Poster #136 - The Dynamic Implications of Capital Appropriations for Higher Education Institutions

• In Event: Friday Poster Reception

Abstract

Nationwide, the higher education sector is the second largest recipient of state capital appropriations (Wright-Kim et al., 2026). Each year, state governments allocate billions of dollars to institutions of higher education to finance new construction, infrastructure improvements, and facilities repair and renovation. Despite the scale of these investments and long-documented concerns about deferred maintenance and facilities issues in higher education (Murphy et al., 2018; Rush & Johnson, 1989), relatively little is known about the effects of these public investments on higher education institutions and their students. This study provides the first evidence of the dynamic effects of capital appropriations on four-year colleges and universities.

Using IPEDS, I construct a panel of four-year public institutions between 2004 and 2023 to examine the effects of capital appropriations on a series of institution-level outcomes, including instructional spending, capital grants and donations, the value of capital assets, and student retention and graduation rates. To address endogeneity concerns around allocation decisions, I employ a “leave-one-out” instrumental variables approach by predicting each institution’s capital appropriations using the sum of capital appropriations to all other institutions in the same state. Similar approaches have been employed by Webber (2017) and Deming and Walters (2017) to study operating appropriations for higher education. The intuition behind these instruments is that they isolate changes in appropriations that are driven by state funding capacity, rather than political maneuvering or negative selection (e.g., struggling institutions receiving greater appropriations).

Using the instrument, I implement a series of local projection-style regressions (Jordà & Taylor, 2025) to estimate the dynamic impacts of capital appropriations at multiple time horizons before and after institutions receive appropriations. There are three primary policy-relevant findings. First, capital appropriations appear to be highly efficient uses of public funds. Estimates imply that a $1 increase in capital appropriations spurs $1.17 in immediate construction in progress, with the book value of campus buildings ultimately increasing by $2.38 for each dollar of state investment four years later. Second, there is suggestive evidence that institutions anticipate changes in state capacity and preemptively respond by initiating construction projects and capital fundraising campaigns. These results could explain the multiplier effect of each state dollar on building values. Finally, I find no evidence that capital appropriations impact student retention or graduation rates between 0 and 9 years after institutions receive appropriations. These null results likely reflect the extended duration of capital projects and the empirical challenge of linking coarse student outcome measures to the appropriate cohorts who benefit from new facilities.

The study contributes several implications for policymakers and researchers. First, this study's findings suggest that capital appropriations are an efficient use of taxpayer dollars and that institutions use these funds as intended. Given the suggestive evidence that institutions anticipate and preemptively respond to increases in state capital capacity, policymakers may increase allocative efficiency by reliably signaling state capacity for capital expenditure to institutions. Finally, this research provides insight as to when future research may expect to identify effects on students -- four years post-appropriations.

Author

• Benjamin Wilkerson, University of Michigan Ann Arbor
  Presenting Author