underlying the problem of poverty suggests that these policies will be counterproductive, neither reducing the incidence of poverty nor helping those individuals and families targeted by these new policies.  Read more at:  https://rochesterbeacon.com/2018/11/30/false-stereotypes-harm-people-in-poverty/




School Segregation is Increasing in New York’s Cities and Suburbs

Recent articles in the New York Times and The Nation have focused on efforts to resegregate schools in the South, by carving new predominantly white school districts out of larger county-wide school districts that are predominantly black and Hispanic.  The articles examined a recent federal court decision that permitted the creation of the Gardendale School District near Birmingham, Alabama.  The new district is 75% white, in a county school district that has a majority of black and Hispanic students.

In 1954, the United States Supreme Court, in Brown vs. Board of Education, outlawed the creation of segregated school systems by law.  While first efforts to combat segregation focused on legally created barriers to integration in the South, later, courts ordered busing to combat segregation in northern school districts, like Boston.  These efforts were met with fierce resistance from parents who did not want their children to be bused to schools that had large minority student populations outside their neighborhoods .

Resistance to school integration has been has been widespread.  While legally created separate schools in the same school system for white and black students have been eliminated, opposition to efforts to combat segregation based on residential patterns has been widespread and largely successful.  Today, the schools attended by black and Hispanic students typically have far higher concentrations of minority students than those attended by white students.  While segregation in the South was the result of laws that created separate school systems for white and black students, today much of the segregation results from the concentration of black and Hispanic students in cities with majority black and Hispanic populations.

In an earlier post, I examined the growth of segregation of black and Hispanic students in metropolitan areas in New York State.  In this post, I compare the concentration of black and Hispanic students with white students in schools in cities and suburbs in New York metropolitan areas.

Changes in School Enrollment 

In upstate metropolitan areas, and in the suburbs in the New York metropolitan area, enrollments of black and Hispanic students have increased substantially between 1990-91 and 2014-15 – by more than 50,000 upstate and by 140,000 in the New York suburbs.

  • Black student enrollments increased in upstate metropolitan areas grew by 23,000, while Hispanic enrollments grew by 32,000.
  • In Westchester, Orange and Rockland counties in the New York metropolitan area, black student enrollments grew by 15,000 and Hispanic enrollments grew by 45,000.
  • In New York City, black student enrollments decreased by 113,000 while Hispanic enrollments increased by 68,000.

White student enrollments decreased significantly both upstate (by 125,000) and in the New York metropolitan area (by 113,000).  Nationally, enrollments of black and Hispanic students increased by 7.4 million, between 1994 and 2014 (1990 data is not available) while white student enrollments decreased by 4.2 million.

Overall, school enrollments increased in New York City and its suburbs between 1990-91 and 2014-15, while they decreased in upstate metropolitan areas. Nationally, enrollments increased 12.6% between 1995 and 2014.

In percentage terms, school enrollments nationally were 49.2% white and 42.1% black and Hispanic in 2014-15.

  • Upstate metropolitan areas (66.3% white) and New York City suburbs (55.2% white) had higher percentages of white student enrollments than the nation, while New York City had higher percentages of black and Hispanic students.
  • National level data for 1990 showed a student population of 27.2% black and hispanic students, and 69.4% white students.

By 2014-15 the composition of student populations in schools had changed significantly from the 1990’s, nationally, in upstate New York metropolitan areas and in the New York metropolitan area, with large increases in the percentage of black and Hispanic students. New York City was the only exception – black and Hispanic students decreased as a percentage of the total.

Increasing Minority Student Concentrations in City Schools

In cities in upstate metropolitan areas, black and Hispanic student populations grew substantially as a percentage of the total – by nearly 25% on average.  Black and Hispanic student populations as a percentage of the total grew in suburbs as well, but the growth was much smaller – only 6.4% on average.  In the Orange-Rockland-Westchester portion of the New  York City metropolitan area, the growth of black and Hispanic students as a percentage of the total was about equal in cities and suburbs – 16% on average.

Most upstate cities have student populations that are majority black and Hispanic, while most suburban areas in upstate metropolitan areas have student bodies that are less than 10% black and hispanic.  On average, the gap in black and hispanic student percentages between upstate cities and suburbs grew from 44% to 63%.

Schools attended by Typical Black and Hispanic Students Differ from those attended by Typical White Students

This section compares the racial and ethnic composition of schools attended by typical black and Hispanic students with those attended by white students in 2014-15.  It does so by finding the percentage of black/Hispanic students at schools for a median student in each racial/ethnic group.  Computing the median involves sorting all the students in a group (black/Hispanic or white) in a metropolitan area by the percentage of minority students in the schools that they attend, and finding the percentage of black/Hispanic students in the school attended by a student who is at the exact middle of the sort.  Half of the white or Hispanic/black students would be attending schools with an equal or higher percentage of Hispanic/black students, while half would have an equal or lower percentage.

