AUSTIN, TEXAS — A new policy brief from the Center on Municipal Capital Markets (CMCM) at the LBJ School of Public Affairs at The University of Texas at Austin finds that state-level school district debt relief can lead to significant increases in school facility investment and long-term improvements in student outcomes.
The policy brief, The Impact of School District Debt Relief on Educational Outcomes: The Texas Experience, authored by CMCM researcher Thomas Lee, Ph.D., analyzes Texas school finance reforms that reduced debt financing costs for districts with limited borrowing capacity. The report shows that state subsidies for debt service expanded districts’ ability to finance overdue school improvements, including repairs, modernization, and health and safety upgrades.
The brief finds that strategic investments in school facility upgrades can drive measurable long-run gains in student outcomes, including higher reading and math achievement, stronger attendance, and increases in high school graduation.
The analysis highlights two Texas programs launched in the late 1990s as key sources of relief: the Instructional Facilities Allotment (IFA) and the Existing Debt Allotment (EDA). These programs lowered borrowing costs for school districts to build new facilities and manage existing debt, with the largest benefits going to districts carrying heavier debt burdens.
According to the report, districts with relatively high debt burdens that received state subsidies increased capital spending by 22 percent, equivalent to approximately $190 more per student per year. These increases reflect projects that many districts could not have undertaken under strict borrowing constraints.
The report also finds that the strongest improvements in student outcomes emerge over the long run. These gains emerge several years after new investments are made. This reflects the realities of major facility projects, which require time to plan, complete, and translate into measurable benefits for students.
Although the study focuses on Texas, the findings are relevant nationwide. Many states cap school district debt or limit local tax rates, which may prevent districts from addressing aging buildings, overcrowded classrooms, and basic maintenance. The Texas experience suggests that targeted state support can help high‑need districts invest in infrastructure that supports student learning.
The policy brief is based on findings from a working paper (Lee, 2025), available here. It aims to inform ongoing discussions about how states balance fiscal accountability with the need for investment in local government infrastructure. The findings provide timely context for current Texas policy debates about tightening local debt issuance and debt management practices, underscoring the tradeoffs between fiscal oversight and the ability to finance long‑term public infrastructure.
ABOUT THE CENTER ON MUNICIPAL CAPITAL MARKETS
The Center on Municipal Capital Markets (CMCM) at The University of Texas-Austin is one of the only university-based centers focused exclusively on municipal capital markets. CMCM’s mission is to enhance the capital market expertise and knowledge of undergraduate and graduate students, emerging and seasoned state and local government finance professionals and the public at large. CMCM achieves this through graduate and continuing education programs, experiential training, research and technical reports, and public outreach.
ABOUT THE LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS
The LBJ School of Public Affairs at the University of Texas at Austin is one of the nation's premier public policy schools, uniquely positioned within a top-tier research university, the state capital and one of America's most innovative cities. Founded in 1970 by President Lyndon B. Johnson to expand access to the halls of power, the school offers a range of nationally ranked degree programs that prepare students to take on society's most pressing challenges. The LBJ School also provides career development and leadership training to emerging policy leaders and operates numerous research centers that develop solutions to complex local, state, national and global challenges.