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John Hood: When bigger isn’t better

RALEIGH — Ideas that look desirable or at least workable on paper can prove to be unworkable or even disastrous when applied to the real world. Just ask the millions of Americans who, under Obamacare, have lost health plans they liked, been forced to buy more-expensive plans they don’t much like or began 2014 without knowing whether they were insured or uninsured.
Another idea that frequently looks better on paper than in real life is the consolidation of local governments. In North Carolina, for example, policymakers have for decades sought to eliminate city-based school systems through district mergers. Charlotte and Raleigh went to countywide school districts long ago. Durham and Greensboro followed the same course in the early 1990s. In addition to the 100 county districts, there are now only 15 city-based systems: Asheboro, Asheville, Chapel Hill-Carrboro, Clinton, Elkin, Hickory, Kannapolis, Lexington, Mooresville, Mount Airy, Newton-Conover, Roanoke Rapids, Thomasville, Weldon and Whiteville.
Advocates of folding city districts into consolidated county school systems have long argued that merger saves money by eliminating duplicative expenses and taking advantage of economies of scale—— that is, of the ability to spread fixed administrative costs over a larger population of students served.

Sound plausible? Sure. But there is surprisingly little evidence that consolidation results in fiscal benefits. For every dollar that the merger might save by eliminating duplication, the new district often spends at least a dollar on the higher personnel or program costs that come from being larger and harder to manage. Bigger is not always better. There is such a thing as a diseconomy of scale. The preponderance of research on the subject suggests that when a district’s enrollment rises into the five figures, it will probably end up with higher rather than lower unit costs.
The latest study I’ve seen looked at the topic from a different vantage point: the consolidation of services rather than jurisdictional lines. Thomas DeLuca, a University of Kansas professor, published a paper in the fall 2013 issue of the Journal of Education Finance that used data from Michigan public schools. Districts that consolidate non-instructional services such as accounting, human resources or purchasing do not appear to save any money compared to those that operate their own, separate services. Districts did appear to save some money by consolidating transportation, however.

To be fair, there are some scholars in the field who question whether combining two 5,000-student districts into a 10,000-student district would truly cost rather than save money. But just to put the issue in perspective: two North Carolina districts, Wake County and Charlotte-Mecklenburg, enroll more than 140,000 students. Guilford has more than 70,000. Winston-Salem/Forsyth and Cumberland each have more than 50,000. Another eight districts enroll at least 25,000 students.
These districts are far, far above the maximum enrollment of efficient school systems. They ought to be broken up into more manageable systems with a stronger community focus.
Deconsolidation need not result in the inequities and funding disparities that plagued the old city systems. Counties and the state should allocate funds to districts on a formula adjusted for poverty status, student performance and other criteria.
And the new district lines should be drawn inclusively, not exclusively.
There may be valid reasons for rejecting my suggestion.
But they aren’t financial. Taxpayers don’t save money from consolidating school districts, not when the costs are fully identified and accounted for.
John Hood is president of the John Locke Foundation.

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