The data shows that in both cities and suburbs upstate, black and Hispanic students typically attend schools with higher concentrations of black and Hispanic students than do white students.

  • For example, in the Buffalo-Niagara Falls MSA, black and Hispanic students living in cities typically attend schools where 78% of the students are black or Hispanic.
  • White students in those cities typically attend schools whose student bodies are 46% black – a difference of 32%.
  • In other upstate Metropolitan areas, the concentration of black and Hispanic students in city schools ranges from no higher in the city of Binghamton to 20% higher in Utica-Rome.

Within suburban school districts in New York’s metropolitan areas, black and Hispanic students typically attend schools that have higher percentages of black and Hispanic students.

  • In the Rochester metropolitan area, black and Hispanic students living outside Rochester typically attend schools with 24% black and Hispanic students, while white students typically attend schools with 9% black and Hispanic students.
  • In other upstate metropolitan areas, the differences ranged from 2% to 11%.

Since most black and Hispanic students in metropolitan areas live in cities, while most white students live outside them, it is useful to compare the percentage of black and Hispanic students in schools typically attended by black and Hispanic students in cities with the percentage of black and Hispanic students in schools attended by typical white students outside cities.  Here, the contrast is stronger.

  • For example, In the Albany-Schenectady-Troy metropolitan area, a typical black or Hispanic student living in a city would attended a school that had 67.5% black and Hispanic students.
  • In contrast, typical white students living outside Albany, Schenectady and Troy attended schools that had 5.1% black and Hispanic students, a difference of 62.4%.

Differences were large in other upstate metropolitan areas, as well.  The difference in the percentage of black and Hispanic students in city schools attended by typical black and Hispanic students and schools outside cities attended by typical white students was 80.6% in the Rochester MSA, and 73% in the Buffalo-Niagara Falls MSA.

Conclusions

Since the 1954 Brown vs. Board of Education Supreme Court decision, it has been illegal to maintain separate schools for minority students and white students in a school district.  But, efforts to create racial balance in schools in cities and metropolitan areas in New York state and elsewhere have largely been unsuccessful.

In fact, the data shows that over the past 25 years, changes in living patterns have seen large increases in black and Hispanic populations in central cities in New York state, but relatively little change in areas outside them.  As a result, because school districts in New York State often follow city and town boundaries, black and Hispanic students are increasingly concentrated in city schools.

  • School districts in cities in upstate metropolitan areas have seen substantial increases in the percentage of students who are black and Hispanic – from 47.6% to 72.4% between 1990-91 and 2014-15.
  • In contrast outside Upstate cities, the average percentage of black and Hispanic students only grew from 2.8% to 9.2%.

The increasing concentration of black and Hispanic students within cities is not the full explanation of their increasing segregation.  Within cities and outside them, black and Hispanic students are likely to attend schools with higher percentages of black and Hispanic students than are whites.  This is largely the result of residential housing segregation within communities in our metropolitan areas.  As a result, the difference between the racial and ethnic composition of schools typically attended by black and Hispanic students and white students has grown larger – in five of seven metropolitan areas typical black and Hispanic students attended schools that had 65% or more black and Hispanic students, while in five of seven metropolitan areas typical white students attended schools whose populations had 5.1% or less black and Hispanic students.

The growth of racial segregation in New York schools is paralleled by its growth nationwide:  The U. S. General Accounting Office found in 2016 that “Over time, there has been a large increase in schools that are the most isolated by poverty and race. From school years 2000-01 to 2013-14 (most recent data available), both the percentage of K-12 public schools that were high poverty and comprised of mostly Black or Hispanic students (H/PBH) and the students attending these schools grew significantly. In these schools 75 to 100 percent of the students were eligible for free or reduced-price lunch, and 75 to 100 percent of the students were Black or Hispanic.”

Although there are significant potential benefits from schools that are more representative of the diversity of the population as a whole, the barriers to change are substantial.  While New York state has not seen the creation of white enclave school districts carved out of larger majority minority districts, the existing structure of local school districts has a similar effect.

There is no silver bullet that will remedy the growth of segregated schools in New York state, or elsewhere.  Remedies tried in the past, like school busing, have been very unpopular, and have generally failed.  Historically, federal housing policies in the 20th century supported racial segregation.  Similarly, suburban zoning laws and resistance to low and moderate income multi-family housing continue to play a role in preventing minority residents from living in them.  In the current political environment, with an administration in Washington, D. C. that is not supportive of federal intervention to promote integration, segregation in our schools is likely to continue to increase.

_________________________________________________________

Note:  For the Orange-Rockland-Westchester portion of the New York City Metropolitan Area, cities are:  Mount Vernon, New Rochelle, White Plains and Yonkers.




