In Education Funding, Size Does Matter


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I’m often asked the question, “When it comes to funding – what is the optimal size of a school district?”

Data from the U.S. Census shows that – for the most part – as districts shrink in size their per pupil expenditures grow. The exception to this is school districts with 50,000 students or more (we’ll talk more about them in a minute). As shown in the chart below as districts shrink below 25,000 students their expenditures per pupil increase. Districts with between 49,999 and 25,000 students spend $1,514 (13.2 percent) below the national average while districts under 3,000 students spend $1,901 (16.6 percent) above the national average.

Table I: Per Pupil Spending Based on School District Enrollment (2013-14 School Year)
Source: United States Census

The Reason for the Differences in Expenditures

The difference in per pupil spending between large and small districts  relates with “economies of scale” – which means that as organizations (in this case school districts) grow larger they can become more efficient. For example take two districts – one with 30,000 students the other with 1,000 students. The larger district pays their superintendent $150,000 and the smaller district pays their superintendent $100,000. As you can see in the table below even though the larger district pays their superintendent more their cost per student is actually lower. Larger districts also have greater leverage when it comes to negotiating purchases with vendors.

Table II: Superintendent Costs Per Student

District Size 30,000 1,000
Superintendent Salary $150,000 $100,000
Cost Per Student $50 $100

The Difficult Issue of Consolidation

So if larger school districts can be run at a lower cost per student then why not just consolidate all of the small districts into larger districts? The answer is that many small school districts in this country are not candidates for consolidation for several reasons, including:

  • Isolation: Some school districts are geographically isolated (such as districts located on islands or in mountainous regions) making it impossible for them to consolidate.
  • Distance: There are many districts that are located too far from any other districts to be able to consolidate (students can only ride a bus so far each day for their education).
  • Local Control: Some states and local communities place a high value on small community schools. These communities see value in having their children attend small schools/districts and are willing to pay a higher cost for this decision.

In addition, not all small districts in this country have a higher cost per student. While the numbers show that on average the cost per student decreases when school districts grow there are some small districts in this country that are able to deliver educational services at or below the cost of larger districts.

The Issue with Large Districts

As shown on Table I – districts with 50,000 students or more have a higher average cost per student than districts with between 49,999 and 7,500 students. There are several reasons for this, including:

  • Diseconomies of scale – This is an economic phenomenon where entities become so large that they become less efficient. Districts with 50,000 students or more represent less than 1 percent of all of the districts in this country but they contain more than 20 percent of all of our countries public school students. The large size of these districts can create inefficiencies in their operations.
  • Increased costs in large metropolitan regions – There are only 93 districts in this country with 50,000 students or more and most of these districts are located in major metropolitan areas. Large metro areas tend to have a higher cost for such things as labor, land and services than other areas of the country.
  • Higher percentage of low-income students – The largest school districts in this country tend to have a higher percentage of low-income students. Low-income students tend to have higher needs, and thus higher cots, than other students.

So the Right Size Is?

So, in the end, the answer to the question, “what is the right size for districts based only on costs?” appears to be that districts between 49,999 and 25,000 tend to produce the lowest costs. However, this size district might not work in every community for all sorts of reasons.

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