Just the Facts: NJ Taxes, Teacher Salaries and Spending “Fluff”


Download PPT Slides (UPDATED): jersey-taxes-and-teacher-wages_r6

I’ll do my best not to editorialize too much here. Just the facts. Just a few slides in order to clarify where New Jersey stands in terms of taxes, long run economic position and growth, teacher salaries and the allocation of resources in school districts. These slides are in response to claims that;

  1. New Jersey is the most taxed state in the nation,
  2. our taxes are driving our economy into the ground and we’re falling way behind all other states,
  3. our teacher salaries which are completely out of control are the reason why our taxes are out of control,
  4. school districts don’t have to cut teachers to get their budgets in line because school districts waste most of their money on administration anyway.

Of course, these last two claims are entirely inconsistent, but often spouted by the same pundits (primarily talk radio).  If escalating teacher salaries were the cause of escalating costs, then teacher salaries – or teachers themselves – would need to be cut.

A few take home points from the slides below are:

Taxes

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

  • Note: There has been much media buzz this week about this report: http://www.taxfoundation.org/files/f&f_booklet_20100325.pdf which identifies New Jersey as #1 on this supposed same measure for 2008 (See Table 2). The cited source for their information is their own report, footnoted as: Tax Foundation Special Report, No. 163 (from August 2008: http://www.taxfoundation.org/files/sr163.pdf.) Table 1 of this report cites advance estimates of 2008 data which would appear to be from the same sources I have used. BUT… I have chosen a simple straightforward – directly cited comparison of final data and over multiple years. I have also disaggregated debt burdens from other taxes. Here is a PDF of the actual extract of the supposed same data. State & Local Finance Data .. By these data, which you can download yourself, NJ is NOT #1. That said, I have little reason to believe that taxfoundation.org would necessarily hold a NJ bias that would cause it to want to alter the stats to put NJ at #1.  The numbers just don’t match up.

Productivity

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

Teacher Salaries

c) Teacher salaries have actually declined with respect to non-teacher wages over time in NJ, even when comparing wages for the same number of hours and weeks worked, and at same degree level and age.

d) Despite a mythology that all non-teachers work every day of every week of the year and that teachers work about half the year, non-teachers actually report working about 48 weeks per year compared to teachers 42 weeks. Teachers worked about 87% of the weeks worked by other non-teacher workers in NJ.

e) Comparing different data sources (something I prefer not to do), teachers at specific experience and degree levels appear to earn an annual wage about 67% of that of their non-teaching peers – annually. Okay, but they don’t work as many weeks. So, they earned 67% of the wage for working 87% of the time. Still a significant disparity.

f) Teachers’ annual income return to experience (or age)  is well less than that of non-teachers over much of their careers. Assuming teachers and non-teachers start at a similar wage at age 23 with a masters degree (around $50k), by age 40, the average non-teacher will be earning over $100k, while the average teacher will be approaching $80k .

Note regarding benefits & bias: Corcoran and Mishel point out here: http://epi.3cdn.net/05447667bb274f359e_zam6br3st.pdf

…overall K-12 teacher compensation was 27.5% greater than teacher wages alone, while overall professional compensation was 23.5% greater than professional wages. These differences in benefit shares translate into a benefits “bias”of 2.8 percentage points in 2006.

That is, benefits would close little of the overall gap in wages. Costrell and Podgursky show about a 5% (slightly less) differential (10% non-teachers, 15% teachers) in the value of pensions, a portion of benefits. This too would close only part of the teacher to non-teacher wage gap in New Jersey, even if we assume New Jersey benefits for teachers to be much greater than other employee benefits.

Growing Waste in School Budgets and The “Blob”

g) Classroom instructional spending as a share of budgets has remained relatively constant over time, and poor urban districts are in line with other NJ districts in this regard.

h) Total administrative expenses as a share of school district budgets have remained relatively constant for nearly 15 years and large poor urban and Abbott district administrative expenses are in line with (and lower than) other districts.

i) School level administrators are a relatively small share of school personnel. Not shown here, but also relevant is the fact that school level administrative salaries are only marginally higher than senior teacher salaries. As such, it is highly unlikely that one can cut substantially close budget gaps by cutting “administrative fat” alone.


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10 Comments

  1. Thanks for this post, Bruce. Your voice of reason is appreciated.

    The benefits of teaching as a career vs. private sector employment continue to confuse me, however. Salaries and number of weeks worked don’t tell the whole story.