New York’s Dysfunctional School Spending Patterns

For many years, government spending in New York State has far exceeded the national average. State and local governments in New York had the second highest per capita spending in the nation in 2013.[1]

screen-shot-2016-12-08-at-8-52-07-am

Local government spending contributes significantly to New York’s high spending levels. Local government spending in New York averages $9,800 per person – the highest spending level in the nation.

screen-shot-2016-12-08-at-8-53-54-amSchools contribute the largest amount of local spending in New York.  They account for 49% of all local spending, and 61% of local taxes.  The contribution of schools to taxes is greater than to spending because a substantial portion of county spending is for social service programs funded by the State government.

New York school spending per student is far higher than the average for the nation – 87% higher.  Spending is particularly high in the suburbs surrounding New York City.  Because of the large regional disparities in school spending levels in New York State, they are likely to exacerbate educational inequality.

School Spending In New York State

screen-shot-2016-12-08-at-8-56-48-amCompared to other states, New York State spending per pupil is very high – 87% higher than the national average, and is significantly higher than the second state — Alaska (67% higher).[2] Even compared to neighboring states in the Northeast and Midwest, New York school spending is an outlier. New York’s spending per student is 16% higher than the states with the next highest expenditures – Connecticut and New Jersey and is much higher than the average for the northeast, excluding New York State – $20,610, vs. $15,639 – a difference of 32%.  The difference between New York and the average per pupil operating spending in the Midwestern states in the group was even larger – $20,610 vs. $11,556 – a difference of 78%.

This post will examine regional variations in school spending in New York state and in neighboring states, and regional variations within New York and neighboring states.

Household Income and School Spending

screen-shot-2016-12-08-at-8-58-18-amOperating spending per student is related to median household income at the state level, with income explaining about 40% of the variation in state average per pupil operating expenditures.  Schools in states with median household incomes below the national median of $51,939[3] spent $9,549 per student on average in 2014, compared with $14,268 for those above the average.  But, New York’s school spending is much higher than would be predicted from its residents’ median income.  New York’s median household income was $58,687, 13 percent higher than the national median.  The State’s average operating spending, $20,610, was 87% higher than the national average.

Regional Variations in Education Spending

screen-shot-2016-12-08-at-9-00-49-amAbout two-thirds of New York State’s 19,500,000 residents lived in the New York metropolitan area in 2014.  In that area, there is a sharp income division between the 8.4 million residents of New York City, whose median household income is $52,737 and the 4.9 million residents of suburbs in New York State around the city, which average $89,047.  The remaining 6.3 million New York residents who live outside the New York City metropolitan area have median household incomes that are like that in New York City and in the nation, about $53,000 on average.

Per pupil spending for current operations in New York State largely reflects regional household income differences.  Per pupil spending is much higher in the New York City suburbs than elsewhere, averaging $23,680 in 2014.  Spending in New York City was $18,579, while the average for upstate metropolitan counties was $16,846.

School spending in New York City suburban counties is much higher than for the rest of the state, and far exceeds per pupil expenditures measured at the state level outside New York State.   Expenditures in New York City, and in areas outside the New York City metropolitan area are lower, but are like those in the states with the highest spending levels in the region – Connecticut and New Jersey, and significantly higher than the Northeast median of $15,639 and the Midwest rust belt median of $11,556.

Cities and Suburbs – Income Disparities
screen-shot-2016-12-08-at-9-04-33-amTo understand spending differences between regions within New York State and areas outside the State, it is useful to look at per pupil spending within the major metropolitan areas in neighboring states, and outside those areas.  This is so because median incomes in metropolitan areas like New York City, Boston, and Philadelphia are significantly higher than in the rest of the states where they are located.  By comparing spending within and outside those areas, we can get a better understanding of how school spending differs in comparable areas within New York State and outside it.

Each of the four Northeastern states examined for regional disparities showed similar patterns of median household incomes.  Central City incomes were near or below state averages, as were incomes in areas outside major metropolitan areas.  Suburbs in major metropolitan areas showed very high incomes compared to state averages and central cities.

In each of the three major metropolitan areas studied median household incomes in central cities were between 32% and 52% less than in the suburban communities around them.  Philadelphia’s median household income is very low – $37,460, which is 51% less than median household income of the surrounding suburbs.  New York City’s median household income was 41% less than the surrounding suburbs in New York State.

Regional Spending Patterns
screen-shot-2016-12-08-at-9-10-37-amThe median household income for upstate metropolitan counties was like that in areas of Pennsylvania outside the Philadelphia metropolitan area, and below those in Massachusetts and New Jersey outside major metropolitan areas.  Per student operating expenditures in upstate metropolitan counties was higher than in neighboring states, averaging $16,846 compared with 12,641 in Pennsylvania and $13,883 in Massachusetts.

