Dennis Heffley

MaryJane Lenon

English

Research Papers in Economics

4 The Connecticut Economy Summer 2004 4
By Dennis Heffley and MaryJane Lenon
Advocates of regional government often target
New England’s fragmented system of municipal gov-
ernment, blaming local “home rule” for educational
disparities, unequal tax burdens, and restrictive zon-
ing that limits mobility, hikes commuting costs, and
hampers efficient matching of workers and jobs.
But, like most durable institutions, Connecticut-style
local government has its benefits and costs, and
there may be sensible ways to improve that balance
by rewarding less restrictive zoning. 
A Tale of Two Towns
Non-New Englanders often picture Connecticut
as a small, quaint, mostly wealthy state that serves
as New York’s bedroom suburb and a haven for
late night talk-show hosts.  What they (and many
of us) often overlook is the remarkable diversity of
Connecticut’s 169 towns and its 3.5 million resi-
dents.  This diversity is seen in local policy choices
about education, taxes, and zoning.  
Education is the big reason why many folks
cherish and defend “home rule.”  Apart from a
handful of regional districts, each Connecticut
town is largely responsible for financing and oper-
ating its own school system.  This decentralization,
coupled with New England’s town meeting tradi-
tion, gives residents some control over the quality
of their schools.  But available resources temper
the common desire for better education.  
Connecticut towns rely heavily on local property
taxes to fund education, but because the per capita
market value of property varies 12-fold across
towns—from $39,601 in New Britain, Hartford’s
blue-collar suburb, to $477,743 per person in well-
heeled Greenwich—the effective property tax rate
needed to generate revenue for schools and other
public services also varies.  
Compared with poorer towns, wealthy towns can
typically spend more per pupil with lower tax rates.
New Britain residents, for example, pay $29.29 per
$1,000 of market value to finance school outlays of
$9,791 per pupil, while Greenwich residents,
because of the much larger tax base per head, pay
only $7.30 per $1,000 of market value to fund
spending of $12,438 per pupil.  
Greenwich is a costlier area, so its higher spend-
ing does not guarantee more teachers, better facili-
ties or higher-quality programs.  But such spending
gaps, some even larger, remain a concern, especial-
ly when school performance also differs sharply.
Averaging the percentages of 4th grade students
exceeding state goals on the reading, writing, and
math components of the 2002 Connecticut Mastery
Test (CMT), New Britain’s figure (29.0%) was little
more than a third of the figure posted by
Greenwich (83.6%), and again there are even larg-
er differences among the state’s towns. 
Like many states, Connecticut has enacted poli-
cies to trim differences in school spending, and
these state programs intentionally direct resources
to less wealthy towns: New Britain’s state aid per
capita ($1,194) is more than four times the amount
for Greenwich ($284).  But such attempts to level
the fiscal playing field have failed to close the wide
gaps in educational performance.
A Tale of Many Towns
It’s tempting to blame unequal school spending
for the large differences in test scores.  Many peo-
ple do, and they often advocate even stronger
“equalization” formulas for state aid to towns, or
perhaps even a complete shift of educational fund-
ing from towns to the state level.  But, such a shift
faces two major criticisms.  First, it ignores some
basic advantages of providing public services local-
ly, including the many options offered to house-
holds searching for a place to live and the poten-
tially “healthy competition” among local govern-
ments seeking to establish a politically attractive
tax-spending mix.
Second, a funding shift to the state level would
do little to eliminate a fundamental source of
unequal school performance: socioeconomic differ-
ences between communities.  Previous studies of
education published in The Connecticut Economy
(Spring 1997, 1998, and 2002) suggest that as
much as two-thirds of the variation in test scores
can be traced to socioeconomic differences—per
capita income, average educational attainment of
adults, percentage of children speaking a non-
English home language, etc.   This strong link
between socioeconomic factors and student perfor-
mance has implications for educational policy.  In
particular, if socioeconomic conditions are so
important, long-term gains in school performance
may require greater mobility and less geographic
isolation of poorer households, not simply more
school resources.  But, this is where zoning might
play a pivotal role.
Zoning serves several purposes.  In more rural
areas, unserved by city water and sewer systems,
large lots may be essential for health reasons—a
way to ensure that each home’s well and septic
tank are safely separated.  Some economists also
have described the fiscal motive for zoning—a way
to ensure that each household pays some mini-
mum amount of property taxes to support schools
and other public services.  But, others have point-
ed out that zoning may have more discriminatory
motives or effects. Requiring larger lots and hous-
es, or limiting new multi-family units, boosts the
“entry fee” for potential residents.  
Intended or not, zoning probably limits mobility,
especially for poorer households.  And this, in
turn, may confine low-income households to towns
where socioeconomic conditions impair the quality
of education, further restricting their long-term
mobility.
Zoning: Can a Barrier to Entry Open
