Why have revenue-strapped New England school districts been slow to turn to alternative funding sources?

Abstract: During and even after the Great Recession, numerous popular press stories commented on the apparent growth of non-tax revenues in the face of school district budget deficits. But Downes and Killeen (2014) show that nationally the growth of non-traditional revenues has been far less than these articles may lead the reader to believe. This paper uses data from the New England states to assess the empirical content of some of the possible explanations of this slow growth. In New England, as in the rest of the nation, non-tax revenues per pupil have grown in real terms but have not become a more important source of local revenues. Further analysis of Massachusetts offers equivocal evidence on whether non-tax revenues substitute for or are complements to revenues from overrides of revenue limits. Results from Vermont show that, when the incentives created by a school finance reform are sufficiently strong, districts turn to non-tax revenues in place of property taxes. However, once those incentives are removed, districts shift back to traditional revenues, indicating that districts are not inclined to use alternative revenues as a permanent replacement for property tax revenues.

JEL Classification: I22; H71; H73;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Current Policy Perspectives

Publication Date: 2016-07-01

Number: 16-1

Pages: 53 pages