How Much Money Could Be Saved By School Districts Being Combined?

John Yinger (left) and William Duncombe, both professors at Syracuse University's Maxwell School of Citizenship and Public Affairs, have studied the economics of size in public instruction. Photo by Candi Patterson/Center for Policy Research, Syracuse University

The aid bonus from consolidation can be quite large. In New York, consolidating districts may receive an increase in their basic operating aid of up to 40 percent for v years, with declining increases for an additional nine years. On top of this aid, consolidating districts also may receive a 30 per centum increase in building aid for projects initiated within ten years of consolidation.

In many cases, however, state assistance policies apropos consolidation are contradictory. In fact, most a tertiary of the states, including some that offer consolidation bonuses, employ operating aid formulas that compensate school districts for sparsity (depression population density) or for small scale and thereby discourage consolidation, according to Yao Huang, a contributor to Helping Children Left Backside: State Assistance and the Pursuit of Educational Equity.

And so what practise states practise? Some contempo research provides guidance for superintendents and schoolhouse leaders, especially those facing consolidation.

Expected Savings
The main justification for school district consolidation has long been that it is a way to cutting costs. These toll savings ascend, the statement goes, because the provision of education is characterized by economies of size, which be whenever the cost of teaching per pupil declines as the number of pupils goes up. In this context, the cost of education is not the same as education spending simply is instead the amount a school district would have to spend to obtain a given level of functioning, as measured past test scores, graduation rates and mayhap other output measures.

To put it another fashion, economies of size exist if spending on education per pupil declines equally the number of pupils goes upward, controlling for school district performance. Considering consolidation creates larger school districts, information technology results in lower costs per pupil whenever economies of size exist.

Economies of size could arise for many reasons, which nosotros discuss in "Does Schoolhouse District Consolidation Cut Costs?" in the autumn 2007 consequence of Pedagogy Finance and Policy.

Showtime, the services provided to each student by sure education professionals may not diminish in quality equally the number of students increases, at least over some range. All districts require a superintendent and a school lath, for example, and the aforementioned primal assistants may be able to serve a significant range of enrollment with little change in full costs.

Second, educational activity requires certain concrete capital, such as a heating organization and science laboratories, which crave a certain scale to operate efficiently and therefore have a high cost per pupil in small districts.

Tertiary, larger districts may be able to use more specialized teachers, putting them in a better position to provide the wide range of courses required past land accountability systems and expected today by students and parents.

Finally, teachers in larger districts have more colleagues on which to draw for advice and discussion, interactions that presumably lead to improved effectiveness.

Mixed Signals
Although these arguments make a lot of sense, some factors cut in the other direction. Outset, consolidated schoolhouse districts usually brand use of larger schools, which implies that average transportation distance must increase. As a result, consolidation might increase a district'due south transportation spending per pupil.

Second, consolidating districts may level up salaries and benefits to those of the most generous participating district, thereby raising personnel costs.

Third, administrators and teachers may have a more positive attitude toward work in smaller schools, which tend to have more flexible rules and procedures.

Finally, students may be more motivated and parents may observe it more comfortable to collaborate with teachers in smaller districts, which tend to accept a greater customs feel. These reactions and closer student-faculty relationships may result in higher student performance at whatever given spending level.

Overall, the net impact of consolidation on pedagogy costs per pupil is not clear a priori. Some factors indicate consolidation is likely to tap into economies of size and thereby lower these costs, but other factors propose consolidation might really cause costs per student to rise. As a result, we now turn to empirical studies of consolidation, which can determine whether the cyberspace touch of consolidation on costs per pupil is positive or negative.

Empirical Evidence
A large trunk of literature has investigated the human relationship between toll per educatee and district enrollment, decision-making for schoolhouse performance. Although these studies comprehend many locations and use various methodologies, well-nigh atomic number 82 to the same determination that emerged from a study, "Revisiting Economies of Size in American Teaching: Are Nosotros Whatsoever Closer to a Consensus?" in the June 2002 event of Economics of Education Review: "Sizeable potential cost savings may exist by moving from a very pocket-size district … to a district with ii,000 to 4,000 pupils, both in instructional and administrative costs."

These studies estimate economies of size across all schoolhouse districts and therefore practise non look directly at the cost impact of consolidation. Another approach is provided by the ii of u.s. in our Educational activity Finance and Policy commodity in 2007—namely, to see how costs per pupil modify when districts consolidate. This study is based on all the rural school districts in New York state betwixt 1985 and 1997.

During this period, 12 pairs of these districts consolidated. These consolidating districts had enrollments ranging from 250 to 1,990. To isolate the impact of consolidation, the costs in consolidating districts can exist compared both with their own costs earlier consolidation and with the cost of like districts that did not consolidate. The assay controls for a variety of commune characteristics, including two measures of student performance, namely the per centum of students achieving minimum competency on the state'due south elementary school math and reading tests and the percent of students receiving a Regents diploma, which requires passing a set of demanding exams in high school. The second operation variable is of import in New York considering one argument for consolidation is that information technology facilitates the offer of special classes to support the Regents exams.

