Does School District Board Type Affect Fiscal Conditions? Examining Debt Positions

Abstract

In the United States, the question of which is a better form of governance and leadership – elected or appointed – is considered to be a relevant issue in public administration. Many studies have advocated the appointed form in terms of professional management and fiscal performance. However, there is limited knowledge about the application of this form of government to school districts that are the main issuers in the municipal bond market, but financially rely on state governments. We discuss whether the type of education board in the school district (i.e. appointed or elected boards) affect debt positions. We expect school districts with citizen-elected boards to be more likely to reduce debt positions due to the reelection concerns of board members. Using a panel dataset of New Jersey school districts from 1997 to 2016, we are able to estimate the impact of board type on the cumulative debt of a board. The findings offer evidence that, when compared to appointed school boards, elected school boards are more likely to reduce their long-term debt and interest payments, as well as long-term debt as a percentage of own-source revenue.

Keywords:

• citizen-elected boards
• debt positions
• fiscal health
• form of government
• mayor-appointed boards
• school district board type

Notes

1 For more information on financial and fiscal health and its definition, see Maher et al. (2020) and Foged (2021).

2 The sample used for the empirical analysis in this study reveals that in 2013, 21 Type I school districts changed to Type II. Another two districts made the change in 2014. Only one Type II district in each year of 1997, 2002, and 2004 was observed to change to Type I.

3 Type II school districts, according to the law, can be either appointed or elected. While appointed Type II districts exist in statute, the New Jersey School Boards Association (2019) is unaware of any appointed Type II boards in New Jersey since the 1990s. Therefore, it is commonly noted that Type II districts have an elected board.

4 According to the New Jersey School Boards Association (2019), before January 2012, all school districts held their annual school elections in April, when the state legislature was passed. After that, Governor Chris Christie signed a law enabling (but not requiring) school districts to move their elections from April to November. Soon after that, legislation was signed, and a majority of districts moved their elections to November. Beginning with the 2012 school election, Type II school district boards of education, municipal governing bodies, and voters (by way of petition) were permitted to move the annual April school election to the date of the November general election, pursuant to N.J.S.A.19:60-1.1. The statute requires that once the school election is moved to November, at least four annual November elections must be held prior to the adoption of a resolution or the filing of a petition to move the date of the school district’s annual school election to the third Tuesday in April. Those school districts that first held a school election in November 2015 met the four-year legal threshold after the November 2018 election was held. After that election, those school districts were eligible to move their school elections from November back to April, effective from the April 2019 election.

5 According to the New Jersey School Boards Association (2019), Englewood was the most recent district to make the change from an appointed to an elected board, having done so in 2000. Other such districts that have changed from an appointed to an elected board include Sea Isle City (1998), Edison Township (1992), and Hackensack (1990). Districts that switched from an elected board to an appointed one include Rockleigh (2004) and Union City (1991). This shows that there is not a direct connection between types of municipal governments and types of school district boards in New Jersey.

6 It is notable that school board members are final decision makers given the requirement of bond referendums for school districts in New Jersey. This means that voters are final decision makers to determine debt levels. However, the percentage of proposal for school bonds has been above 50% in New Jersey (New Jersey School Boards Association, 2020). This implies that the proposal by school board members matters for debt levels, given the historical pass rates of bond referendums. Simply put, school districts that have more proposals for bond issuance are more likely to have higher debt levels. Moreover, it has been argued that there is no difference in debt levels between governments that employ bond referendum and those with no referendum (McEachern, 1978). This also supports the notion that school boards have a role in determining debt levels regardless of bond referendum.

7 Prior to running the regression, per pupil total outstanding debts that include both short- and long-term debts were also considered. Short-term debts should be paid back within a fiscal year, and the size of short-term debts is relatively small. Both the debts require the jurisdictions to respond differently to the obligations over the repayment period (Shon & Kim, 2018). Total outstanding debts were not the primary consideration, though the findings are included in the study.

8 The Breusch-Pagan/Cook-Weisberg test found heteroskedasticity. The Huber-White-sandwich estimator of variance ensured the robustness of the remaining specification test statistics, and suggested heteroskedasticity-robust standard errors. The Hausman test determined that the specification of fixed-effects is more appropriate than random-effects.

9 More specifically, long-term debts have a cumulative effect over the years, unlike short-term debts, which are cleared in one year.

10 Our hypotheses did not consider per-student total debts; however, our empirical analysis took into account the total debt level as well for more information (i.e. robustness check). Findings show that the magnitude of the negative effects is much greater on long-term debts, when compared with total debt outstanding that includes short- and long-term debts.

Additional information

Funding

This study was funded by the Graduate School of Public Administration, Korea University.

Notes on contributors

Junghack Kim

Junghack Kim is an assistant professor at the Graduate School of Public Administration at Korea University. His primary research interests include public budgeting and financial management, fiscal policy, and quantitative methods. His research has appeared in public administration journals including the American Review of Public Administration, Public Money & Management, Local Government Studies, etc.

Jongmin Shon

Jongmin Shon is an associate professor at the school of public administration, Soongsil University in Seoul, Republic of Korea. His research interests include financial management and fiscal policy issues in public sector.

Bruce D. McDonald

Bruce D. McDonald III is an associate professor of public budgeting and finance at NC State University. He also serves as the editor-in-chief of Public Administration, coeditor-in-chief of the Journal of Public Affairs Education, coeditor of Routledge’s Public Affairs Education Book Series, and president of the North Carolina Public Administration Alliance.