Credit Constrained? How the Cost of Capital Affects School District Debt Issuance and Resource Provision

Dr. Cameron Anglum
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S110 Memorial Union
Add to Calendar 2020-03-11 13:30:00 2020-03-11 14:30:00 Credit Constrained? How the Cost of Capital Affects School District Debt Issuance and Resource Provision From the mid-1990s to the mid-2010s, school districts across the United States spent over $1.25 trillion on capital outlays to invest in the physical infrastructures of their schools. To finance these expenditures, districts today carry over $400 billion in long-term debt and pay over $17 billion in interest payments annually, figures which have doubled over the past two decades. Despite the immense magnitude of these investments, scant research has examined the subject of school district debt and differences which may exist in debt utilization among districts of varying characteristics and across varied state policy contexts. In this paper, I leverage an exogenous shock to the costs of district borrowing, a 2010 municipal credit rating recalibration event, to estimate the effect of cheaper access to debt financing on district debt practices. I find that in contexts where state governments do not financially support district school facilities expenditures, districts are particularly sensitive to their cost of debt, and issue more debt when their credit ratings improve. As national dialogue regarding infrastructure investments and constrained school district budgets gain increased attention, these findings may inform governmental policies regarding state investments in local school district capital expenditures. S110 Memorial Union Harry S Truman School of Public Affairs truman@missouri.edu America/Chicago public

From the mid-1990s to the mid-2010s, school districts across the United States spent over $1.25 trillion on capital outlays to invest in the physical infrastructures of their schools. To finance these expenditures, districts today carry over $400 billion in long-term debt and pay over $17 billion in interest payments annually, figures which have doubled over the past two decades. Despite the immense magnitude of these investments, scant research has examined the subject of school district debt and differences which may exist in debt utilization among districts of varying characteristics and across varied state policy contexts. In this paper, I leverage an exogenous shock to the costs of district borrowing, a 2010 municipal credit rating recalibration event, to estimate the effect of cheaper access to debt financing on district debt practices. I find that in contexts where state governments do not financially support district school facilities expenditures, districts are particularly sensitive to their cost of debt, and issue more debt when their credit ratings improve. As national dialogue regarding infrastructure investments and constrained school district budgets gain increased attention, these findings may inform governmental policies regarding state investments in local school district capital expenditures.

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