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

In this study, the authors explore the economic return of public infrastructure spending. To do this, the authors estimate the value of school facility investments using housing markets: standard models of local public goods imply that school districts should spend until marginal increases have no effect on local housing prices. The research design isolates exogenous variation in investments by comparing school districts where referenda on bond issues targeted to fund capital expenditures passed and failed by narrow margins. The traditional regression discontinuity approach is used to identify the dynamic treatment effects of bond authorization on local housing prices, student achievement, and district composition. Results indicate that California school districts underinvest in school facilities: 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 $1 of capital spending. These effects do not appear to be driven by changes in the income or racial composition of homeowners, and the impact on test scores seems to account for only a small portion of the total housing price effect.