Median household income in suburbs around New York city was higher ($89,000) than in New Jersey ($71,000 around Philadelphia, and $75,000 around New York City), Pennsylvania ($76,915) and Massachusetts ($80,000).  New York City suburbs’ school spending per pupil was much higher than similar areas in nearby states – averaging $23,680 compared with $17,000 in New Jersey, $13,000 in Pennsylvania and $14,810 in Massachusetts.

New York City’s median household income was near that of Boston – $52,737 vs. $54,485, but per pupil expenditures in Boston were significantly higher than in New York city – $21,567 in Boston vs. $18,579 in New York City.  Philadelphia’s median household income was much lower than New York’s or Boston’s – $37,460, and per pupil expenditures were also relatively low for the region – $13,013.

The Impact of Disadvantaged Students on City Schools

Academic studies have consistently demonstrated that the cost of educating economically disadvantaged students is substantially higher than those from more affluent backgrounds.  For example, William Duncombe and John Yinger[4] of the Maxwell School at Syracuse University estimated the additional cost of estimating poor students and those with limited English proficiency to be 111% to 215%.

screen-shot-2016-12-08-at-9-11-45-amSince city school districts have much higher percentages of economically disadvantaged students than the suburban schools around them, to successfully educate their student bodies, per pupil spending should be higher in the cities than in the suburbs.  And, in Massachusetts, that is the case – Boston schools spend 48% more per pupil than the suburban schools around them.  But in New York State, the reverse is true – suburban schools spend 22% more per student than New York City schools.

Suburban areas around New York City, Philadelphia and Boston have significantly higher median incomes than those in the remainder of the states within which they are located.  In Massachusetts and Pennsylvania, per capita operating spending differs little from the suburbs of major cities to areas outside those metropolitan areas.  But in New York State, New York City metropolitan suburban school spending per student is far higher than in the remainder of the state.  Overall, there is substantially more regional spending inequality between suburban areas and New York City and the rest of the state than in similar areas in other states.

Implications

Overall, school operating spending per student in New York State is substantially higher than in neighboring Northeast states, and in the rust belt states of the Midwest.  Not surprisingly, the contrasts between New York’s high school spending levels are greater compared to schools in places like Ohio, Michigan, Indiana and Illinois than they are with New York’s immediate neighbors, like Massachusetts, Connecticut, Pennsylvania and New Jersey. When the State is broken down into regions – New York City, the suburbs in the New York Metropolitan area, and the rest of the state, only New York City shows spending levels that aren’t out of line with comparable regional entities.

The high spending levels found in New York State and its regions cannot be explained by differences in median household incomes, which are small compared with locations outside the state.   New York’s per student operating costs are 32% higher than the average of other Northeast states, and 78% higher than Midwest rust belt state.  Yet, New York’s median household income is significantly lower than some of its neighboring states, including New Jersey, where the median household income is 23% higher than in New York and in Massachusetts, where the median household income is 16% higher.

At the same time, New York has larger, regional variations in per pupil school spending that appear to exacerbate educational inequalities.  While the costs of meeting educational needs of students in districts with high concentrations of disadvantaged students are substantially higher than those in places with few of these students, wealthy New York City suburbs spend far more per student than New York City or other parts of the state. These large differences are not found in other nearby states.

[1] State and Local Finance Initiative – Data Query System:  http://slfdqs.taxpolicycenter.org/pages.cfm

[2] Source: U. S. Census Bureau:

http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SSF_2014_00A08&prodType=table

[3] In 2014.

[4] William D. Duncombe and John Yinger, “How Much More Does a Disadvantaged Student Cost?”  (2004) Center for Policy Research, Maxwell School of Citizenship and Public Affairs, Syracuse University. Paper 103.




Rex Smith’s Albany Times-Union Column, “Development Dollars Draw on Politics”

The Albany Times-Union carried a column by its Editor, Rex Smith on August 6th, concerning decision making by NewYork’s Regional Economic Development Councils, questioning whether their efforts are directed at areas of the state with greatest need.  His column may be found here.  The column draws on research that I recently published on this site.  It may be found here:

I have also written about Empire State Development’s use of tax incentives here: and about the Solar City project here:




Poverty in Upstate Metropolitan Areas – Characteristics and Change: 1999-2013

A paper, based, in part, on data previously presented on this blog site.

This paper examines the incidence of poverty in upstate New York cities, compared to the surrounding suburbs.  The data shows that while residents of upstate suburbs enjoy incomes that are substantially higher than the national average, and poverty rates that are substantially lower, upstate cities have higher levels of poverty and lower incomes than the nation, and it shows that the level of poverty in upstate cities is growing more quickly. Compared with other rust belt cities, the economic separation of central cities and suburbs is greater in upstate New York.

