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Taxes, Teacher Wages & School District Resource Allocation in

New Jersey

Bruce D. Baker

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Recurring Media Claims

• New Jersey is the most taxed state in the nation, • Our taxes are driving our economy into the ground and

we’re falling way behind all other states, • Our teacher salaries which are completely out of

control are the reason why our taxes are out of control, • 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.

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Part I

New Jersey’s Tax Burden

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Take Home Point

• 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.

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Total Taxes as Share of Personal Income

New Jersey

New Jersey New JerseyNew Jersey

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

18%

2004 2005 2006 2007

Year

% o

f P

erso

nal

In

com

e, N

om

inal

State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (12-Feb-10 09:55 PM)

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Property Taxes as Share of Personal Income

2%

3%

3%

4%

4%

5%

5%

6%

6%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Year

% o

f P

erso

nal

In

com

e, N

om

inal

Connecticut

Massachusetts

New Jersey

New York

United States

State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (12-Feb-10 09:55 PM)

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Income Taxes as Share of Personal Income

0%

1%

2%

3%

4%

5%

6%

7%

8%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Year

% o

f P

erso

nal

In

com

e, N

om

inal

Connecticut

Massachusetts

New Jersey

New York

United States

State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (12-Feb-10 09:55 PM)

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Sales Taxes as Share of Personal Income

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Year

% o

f P

erso

nal

In

com

e, N

om

inal

Connecticut

Massachusetts

New Jersey

New York

United States

State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (12-Feb-10 09:55 PM)

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Part II

Economic Productivity in New Jersey over the Long Run

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Take Home Points

• 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.

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Gross Domestic Product (state) per Capita

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

GD

P pe

r Cap

ita (S

tate

)

Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

New Jersey

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Gross Domestic Product (state) per Capita(Northeast)

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

Year

GD

P pe

r Cap

ita (S

tate

)

United States

Connecticut

Delaware

Maryland

Massachusetts

New Jersey

New York

Pennsylvania

Rhode Island

Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

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Personal Income per Capita

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

Inco

me

per C

apita

Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

New Jersey

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Personal Income per Capita(Northeast)

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

Year

Inco

me

per C

apita

United States 3/

Connecticut

Delaware

Maryland

Massachusetts

New Jersey

New York

Pennsylvania

Rhode Island

Data Source: Bureau of Economic Analysis, Regional Economic Accounts, http://www.bea.gov/regional/

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Part III

Teacher Wages – Out of control?

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Take Home Points• 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.

• 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.

• 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.

• 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 .

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Teacher Hourly Wage as % of Non-Teacher HourlyStatewide

0%

20%

40%

60%

80%

100%

120%

1990 2000 2005 2006 2007

Year

Rel

ativ

e H

ou

rly

Wag

e

Bachelors Degree

Masters Degree

Professional Degree

Doctoral Degree

All Degree Levels

Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007

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$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

Year

Pre

dic

ted

Wag

e

Teacher with BANon-Teacher with BATeacher with MANon-Teacher with MA

Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007 Based on Statewide Model for worker 40yrs old, 40hrs for 40 wks

Regression Model Estimates of Teacher & Non-teacher Wages

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Hours Worked Last Year

Year Non-Teachers Teachers Share

1990 47.82 41.74 87%

2000 48.33 42.21 87%

2005 48.50 42.92 88%

2006 48.84 42.87 88%

2007 48.78 42.60 87%

Data Source: US Census 1990 & 2000, American Community Survey 2005 - 2007

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Annual Teacher Wages and Non-Teacher Wages at Fixed Age/ Experience, Location and Degree Level

TEACHERS (NJDOE Data) Non-Teachers (Census Data)

Masters Degree with 10 yrs.

(Nwk CBSA)

Masters Degree with 10 yrs.

(Nwk CBSA)

Masters Degree, 35 yr. Old, (Nwk

Metro)

Masters Degree, 35 yr.

