Should school districts consolidate?

Several recent studies have examined the potential cost savings associated with school consolidation. One report was published by the University of Maine’s Margaret Chase Smith Center for Public Policy and the other was published by Gov. John Baldacci’s Task Force on Increasing Efficiency and Equity in the Use of K-12 Education Resources. Both of these reports examine the per pupil operating costs of Maine’s school districts and find that these costs decline as the district becomes larger (has more students).

The Baldacci administration is responding to these findings with a set of incentives to encourage the consolidation of Maine’s schools as a cost savings measure. Based upon the above arguments and incentives, several units are studying whether it makes fiscal sense to consolidate. We revisit the issue of school consolidation by first examining the arguments put forth in earlier studies and then re-examining the relationship between per pupil operating costs and school size. In our initial examination of this relationship we also find potential cost savings; however, the cost savings are much smaller than those provided in earlier studies.

The report by the governor’s task force states that school units with less than 2,500 students “spend anywhere from $277 to $7,640 more per pupil than larger school administrative units.” It supports its conclusion by examining per pupil operating costs for the 110 K-12 school units in Maine. However, the method used to examine these costs appears to be severely flawed. Specifically, it examines per pupil costs by categorizing school units into five size categories (e.g. school units with less than 125 students, school units with more than 125 students but less than 500 students, etc.), and then comparing the average per pupil operating costs across the size categories.

The problem with this approach is that some of the school size categories have only a few school units in them (for example, the size category corresponding to schools with less than 125 students represent only two school units). When this happens the “average” is a very unreliable measure since it can be greatly influenced by a few “extreme” or “special” observations. This seems to have occurred in the analysis since it appears that the two schools in the smallest size category are both offshore island schools. It can be argued that island schools should not be included within a cost analysis of school consolidation since these schools, due to their geographic isolation, face relatively high costs and are not likely to be able to consolidate.

The report by the Smith Center is potentially better in that it used more sophisticated statistical techniques as well as more data (it used data from 205 K-8 and K-12 schools in Maine). It measured the impact of school size on per pupil operating costs and found that costs decline with increases in school size, but that these incremental cost savings get smaller as the school size gets bigger.

What this means is that the decline in per pupil costs caused by adding in additional student gets smaller as you increase the school size. For example, adding a student to a school unit of 500 reduces per pupil spending by about 92 cents whereas adding a student to a school of 2,000 reduces per pupil spending by about 43 cents.

Although more sophisticated, the Smith Center research has a problem similar to that of the task force’s; the researchers assume their analysis completely explains the relationship between per pupil costs and school size. What is implied is that nothing else is important in explaining differences in per pupil costs. However, it is likely there are other factors that affect per student spending; as a result the analysis may over – or understate the true cost savings of school consolidation.

To test this idea, we took recent education cost data provided by the state of Maine and then expanded the Smith Center’s analysis to account for other factors that may impact per pupil spending. In our preliminary analysis we simply adjust for island schools and American Indian schools as they are likely to have different cost structures than the majority of schools in Maine (e.g. island schools are geographically more isolated and American Indian schools have different funding structures).

Even with this simple adjustment we find per pupil cost savings are about 40 percent lower than similar savings derived by the Smith Center. For example, adding a student to a school unit of 500 reduces per pupil operating costs by about 58 cents whereas adding a student to a school of 2,000 reduces per pupil spending by about 29 cents.

So what does this all mean? Let’s use a simple hypothetical example to compare how the three studies differ. Let’s assume two school districts, each having 500 students, were to consolidate. Using the numbers from the Task Force report ($510 per pupil cost savings), indicates that the combined school district would save, on average, $510,000 (510 x 1,000 students) per year. Using the numbers from the Smith Center the combined school district would save only $418,000 annually; whereas our analysis indicates an annual savings of only $340,000.

So, given the above, should the school districts consolidate? The numbers indicate potentially hefty savings; however, they also indicate there is a great deal of uncertainty about the size of these savings. The simplistic approaches published to date seem to overstate cost savings; even making some small modifications to the analysis creates substantial changes to the cost numbers. It seems that, at a minimum, further care must be taken in the analysis before school consolidation is encouraged statewide.

Further, it is important to note that there are other costs associated with consolidation not taken into account in any of the above analyses. One potentially important cost not included above is the cost of transporting students. This may be a serious issue since one of the potential tradeoffs for many schools considering consolidation is that potential reductions in per pupil operating costs may be offset by increases in per pupil transportation costs. These costs include both financial costs and the time costs placed on students needing to take longer trips.

Another set of costs not included above is costs associated with the actual school consolidation process. For example, to be able to consolidate, separate school districts will need to reorganize into one new structure. This means they need to negotiate new governance structures, cost-sharing relationships, teacher contracts, curriculum agreements, policies and procedures, etc. These reorganizations will take money, effort and political will (few people want “their” teachers laid off).

Given the above uncertainties regarding the size of the potential costs or costs savings associated with consolidation, we advocate that the state and local communities take a closer look before making any long-term commitments.

The above comments are from the following members of the Department of Resource Economics and Policy at the University of Maine: Mario Teisl, associate professor; graduate students Shan Huang, Caroline Noblet, Lisa Bragg, Catherine Larochelle, Michael Devanney, Jennifer L. Ward and Metin Cakir.