The Value of School Facilities: Evidence from a Dynamic Regression Discontinuity Design

Joint with: Stephanie Riegg Cellini The Trachtenberg School and Fernando Ferreira The Wharton School

This paper estimates the impact of investments in school facilities using the housing market. We draw on the unique characteristics of California’s system of school finance, comparing districts in which school bond referenda passed or failed by narrow margins. We extend the traditional

regression discontinuity (RD) design to account for the dynamic nature of bond referenda: the probability of future proposals depends on the outcomes of past elections. Using our “dynamic RD” estimator, we first show that bond funds stick exclusively in the capital account, with no effect on current expenditures or other revenues. We can thus interpret the effect of referendum passage as reflecting the impact of improvements in the quality of school facilities. We find that passing a referendum causes immediate, sizable increases in home prices, implying a willingness-to-pay on the part of marginal homebuyers of $1.50 or more for each dollar per pupil of facility spending. These effects do not appear to be driven by changes in the income or racial

composition of homeowners. While we find suggestive evidence that bond passage leads to increases in student test scores, this effect cannot explain more than a small portion of the

housing price effect, indicating that bond passage leads to improvements in other dimensions of school output (e.g., safety) that may be not captured by test scores.

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