  • The data shows that poverty levels are particularly high for families with children under 18 – more than 50% in some cases.
  • The ratio of families with children living in poverty in upstate cities to those living in poverty in suburbs is greater than the average of rust belt cities outside New York State – as much as twice as great in some cases.
  • The residents of upstate cities are becoming increasingly economically segregated from those outside them. While nearly half of families with children in upstate cities are poor, only 5% to 15% of those in suburbs live in poverty.
  • Residents living in poverty in upstate central cities are less educated and less likely to work than people not in poverty outside those cities.
  • Households in poverty are far more likely to be headed by a single householder – usually a woman.
  • Minority group members are greatly over-represented among those living in poverty.

Read more here:




New York’s Ineffective Business Tax Incentives

In 1987, New York State enacted legislation to create an Economic Development Zones Program, modelled after the enterprise zones concept, championed by Congressman Jack Kemp.  Proponents argued that by reducing taxes in specific geographic areas with high concentrations of poverty and unemployment, existing firms would be more likely to create jobs, and other firms would be encouraged to locate in the areas and create jobs.

Enterprise Zones programs were attractive to policy makers, in part because they were “off budget.”  The programs provided financial benefits to companies that, unlike incentive grants, did not require the appropriation of state budget dollars to pay for them.

There is scant evidence that Enterprise Zones programs have been effective.  See, for example, this GAO report,[1]  which concluded that evaluations of Federal Empowerment Zones and Enterprise Communities could not demonstrate effectiveness, and this study,[2] which was did not show any impact as a result of Enterprise Zones programs in Florida and California.  Evaluations of the New York State program found significant administrative problems, but did not find significant benefits.[3]  The major problem with the Enterprise Zones concept was that because the tax advantages provided by the program were insufficient to offset the perceived disadvantages of inner city locations, the program did not result in job creation within the zones.

The program generated a cottage industry of consultants who advised businesses on how to take advantage of the benefits, by reorganizing in to new organizations so that existing jobs could be counted as new ones and by modifying zone boundaries, creating gerrymanders, to incorporate specific businesses.

But, over the years, the program was expanded and the benefits deepened.  It was renamed the Empire Zones program.  More areas were made eligible, yet the areas that the program was initially intended to benefit – distressed inner city communities in New York State – did not see improved conditions.  In fact, 20 years after the program’s enactment, they were in significantly worse economic condition.  In 1969, upstate cities had poverty rates that were slightly higher than the average for the state.  By 2013, most upstate cities had poverty rates that were more than double the state’s.

poverty cities

(Data for cities with populations of less than 100,000 is not available before 1999)

In the end, Economic Development Zones/Empire Zones became an embarrassment to successive governors and Empire State Development because of the difficulties in policing the abuses of the overly complex program, and its lack of success in inducing job creation.  Successive legislative efforts to “clean the program up” were met with continued creative approaches to exploit it by businesses.  The program was ended in 2010.

Despite the failure of the tax benefits contained in the Economic Development Zones and Empire Zones programs to induce job creation, and despite the administrative difficulties associated with administering the programs, Governors Paterson and Cuomo continued to rely on tax incentives as key elements of their economic development efforts.  Governor Paterson initiated the “Excelsior Jobs” tax credit that focuses on providing benefits to companies in industries that make capital investments and/or create new jobs in manufacturing and other sectors of the economy.  Governor Cuomo proposed the Start-Up NY program that offered tax-free benefits to certain businesses in selected locations connected to universities and colleges.  Both programs were promoted as major initiatives that would significantly improve New York’s economy.  But like the Enterprise/Economic Development/Empire Zones, the programs have failed to create significant numbers of jobs.  And, the job creation figures reported for them contain many jobs that would likely have been created without the loss of tax revenues.

Problems with Business Tax Incentives

Business tax incentives are similar to incentives provided to buyers of electric cars or insulation for their homes, in that people or companies become eligible by doing something that government considers desirable – conserving energy or creating jobs. But, they contain no “but for” test – users of the credits are not required to show that without the credits they would not do what is being incentivized.  As a result, some credits are always wasted on “free riders” — people or companies that would have acted if the credit was not available.

The use of tax policy to incentivize behavior is widespread, and if large enough, credible arguments can be made for their effectiveness.  For example, the available federal tax credit for the purchase of a Nissan Leaf, an electric car, is $7,500.  The advertised price of a Leaf begins at about $30,000.  Similarly, federal credits for energy conserving improvements in households have been as much as a quarter of the cost.  While we do not know how many of the people who purchased Nissan Leafs or weatherized their homes did so because of the availability of financial incentives from government, it is likely that some did.

But, while energy conservation incentives have been designed to be large enough to change people’s purchase decisions, state taxes are too small as components of business revenues to make a significant difference in most cases, particularly given the large differences in wage rates, which are a larger portion of business costs, between the United States and competitive locations.

