The Impact of State Regulations on the Costs of Public School Construction

Abstract

Spending by states and local school districts on school construction has increased dramatically over the last decade, not only because more and higher-quality schools are being built, but also because construction costs have increased by an unprecedented degree. Many states struggle to afford the new schools needed in local communities. The emerging body of academic literature studying the determinants of school construction costs focuses on the impact of prevailing wage laws; however, there are several other state-level school construction regulations that have as much potential cost impact as wage laws. In this article, we measure the impacts of three regulations on the costs of construction in a model that incorporates a more comprehensive set of project and locality characteristics than previous research. Using a database of nearly 3,000 schools constructed nationwide from 1995 to 2004, we find that when regulations are considered as additive, construction costs were 11% higher for each additional state regulation. However, we show that when combinations of regulations are considered separately, states with all three regulations have construction costs that are roughly 30% higher than states with none of the three regulations. We also find that prevailing wage laws are not the regulation with the largest cost impact. We conclude that the effects of regulation on school construction costs are more complicated than what previous research suggests. Therefore, rather than understanding the impacts of individual regulation as contributing to marginal increases in costs for each additional regulation, it is the whole regulatory environment of a place that has complex impacts on costs. We assert that three key research advances are needed in order to better address the cost of school construction: first, analysis should incorporate more detailed project-level data; second, analysis of the costs of state regulation need to be measured against the benefits of the better "product" realized by these regulations; and third, a better understanding of the interactions among regulations within a state's whole regulatory environment is needed.