How Small Is Too Small? An Analysis of School District Consolidation

How Small Is Too Small? An Analysis of School District Consolidation M A C TAy lo r • le g i s lA Ti v e A nAl y sT • M Ay 2, 2 011 An LAO RepOR t 2 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t ExECuTIvE SummAry The Supplemental Report of the 2010‑11 Budget the operational demands and limitations of being Act directed our office to study school district very small, however, are substantial. Specifically, consolidations and determine whether the state compared to larger districts, very small districts should more actively promote consolidating small tend to dedicate a significantly bigger share of districts into larger districts. Currently, about their budgets to covering overhead costs and a 40 percent of public school districts in California smaller share to instructional staff and leaders. are “small” (serving fewer than 1,000 students), and Moreover, very small districts are more difficult about 10 percent of all districts are “very small” to hold accountable for student outcomes because (serving fewer than 100 students). Under state their small enrollments do not yield statistically law, minimum district size is very low—average significant results. This is also a problem for very daily attendance (ADA) of six for an elementary small schools. district and 11 for a high school or unified district. Substantial Funding Advantages and Under state law, California also currently leaves Certain Disincentives Keep Small Districts the decision over whether to consolidate school From Opting for Consolidation. Despite some districts up to local communities, with local inherent challenges, small districts still tend not to stakeholders required to initiate the consolidation pursue consolidation. In large part, we find this is process and ultimately a majority of the local because the state provides both fiscal incentives for electorate required to approve the merger. districts to remain small and certain disincentives Assessing the Merits of Consolidation. In for districts to consolidate. Specifically, the state this report, we investigate the competing claims encourages districts (and schools) to remain small made in support and opposition of consolidation. by providing them substantial funding advantages. Whereas proponents of consolidation argue that These benefits are especially evident in very small combining smaller districts into larger districts school districts, which on average receive more would lead to savings, more overall efficiency, and a than twice as much funding per pupil compared better academic experience for students, opponents to midsize and large districts. Additionally, certain of consolidation suggest that small districts already state laws, including those related to environmental operate efficiently, offer an enhanced educational reviews and district staffing, coupled with experience for students, and are important community preferences for small districts, serve as components of local communities. To analyze the disincentives for districts to consolidate. merit of these contrasting claims, we compare fiscal Recommend State Maintain Locally Based and student outcome data for districts of different Decision-Making Structure...Neither the academic sizes. research nor our own review offers persuasive Slight Differences in Spending Patterns and evidence that consolidating small districts would Student Performance in Small Districts, Notable necessarily result in substantial savings or notably Issues for Very Small Districts and Schools. Our better outcomes for students. Thus, we recommend review finds that while small districts tend to the state neither force all small districts to spend more on overhead costs and have slightly consolidate nor provide special fiscal incentives lower student achievement compared to midsize (particularly given the state’s current budget districts, the differences are not large. We find that problems) to encourage such consolidation. Instead www.lao.ca.gov Legislative Analyst’s Office 3 An LAO RepOR t of a one-size-fits-all response to school district since we find little proof that being small leads configuration, we recommend the state generally to better student outcomes. We also recommend maintain California’s long-standing policy of the state remove existing disincentives for letting local constituencies decide how to best districts to consolidate, including those related structure their local districts. to environmental reviews and district staffing. In …But Make Important Changes to Encourage addition to removing both the fiscal incentives to Efficiencies and Improve Accountability. While remain small and the disincentives to consolidate, our findings suggest the state has little justification our review indicates that extreme inefficiencies for requiring all small districts to consolidate, and concerns about accountability do justify they also suggest the state should not discourage changing state policy regarding very small districts districts from consolidating. Specifically, we and schools. Specifically, we recommend the state recommend the state eliminate the substantial increase the minimum threshold for districts to fiscal advantages that enable districts to remain at least 100 students and consider establishing a small, often as single-school districts—particularly minimum size for schools. 4 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t InTroDuCTIon The state’s recent budget problems have opponents of consolidation suggest that small prompted the Legislature to consider various ways districts not only find ways to operate efficiently to reduce costs for K-12 education. One frequently but also offer an enhanced and personalized mentioned idea involves consolidating small school educational experience for students. Moreover, districts into larger districts. The Supplemental because many small districts are located in rural Report of the 2010‑11 Budget Act directed our office areas, some argue they are important and necessary to examine this issue. components of those local communities. In this report, we investigate the competing This report first provides some background claims made in support and opposition of district information on California’s and other states’ experi- consolidation. Proponents of consolidation claim ences with district consolidations. We then compare that small