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The disciplinary effect of taxpayer balloting on public spending: some empirical evidence

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Abstract

This study examines the relationship between taxpayer balloting and school spending in New Jersey school districts over a ten-year period from 2003 to 2012. We use a unique dataset of defeated and approved school district budgets in New Jersey to gauge citizens’ ability to serve as a monitoring mechanism over public school spending. Fixed-effects panel analysis is used to examine how the results of the taxpayer ballots affected relative spending levels in school districts. We find a negative relation between the prior year’s balloting outcome and the current year’s relative costs, indicating that districts whose budget referenda were defeated the prior year tended to adjust spending downwards. In subsequent analysis, we examine the relation between changes in school district costs and sequential year-to-year voting outcomes. We find that both a defeated budget in the prior year followed by an approved budget and two consecutive defeated budgets were associated with lower spending, providing additional evidence of a “lagged effect” on spending from a defeated budget. Our results support the inference that taxpayer balloting can impose discipline on public spending by making public officials ultimately responsive to taxpayer preferences. Thus, taxpayer balloting appears to serve its intended purpose, despite its apparent unpopularity in some education circles.

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Notes

  1. There is plenty of evidence that schools spend money inefficiently. See for example, Hanushek (2020), Baker (2017) and Morgan and Jung (2016).

  2. Up to and including the 2011–2012 academic year, New Jersey school districts were required to hold a budget referendum. But the school election law (P.L. 2011, c. 202) signed by Governor Christie on January 17, 2012 allowed districts to change the election of school board members from the third Tuesday in April up to the date of the general election in November. For those school districts that adopted the change, the annual vote on the school district budget was eliminated, provided the districts stay within a mandatory 2% tax levy cap. Supporters of the law argued that moving school board elections to November would boost voter turnout and save money. However, the independent Office of Legislative Services said it could lead to a “minimal expenditure decrease,” with a savings lower than “0.08 percent average savings on general fund budgets” (Hassan 2012).

  3. See for example, Qvortrup (2017), who observes that the use of referenda around the world has proliferated in the past 30 years. Even in the U.S., roughly half of the states have provisions for citizen initiatives.

  4. In its Second Open Government National Action Plan of the USA, the U.S. White House (2013) promotes public participation in community spending decisions as a best practice of civic engagement. Likewise, the Open Government Partnership (2019), a coalition of 76 nations, includes improving public accountability on educational inputs among its “Frontiers of Education and Open Government.”.

  5. For example, we find a negative vote in April, 1999 is associated with a lower relative spending level in the fiscal year from July 1st, 2000 to June 30th, 2001, although the vote in April, 1999 relates to the budget for the fiscal year from July 1st, 1999 to June 30th, 2000.

  6. Yin (2018) reported that citizens in 35 states scheduled approximately 150 ballots to vote on education policy and funding questions in the November, 2018 elections. She argues that: “Since education is an issue that affects everyone, it is critical that voters understand these education ballot measures and their potential impacts.”.

  7. National Center for Education Statistics, NCES 2019–2020, Digest of Education Statistics, 2020, Table 106.10. https://nces.ed.gov/programs/digest/d20/tables/dt20_106.10.asp.

  8. See, for example, (Jackson, 2020), Baron (2022), Lafortune, Rothstein, and Schanzenbach (2018), and Candelaria and Shores (2019).

  9. National KIDS COUNT Educational rankings, KIDS COUNT Data Center, Annie E. Casey Foundation, Baltimore, MD, 2021. https://www.aecf.org/interactive/databook?d=ed.

  10. National Center for Education Statistics, NCES 2019–2020, Digest of Education Statistics, 2020, table 236.65. https://nces.ed.gov/programs/digest/d21/tables/dt21_236.65.asp.

  11. National Center for Education Statistics, The Conditions of Education. Education Expenditures by Country. Figure 1. https://nces.ed.gov/programs/coe/indicator/cmd.

  12. Pew Research Center. U.S. Students’ academic achievement still lags that of their peers in many other countries. February 17, 2017. https://www.pewresearch.org/fact-tank/2017/02/15/u-s-students-internationally-math-science/.

  13. Silverman (2011) explains that the budget process in New York does not provide much incentive to vote. When voters do not approve budgets, a school district can adopt a contingency budget. Due to state regulations, there is usually only a marginal difference between a proposed school district budget and a default contingency budget. So there is little motivation to go to the polls and reject a budget that ultimately will be passed in a slightly revised form.

  14. Under the “Gray Peril” hypothesis, funding for education and other public services will suffer because retirees are unwilling to support services not benefiting them. Education is considered most susceptible to Gray Peril since retirees do not have school-age children, and education expenditures are often determined by local public referenda where seniors tend to vote in large numbers. Likewise, in popular retirement destinations such as the south and the west that contain more transients, retirees may lack direct connections to the local school system (Duncombe, Robbins, and Stonecash, 2003).

