Study: With many K-12 districts shrinking, mergers offer cost saving option

Topic: Miller College of Business

February 10, 2014

Many of Indiana’s small, mostly rural public school corporations are shrinking but are adjacent to similar-sized districts, making consolidation a viable option to cut costs, says a Ball State University study.

School Corporation Size and the Cost of Education,” a policy brief from Ball State’s Center for Business and Educational Research (CBER), argues that the long-term viability of Indiana’s smallest K-12 school corporations depends on mergers and consolidation as a tool to reduce overhead and management expenses. The white paper does not address of consolidation of individual schools, which involves various complexities, including transportation of students.

“Many of Indiana’s school districts are facing dwindling enrollment at a time when costs of providing a quality education are increasing,” said Michael Hicks, CBER director, who co-authored the paper with Dagney Faulk, CBER’s research director. “At some point we are going to have to look at ways to reduce the school districts’ overhead while maintaining the ability to provide quality education in each community, a key to developing the state’s economy.

“A consolidated school corporation can provide an equivalent level of educational services at a lower cost per student by avoiding redundant expenditures. This would call for fewer administrators or specialized instructors than is required for the same number of students when educated in separate corporations. The consolidation of school corporations primarily involves the merging of administrative or central office functions.”

Hicks points out that CBER found in 2010 that consolidating Indiana’s school corporations to about 2,000 students—the point referred to as the minimum efficient corporation size—would lower the cost of providing public education.

The study found:

• Very small school corporations (fewer than 1,000 students) are less efficient in educating students than larger corporations.

• Of the 291 school corporations in Indiana in 2012, 154 (52.9 percent) had enrollment of fewer than 2,000 students. Of these school corporations, 121 (78.6 percent) had an enrollment decline of 100 or more students between 2006 and 2012, indicating that many of these corporations are becoming even smaller.

• Of the 44 school corporations with between 2,000 and 3,000 students, 24 (54 percent) experienced a decline in enrollment between 2006 and 2012, with six school corporations experiencing an enrollment decline of more than 200 students, indicating that many of these corporations are becoming smaller, approaching the level where mergers would boost efficiency.

• The majority of Indiana’s counties have three or more school corporations with Marion and Lake counties containing 11 and 16 respectively.

Faulk points out that a detailed examination of the geography of school corporations revealed many small school corporations (fewer than 2,000 students) were adjacent to similar districts.

“In fact, fewer than 10 percent of very small school corporations are not contiguous to another very small corporation,” she said. “Moreover, only one of our very small school corporations shares a border with a corporation larger than 2,000 students.”

The authors recommend the Indiana General Assembly review recent recommendations offered by previous research conducted by Ball State and Indiana University’s Center for Evaluation and Education Policy.

The recommendations include a continued focus on cost savings, not performance-related findings, to motivate consolidation; feasibility studies and an implementation grant program for the smallest school corporations; and the creation of financial incentives for realized efficiency gains in district operations.

“Indiana has experienced consolidations of schools and school corporations for more than a century,” Hicks said. “The changing population distribution across the state and the advent of cost-reducing information technologies to expand managerial control of schools argue that a significant period of district consolidations are at hand. The goal of these consolidations should be to improve and more effectively fund student instruction."

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