The Tax Foundation published[4] a comparative analysis of total state and local tax costs for representative businesses in seven industries, including manufacturing, distribution, corporate headquarters, research and development, call centers, and retail.  From their data, I calculated total state and local tax costs as a percentage of firm operating costs, and compared New York with national medians, and with nearby states.[5]  The data shows that state and local tax costs are a very small percentage of total firm operating costs, and that differences between states are even smaller.

NYS VS MEDIAN

New York State had higher total state and local tax costs than the national median for most types of businesses, but the differences ranged from 0.7% more for call centers, to 1.8% more for research and development facilities.  For manufacturers, New York’s total tax costs were lower than the national median, but again the difference between state and local tax costs for manufacturers in New York State and for manufacturers in other states was less than 1% of operating costs.

comparable states

Compared to neighboring states, the picture was similar.  New York state and local tax costs were higher for some businesses, but lower for others.  But, in most cases, variations in other factors in the cost of production could be large enough to significantly change the relative advantage of differing locations.

In many cases, state taxes are too small a component of business revenues to make a significant difference in comparative location costs.  Fifty years ago, American businesses competed with businesses in other locations in the United States.  Differences in wages, construction and transportation costs were relatively small.   Today, with globalization, for manufacturers and other businesses that can move operations offshore, the large difference in wage costs between any state in the United States and in low wage locations outside the United States would swamp differences in company operating costs resulting from differences in state and local taxes.

While manufacturing cost structures vary widely,[6] on average, labor is estimated to account for 21% of manufacturing costs.[7]  In an article examining China’s manufacturing cost advantage, Peter Navarro, Professor of Economics at the University of California, Irvine, estimates that the cost of labor in China, adjusted for productivity differences, is 18% of that in the United States.  As a result, Navarro estimates that manufacturers would save 17% of manufacturing costs by producing in China, compared to the United States.

Business locations are not based solely on cost factors – labor availability, site quality, transportation, quality of life and other factors come into play.  But, available evidence shows that differences in state and local tax levels are relatively small factors in business costs, and that adjusting state tax structures to reduce business tax burdens has limited impact.

Repeating Failed Policies:  The Excelsior Jobs Program

When the Excelsior Jobs program was created in 2010, Governor David Paterson said “I’m pleased that the Excelsior Jobs Program, a streamlined economic development effort that will support significant potential for private sector economic growth, is now available in the marketplace to encourage businesses to grow and invest in New York.[8]

Eligible industries are those that could create net new jobs in New York State, not those, like most retail jobs, that simply move jobs from one company in New York State to another in the State.  The program description states, “The Program is limited to firms making a substantial commitment to growth – either in employment or through investing significant capital in a New York facility…The Job Growth Track comprises 75% of the Program and includes all firms in targeted industries creating new jobs in New York.”  While the program requires a commitment to job growth and/or investment, it does not limit program benefits to firms that would not expand or locate in New York State without the assistance.

The program requires that participants receving credits for job creation or investment have a positive benefit/cost ratio, defined as “total investment, wages and benefits divided by the value of the tax credits, or 10 to 1 or greater.  The program provides a refundable credit equal to 6.85% of new employee wages, or two percent of qualified capital investment, or 50% of the Federal Research and Development Credit.  Various employment and investment thresholds along with an aggregate benefit cap limit eligibility.[9]  Aggregate benefits were initially limited to $250 million annually.

Though the program had a generous dollar allotment for credits, credits actually issued never came near the $250-million-dollar annual limit.  In its best year, it provided $18.4 million in credits. Activity decreased to $745,000 in 2015.  The program has had a small job creation impact.  Empire State Development reports that companies receiving credits during that time period created 15,582 net new jobs, at a cost to the state of $47,357,602. The program’s impact has decreased in each of the last two years, with only 531 jobs credited as being created by companies receiving the tax credit in 2015.[10]

excelsior

Because the program does not have a “but for” requirement, ESD’s job figures certainly overstate the program’s true job impact.  While the exact percentage of “free rider” jobs is not known, one study estimated that nine of ten jobs created by companies receiving business tax incentives would be created without them.[11]  If that is true for the Excelsior Jobs program, the true program impact would be only about 1,500 jobs,  three tenths of one percent of New York’s private sector employment growth during the period.

