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.




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.

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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.




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

 




The Shrinking Middle Class in New York State – Cities and Suburbs

Pew Research has been releasing a series of studies showing that the percentage of Americans who have middle class incomes has been declining.  The most recent of these is  America’s Shrinking Middle Class:  A Close Look at Changes Within Metropolitan Areas.  The report received extensive coverage in many newspapers, including the New York Times.  It concluded that in nine of ten metropolitan areas, the middle class lost ground – from 61% of the population in 1971 to 49.5% in 2014.

The Pew findings are a result of the widely reported increase in income inequality that has developed in the United States since about 1980.

household-incomes-mean-real

Source:  Doug Short – U. S. Household Incomes: A 47 Year Perspective.

The data shows that income gains were concentrated among those with higher incomes. In fact, middle to low income households have seen no significant real (inflation adjusted) income gains since 1967. And, since 2000, real household incomes have stagnated at all levels.  Because income gains between different income groups have diverged, the percentage of Americans who live in the middle class has declined.

The Shrinking Middle Class in New York State’s Metropolitan Areas

Pew found that in New York Sate, each metropolitan area studied saw a decline in the percentage of residents whose incomes were classified as middle class.  For the purpose of their study, middle class was defined as the range between two thirds of the median household income and twice the median.  Albany-Schenectady-Troy showed the largest decrease- 5%.  On average, the percentage or residents with middle class incomes decreased by 3.9%.

Five of the seven metropolitan areas saw increases in the percentage of residents with high incomes – Albany-Schenectady-Troy, Glens Falls, New York-Newark-Jersey City, Syracuse and Utica. Four of seven metropolitan areas saw increases in the percentage of low income residents, with Buffalo-Niagara Falls showing the largest increase – 8.3%.

Change In Income Distribution
New York State Metros 2000-2014
Low Middle High
Albany-Schenectady-Troy  (1.90)  (5.00)  7.00
Buffalo-Niagara Falls  8.30  (7.40)  (0.90)
Glens Falls  0.10  (3.30)  3.00
New York-Newark-Jersey City  (0.10)  (2.60)  2.70
Rochester  3.00  (2.90)  (0.20)
Syracuse  (1.20)  (2.10)  3.30
Utica  0.50  (3.80)  3.30

Source:  Pew Research Center – America’s Shrinking Middle Class:  A Close Look at Changes within Metropolitan Areas.  

The 3.9% average decrease in middle class residents in upstate metropolitan areas was very close to the 4% decrease that Pew found nationally.  But the Pew data does not examine the way the increase in income inequality affects city residents compared to residents of suburban areas around them.  This is a significant issue because cities in New York state have become increasingly separated economically from their suburbs.

For example, in upstate New York in 1969, cities had rates of poverty that were only slightly higher than for the state as a whole.  But, by 2013, most upstate cities had rates of poverty that were at least two times the state rate.

Percent of Residents Living in Poverty
1969 1989 1999 2013
Albany 14.20% N/A 21.50% 25.30%
Buffalo 15.20% 25.60% 26.60% 31.40%
Rochester 12.40% 23.50% 25.90% 33.90%
Syracuse 14.10% 22.70% 27.30% 36.50%
Schenectady N/A N/A 20.80% 24.80%
Troy N/A N/A 19.10% 27.30%
Utica N/A N/A 24.50% 31.70%
New York State 11.10% 13.00% 14.60% 15.60%

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

Inflation Adjusted Median Household Income Change in Cities and Suburbs

The same dynamic played out with respect to household incomes in cities and their suburbs.  Between 1999 and 2014, the median inflation adjusted household income for residents of 14 New York cities declined, while those of households outside those cities in the counties within which they were located increased in all but two cases. Moreover, those cities with poorer populations saw greater income losses on average, while those suburbs with higher incomes saw larger income gains.

median income

(Income adjusted by CPI-U for 1999 and 2014 – Northeast Urban Class B&C Metropolitan Areas).

Several cities saw particularly large adjusted median income declines between 1999 and 2014.  Adjusted household income declined by 23% in Elmira and Newburgh, and 20% in Rochester.  Overall, households in poorer cities lost 15% of inflation adjusted income, while those in wealthier cities lost 9.2% of income between 1999 and 2014.

