PFM Articles 
Impacts of Efficiency Targeting in School Aid on School District Efficiency, Student Performance, and Outcome Equity
Jay E. Ryu
PFM, Vol. 21 No. 2,
114-134 (2023)
Efficiency targeting in school aid to school districts penalizes inefficiency by decreasing school aid especially when its target value is set closer to full efficiency, which drives inefficient school districts to enhance efficiency in school administration and teaching. Simulation results for local Ohio school districts from 2011 to 2019 indicate that stringent efficiency targeting improves school district efficiency by about 0.7 to 4 percent. Efficiency targeting also enhances student performance by about 0.5 to 2.7 percent. This paper additionally confirms a tradeoff between efficiency and school aid. It is likely that poorer school districts are already economizing on educational spending and their actual efficiency scores tend to be higher than those of their less efficient counterparts. In addition, poorer districts receive relatively larger school aid under typical foundation aid formulas. As the efficiency target value increases, which lowers school aid to them, a disproportionately larger amount of school aid would be cut for poorer districts. However, the drop-off in school aid further triggers them to enhance efficiency and the increased efficiency translates into higher educational outcomes. Under some ranges of efficiency targeting, efficiency, student performance, and outcome equity can improve.
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