The effect of North Carolina's Public School Building Bond Fund on county capital spending patterns, kindergarten enrollment, and local property tax growth

Abstract

North Carolina has a long history of offering state bonds meant to address the capital needs of its public school system. The last major State effort taken to help counties in funding capital needs took place in 1996 with the passage the of the Public School Building Bond Act (H.B.1100), which created a $1.8 billion fund for all 100 North Carolina counties. This paper uses the North Carolina Public School Building Bond Fund as a test case to broaden the understanding of how outside capital funding may affect capital budget decisions at the county level and whether increased kindergarten enrollment or lower rates of property tax growth followed changes in spending. I find that the bond fund significantly increased capital spending, both on average and statewide. Counties that had low levels of spending prior to treatment tended to increase local spending prior to bond usage in order to meet the matching requirements, increase spending dramatically during treatment, and reduce spending after treatment, suggesting that the bond was effective at addressing previously unmet needs for these counties. However, counties that had high levels of spending prior to bond usage tended to reduce local spending prior to bond usage and then raise it again after bond use, implying some crowd-out of local spending. No relationship appears to exist between changes in capital spending and increases in kindergarten enrollment. Further research can determine whether this is due to missing data or concurrent changes in private or charter schools. Counties that reduced local spending tended to reduce the rate of tax growth as well, although counties with higher spending levels, total tax base, and per student tax bases were able to afford much steeper reductions in the rate of tax growth.