This paper employs panel data on school-supporting charities with national coverage from 1995 to 2010 to examine whether local revenue-raising constraints—due to Tax Expenditure Limitations, property tax limitations, or school finance equalization—cause changes in voluntary contributions to schools. We employ panel data on school-supporting charities with national coverage from 1995 to 2010, which we geocode and match to school districts and to comprehensive data on school district and community attributes, including information on federal, state, and property tax contributions to school districts. We estimate a series of regression models including both reduced form and fixed effects specifications to examine how voluntary contributions to public schools via 501(c)(3) nonprofit charities vary with school district demographic and fiscal characteristics, community characteristics, and both county- and state-level limitations on local revenue-raising. Specifically, we examine whether plausibly exogenous changes in the ability of local governments to generate own-source revenues for public schools may cause changes in voluntary contributions to public schools. Such an analysis is important for understanding the broader effects of tax and other policies on the financing of public schools, including how these policies may exacerbate inequalities across school districts.

We first present results describing how voluntary contributions to public schools—via parent-teacher organizations, school foundations, or other charitable organizations—vary across school districts and over time. We also examine whether local, school-supporting nonprofits help to address government failure—by offsetting losses in state aid to public schools—and whether voluntary contributions ameliorate or exacerbate revenue inequalities across school districts. We find that school districts with higher endowments—as measured by property tax revenues per pupil, the share of individuals with a bachelor’s degree or more, median household income, and relatively low unemployment rates—have higher probabilities of being served by at least one school-supporting nonprofit and higher levels of per-pupil voluntary contributions. We also find no evidence that impressive recent growth in the number and financial size of these school supporting charities relates to reductions in state aid to public schools. Instead, we find that school districts that generate higher revenues from federal and property tax sources also generate higher revenues from voluntary contributions. Our preliminary results also indicate there is little causal evidence suggesting that limitations on local revenue-raising cause changes in voluntary contributions to public schools. As one example, both the level and dispersion of per-pupil voluntary contributions are quite similar in states with and without court-ordered school finance equalization. Thus, there is limited evidence that school finance equalization serves as a mechanism for increasing voluntary contributions within districts or states.