2025 Fall Seminar Series Seminar: David Schwegman American University

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

Abstract: In recent years, a number of influential papers have shown that school finance reforms (SFRs), 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. 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, 16 states have also made major reforms to their existing system of school facility finance or created a facility finance system for the first time. In this paper, we examine the impact of those reforms on the distribution of school spending and the educational attainment of students exposed to those reforms. We also compare the impact of three types of reforms: 1) reforms to current school funding, 2) reforms to school facility funding, and 3) reforms that simultaneously increased current and capital funding. Using detailed financial data from the National Center for Education Statistics and a difference-in-differences identification strategy, we first show that, relative to reforms focused on current educational expenditures, facility finance reforms led to sharp increases in school district construction spending, and much smaller increases in instructional spending. We then leverage data on high school graduation and college attendance from the American Community Survey to examine whether and how SFRs affected the long-term outcomes of students. Results suggest that reforms focused on current educational expenditures and those that targeted both current and capital spending led to significant increases in high school graduation rates, and to a lesser extent college attendance. Reforms that focused exclusively on capital spending had little impact on high school graduation or college attendance overall but appear to have improved both educational attainment measures for female students. Finally, Black students located in states that adopted reforms to both current and capital funding experienced significantly larger increases in high school graduation rates and college attendance.