  15. The State of Indiana’s budgeting system utilizes a voter referendum process for the general fund budget if planned property tax increases exceed established caps.

  16. Taxpayer revolt implies a large voter turnout and negative votes against the budget as a form of protest. Protest voting is of interest because it can highlight socioeconomic conditions that augment the probability of a budget defeat. See Archibald and Feldman (2006) for a more in-depth review of taxpayer revolt.

  17. Stauffacher (2012) provides survey data in support of Thomas’s guiding principles on the roles of the public in public management. He examines strategies employed by School District Superintendents in seeking approval of school district budgets and other important factors in passing budgets. Two important strategies include getting out the parent vote and holding community meetings. Influential factors include trust in the Superintendent and School Board and budget support from the School Board.

  18. New Jersey Assemblyman Gary Chiusano, along with several other members of State Legislature that voted against the bill to remove direct balloting for New Jersey school districts, commented: “Eliminating this vote will remove any motivation for school boards to reduce their budgets … it should not be at the cost of eliminating one of the few opportunities in which voters have a direct say in how their tax dollars are spent” (Hassan, 2012).

  19. Supplemtal parity aid is not unique to the State of New Jersey. Using data on tenth grade students drawn from the National Education Longitudinal Study, Morgan and Jung (2016) find that some of the groups of students with the lowest achievement attend schools with some of the highest expenditures.

  20. Note that these non-time-varying factors drop out in the fixed effects model. So the results reported for the fixed effects model exclude them. The results obtained using the pooled time-series cross-sectional regression and random effects models can be obtained from the corresponding author.

  21. Local sources of funds include property tax revenues and direct payments by the local municipal government.

  22. The ACT Profile report for the State of New Jersey shows significant variation in average composite ACT scores by race/ethnicity (ACT Profile Report—State, 2014).

  23. It should be noted that the use of standardized test scores (including pass rates) as the sole measure of school district performance has been criticized as inadequate since public schools pursue multiple objectives (Hanushek 1979, 1986). Nevertheless, since it is a measure that is typically used by the state as well as the general public to evaluate school performance, we rely on these statistics for our analyses.

  24. The statistical software employed was unable to conduct the Hausman test for the Type 4 school districts.

  25. In the pooled OLS model estimated before the fixed effects panel was selected as most appropriate for the data, the variable GEOCEI (geographic cost of living index) was found to be positively signed and statistically significant across all five school district types, supporting a finding that district expenditures reflect differences in geographic cost of living index. However, average household income (Lg_FAMY) was negative and statistically significant for Type 1 and Type 3 districts only. In the other three district types, this variable is not statistically significant. While the negative coefficients on Lg_FAMY may seem counter-intuitive, they are not completely unexpected because of the State’s budget formula that equalizes per-pupil costs across districts based on wealth, among other factors. This is especially true for the 31 Abbott districts (all Type 3 districts). Indeed, the coefficient for ABBOTT is positive and statistically significant. The other two variables (SOM_COLL and NO_HS) had inconsistent signs across the five school district types, so it is hard to draw any general conclusions about their effect on relative spending across different school district types.

  26. It should be noted that in a regression with both x and x2 as independent variables, the multicollinearity between the two variables does not threaten statistical inferences on the coefficients of the variables of interest (Allison 2012). In table 3, the VIFs on VOTE and VOTE_LAG is below 2.0 in all five panels.

  27. The mean pairwise differences provided in Panel B for Dunnett’s T-test can be derived from the means of _COST provided in Panel A for the Waller-Duncan test. For example, for the Type 1 districts the mean of _COST for the voting sequence of NO_YES is -0.46 and the mean for YES_YES is 0.23. Subtracting 0.23 from -0.46 equals -0.69, or the mean pairwise difference between NO_YES and YES_YES reported in Panel B.

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Authors and Affiliations

  1. Department of Accounting and Information Systems, Center for Governmental Accounting Education and Research (CGAER), Rutgers Business School – Newark and New Brunswick, Piscataway, NJ, USA

    Yaw M. Mensah, Michael P. Schoderbek & Savita A. Sahay

  2. Accounting and CIS Department, Monfort College of Business, University of Northern Colorado, Greeley, CO, USA

    Min Cao

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  1. Yaw M. Mensah
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  2. Michael P. Schoderbek
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Correspondence to Michael P. Schoderbek.

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Table 6 List of variables used in the study
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Mensah, Y.M., Schoderbek, M.P., Cao, M. et al. The disciplinary effect of taxpayer balloting on public spending: some empirical evidence. Rev Quant Finan Acc 60, 791–819 (2023). https://doi.org/10.1007/s11156-022-01109-0

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