Association for Public Policy Analysis & Management

In recent years, education finance research has examined school district response to myriad state and federal policies, with particular emphasis placed on the effects witnessed for disadvantaged students and the districts that serve them. For example, equity- and adequacy-based state funding formulae reforms have affected both student achievement and resource provision (Jackson, Johnson, and Persico, 2016; Lafortune, Rothstein, and Schanzenbach, 2016). Academically motivated policies including No Child Left Behind (Dee, Jacobs, and Schwartz, 2013) and financially motivated policies such as the American Recovery and Reinvestment Act (Evans, Schwab, and Wagner, 2014; Chakrabarti, Livingston, and Roy, 2014) likewise have affected district finances. My analysis seeks to expand empirical knowledge concerning the effects of policies and events with potential financial implications for districts.

An oft-overlooked aspect of education finance-oriented policy analysis is how policies may affect a district’s capacity to access debt capital markets. By extension, the empirical literature is lacking in evidence regarding the effects such changes to borrowing capacities may have on academic and resource outcomes. School district total indebtedness increased markedly in recent decades while corresponding debt service payments reached nearly $20 billion ($2016) in 2010 (National Center for Education Statistics, 2015). Districts utilize debt markets to support expenditures including long-term facilities improvements or short-term day-to-day operations and financial liquidity. If districts are constrained in their abilities to issue debt, they may not support such expenditures in a manner they may otherwise pursue.

Furthermore, if access to debt capital markets is inhibited for particular districts, for example those districts educating predominantly underserved students, those students may fail to receive educational resources otherwise available to them. There is some indication that higher-spending districts are better able to meet local spending preferences through capital markets than their lesser-spending peers after state funding reforms (Zimmer and Jones, 2005). Preliminary descriptive analysis suggests that districts serving the poorest students hold substantially less long-term debt than their higher-spending peers. These districts may be constrained in their capacities to access debt markets to support expenditures.

Empirical evidence regarding the effects of a change in a district’s credit rating may inform policy makers of the potential impacts of policies which may affect a district’s access to debt capital markets. To shed light on the independent effect of a change in access to debt capital markets on districts, I leverage an exogenous shock to school district credit ratings. Utilizing quasi-experimental methods of analysis including differences-in-differences and instrumental variables applied to an interdisciplinary district by year panel dataset, I address the following research questions:

1. How do changes in school district access to capital affect the issuance, holding, and retirement of school district debt and, by extension, debt service payments?
2. How does the provision of financial capital affect district resource allocation?
3. How do changes in school district access to capital affect student achievement?
4. Do different types of school districts (i.e. student characteristics, academic achievement, urbanicity, credit rating, etc.) respond differently to changes in their access to capital?