The effects of state funding on property tax rates and school construction

In response to concerns over funding for school construction, the state of Texas has implemented two programs to assist school districts with construction-related debt. This paper examines whether these programs have accomplished their objectives of reducing property taxes (the Existing Debt Allotment (EDA) program) and increasing capital outlays (the Instructional Facilities Allotment (IFA) program). I find that school districts receiving EDA funds have reduced their debt tax rates more than non-EDA districts, but they have used the opportunity to increase their operating tax rates. Overall, EDA districts have not experienced greater property tax relief. For the IFA program, I find that IFA districts have increased their capital outlays more than non-IFA districts. I also examine the IFA program's impact on the equitable distribution of capital outlays. I find that poor school districts have increased capital outlays because of IFA funding, while rich districts have increased capital outlays by increasing tax rates. Middle-wealth school districts do not receive significant IFA funding, nor do they have a rich tax base. Therefore, their capital outlays remain essentially unchanged. Overall, capital outlay equity has decreased. (c) 2005 Elsevier Ltd. All rights reserved.