a Road to Educational Gains?5 The Connecticut Economy Summer 2004
Does Zoning Really Matter?
A low-income household hoping to live in a
town with good schools faces obstacles, including
the price of housing.  Exceptions may exist, but
towns with better schools often have more costly
homes: the correlation between average 4th grade
CMT scores and the median house value per room
is 0.46.  Still, a poor household might be willing to
consume a small quantity of housing in a high-cost
town to secure access to better schools, but this is
precisely where zoning limits choices.  If the town
has used zoning to tightly restrict multi-family
units or to limit available options to big homes on
big parcels, the low-income household will be
effectively barred.  Defenders of large-lot zoning, of
course, might quickly argue that such rules ensure
that each household has enough property to gener-
ate needed tax revenue for schools and other local
services, or that such zoning preserves environ-
mental attributes of the town by maintaining lower
population densities.
Housing prices and zoning, though, are not the
only things that affect residential choices.  Another
deterrent to the entry of low-income households
would be higher property tax rates.  On the other
hand, both per pupil school spending and per capi-
ta spending on non-educational services should be
attractive features.  Thus, the location decisions of
low-income households and the resulting geo-
graphic pattern are influenced by a number of
town-level characteristics, making it more difficult
to assess the role of zoning or any other single fac-
tor.  But this is a common problem in analyzing
data, so economists and statisticians have devel-
oped ways to handle it.  The most common
approach, multivariate regression, can be used to
estimate the impact of each factor on the variable
of interest, while statistically controlling for the
other factors.
Applying regression analysis to Connecticut
town-level data, we have estimated the impact of
five factors—the local price of housing (median
house value per room), zoning (minimum lot-size),
local property taxes (equalized mill rate), school
spending per pupil, and non-educational spending
per capita—on the percentage of the town’s house-
holds with incomes below $50,000, as reported in
the 2000 Census.  The table below summarizes the
qualitative results. 
The percentage of households with incomes
below $50K varies considerably across Connecticut
towns, from 12.9% in Weston to 78.7% in Hartford
(see pp.10-11).  The five variables in the table
account for about 58% of this variation, so other
factors also play a role.  As expected, higher hous-
ing prices, higher minimum lot-size requirements,
and higher taxes all tend to reduce the percentage
of low-income households in a town, while both
types of public spending—educational and non-
educational—tend to attract low-income house-
holds, controlling for the other factors.  Each result
is statistically significant, except for the property
tax effect.  
So, just how much does zoning limit the access
of lower-income households?  Based on the regres-
sion, a one-acre higher minimum lot-size tends to
reduce the “average” town’s percentage of house-
holds with incomes below $50K from 40% to
about 38%.  This change (two percentage points or
5 percent) may not seem large, but keep in mind
that nearly all towns, not just a few, have mini-
mum lot-size requirements and an array of other
restrictions (minimum square footage for homes,
road frontage requirements, etc.) that “up the
ante” and limit access.  The collective effect on the
geographic distribution of the poor may be sub-
stantial.  It’s also likely that the lower the income
group, the larger the “deterrent effect” of zoning. 
Furthermore, when one town tightens its zoning
by, say, boosting the minimum lot-size, nearby
towns often feel compelled to follow.  This “policy
spillover” can lead to overly restrictive zoning.
Towns in an area might not be financially harmed
very much if barriers could be simultaneously low-
ered, but there’s no incentive for any one town to
“lead the way” by unilaterally relaxing its zoning,
and we currently lack a mechanism to induce
towns to jointly drop the bar.   
Can Access Be Improved?
Attempts have been made to increase residential
options for low-income households, including the
formation of voluntary coalitions among towns in a
region.  In theory, member towns would jointly
relax zoning restrictions or expand low-income
housing, reducing the cost of such policy changes
to any one community.  In practice, though, such
coalitions usually fall well short of goals and dis-
solve due to lack of enforcement and disagree-
ments about how member towns should share the
burden of zoning changes.  
One approach that may hold promise is in modi-
fying state aid formulas to reward towns that relax
zoning restrictions.  State aid formulas commonly
favor towns that have larger populations, lower
incomes or property wealth, and greater local “tax
effort,” so expanding such formulas to reward
towns that enhance living options for low-income
households, by easing zon-
ing restrictions, is not far-
fetched.  As always, the pol-
itics of such changes are
complex, but rewards for
less restrictive zoning might
find political support if the
link between local land-use
policies and long-term edu-
cational gains were better
understood. 
Expensive Housing and Restrictive Zoning Deter
Lower-Income Households

Zoning: Can a Barrier to Entry Open a Road to Educational Gains?

http://cteconomy.uconn.edu/articles/DH_Su2004.pdf

Zoning: Can a Barrier to Entry Open a Road to Educational Gains?

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