districts lack economies of scale and, as fiscal and student outcome data for districts of a result, inherently face higher costs per pupil and different sizes, and discuss our associated findings are unable to offer the range of curricular oppor- regarding the merit of the various claims made in tunities available to students who attend larger support and opposition of consolidation. Lastly, districts. As such, some argue that combining we offer recommendations for how the Legislature smaller districts into larger, consolidated districts could provide better fiscal incentives and stronger would lead to savings, more overall efficiency, accountability for small districts and schools. (The and a better academic experience for students. Supplemental Report also requested that we examine Additionally, some emphasize that having fewer options for greater regionalization of county offices school districts would make state management and of education [COEs]. Please see the Appendix for oversight easier, better, and less costly. In contrast, this discussion.) BACkgrounD Size of California School Districts Varies district—Los Angeles Unified—representing about Dramatically. As shown in Figure 1 (see next ten percent of total state ADA. page), California’s nearly 1,000 school districts Historically, State Has Encouraged Districts vary greatly in size. The state has a very low to Consolidate, Reducing the Overall Number of threshold for minimum district size—ADA of Districts. Although California continues to have six for an elementary district and 11 for a high many small school districts, the total number school or unified district. As a result, the state has of districts in the state has declined over time. an exceptional number of small districts. Almost Figure 2 (see next page) shows the number of school three-quarters of all California school districts have districts in the state by type—elementary, high, fewer than 5,000 ADA. However, together these 688 and unified—over the past 75 years. As shown in districts contain just 15 percent of total ADA in the the figure, the state has about half as many districts state. Moreover, 230 of the state’s districts contain as it did 50 years ago (963 in 2009-10 compared only a single school. At the other extreme, 15 very to 2,091 in 1950-51), largely due to state efforts to large districts with over 40,000 ADA educate about encourage district consolidation. Throughout the one-quarter of all students in the state, with one 1950s and 1960s, the state provided a series of fiscal www.lao.ca.gov Legislative Analyst’s Office 5 An LAO RepOR t incentives for consolidation, including increasing state delegates most district configuration decisions the per-pupil funding rate for unified districts and to the local level. State law calls for each county to paying for excess costs of Figure 1 student transportation California School Districts Vary Greatly in Size associated with merging school districts. One Number of Districts piece of legislation— 350 Chapter 132, Statutes of 300 1964 (AB 145, Unruh), since repealed—expressly 250 stated legislative intent to form unified K-12 school 200 districts and “that this 150 form of organization be ultimately adopted 100 throughout the state.” Correspondingly, as 50 shown in the figure, these years reflect the 6-100 101- 1,001- 5,001- 10,001- 40,001+ most dramatic drop in Very Small 1,000 5,000 10,000 40,000 Very Large Small Midsize Large the overall number of Average Daily Attendance (2009-10) districts and increase in the number of unified Figure 2 districts. The figure Number of California School Districts also shows that the pace Has Declined Over Time of consolidation has slowed in recent decades 3,500 since the state stopped providing explicit incen- 3,000 tives for districts to unify. Unified 2,500 High Decision to Consol- Elementary idate School Districts 2,000 Resides Primarily at Local Level. While the 1,500 state has provided some fiscal incentives for 1,000 districts to consolidate and the State Board of 500 Education (SBE) typically weighs in on consoli- 1935-36 1940-41 1950-51 1960-61 1970-71 1979-80 1989-90 2009-10 dation applications, the 6 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t establish a County Committee on School District Some Other States Have Recently Adopted Organization (CCSDO), made up of county school More Assertive Consolidation Policies. In contrast board members or their designees, to facilitate to California’s locally based approach to district and coordinate any attempts to consolidate school configuration, some other state governments districts. As shown in Figure 3, local stakeholders recently have implemented more assertive state- must initiate the process of consolidating school level policies to consolidate small school districts. districts—either through citizen petition, One of the most sweeping examples is Maine, agreement amongst affected school boards, or which in 2007 passed legislation requiring that all plan from the CCSDO—and ultimately a majority school districts enroll at least 2,500 students or of the local electorate must vote to approve the face fiscal penalties (with an adjusted minimum of consolidation. In 2009, the Legislature authorized 1,000 students for geographically isolated districts). a “fast track” process by which the CCSDO could In the subsequent three years, the number of Maine approve the consolidation application in lieu of school districts has dropped by one-third, from 290 the SBE—provided the County Superintendeant of to 179, although about half of the smaller districts Schools and a majority of each affected local school in the state (representing about 10 percent of all board concurs with the proposal—with the final students) have not yet conformed to the consoli- decision still subject to voter ratification. To be dation mandate. Several other states, including approved, the application must demonstrate that Arkansas and Vermont, have also recently the consolidation would not have a negative effect passed legislation to encourage school district on the districts’ student populations, facilities, consolidation. educational programs, or local communities. Figure 3 Process for Consolidating School Districts Depends Upon Local Initiation and Approval Petition signed by 25% of electorate or State Board Local CCSDO Districts of Education Electorate Recommendation Consolidate Petition