This study explores both operating and capital spending. To account for the extreme "lumpiness" of capital spending, it is averaged over a 4-year menstruation.

This written report finds strong show of economies of size in operating spending but not in capital spending. More specifically, annual operating spending per pupil declines by 61.7 percentage when two 300-educatee districts merge and by 49.6 per centum when two 1,500-pupil districts merge. The savings are particularly large for the subcategories of instruction and administration, but the study finds no economies—or diseconomies—of size for educatee transportation.

Transition Costs
These results for economies of size are simply half the story, however. This study likewise finds that consolidation involves transition costs not associated with enrollment. Both overall operating spending and operating spending subcategories exhibit a large upward shift in per pupil costs at the time of consolidation, followed by a gradual decline in per student costs in the post-obit years. These extra costs appear to disappear afterward about 10 years. This study also finds large aligning costs in capital spending, which announced to phase out even more slowly.

To some degree, these adjustment costs offset the price savings associated with consolidation-induced enrollment increases. Over a 30-year period, the internet almanac savings subsequently accounting for adjustment costs fall to 43.7 pct for a consolidation of two 300-educatee districts and to 29.half dozen percent for the consolidation of two ane,500-pupil districts. The savings are smaller with a ten-twelvemonth horizon considering the adjustment costs take non withal phased out.

These results are summarized in the tabular array at right, which replicates information from our study appearing in Education Finance and Policy in 2007.

The large adjustment costs in capital spending identified by this report are difficult to interpret. They announced to reflect upper-case letter spending encouraged by the building-aid increases associated with consolidation. It is not articulate, however, whether these capital spending increases lead to improvements in student performance in the future (that is, exterior the sample period of the study) or whether they stand for capital spending that does not have a educatee-operation payoff.

Non-Cost Effects
When deciding whether to encourage consolidation, state policymakers may want to consider several factors other than toll savings. To some degree, consolidation may break parents' valued connections with existing schools, issue in higher transportation costs for parents and students, or raise costs for improving schoolhouse outcomes other than the test score measures included in existing studies.

Considering consolidation requires the consent of voters in all the consolidating districts, consolidation volition not take place unless a majority of voters perceive the cyberspace benefits outweigh the costs. Nonetheless, the internet benefits of consolidation to voters however could be far below the toll savings to the districts themselves.

Some prove on these problems comes from two recent studies of the impact of consolidation on housing prices. These studies estimate whether people are willing to pay more for housing in a commune later it consolidates. Using data from Ohio, David Brasington, writing in the September 2004 issue of The Journal of Real Estate Finance and Economics, plant that, subsequently controlling for student performance and holding taxation rates, consolidation lowers property values by about $iii,000 on average.

This result appears puzzling at commencement. If consolidation lowers property values, why do voters back up it? In fact, however, the cost savings from consolidation are translated into either higher student functioning or lower holding tax rates, so this result just indicates the cost savings from consolidation must be at least $3,000 per household to offset the credible losses from consolidation associated with less local control, lessened accessibility of teachers and school administrators, higher parental and student transportation costs, or other unidentified negative effects.

Another study of rural school districts in New York country by Yue Hu and John Yinger, "The Touch of School District Consolidation on Housing Prices" in the Dec 2008 outcome of National Tax Journal, yielded results consistent with Brasington'due south. These results point consolidation boosts firm values and rents by about 25 percentage in very small school districts and that this effect declines with district enrollment.

When two one,500-student school districts merge, the housing-price affect is just about half dozen percent, and consolidation has no impact on housing prices in districts with roughly 1,700 or more students. This failing bear upon matches the failing economies of size estimated by our own study. Moreover, these results are consistent with Brasington's because they do not command for pupil performance or belongings taxation charge per unit, but instead estimate the internet impact of consolidation, including both its impact on school costs and its impact on other things that households value.

Both studies land that the net impact of consolidation is lower than the price savings, which means, on balance, households identify a negative value on the effects of consolidation other than the cost savings. The cyberspace touch of consolidation is still positive for small districts, merely this impact is not most as large as the cost savings alone.

2 additional findings from the Hu and Yinger study are worth mentioning. Beginning, they constitute roughly a third of consolidation'southward positive bear upon on housing prices is due to the aid bonus that consolidating districts receive in New York. In the smallest school districts, consolidation would boost housing prices even without this aid increase, just the housing-cost affect of consolidation would be negative for two 1,500-educatee districts if they did non receive boosted land aid.

2nd, the impact of consolidation on housing prices declines equally house value and hire increase and is actually negative in the wealthiest neighborhoods. The negative value placed on the impact of consolidation outside the school budget apparently is greater (in accented value) for households in neighborhoods with relatively expensive housing, predominantly higher-income households, than for households where business firm values and rents are relatively low. In short, consolidation is pop with the average household in small rural school districts in New York land, but it is not pop among households with relatively valuable housing.