In contrast, suburban areas saw gains, on average, with suburban areas around wealthier cities seeing increases of 6.3% on average, while those around poorer cities saw increases of 4.5% on average.  Household income in suburbs outside Elmira increased by 13%, compared to the 23% decline in the city.  In suburbs around Syracuse, adjusted household income increased by 10%, while in the city, it decreased by 9%.

Chautauqua County outside Jamestown, Duchess County, outside Poughkeepsie, Monroe County, outside Rochester, and Ulster County outside Kingston saw declines in inflation adjusted median household income.  But, even here, central cities far worse than suburbs.  In Rochester, adjusted median household income declined by 20%, while Rochester suburbs decreased by 3.8%.  In Poughkeepsie, real median household income declined by 11.4%, while in the rest of Dutchess County, median income declined by 3.5%. Jamestown saw a 15% decline, while the remainder of Chautauqua County saw a decrease of 2.3%.

Inflation Adjusted Income Change in New York City

nyc household

Three boroughs in New York City saw declines in inflation adjusted household income between 1999 and 2014 – Bronx with a decline of 15%, Queens with a decrease of 7.7%  and Staten Island with a decrease of 7.9%. Manhattan saw an increase, while Brooklyn’s income was stable.

Middle Income Shrinkage in Cities and Suburbs

 

middle income

Both cities and suburbs had smaller percentages of middle income residents in 2014 than in 1999, but started from different positions.  In cities in 1999, on average only 43% of residents were middle class, compared with 55% in suburban areas.  In 2014, 38% of city residents on average were middle class compared with 50% in suburbs.  So, both cities and suburbs lost the same percentage of middle income residents.

Implications

The decline of middle income households is a significant concern, but, even more significant are the overall growth of inequality, and the overall decline in real household income that has taken place this century.

For the United States as a whole, by 2014, inflation adjusted median household income had decreased by 8% from 1999.  While more recent data suggests that incomes have recovered since 2014, the lack of growth in median household incomes is a significant concern.

adjusted income

Source:  Federal Reserve Bank of St. Louis

But the impact of income stagnation has been unequal.  The chart and table below show that the impact of recent income declines has been greatest on lower income groups.

household-incomes-growth-real-annotated

household-income-real-decline-from-peak-table

Source:  Doug Short – U. S. Household Incomes: A 47 Year Perspective

Because of the concentration of low income residents in cities, city households saw significant declines in inflation adjusted income over the past fifteen years – averaging a decrease of 12%, compared with an increase of 6% in suburban areas.  As a result, the average difference in household incomes between cities and suburbs increased from 46% in 1999 to 74% in 2014.

Our society has become increasingly divided economically over the past 35 years.  More recently, the U. S. economy has not provided income growth for the country’s residents.  In New York State, the impact of these changes has been significantly different for suburban residents, who have been largely insulated from these economic problems, and for city residents who have suffered from them.

 

 




Can Charter Schools break the Poverty-Poor Student Performance Link?

In an earlier post, I argued that school based solutions to the problem of the poor performance of students in central city schools were not likely to succeed because they ignored the impact of the concentration of disadvantaged students on student achievement.  The data showed that 79% of the variation in performance in school performance in upstate New York metropolitan areas was related to the concentration of economically disadvantaged students within them.

Discussions about the benefits of charter schools tend to be heated – inflamed by ideological differences.  But whatever one’s feelings are about the virtues of preserving public education, or of competition in improving educational opportunity, before making judgements, we should examine the available data about their effectiveness.

At the outset, it should be noted that evaluating the true impact of charter schools is difficult.  Ideally, the performance of charter and public schools should be compared by selecting and assigning students at random and following their progress over a period of years.  But, in reality, students in charter schools are not selected at random, and matched samples of public school students are not available for comparison. Published analyses on the subject have pointed out the need to adjust performance comparisons of students at public and charter schools for selection bias, because charter school students are to a large degree self-selected.

Where competent analyses comparing charter and public schools have been done, the findings have been mixed. One review of the available studies concluded:

“Taken in the aggregate, the empirical evidence to date leads one to conclude that we do not have definitive knowledge about the impacts of public charter schools on students and schools. But in reviewing the existing evidence, one is also struck by the fact that the impacts of charter schools appear to be very contextual. Some public charter schools are better than others. Some are very successful in meeting student needs, and others are not very successful…. Consequently, the impacts of public charter schools should not be painted with one broad brush stroke. Each should be judged on its own evidence and performance.”

