The Effects of Tax Increment Financing on School Finance: The Case of Nebraska

• In Event: Examining the equity implications of school fiscal and physical resources and constraints

Abstract

Tax increment financing (TIF) is a popular economic development tool, especially in Midwestern states as they grapple with economic and community development challenges. This study estimates the effects of TIF on school districts in Nebraska to understand the broader impacts of the use of TIF. Specifically, the study investigates the impacts of TIF school district expenditures and state education aid. While our analysis reveals no significant effect of TIF on either state aid or school district expenditure on the average school district, we find differential impacts of TIF. Specifically, staid aid per student decreases among districts with lower housing values and median income. Additionally, total operating expenditures per student in rural school districts and the most disadvantaged schools, those with the highest poverty rates and lowest median property values, are significantly negatively affected by TIF.  

Our findings have important implications for TIF and school finance research and practice. While the existing literature has debated the spillover impacts of TIF and raised concerns over its equity implications for local communities, our study offers new insights through heterogeneous tests among different school districts (categorized by urbanicity, poverty rates and property values). TIF, as an economic development tool, can potentially stimulate growth and improve local economic conditions when the “but-for” condition is satisfied. However, if state education aid fails to adequately compensate for revenue losses during TIF project periods, TIF adoption may adversely affect school expenditures, particularly in rural and economically disadvantaged school districts. 

Authors

• Phuong Nguyen-Hoang, University of Iowa
  Non-Presenting Co-Author

• Trang Hoang, Texas A&M University
  Presenting Author