Policy Implications
These results have several implications for public policy. The first and most important implication is that states are likely to relieve money in the provision of elementary and secondary education by encouraging their smallest districts, specifically those with fewer than one,500 pupils, to consolidate with ane of their neighboring districts. These price savings come from economies of size, which are merely partially offset by adjustment costs associated with consolidation.

Geographic barriers or other concerns may rule out consolidation under some circumstances, but the potential savings for small districts are substantial. Indeed, schoolhouse districts with i,500 students might be able to cut their toll per pupil by 30 percent through consolidation. These costs savings may not interpret into lower spending, of class, if the consolidation leads to higher educatee performance for these small districts, but performance increases of this type are also a articulate gain for social club.

1 final signal for perspective is that even though consolidation-induced cost savings may be big for an individual commune, they are inevitably small for the land as a whole because only the smallest districts in the state are involved.

Second, consolidation appears to have pregnant effects beyond cost savings for schoolhouse districts. On the one manus, households, particularly those with high incomes, appear to value the features of smaller districts, such as better access to teachers and lower transportation costs. From society's betoken of view, therefore, the price savings from consolidation are offset to some caste by the losses households experience outside the school budget. These losses do not eliminate the case for consolidation, but they do indicate the instance for consolidation is stronger when a district has 500 or i,000 pupils than when it has 1,500 pupils.

The existing property-value studies do not indicate exactly which features of consolidation are negatively valued past households, just they do show that negatively valued features exist. Farther inquiry is needed to place what these features are and to determine the enrollment size at which consolidation no longer makes sense. This enrollment size might vary, of grade, across states or beyond circumstances.

The third lesson is that states would be well served by rethinking their aid programs that are linked to consolidation. Our 2007 study found evidence that upper-case letter costs shift upwards essentially after consolidation, probably because of increased state aid. Some of this capital spending may be justified, simply states should be careful to monitor such spending carefully and to direct mail service-consolidation building aid toward cost-effective projects that are part of a long-run plan.

The 2008 enquiry finding past Hu and Yinger concerning land assist provides another primal circumspection. Increases in housing prices associated with consolidation-based aid bonuses should not exist interpreted as prove that consolidation produces positive cyberspace benefits. Extra aid obviously benefits the residents of a newly consolidated district, but this do good represents a transfer from land taxpayers and does not reflect cost savings. Without this state-aid consequence, the net benefits of consolidation are positive just for the smallest districts. In fact, strong evidence for positive cyberspace benefits from consolidation, and hence for state intervention, only exists for districts with enrollments below about 1,000 pupils.

As a 4th lesson, states need to recognize that increased aid for schoolhouse districts with small-scale calibration or high sparsity rewards districts for not consolidating. It makes no sense for states to encourage consolidation through one gear up of programs while discouraging it through others. It might make sense to recoup a district for the relatively loftier costs associated with a small scale if it is impossible for that district to consolidate. To account for this possibility, an aid program would accept to identify factors that make consolidation impossible and limit sparsity aid bonuses to districts to which these factors use.

Equity Grounds
Finally, this enquiry indicates policymakers sometimes may face up a situation in which consolidation makes sense on equity grounds just does non effect in decreased costs from order'south point of view. A small, poor commune would undoubtedly experience a decline in price per pupil if information technology merged with a richer neighbor. Moreover, the increase in the average property tax base of operations from such a merger would lower the property taxation brunt on this district's residents. Every bit a effect, this type of consolidation would amend the fairness of the education finance system in the state.

Nonetheless, a consolidation of this type is unlikely to take place. First, the high-income residents of the neighboring commune may non perceive whatever net benefits from consolidation, even if they are small plenty for economies of size to boot in. As shown in the research by Hu and Yinger, high-income residents tend to lose from the effects of consolidation other than school cost savings.

In improver, Brasington's study shows that voters in a loftier-income district are unlikely to approve consolidation with a low-income commune considering this blazon of consolidation would increase their property taxation burden, even holding spending per pupil constant.

If consolidation is deemed to be desirable on equity grounds, therefore, land assistance bonuses may be needed to convince high-income voters to go along. Hu and Yinger propose these assistance bonuses add together to the perceived benefits of consolidation every bit reflected in housing prices and might exist sufficient to induce voters in the richer district to approve consolidation.

Advantageous Factors
Debates well-nigh school district consolidation frequently involve a neat deal of heat and not much calorie-free. Recent research tin bring some light to bear upon this effect by identifying the circumstances under which consolidation can take advantage of economies of size, by identifying the aligning costs that may accompany consolidation, by measuring the value that voters place on the non-cost touch of consolidation, and by identifying the circumstances under which consolidation is likely to be accepted past voters.

Because consolidation involves minor school districts, information technology cannot generate large cost savings at the state level, but under some circumstances it tin result in big cost savings for private districts or enhance the fairness of a state's education finance system.

William Duncombe is a professor of public administration at Syracuse Academy'southward Maxwell School of Citizenship and Public Affairs. Email: duncombe@syr.edu . John Yinger is a Trustee professor of economics and public administration at the Maxwell School.

Source: https://www.aasa.org/schooladministratorarticle.aspx?id=13218

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