The Effects of Local Tax Policies on Special Education

• In Event: School Structure and Student Outcomes

Abstract

Substantial recent research has considered the question of whether money matters for education, and this research resoundingly finds positive returns to educational investments. Among others, Jackson et al. (2016) find that a 10% increase in school spending in each year of a student's education causes significant increases in test scores and wages. Further, investments in education are particularly effective for low-income students, and some research has considered how specific types of investments differentially impact students (Biasi et al., 2024).

While research has identified significant returns to general school spending, less research has considered how targeted spending for educational programs impacts students with disabilities (SWDs). The population of SWDs in the U.S. has grown by more than 1.1 million students since the 2000-01 academic year, and Chambers et al. (2005) estimate that providing additional services for the average SWD costs school districts $24,216 above the cost of educating a general education student (Digest of Education Statistics, 2023). Given that school districts are often responsible for funding special education programs from local sources, additional funding specifically for special education may be effective for improving student outcomes.

Using the timing of local property tax changes in Michigan, I estimate the effects of increased, dedicated revenues for special education on school district spending, SWD graduation rates, and SWD test scores. Michigan represents an important context in which to study special education finance because school districts assume significant responsibility to fund SWD services via local property taxes (Arsen et al., 2019). This creates substantial between-district variation in the funding available for special education services. Moreover, when voters approve new property taxes, school districts receive sudden increases in local revenues for special education. I argue that the timing of these property tax changes provides plausibly exogenous increases in revenue for special education.

To determine whether increased special education funding improves outcomes for SWDs, I use datasets provided by the Michigan Department of Education (MDE) between the 1995-96 and 2023-24 academic years. Public datasets include annual school district financial statements, state aid reports, and student count reports. I also use student-level data from the MDE to estimate the effects of this policy change on SWD outcomes. Student-level files for researchers comprise approximately 1.7 million student observations for all K-12 public and charter students in Michigan for each year between the 2004-05 and 2022-23 school years. This dataset includes information regarding each student’s grade, race/ethnicity, economically disadvantaged status, English learner status, SWD status, disability, and special education services received. In addition, these datasets also provide student test scores and graduation records. I estimate effects of property tax adoption using difference-in-differences models following Callaway & Sant'Anna (2021) to account for the staggered nature of adoption across school districts.

With these datasets, I find that the adoption of new property taxes leads to between a $340 and $425 increase in per-pupil revenue, and this funding is primarily used for hiring of special education professionals. In addition, these additional professionals allow for greater service provision for SWDs.

Author

• Matthew Joseph Guzman, Michigan State University
  Presenting Author