Additionally, a recently issued audit from the State Comptroller’s office points to issues with ESD’s administration of the Excelsior Jobs Program.  The describes weaknesses in ESD’s processes in evaluating applications in in confirming job creation claims (note that the agency disputes a number of the audit’s findings.)[12]  In particular, the audit noted that “ESD generally authorizes tax credits based on the job numbers and investment costs that businesses self-report without corroborating support….[13]

Why has the program failed to have a significant impact?  The evidence points to the fact that because much of its emphasis is on manufacturers and other companies that could locate outside the United States, it does not offer benefits that are sufficiently large to offset the cost disadvantages of creating jobs in New York State, or anywhere else in the United States.[14]

Repeating Failed Policies:  Start-Up NY

In announcing the Start-Up NY program, Governor Cuomo said, “Upstate New York has seen too many years of decline, and our communities have lost too many of their young people,… We desperately need to jumpstart the Upstate economy and these new tax-free communities will give New York an edge like we’ve never had before when it comes to attracting businesses, start-ups, and new investment. Today’s agreement on the START-UP NY legislation is a major victory for our Upstate communities as we are now set to launch what will be one of the most ambitious economic development programs our state has seen in decades.”[15]

 The promotional materials for the program advertise tax free benefits, and give the impression that the program is relatively easy to access:

“START-UP NY offers new and expanding businesses the opportunity to operate tax-free for 10 years on or near eligible university or college campuses in New York State.

 Partnering with these schools gives businesses direct access to advanced research laboratories, development resources and experts in key industries. 

To participate in START-UP NY, your company must meet the following requirements:

  • Be a new business in New York State, or an existing New York business relocating to or expanding within the state
  • Partner with a New York State college or university
  • Create new jobs and contribute to the economic development of the local community”[16]

The State Comptroller found[17] that between October 2013 and October 2014, ESD committed $45.1 million to advertise the program, generating more than 15,000 applications during the period.  However, despite the heavy advertising for the program, which continued after the period examined in the Comptroller’s report, the program has had almost no job creation impact.

Empire State Development has issued two reports on the program’s progress.  In 2014, companies assisted by the program created 76 jobs, while in 2015, assisted companies created 332 jobs.  The state tax benefits provided per job through the program were even smaller than those offered by the Excelsior Jobs Program, averaging $1,121 per job created (not including local property tax exemptions).[18]  And, because Start-Up NY has no requirement limiting assistance to companies that would not create jobs in New York without the tax credits offered, it is likely that the jobs reported substantially overstates the program’s actual impact on job creation.

starupny

The reality is that Start-up NY is extremely complex, the value of benefits to participating companies is small, the program is available in very small areas, and its requirements are difficult to meet.  One economic development professional described it as “the worst program I ever saw.  I was glad I never had to explain it to a client.”[19]

Effective Approaches to Job Creation and Retention

 The tax incentive based approaches used by the State in its Empire Zones, Excelsior Jobs, and Start-Up NY programs have not met the claims made by the governors that championed them.  But, other economic development efforts of state and local governments have been shown to be effective.  Among them are:

  • Regional Economic Development Councils: Regional councils are required to create strategic plans, set clear goals, and disclose progress in meeting established goals as a condition to receive funding for proposed projects.  While Regional Council strategies and reports vary in quality, some are well grounded and provide good disclosures of project performance.[20]
  • Project Based Assistance: Assistance from the State and localities for plant and equipment capital costs and for customized job training that employs a “but for” test can be effective in inducing companies to create and retain jobs because the amount of assistance offered may be large enough in relation to project size to affect company decisions.  ESD, for example, uses “but for” tests in making grants, employs benefit/cost benchmarks, and monitors company performance in meeting performance goals.
  • Develop Long Term, Well Integrated Industry Development Strategies: For example, New York, through Empire State Development and other agencies, provided substantial assistance to the development of nanotechnology research and development capacity at the College of Nanoscale Science and Engineering, and with local partners, significant financial assistance to the development of the Global Foundries chip-fab facility.  In Buffalo, the State has assisted in the region’s effort to enhance its bioinformatics and life sciences concentration at Roswell Park and related institutions.  Efforts like these take an integrated approach to industry development.
  • Recognize that Retaining Existing Jobs Should be as High a Priority as Job Creation: Because decisions of existing businesses about expansion, contraction or closing can have large effects on a state’s economy, state and local economic development agencies need to focus on understanding the needs of local business and assisting them, where appropriate.
  • Support Entrepreneurship: Evidence shows that entrepreneurial training programs increase business startups.[21]  New York has an existing program, the Entrepreneurial Assistance Program, that focuses on minorities, women, dislocated workers, public assistance recipients, disabled persons and public housing residents.  While the focus on disadvantaged workers is commendable, broader availability could increase the program’s reach.

