States are financing a larger share of capital investment by school districts but little is known about how districts respond to facility aid programs. This paper addresses this gap in the literature by examining how a short-term increase in the matching rate for the Building Aid program in New York affected district capital investment decisions.

The authors estimate a capital investment model and find that most districts are responsive to price incentives but that price responsiveness is related to the fiscal health and urban location of the district. Drawing on these results, the authors provide recommendations for the design of capital investment aid programs to increase their effectiveness in supporting high-need urban districts.