(Editor’s note: Shiller is an assistant professor of economics at Brandeis University and a father of two.)

As an academic economist at Brandeis University, I study empirical relationships in economic markets. As our town considers a major school building project, I want to share the results of some peer-reviewed, high-quality economics studies that look at how school projects affect property values.

Rigorous research strongly supports the contention that school funding pays for itself by raising property values. In fact, there is quite a bit of research supporting this claim. Consider one example: Lisa Barrow and Cecilia Rouse (2003) exploited a change in the formula which determines state-provided support for local school districts. They found that every $1 increase in state-provided funding raised the total value of homes in a school district by $20.

But perhaps a more pertinent question is whether spending on school structures raises property values. Like many questions, this one is hard to answer. Raw correlations may lie. Towns that choose to build new schools or renovate may be different in many ways from towns that choose not to do so. Maybe these other differences explain why property values rise in towns that choose to build new schools or renovate them. Fortunately, empirical economists have developed techniques to answer these types of questions.

To address this concern, Cellini, Ferreira, and Rothstein (2010) used an estimation strategy called a “regression discontinuity.” Intuitively, the approach exploits the relationship between the share voting to approve school building projects and property values. Of course, towns with 75% of voters agreeing to fund a new or renovated school structure are inherently different than towns with only 25% approval. But the approach focuses on towns right around the vote-share threshold needed to approve funding. Presumably, on average, towns where 49% of voters approved funding are very similar to towns where 50% of voters approved funding. But only in the latter case is school structure funding approved. Hence, we can compare property values across towns barely on either side of the 50% vote share cutoff (note that in Lincoln, a two-thirds vote is needed to secure funding).

Cellini, Ferreira, and Rothstein focused on California, which had enough local school infrastructure funding referenda to determine the impact with a high degree of statistical significance, i.e., confidence that the results are correct. They found that funding for school facilities more than paid for itself. Each $1 increase in capital spending on schools increased the aggregate values of homes in the district by $1.50.

While their study focused on less expensive measures than we are currently considering (there are not enough larger measures to yield statistical significance), available evidence suggests property values will go up by more than costs. After all, new school structures are a very conspicuous indication that a town supports education.

Even though the school should pay for itself by raising property values, it is natural to think back to the school building costs from 2012, when we failed to reach the super-majority needed for approval. Many might ask: why should we pay for a new school now, since the total cost has gone up? The answer is that we still have an opportunity to build at a reasonably low cost, and costs will probably only move higher.

Yes, the price of a new school structure was very low in 2012, but only because of a perfect storm—three separate rare occurrences, each of which lowered the price and all of which happened to line up at the same time.

First, the state had promised to pay $20 million. I am not an expert on these state programs, but I think it is unlikely that the state will offer $20 million again soon, since we spurned them once and there are many needier towns. Second, interest rates were near all-time lows. Hence, the costs of borrowing to fund the project were incredibly low. Third, construction costs were low.

So yes, we may have missed a once-in-a-lifetime opportunity to build/renovate the school in 2012 at an incredibly low cost. But we cannot undo that decision. The question now is, what to do going forward. We need to build or renovate relatively soon. Should we do so now?

While we may not receive as good a deal as in 2012, it still makes financial sense to build now. Interest rates are still low by historical standards, but going up. We should try to lock in the loan’s interest rate soon, to lessen the costs of borrowing the money up front to pay for the school building project.

In conclusion, I believe we should approve the school building project for two reasons. First, and most importantly, it is the right thing to do for the children of Lincoln. Second, approving the school building project appears to be the wise choice financially. Be selfish, and vote YES for the school building project.

Sincerely,

Ben Shiller
181 Bedford Rd.

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