How State Takeovers of School Districts Affect Education Finance, 1990 to 2019

Abstract

Abstract State takeovers of school districts—a form of political centralization that shifts decision-making power from locally elected leaders to the state—have increased over time, often with the purported goal of improving district financial condition. Takeover has affected millions of students since the first takeover in 1988 and has been more common in districts serving marginalized communities. We investigate whether 104 takeovers from 1990 to 2019 affect financial outcomes using event study methods. We find that takeovers increase annual school spending by roughly $2,000 per pupil after five years, leading to improvements in some aspects of financial condition (budgetary and long-run solvency), on average. New funds primarily come from state revenues and mostly cover districts' legacy costs (debt and employee benefits). These effects are larger when takeovers are motivated by academic and/or other, non-fiscal reasons. However, takeovers are experienced unequally, with Black students less likely to experience the takeover-induced increases to expenditures and improvements in fiscal condition. This suggests political centralization can promote fiscal health but with potentially concerning equity implications.