Beyond Court Orders: The Fiscal and Academic Effects of Legislative School Finance Reforms

• In Event: State Politics and School Finance

Abstract

Introduction/Background

The school finance reform literature has primarily examined court-ordered reforms as exogenous shocks, using difference-in-differences designs to compare states with and without reforms. However, the political reality is that even court-mandated reforms require legislative action for implementation, as legislatures control lawmaking and appropriations. This study addresses an important gap by systematically identifying and examining legislative finance reforms and their impacts on both fiscal and academic outcomes.

Research Questions

Our study addresses three key research questions: (1) What are the effects of state-level legislative school finance reforms on educational funding patterns, specifically examining changes in state educational revenues, K-12 expenditures, and tax revenues? (2) To what extent do legislative school finance reforms affect the progressivity of educational funding across districts? (3) What is the impact of legislative school finance reforms on student achievement as measured by NAEP scores?

Methods

We identify our list of school finance reforms using a multi-step process that combines statistical changepoint detection and legislative analysis. We conduct Bayesian changepoint analysis to identify structural breaks in state-year education spending patterns, then search for legislative validation within a +/-5 year window. Valid legislation must either fundamentally change the funding formula or provide substantial lump-sum transfers to schools. We supplement this approach by including 15 well-documented reforms that may not trigger statistical criteria but are widely recognized as impactful.

We use difference-in-differences techniques that account for differential timing of reforms across states, including the Callaway and Sant'Anna (2021) estimator and Wooldridge (2021) method for cases with data gaps. Event study analyses and "Honest DID" assessments validate our identification strategy.

Results

Legislative school finance reforms resulted in substantial increases in educational resources. We find K-12 expenditures increased by $857 per pupil (19% increase), while state revenues increased by $1,057 per pupil (25% increase). Total tax revenues rose by $1,326 per pupil (10% increase), driven by increases in sales, income, and property taxes. Reforms increased funding across all income quintiles, not just those serving lower-income students, with the Q1-Q5 expenditure gap showing no significant change. This indicates legislative reforms did not redistribute resources from higher-income to lower-income districts, but rather increased funding universally. The reforms also improved student achievement, with NAEP math scores increasing significantly (3.07 points in 4th grade and 3.59 points in 8th grade, each approximately 0.10 standard deviations).

Conclusion/Implications

Court-ordered finance reforms are an ambiguous policy, as not all plaintiff rulings result in legislative action. This study shifts analytical focus to legislative statutes that implement funding changes, providing more policy-relevant insights. Yet, a notable puzzle emerges: court-ordered reforms have been shown to redistribute resources toward lower-income districts, whereas legislative reforms benefit districts across the entire income distribution. Because plaintiff rulings do not generate identifiable policy mechanisms, it is not clear where this discrepancy emerges. Future research should examine the relationship between court orders and subsequent legislative action to better understand how judicial mandates translate into policy outcomes.

Authors

• Christopher Andrew Candelaria, Vanderbilt University
  Non-Presenting Co-Author

• Kenneth Shores, University of Delaware
  Presenting Author