Old, (Nwk Metro)

Teacher % of Non-Teacher

Year Exper. Const. Exper Growth Exper. Const. Exper Growth

2000 $ 70,732 $ 70,732

2001

2002 $ 50,542 $ 50,542

2003 $ 52,057 $ 53,852

2004 $ 53,865 $ 58,014

2005 $ 55,682 $ 62,489 $ 85,404 $ 92,744 65%

2006 $ 57,563 $ 66,590 $ 85,279 $ 93,258 67%

2007 $ 59,373 $ 70,437 $ 89,064 $ 95,595 67%

2008 $ 61,189 $ 74,139 $ 90,708 $ 98,654 67%

Data Sources: Non-Teacher Wages from US Census 2000, American Community Survey 2005 - 2008 based on regression model of wages controlling for age, location, degree level and year. Teacher wages based on NJDOE Personnel Files also using regression model controlling for experience, degree level, location, position type and year.

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Returns to Experience/Age for Teachers and Non-Teachers (at fixed degree level, location)

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

23 28 33 38 43 48 53 58

Age/Experience (23 = Year 1)

Inco

me

from

Wag

e (S

alar

y)

Public School Increase

Non-teacher Increase

Data Sources: Non-Teacher Wages from US Census 2000, American Community Survey 2005 - 2008 based on regression model of wages controlling for age, location, degree level and year. Teacher wages based on NJDOE Personnel Files also using regression model controlling for experience, degree level, location, position type and year.

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Part IV

District Resources and the Growing “Administrative Blob”

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Take Home Points• 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.

• 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.

• 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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Percent of District Budgets Allocated to “Classroom” Instruction over Time

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

1995 1997 1999 2001 2003 2005

Year

% o

f Ope

ratin

g Ex

pens

e

Abbott

DFG_CtoH

DFG_IJ

Non-Abbott A

Non-Abbott B

Average

Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2006.

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Percent of District Budgets Allocated to “Classroom” Salaries for Instruction over Time

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

1995 1997 1999 2001 2003 2005

Year

% o

f Ope

ratin

g Ex

pens

e

Abbott

DFG_CtoH

DFG_IJ

Non-Abbot A

Non-Abbot B

Average

Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2006.

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Percent of District Budgets Allocated to Total Administrative (District and School Level) Expense

9%

10%

11%

12%

13%

14%

15%

1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

% o

f Ope

ratin

g Ex

pens

e

A

B

CD

DE

FG

GH

I

J

Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1998 to 2006.

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Percent of District Budgets Allocated to Total Administrative (District and School Level) Expense

9%

10%

11%

12%

13%

14%

15%

1998 1999 2000 2001 2002 2003 2004 2005

Year

% o

f Ope

ratin

g Ex

pens

e

Abbott

DFG_CtoHDFG_IJ

Non-Abbot

Non-AbbotTotal

Data Sources: Comparative Spending Guide reconciled with Annual Financial Report detail for NJ School Districts 1995 to 2005. (not weighted for district enrollment)

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Elementary School Staff per 100 Pupils

0

1

2

3

4

5

6

7

8

Abbott

Abbott

Charte

r

DFG C

to H

DFG IJ

Non-A

bbott

A

Non-A

bbott

B

Oth

er

Oth

er C

harte

r

District Group

Sta

ff p

er

10

0 P

up

ils (

20

06

-07

)

Administrator

Core Academic

Extra Help

Specialist

Student Support

Data Source: NJDOE Staffing Files 2006-07

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Middle School Staff per 100 Pupils

0

1

2

3

4

5

6

7

Abbott DFG C toH

DFG IJ Non-Abbott A

Non-Abbott B

Other

District Group

Sta

ff p

er

10

0 P

up

ils (

20

06

-07

)

Administrator

Core Academic

Extra Help

Specialist

Student Support

Data Source: NJDOE Staffing Files 2006-07

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High School Staff per 100 Pupils

0

1

2

3

4

5

6

Abbott

Abbott

Charte

r

DFG C

to H

DFG IJ

Non-A

bbott

A

Non-A

bbott

B

Oth

er

District Group

Sta

ff p

er

10

0 P

up

ils (

20

06

-07

)

Administrator

Core Academic

Extra Help

Specialist

Student Support

Data Source: NJDOE Staffing Files 2006-07