    Lifetime tenure after three years, defined-benefit pensions, low or no contributions to medical insurance, carrying over unused sick days indefinitely, and the option of retiring with full pension in one’s 50’s all have real economic value and are not typically available in the private sector.

    Have you or anyone done research on trying to assess the comparative value of these other dimensions? It is probably not that easy, but I do think it is necessary in order to compare apples to apples.

    1. There is some discussion of the benefits issue here: https://schoolfinance101.wordpress.com/2010/01/27/new-jersey-teacher-salaries-spiraling-out-of-control/

      in the comments section, with links to another previous post where we had a fun discussion over benefits. There has been some research discussed on this previous post which deals with the value of pension benefits. There is an upcoming special issue of the journal Education Finance and Policy which focuses on teacher benefits/pensions. I will post on that when available.

      The reality is that its a package deal. Teachers have been willing to accept this lower salary in part because of the benefits. I don’t think you’ll find too many of today’s teachers retiring at 50 and finding their pension sufficient to live on. As for contribution rates, these are perhaps the most direct trade-off with salary. If teachers were expected to increase their contribution rate to benefits, we’d expect to see higher salaries. The lower contribution rate is a partial – though certainly not even full offset for the much lower salaries (discussed in previous post). Note that during the stock boom employees generally did not want to be a part of defined benefit pension plans. Everyone wanted to control their own money, or larger shares of it in stock funds. The public sector was just slow to move on this. And now others are envious?

      Tenure is a more peculiar benefit but does not mean 100% job security, but rather that due process is required for dismissal (other than for economic reasons) once on continuing contract. Some obligatory defining here. That aside, if we really are deeply concerned with our option to dismiss ineffective teachers, we need to focus on the quality and usefulness of evaluation systems to determine whether tenure really is the primary barrier. Existing research is not clear on this point.

      From a “benefit” perspective, it is more difficult to determine how teachers or aspiring teachers view/value tenure in their career decision. I’m unsure how many view tenure as a job guarantee regardless of performance (typical rhetoric about tenure). As for the time frame for achieving tenure, there is certainly some room for debate here… though most good teacher labor market research finds little return to experience beyond year 3. The key is to have a good evaluation system in place to figure out who really is doing well by year 3. Perhaps waiting until year 5 in order to evaluate 3 full years at full stride is reasonable (years 3 to 5)?

      Unused sick days are also a more peculiar benefit and another trade-off to the lower salary. I don’t know of any good data on the total value of unused sick days, but it would be hard to accumulate enough as deferred earnings to fully offset the salary differential over time. And, in most cases, the option of banking unused sick days was to serve two goals – 1) to create an incentive to reduce teacher absences and 2) to defer district costs that might otherwise be embedded in salaries. While the second goal can be problematic the first is reasonable given the research on the negative effects of teacher absences on student outcomes. Local boards of ed may need to take a serious look at how much expense they are deferring with these contractual provisions and reconsider whether its better to find alternatives. I did have a student do a dissertation on financial incentive sick leave policies in Missouri a few years back. I’ll have to go back and dig that one up.

  2. Re: pension value (from an earlier post)

    In short, total teacher benefits packages do close some, though likely not all of the gap between teacher and non-teacher wages. If the gap has grown to 20% or more (on hourly wages), and if teacher contributions to pensions were 15% (of teachers’ 20% lower wages) and non-teacher or private sector workers were getting 10% of their 20% higher wages, this differential doesn’t have a strong effect on the gap. And this accepts the Podgursky and Costrell estimate of pension contributions here: http://educationnext.org/teacher-retirement-benefits/

    Note that the Podgursky and Costrell perspective runs contrary to Mishel analysis (which they critique, but which also has many merits).

    Note that part of the distortion of the Podgursky and Costrell analysis is that all of the pension contribution information is expressed as a percentage of earnings, but they never provide descriptive statistics on the earnings or report a dollar value of the pension contributions. 15% of a smaller salary might be the same or less than 10% of a larger salary. Further, if private sector salaries are growing faster than teacher salaries, their benefits may be growing as fast or faster than teacher benefits – in dollar value – but still appear constant as a percent.

