Are State Takeovers of School Districts Effective?

This study investigates how state takeovers of school districts impact district financial health and spending equity, especially across communities with different racial compositions. Using data from 104 takeovers between 1990 and 2019, the researchers employed event study methods to assess changes in spending and fiscal solvency. They found that, on average, takeovers increased school district spending by about $2,000 per pupil within five years, primarily through state funding that covers legacy costs like debt and employee benefits. However, these financial benefits were distributed unevenly, with predominantly Black districts less likely to experience the same fiscal improvements post-takeover.

Extended Summary

Central Research Question

The primary question this research addresses is how state takeovers of school districts affect school district finances and whether these effects vary based on community demographics, particularly racial composition. State takeovers, which shift decision-making from local to state control, are often initiated to improve district fiscal health and have become increasingly common, especially in districts with high numbers of marginalized students. This study seeks to determine if takeovers improve fiscal outcomes, focusing on whether takeovers lead to increased educational spending, improved financial health, and equitable resource allocation.

Previous Literature

Existing literature on state takeovers in education governance has yielded mixed results, particularly regarding fiscal impacts and academic outcomes. Some studies suggest that takeovers lead to reduced per-pupil spending, while others show minimal or no effect on expenditures. Research into academic outcomes generally finds limited benefits, with some evidence of worsened outcomes in Black-majority districts, raising questions about the efficacy and equity of such interventions. Prior studies on fiscal oversight in school districts indicate that while some fiscal interventions can stabilize finances, these outcomes vary greatly based on local conditions and the specific form of intervention. The literature on centralization and fiscal management suggests that state control can either improve or weaken fiscal outcomes, often depending on the level of local representation and the motivations behind takeover policies.

Data

The study draws on a unique dataset that tracks 104 state takeovers of U.S. school districts from 1990 to 2019, examining fiscal outcomes using district finance data from the National Center for Education Statistics’ Common Core of Data (CCD). This dataset covers a near-census of takeovers during the period, capturing data on district expenditures, revenue sources, debt levels, and student demographics. The study excludes small districts with fewer than 50 students, districts primarily serving students with special needs, and outliers in spending and enrollment. This approach ensures a representative comparison across districts with diverse demographic and economic profiles.

Methods

The researchers employed an event study approach to assess fiscal outcomes related to district takeovers. This method captures changes in fiscal metrics by comparing pre- and post-takeover financial data, focusing on per-pupil expenditures, budgetary solvency, and long-term solvency. The model controls for both district and year-specific effects, with district-year weights based on student enrollment to account for population variance. By using an extensive series of pre-treatment tests, including an F-test to check for parallel trends, the authors ensure robust comparisons between takeover and non-takeover districts. The study also includes a range of robustness checks, such as variations in covariate inclusion and treatment definitions, to strengthen causal inference.

Findings/Size Effects

The study finds that state takeovers generally lead to substantial increases in per-pupil spending and improvements in certain aspects of fiscal health, though the effects are unevenly distributed:

• Increased Spending: On average, state takeovers increase per-pupil expenditures by approximately $2,000 within five years. This increase is significant, doubling the effect size seen in school finance reforms of the same era.

• Fiscal Health Improvements: Takeovers improve districts' budgetary and long-term solvency. Specifically, they increase budgetary solvency (the ratio of revenue to expenditure) by about six percent and long-run solvency (debt service coverage ratio) by around 30 percent within ten years, indicating improved fiscal sustainability.

• Uneven Distribution of Benefits: The financial benefits of state takeovers are not evenly felt across all communities. Predominantly Black districts see fewer fiscal gains, with per-pupil expenditure increases and long-term solvency improvements significantly lower than those in non-Black districts. The study suggests that political factors may contribute to this inequity, noting that takeovers of majority-Black districts are often conducted under Republican leadership, particularly in southern states, where the state government may be less representative of local demographics.

• Motivations and Context: The study finds that fiscal outcomes vary depending on the stated reason for takeover. Non-fiscal takeovers (motivated by academic performance or other non-financial factors) lead to larger increases in district spending, suggesting that state willingness to increase funding is more pronounced in cases where financial mismanagement is not a central issue. Additionally, the effects are stronger in larger districts and those with substantial initial debt, indicating that takeovers may provide more benefit in districts with greater fiscal challenges.

  
  

Conclusion

The study concludes that while state takeovers can enhance district financial health by increasing spending and improving solvency, these fiscal benefits are not equitably distributed. In particular, predominantly Black districts benefit less from takeovers, both in terms of per-pupil spending increases and improvements in financial condition. This discrepancy raises concerns about the equity implications of state takeovers, as these interventions may reinforce rather than alleviate existing disparities. The authors suggest that state takeovers can provide a form of financial relief or bailout, particularly in cases where state resources are infused into struggling districts, but these interventions may not always address the underlying educational or operational challenges faced by districts.

The study adds to the discourse on centralization in public education, highlighting the potential for state-led interventions to promote fiscal stability while cautioning that such measures may reduce local representation and fail to foster equity. The findings underscore the importance of context—such as racial demographics, district size, and state-level motivations—in shaping the outcomes of takeovers, suggesting that policymakers carefully weigh these factors when considering state interventions in local school districts.

Full Citation

Lyon, Melissa Arnold, Joshua Bleiberg, and Beth E. Schueler. (2024). How State Takeovers of School Districts Affect Education Finance, 1990 to 2019. (EdWorkingPaper: 22-689). Annenberg Institute at Brown University. DOI: 10.26300/41dt-9y05