School district consolidation represents one of the most dramatic changes in education governance and management in the United States in the twentieth century. Over 100,000 school districts have been eliminated through consolidation since 1938, a drop of almost 90 percent (National Center for Education Statistics, 2003, Table 87). This trend continues throughout the country, largely because consolidation is widely regarded as a way for school districts to cut costs.
This paper provides a new look at the potential cost consequences of consolidation. Using a unique panel data set for rural school districts in New York State, we ask whether consolidation leads to significant cost savings, controlling for student performance. This paper therefore complements recent research on the causes of consolidation (Brasington, 1999, 2003).
Although the pace of school district consolidation has slowed since the 1970s, some states still provide incentives to consolidate. New York and at least seven other states have aid programs designed to encourage district “reorganization,” typically in the form of consolidation (Gold et al., 1995). Some other states encourage consolidation through their building or transportation aid formulas (Haller and Monk, 1988).
In contrast, about one-third of states use operating aid formulas that compensate school districts for sparsity or small scale (Huang, 2004) and thereby discourage consolidation. Although scholars do not agree on the cost impacts of consolidation, it is likely to remain on the education policy agenda in many states, particularly when school districts are under pressure to cut costs and raise student performance. As Haller and Monk (1988, p. 479) put it, “the modern reform movement is likely to prompt additional school district reorganization efforts, despite its virtual silence on the question of size.”
This paper begins with a discussion of the concept of economies of size and its link to school district consolidation. The second section provides a review of the cost function literature and evaluates existing evidence on economies of size in education. In the third section, we present the first formal evaluation of school district consolidation, including the first look at economies of size in capital spending. This evaluation is based on a panel of rural school districts in New York, some of which consolidated during the sample period, 1985 to 1997.
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