  3. A Facebook reader has commented that the above analyses are necessarily biased because they all come from only a few different data sources. THAT’S BECAUSE THEY ARE THE OFFICIAL GOVERNMENT DATA SOURCES (Tax Policy Center merely provides a convenient tool for extracting Census fiscal survey data) – The U.S. Census State and Local Government Finances survey for all of the tax information. The U.S. Census decennial census and annual American Community Survey data for the non-teacher wage analysis. And, finally, the NJDOE individual staffing files on teacher characteristics and salaries. To those data, I have applied relatively standard methods – such as fitting a statistical model between age, experience, degree level and location (metro area within NJ) to wages or salaries. I have made clear that benefits are not included, but it is a huge unwarranted stretch to assume that benefits flip the analysis entirely. That discussion is above in the comments.

  4. First let me preface this by saying that I absolutely agree with you on one front: In all fairness, teachers should be paid more. Your job is among the most important on the planet.

    But the reality it is not so clearly cut. The problem I see is one of revenue: I started out fresh out of school with a bachelor’s degree making $60k per year in an entertainment/media job. Yes, it’s a large amount of money, but I also bring much, much more revenue than that into the company with the work that I produce. It’s economically viable to pay me a larger salary because the company makes more money with me on payroll than they do without. For the same principle on a larger scale, look at pro athletes. They make millions of dollars per year, and then millions more on endorsements. No one would argue that what they do is anywhere near as important as what teachers do, but the sad fact is that they justify their incomes by generating even more than that in revenue.

    Unfortunately, teaching falls under the same (arguably broken) system. Schools (and government as well) are still fundamentally businesses at the core. They can’t pay salaries disproportionate to revenue, and as long as the state is footing the bill with no immediately apparent short term return, I don’t see teachers ever getting the money they really deserve.

    1. You are entirely correct that it is largely a revenue problem – both short run and long run. Indeed the state can’t (generally) spend more than it has. Long run, the state needs to determine the best mix of property, income and sales tax revenues to provide the quality of services desired (by the state’s citizens). So, rather than the direct link you note above between your role in generating revenue and your value as an employee, the relationship between public school teacher salaries and revenue is indirect – very indirect – linked back through the public taste for quality schooling and the price in taxes they are willing to pay for it. Education, for the most part, in NJ has been relatively high quality and reasonably well funded. NJ is second in percent of gross state product spent on schools (Vermont is first).

      My point here and in a previous post (regarding tax limits) is the rather obvious point that if we choose to spend less (assume that it is entirely an expenditure problem and not a revenue problem) and if we choose to mandate limits to our spending down the road, we should expect a decline in quality including a decline in quality of those individuals who choose to enter teaching as a profession. While there might be selective efficiency gains achieved through budgetary pressure, quality will most likely suffer at least according to a sizeable body of rigorous analyses on the topic. Despite the teacher wage lag in NJ, the system has done… well… okay.

      One reason for posting the graphs above is that there is a strange disconnect between the long-run data and the current rhetoric which blames powerful unionism for escalating teacher wages which have made NJ the supposed most taxed state in the nation. I’m just not seeing it in the data. NJ, like other states has major short term revenue shortfalls – as well as some long run revenue issues.

      The short run problem is very much a revenue problem because of the way in which specific tax revenue sources respond to economic downturn – in short, income tax revenues in particular drop sharply. Reports from Rockefeller Institute (www.rockinst.org) provide perhaps the best state by state descriptions. In my opinion, it is problematic to respond to sharp, short run revenue fluctuations as if the problem is entirely an expenditure problem and at the same time to further constrain future revenue growth. Rob Tannenwald has done some nice work on state revenue systems (http://www.bos.frb.org/economic/neer/neer2001/neer401b.pdf) And Richard Dye has addressed the role of property taxes in compensating for the cyclical nature of state source revenues (http://bosfed.org/economic/neppc/wp/2008/neppcwp0801.pdf).

      We’ve got to be thinking carefully about how all this stuff fits together over time to provide the level/quality of services we expect. Knee-jerk responses like constitutional limits on taxing authority (revenue flow) during a down cycle can be deeply problematic and make worse a situation that is not what it’s being cracked up to be. That is, controlling teacher wage increases should be looked upon differently if teacher wages really haven’t kept pace with the “private sector” as opposed to the current rhetoric that teachers have consistently received unrealistically high salary increases due to unfair advantages at the bargaining table, and that they continue to do so while everyone else suffers.

      Solving the deferred compensation puzzle and state failure to make payments to the pension system are a related and critically important issue. I just need to get back to work for now.

      Finally, I’m not a teacher – so-to-speak. I was at one point. It didn’t pay very well. As a professor, my time is divided between teaching (40% of my 9 month contract), research (40%) and service (20%). Most of my time is spent on research and writing and policy consulting for states (40% research + all time outside of the 9 months).

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