MAY
2009

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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05-28-09

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School Bond Referenda


It's not election season, but there were four elections in Indiana on Tuesday, May 19. Each was a vote on a school bond issue. Under the new property tax reforms, school corporations and other local governments must get voter approval before they go ahead with big building projects.

Voters rejected all four bonds. Those school construction projects will not go forward.

The margins of defeat were pretty substantial. In the Michigan City School Corp. in Porter County, a $39-million career center was defeated 68 percent to 32 percent. In the Ninevah-Hensley-Jackson School Corp. in Johnson County, voters defeated a $26-million project for a new elementary school and to renovate a middle school and high school 71 percent to 29 percent. In the Mooresville School Corp. in Morgan County, there were votes on two bond issues. Voters rejected a $46-million, high school renovation 59 percent to 41 percent, and they rejected a $50-million middle school 62 percent to 38 percent.

So far, Indiana has seen 13 capital projects referenda, 12 for schools and one for a county jail. Six have passed, and seven have been defeated. (The Jay County jail bond passed.)

There's been a lot of research on why school referenda succeed or fail. Without too much trouble, I found six academic articles on the topic from the last two decades. Some looked at how many bond elections succeeded or failed over many years; others surveyed voters about their choices in particular elections.

The most consistent result of these studies is that the cost to taxpayers matters. The cost is the added tax payment a property owner must make to pay the debt service on the borrowed money. Economists call this the "tax price" of a project. Five of the six studies show that when the tax price is higher, voters are more likely to vote no.

A little back-of-the-envelope calculating shows that the tax price isn't a very good explanation for Indiana's results so far. For the projects that passed, the added tax rate averaged about 12 cents per $100 assessed value. The owner of a $100,000 home would pay an added $40, after deductions. The average tax rate for the projects that failed was 15 cents per $100 assessed value. That's an added $50 on the tax bill. It's hard to believe that the extra 10 bucks makes the difference between voting yes and voting no.

Maybe there's a clue in the pattern of election results over time. Last November, five of six bond issues passed. Since then, six of seven have lost. In November, the state's unemployment rate was 7 percent. By March it was 10 percent, and it's probably even higher now. The economy is in worse shape now than it was in November, and people know it. Perhaps voters decided that there's just too much uncertainty about the economy to vote yes. They don't know whether they'll be able to afford the extra taxes. They don't know whether the school corporation's tax base might shrink, so a higher tax rate would be needed to pay off those bonds. The bad economy may explain the rejection of school bond issues in 2009.

Thirteen elections is not much evidence. We can get more data from Illinois, where the state has more experience with school bond elections. The Illinois State Board of Education provides information on these votes, all the way back to 1973. Over the years in Illinois, about 60 percent of bond referenda have passed.

Illinois holds elections twice a year, during primaries and in November. In February 2008, 14 of 20 referenda passed. In November 2008, 4 of 10 passed. In April 2009, only one of eight passed. Illinois has seen a pattern like Indiana's. Fewer school bond issues passed as the economy got worse. Looking back, the share of Illinois bond referenda that passed was particularly low in 1975, 1982 and 1991, which were all recession years.

Is the recession causing Indiana voters to reject school bond issues? We won't know until we have a few elections while the economy is doing well. Will people vote yes in good times? Unfortunately, it may be a while before we can gather evidence about that.

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,