Other studies  have found significant advantages for charter schools in central cities. Atila Abdulkadiroglu, Joshua Angrist, Susan Dynarski, Thomas J. Kane and Parag Pathak, in “Accountability and Flexibility in Public Schools: Evidence from Boston’s Charters and Pilots” found:

“A consistent pattern has emerged from this research. In urban areas, where students are overwhelmingly low-achieving, poor and nonwhite, charter schools tend to do better than other public schools in improving student achievement. By contrast, outside of urban areas, where students tend to be white and middle class, charters do no better and sometimes do worse than public schools.”

My research is based on a reanalysis of state education data on the performance of students on the 2015 Statewide Student Assessment.  It cannot provide a controlled analysis of the performance of charter school students, compared with those in public schools.  For that reason, the data available to me cannot produce conclusive evidence about the effectiveness of charter schools.

Because publicly available data is cross-sectional, it provides information about the performance of students at a given point in time, but unlike longitudinal studies, it does not directly measure their gains over a year or years.  For that reason, when a  cross-sectional study finds out-performance, or under-performance, there is the danger of making an attribution error, because we don’t know whether the out-performance or under-performance was a characteristic of the student population that was unrelated to the effectiveness of the schools being evaluated.  For example, the students at out-performing schools might have characteristics related to their selection that would predispose them to perform better than other students.

With those limitations in mind, it is worth looking at the New York State Education Department data on student performance from the 2015 Statewide Student Assessment, controlling for the concentration of poverty in schools, to see whether students at charter schools do significantly better than those at public schools with similar concentrations of disadvantaged students.  The chart below shows the performance of students in public and charter schools in all counties in metropolitan areas, except for the City of New York:

Public Charter Outside NYC

Note that data was available for only 33 charter schools outside New York City, so conclusions from this group of schools must be regarded as tentative.  Still, a few things stand out.  First, the performance of charter schools was quite varied – several charter schools were among the worst performers compared to schools with similar concentrations of disadvantaged students, while a number of others, particularly those with high concentrations of disadvantaged students performed better.  Second, for charter schools, unlike public schools, student performance was not related to the concentration of poverty.

As a group, students at charter schools did slightly better than at public schools with the same concentrations of disadvantaged students. However, the fact that 24% (8 of 33) schools exceeded the percent of students predicted to pass by 20% or more, based on the concentration of poor students, is significant.  Only 1.9% of public schools outside New York City had student performance reaching that level.   And, as Abdulkadiroglu, et. al. found, the benefit from charter schools was most significant for students in schools with high concentrations of poor students.

The performance of the better charter schools in urban counties outside New York City was significantly better than average schools with high concentrations of disadvantaged students, but not as good as at schools with few poor students.  Most of the better performing charter schools had about 40% of students passing the Statewide Assessment, compared with as many as 60% in schools with few disadvantaged students.

School Performance in New York City

The concentration of disadvantaged students in New York City schools is associated with 52% of the variation in student performance between the schools.  Compared to public schools in urban counties outside New York City economic disadvantage is a less powerful predictor of student performance in City schools – 52% vs. 79%.  For charter schools, the relationship between the concentration of poverty and student performance was very weak – explaining only 8% of the difference in student performance.  As with other counties, the performance of charter schools was quite heterogeneous. Students at charter schools in New York City as a group did better than those at public schools with similar concentrations of disadvantaged students.  At the same time, a number of Charter schools performed less well than the average of public schools with the same concentration of poor students.

The weaker relationship between the concentration of poverty and student performance in New York City schools appears to be in part a consequence of the city’s policy of creating specialized schools with selective admission criteria.  For example, the Medgar Evers College Preparatory School includes questions about student performance on the Statewide assessment in its application form.  Another example is the TAG Young Scholars School, which describes its admission policy this way:  “Prospective students must be tested by The New York City Department of Education to determine whether they qualify for a seat in one of the City’s Gifted and Talented programs.” Note that while charter schools often use lotteries to select students, they are not permitted to use test performance as a selection criterion.

