FURTHER ANALYSIS NEEDED OF MANDATED SCHOOL DISTRICT CONSOLIDATION BEFORE LAWMAKERS CONSIDER PROPOSED LEGISLATION

A strike-everything amendment to HB2139 in the Arizona State Senate would mandate unification of both elementary and secondary school districts across the state by 2024.  Unfortunately, this mandate is based on a false premise—that massive inefficiencies driven by large numbers of districts exist and can be eliminated through statewide mandated consolidation.

The $506 million savings (out of a total of $7.8 billion in state and local K-12 funding) estimated by the bill’s sponsor Representative John Filmore, seem extremely unlikely. Given that total administrative costs for the entire state were $776 million in 2017-2018, which on a per capita basis are  roughly two-thirds the national average, it is unclear that state-wide consolidation would lead to enough additional savings to warrant the additional costs and disruption the legislation would incur.

Any policy decision this far-reaching requires a much more fact-based and detailed analysis of the actual savings compared to the resulting costs, both financial and social. In addition, a more nuanced approach, which would consider consolidation of some districts, but not necessarily all, should be undertaken.

A review of the Auditor General’s report on school district finances shows a general correlation between a higher number of students enrolled and a lower per capita cost of administration—but those savings are more limited once a district reaches about 10,000 students.  This would imply that consolidation above 10,000 students could be counter-productive.

Conversely, consolidation of some small districts might be financially beneficial. For example, some adjoining urban districts with smaller elementary districts might benefit from consolidation, as might small elementary districts that feed into high school districts in urban areas.  In rural areas issues like local control in dispersed areas must be weighed against potential financial gains, as administrative costs in the 56 very small districts often exceed three times the state average. These very rural school districts have less than 200 pupils—sometimes as few as 20.

Some higher administrative costs might be partially attributable to schools that serve high needs students.  But the high administration costs might also be due to the lower student enrollment.  One needs to dig deeper to ascertain what the case is.  For example, although the state averages $860 per student in administrative costs, the number increases significantly in districts with high needs populations and low enrollment:

Balsz Elementary (2,201 student, 33% district poverty rate) $1,289 administrative cost per student

Isaac Elementary (6,422 students, 40% district poverty rate) $1,129 administrative cost per student

Roosevelt Elementary (8,556 students, 30% district poverty rate) $1,189 administrative cost per student

On the other hand, Washington Elementary serves 21,919 students with a 27% district poverty rate and has administrative costs of only $697 per student.  On paper that’s impressive, but you need to dig deeper to make sure the reason for the savings is fully understood.

And costs don’t keep dropping as enrollment rises.  Mesa with 60,000 students and a 19% district poverty rate has the same administrative cost per student as Washington Elementary.

An analysis of cost savings cannot be complete without an analysis of the actual costs of consolidation—meaning in some cases it will work, and in others it will create an even greater strain on the budget.

Some of the costs involved with consolidating school districts that policymakers frequently overlook:

1. Computer software system integration or replacement.  Districts often work with different and incompatible computer systems, which could require millions of dollars to integrate so that student registration and achievement, procurement, payroll, scheduling and other critical information can be communicated and consolidated.
2. Salary schedule unification.  Teachers in different school districts have different salary schedules. Starting salaries and formulas for improved pay vary by district. Any new salary scale from consolidation would need to bring all teachers up to an equivalent or higher level to eliminate pay discrepancies.  This has the potential to be a huge (and currently unbudgeted) expense.
3. Signage, stationery, website rebranding.  All schools would require some sort of one-off cost for rebranding on signage, stationery, busses, web sites, etc.

In some cases, these transaction costs will exceed the cost of administrative duplication that may now exist.  While Rep. Filmore’s legislation provides a short-term financial incentive to districts that merge, a more informed analysis of the true net costs is needed to understanding the financial implications of consolidation.

Lawmakers also should at least be cognizant that concern with administrative costs is not exclusively a district issue.  While public schools average $860 in administrative costs per student, charter schools average $1,689 per student— twice as much (see FY2018 Superintendent’s Report).  Some of these costs reflect the comparatively small size of charter schools compared to districts.  However, GCI’s research has revealed that much can also be tracked to amounts paid to the affiliated charter management organization and related entities that contract with the school without competitive bidding. The proposed legislation does not take any steps to effect savings in the charter sector.

Finally, but most importantly, lawmakers need to consider the social consequences to the students and the communities.  Will consolidation improve educational outcomes?  Will elimination of local control erode community solidarity and local control?

GCI has not conducted sufficient research to determine whether school district consolidation would result in a net savings.  GCI is certain, however, that enacting far more analysis and coordinated work with schools is needed before determining how to proceed with efforts to explore school district consolidation.

Dave Wells, Research Director, Grand Canyon Institute. Reach Dave at dwells@azgci.org or (602) 595-1025 ext. 2

The Grand Canyon Institute, a 501(c) (3) nonprofit organization, is an independent, nonpartisan think tank led by a bipartisan group of former state lawmakers, economists, community leaders and academicians. The Grand Canyon Institute serves as an independent voice reflecting a pragmatic approach to addressing economic, fiscal, budgetary and taxation issues confronting Arizona.