New York State’s Economic Condition

 There has been longstanding concern about the impact of the decline of manufacturing, particularly in upstate New York.  The region’s population growth has been very slow, while its central cities have seen significant population declines.  Compared to thirty years ago, the residents of upstate central cities are far more likely to live in poverty.  These are all significant concerns.  But, even upstate, the region’s overall economic health is as good as, or better than the average for nearby states.[22]

realgdppc

Each of the Metropolitan areas in New York State, including those in upstate New York had greater growth in real gross domestic product per resident than the average for metropolitan areas in nearby states.  But, the growth of poverty in New York metropolitan areas was below the average for nearby metropolitan areas.

poverty

Private sector wage growth in New York State presented a more mixed picture – Buffalo, Albany, and New York City did better than regional average, while Syracuse and Rochester did worse.

wage

Conclusion

While the economic condition of metropolitan areas in New York State, including those in upstate New York, improved relative to nearby areas, in most cases, some places in the state are in very poor economic condition.  Upstate cities continue to lose population and have increasingly great concentrations of low income populations.  Upstate downtowns have large amounts of vacant commercial space, and upstate cities suffer from blighted, abandoned housing.  Minority group residents of upstate cities have average household incomes that are about one third of white suburban residents.

If the lives of residents of central cities are to be improved, New York must address the factors that create concentrations of economically disadvantaged people.  These include:

  • Schools with high concentrations of economically disadvantaged children. Evidence demonstrates that children from disadvantaged families perform substantially better in schools that have higher percentages of students who are not disadvantaged:  http://policybynumbers.com/why-critics-of-upstate-city-school-performance-miss-the-largest-cause
  • Single parent families face significant obstacles to success, that also damage the prospects for their children: http://policybynumbers.com/category/single-parent-families.
  • Racial segregation is highly related to poverty and poor student performance. http://policybynumbers.com/income-student-achievement.
  • Cities have high concentrations of low income residents living in blighted neighborhoods, because most cannot afford to live in better quality housing. More housing vouchers, additional income supplementation, particularly for part-time workers, and increased job accessibility for low skilled workers would help central city residents find better places to live.
  • Cities need help in tearing down vacant housing, cleaning up and reclaiming vacant industrial sites and rehabilitating blighted neighborhoods.

But, the focus of highly publicized and expensively marketed economic development initiatives in New York State has been on ineffective programs that have led to negligible job creation.  By all accounts they have not succeeded in “supporting significant potential for private sector economic growth” nor do they “give New York an edge, like we’ve never had before.”  While many existing economic development efforts at the state and local level produce tangible results, few of them focus on the places in New York State that have done the worst, from an economic perspective. Given the growing bifurcation of the economic conditions of city and suburban residents, more attention should be given to them.

[1] http://www.gao.gov/products/GAO-10-464R,

[2] http://edq.sagepub.com/content/23/1/44.short

[3] Findings of many of these studies are summarized here:  http://www.cbcny.org/sites/default/files/report_ez_12012009.pdf

[4] http://taxfoundation.org/sites/default/files/docs/location%20matters_0.pdf

[5] The Tax Foundation calculated state and local tax costs as a percentage of net profits.  But since companies seek to minimize overall costs, I compared taxes to total costs. (operating expenses, interest, taxes and preferred stock dividends, but not common stock dividends).

[6] Depending on the capital or labor intensiveness of a manufacturing process, the productivity of labor and labor demand and supply factors.

[7] Peter Navarro, “The Economics of the China Price,” https://chinaperspectives.revues.org/3063, p. 3.

[8] “Governor Paterson Announces Excelsior Jobs Program Launch”  http://readme.readmedia.com/Governor-Paterson-Announces-Excelsior-Jobs-Program-Launch/1717095

[9] https://www.tax.ny.gov/pit/credits/excelsior.htm

[10] http://esd.ny.gov/reports.html

[11] http://www.upjohn.org/publications/upjohn-institute-press/state-enterprise-zone-programs-have-they-worked

[12] http://www.osc.state.ny.us/audits/allaudits/093016/15s15.pdf

[13] Ibid., p. 7.

[14] Manufacturing firms continue to operate in New York and the United States because of other kinds of location advantages, such as labor productivity, the need to be close to markets, or insensitivity to production costs.

[15] https://www.governor.ny.gov/news/governor-cuomo-and-legislative-leaders-announce-agreement-start-ny-legislation-will-implement

[16] http://startup.ny.gov

[17] “Marketing Service Performance Monitoring” Audit 2014-S-10. http://osc.state.ny.us/audits/allaudits/093015/14s10.pdf

[18] The small benefits provided by the program may reflect the fact that many of the firms participating in the program are start-ups, and have little taxable income.

[19] Communication with this writer.

[20] See for example:  http://regionalcouncils.ny.gov/themes/nyopenrc/rc-files/centralny/final%20CNY%20REDC%20plan%20single%20pages.pdf

[21] Benus, J. M., Wood, M. and Glover, N. “A Comparative Analysis of the Washington and Massachusetts UI Self-Employment Demonstrations,” Report prepared for the U. S. Department of Labor by Abt Associates.

[22] Source for this and following tables: U. S. Cluster Mapping Project. http://www.clustermapping.us/region/economic/syracuse_auburn_ny