These selective public schools raise the issue of causal attribution, since unlike schools that do not choose students based on test scores, it is likely that student bodies enter the selective public schools at higher levels of performance than students at other public and charter schools, and that their better performance may primarily be a result of selection criteria, rather than teaching at the schools.

Public Charter NYC

Some charter schools and public schools in New York City did as well as schools with low percentages of disadvantaged students.  Some of the best performing public schools with high concentrations of disadvantaged students use test performance as one criterion for admission.  Since charter schools are not permitted to exclusively serve high performing populations, the performance of the best charter schools is more remarkable.  At 34 of 148 (23%) of charter schools, 20% or more students than were expected to pass based on the concentration of disadvantaged students passed the statewide assessment. Among public schools in New York City, including those that have selective admissions, 8.9% of schools exceeded their predicted performance level by 20% or more.

While this data cannot prove that the excellent performance of some charter schools was the result of the schools themselves, rather than some other factor, it is consistent with studies that have shown charter schools to be advantageous for disadvantaged students in central cities.

Implications

Much of the discussion about the performance of schools, and how to improve outcomes, has focused on the common core and its testing requirements.  The purpose of these requirements was to provide a universal set of assessment tools that would provide comparable data about student progress across systems.

The results of the testing have been disappointing to many, since, as the figures above show, large percentages of students did not achieve passing grades.  For example, Governor Cuomo’s 2015 The State of New York’s Failing Schools report stated, “It is incongruous that 99% of teachers were rated effective, while only 35.8 percent of our students are proficient in math and 31.4 percent in English language arts. How can so many of our teachers be succeeding when so many of our students are struggling?”

Governor Cuomo’s proposal to improve student performance included the creation of a teacher evaluation system that relied more heavily (50%) on the performance of students in standardized tests, a process to make it easier to remove substandard teachers, and a process to place under-performing schools in receivership.  Several of the proposals have problems.  Teacher evaluation systems that rely heavily on the progress of students on standardized tests suffer from statistical defects that result in low reliability of results – a subject for a future blog post.  The process for identifying under-performing schools does not effectively identify schools that are under-performing relative to the concentration of students in poverty within them.

Most significantly, by focusing almost exclusively on accountability for under performing teachers and schools, the proposal does not offer a strategy for overall improvement of New York’s schools.  Accountability focused methods focus on remedying or removing the worst five or ten percent of schools and teachers in the system, but do nothing to help the great majority achieve better results.

If New York’s education system is to make strides in improving student outcomes, it must encourage schools and teachers to adopt known classroom teaching strategies and effective curriculum choices that have the potential to improve overall outcomes.  Since a significant number of charter schools have achieved excellent student outcomes, it would be helpful if the strategies they use could be considered for adoption in schools that do not perform well.  The state should focus on finding ways to encourage the use of effective strategies, by disseminating information and incentivizing their adoption.

Considerable research has been done on the strategies employed by effective charter schools in improving student performance.  For example, “Getting Beneath the Veil of Effective Schools: Evidence from New York City,” by Will Dobbie and Roland G. Fryer of Harvard University found that:  “traditionally collected input measures – class size, per pupil expenditure, the fraction of teachers with no certification, and the fraction of teachers with an advanced degree – are not correlated with school effectiveness.  In stark contrast…an index of five policies…explains approximately 45% of the variation in school effectiveness.”  They are consistent with the approaches used by “no excuses” model charter schools that emphasize selective teacher hiring, extensive teacher feedback, increased instructional time, and a focus on discipline and academic achievement.

For most schools in cities with high concentrations of disadvantaged students in central cities, academic performance remains poor. In some of these schools less than 10% of students received passing grades on the statewide assessment, and the overwhelming majority of schools with concentrations of disadvantaged students of 90% or more had less than 20% of students passing.

But almost one quarter of charter schools and a few public schools have broken the link between poverty and poor school performance.  At these schools, more than 40% of students passed the statewide assessment, despite very high concentrations of poverty within them.

Accountability based approaches aimed at weeding out ineffective teachers, or taking control of schools from boards of education will benefit only a small minority of students statewide.  Instead, we should focus on making use of what works in improving student performance at the best charter schools, encouraging poor performing schools to adopt effective techniques.