The Impact of School Facility Finance Reforms on the Distribution of School Spending and Educational Attainment

• In Event: Beyond “Money Matters”: How Policy Design Shapes the Distribution and Effectiveness of School Spending

Abstract

In recent years, a number of influential papers have shown that school finance reforms, implemented across multiple states since the 1990’s, led to large increases in state aid and current instructional expenditures for low-income school districts and corresponding improvements in the short-and long-term outcome of students (Card & Payne 2002; Jackson, Johnson, & Persico, 2016; Lafortune, Rothstein & Schanzenbach, 2018; Candelaria and Shores 2019; Brunner, Hyman & Ju 2020; Rothstein & Schanzenbach, 2022; Baron, Hyman & Vasquez, 2024). A common feature of these papers is that they focus primarily on reforms to state systems of financing current educational expenditures, as opposed to capital expenditures.

However, since 1990, 13 states have also made major reforms to their existing system of school facility finance or created a school facility finance system for the first time, and 6 states made major reforms to both their system of financing current and capital expenditures. Similar to many of the reforms to state systems of financing current expenditures, some of these capital reforms were the outcome of court cases that challenged perceived inequities in school facility funding across lower- and higher-income school districts, while others were legislative responses that arose due to the threat of a court challenge or other factors.

This paper has two primary objectives. The first objective is to provide some of the first direct evidence on how school facility finance reforms impacted the distribution of school district resources and the educational attainment of students exposed to the reforms. The second objective of the paper is to categorize all state school finance reforms (SFRs) into three distinct categories: (1) reforms to current school funding; (2) reforms to capital funding; and (3) simultaneous reforms to both current and capital funding and then use that categorization to compare the impact of the three types of reforms on the educational attainment of students.

Using an event study identification strategy that exploits the staggered timing of reform adoption, we first show that, relative to reforms to current school funding, facility finance reforms led to sharp increases in school district construction spending and much smaller increases in instructional spending.  Using data from the American Community Survey, we further find that current and capital funding reforms led to similar increases in high school graduation and college attendance rates of approximately one percentage point while simultaneous reforms to both current and capital funding led to significantly larger increases in both high school graduation and college attendance rates of approximately 2 percentage points. We find similar impacts of all three types of reforms on college completion rates of approximately 1 percentage point. The larger impacts of reforms to both current and capital funding provides suggestive evidence of the complementarity between instructional and capital investments in the educational production function. Finally, we find some evidence of heterogeneity in reform impacts by race and ethnicity with capital funding reforms and reforms to both current and capital funding having larger impacts on educational attainment for students of color relative to White students.

Authors

• Eric E. Brunner, University of Connecticut
  Non-Presenting Co-Author

• David J Schwegman, American University
  Presenting Author