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

Session Submission Type: Panel

Abstract

Since the publication of Jackson, Johnson, and Persico in the Quarterly Journal of Economics a decade ago, a large body of research has firmly established that increases in school spending improve a variety of student outcomes (Jackson & Mackevicius, 2024). Recent syntheses, however, highlight a central policy challenge: substantial heterogeneity in effects across contexts, coupled with limited guidance on which policy features drive these differences (Jackson, 2020; Handel and Hanushek, 2023; Rauscher et al., 2025). Despite these advances, we know relatively little about how specific elements of school finance systems, such as spending composition, allocation rules, and the administrative measurement of student need, shape how resources are generated and ultimately distributed across students. This panel brings together four papers that leverage policy design to isolate these distinct mechanisms.

The first two papers demonstrate that the effects of school spending depend on the type of investments generated by school finance reforms and the institutional context that shapes how those resources are deployed. Asker, Brunner, and Schwegman address a key limitation in the literature, where strong evidence exists on operational spending, but evidence on capital investments remains more mixed. Using variation from three types of state school finance reforms, those that increase operational spending, those that target capital investments, and those that do both, they provide the first evidence in which these spending streams can be directly compared. They find that capital and operational spending produce similar improvements in educational attainment, while reforms that increase both lead to larger gains, suggesting complementarity between capital and instructional investments.

Villarroel and Knight then examine how local institutional actors shape the allocation of new funding within school systems. Using Washington State’s recent school finance reform, they show that districts with stronger teacher unions translate additional revenue into larger salary increases across the distribution of experience for teachers. These results highlight how governance structures influence not only how much is spent, but how resources are allocated within key inputs to education production.

The second two papers focus on how the definition of student need shapes the distribution of financial resources. Using Michigan as a case study, Vasquez shows that the Community Eligibility Provision, a federal school nutrition program, mechanically reduces reported poverty even when underlying economic need remains unchanged. These declines in measured poverty translate into substantial reductions in poverty-based state aid and added-needs instructional spending, highlighting how policy design can generate unintended fiscal consequences.

Lafortune, Ugo, and Guinan build on this insight by examining how alternative definitions of student need and formula design choices shape the distribution of school funding. Using a detailed simulation of California’s Local Control Funding Formula, they show that seemingly small changes in how student need is defined and weighted can generate substantial redistribution across districts, even among those with similar observable characteristics. These results underscore that funding systems are highly sensitive to how student need is defined, and that even small changes in measurement can generate substantial redistribution.

Policy Area

• Education

Chair

• Joydeep Roy, New York City Independent Budget Office

Discussants

• Julien Matthieu Lafortune, Public Policy Institute of California

• Amy Ellen Schwartz, University of Delaware

Individual Presentations

• The Impact of School Facility Finance Reforms on the Distribution of School Spending and Educational Attainment - Non-Presenting Co-Author: Eric E. Brunner, University of Connecticut; Presenting Author: David J Schwegman, American University

• School Finance Reform, Local Teacher Unions, And District Expenditures: Evidence From Washington - Presenting Author: Francisco Villarroel, Syracuse University; Non-Presenting Co-Author: David S. Knight, University of Washington

• Does CEP Reduce School Funding? Evidence from Michigan - Presenting Author: Brittany Nicole Vasquez, University of Pennsylvania

• Updating California's School Funding Formula: Assessing Alternatives and Trade-Offs - Presenting Author: Iwunze Ugo, Public Policy Institute of California

Organizer

• Brittany Nicole Vasquez, University of Pennsylvania