signed by Approval Approval majority of each school board’s members in consolidating districts If County Superintendent or and all school boards also consent CCSDO Approval Plan from County Committee “Fast Track” on School District Organization (CCSDO) www.lao.ca.gov Legislative Analyst’s Office 7 An LAO RepOR t FInDIngS To assess the potential benefits of district constrain the resources these districts are able to consolidation, we analyze operational costs and dedicate to instruction. performance data for districts grouped by size. Small Districts Create Economies of Scale Figure 4 summarizes our primary findings. Through COEs and Consortia. Most state and We find some evidence indicating small school federal school funding formulas are based on districts (those that serve 1,000 or fewer students) student counts—that is, they provide school have higher per-student operational costs. We districts with a certain amount of funding for also find that small districts and schools are more each pupil that they serve. Districts combine these difficult to hold accountable for student outcomes. funding streams in various ways to pay for their Despite these challenges, small districts still tend administrative, instructional, and operational not to pursue consolidation. In large part, we find services. Because districts with smaller enrollments this is because the state not only allows but also do not generate considerable amounts of overall encourages both districts and schools to remain funding through per-pupil formulas, many small small by providing them substantial funding districts pool their resources with other districts advantages. These findings are especially evident in and COEs to achieve the economies of scale they very small school districts (those that serve 100 or lack on their own, particularly for noninstruc- fewer students). tional activities. Although these arrangements differ across the state, Figure 5 displays some of Small Districts Find Ways to Economize but the administrative and support services most Still Face Fiscal and Personnel Challenges commonly shared among districts. Some extremely Small districts claim they employ a number small districts also share superintendents and/or of creative arrangements such that they already business officials. Additionally, COEs coordinate achieve some of the fiscal benefits typically sought instructional support services for their local through consolidation. Our research reveals some districts, including curriculum development, support for this assertion. We find that small professional development, and services for special districts typically pool their funding with other Figure 4 local educational agencies Summary of Major Findings to generate economies of scale, and they often 9 maximize their limited Small districts find ways to economize but still face fiscal and personnel challenges. staff resources so that 9 fewer personnel are District size has some effect on student performance, but very small districts are difficult to monitor. necessary. However, 9 we also find that the Small districts have substantial funding advantages. operational demands and 9 Disincentives keep school districts from consolidating. limitations of being small, 9 particularly very small, Very small schools also are enabled by extra funding and lack are substantial and can accountability. 8 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t populations of students. (The state provides average, about 35 percent of their per-pupil allot- additional “direct service” funding to COEs to ments on instruction and instructional support offer more intensive assistance to smaller districts (certificated staff, including teachers and admin- that have fewer internal resources.) While natural istrators) and 40 percent on overhead (including fiscal incentives exist for this type of economizing, classified staff such as clerical and maintenance differing circumstances and desire for local control employees, and “services” or basic operational mean not every small district chooses to pool costs). By comparison, districts with over 1,000 resources to the degree one might expect. students typically spend, on average, about half Despite Partnerships, Very Small Districts of their allotments on instruction and about Spend Larger Proportion of Funding on Overhead. 25 percent on overhead. These findings suggest Even after strategizing to pool resources as much as that even though small school districts typically possible, inherent diseconomies of scale typically receive generous funding advantages (as described require that small districts, and especially very later), their operational requirements tend to limit small districts, dedicate a larger share of their the share of funding that can be dedicated to budgets to covering overhead costs and a smaller instruction. share to instruction. Specifically, Figure 6 (see next Small Districts Multi-Task, but Not Without page) shows that very small districts spend, on Affecting Instructional Programs. One way that small districts manage these budget limita- Figure 5 tions is to “stretch” Districts Frequently Share Support and the responsibilities of Administrative Services their certificated staff, Percent of Counties in Which Majority of Districts Share Servicesa having one employee Computerized Financial Systems fulfill responsibilities Banking that normally would Retirement Reporting be tasked to several Internet and Connectivity different people at a Credential and Assignment Monitoring Business Advisory and Support larger district. For Insurance example, it is not Emergency Response Coordination/Training uncommon for the Certificated Substitute Pools Media superintendent of a MediCal Administration/Claiming very small district to Psychological simultaneously serve Nursing as principal, budget Categorical Program Applications Before and After School Programs officer, and teacher. Transportation Proponents for small Legal districts highlight this Librarian as an efficient use of Short-Term Debt Cafeteria/Food staff resources, arguing 10 20 30 40 50 60 70 80 90 100% that consolidating small aOut of 35 responding counties. school districts could www.lao.ca.gov Legislative Analyst’s Office 9 An LAO RepOR t actually result in higher costs based on the need to about student performance in very small school hire additional staff to accomplish these numerous districts. jobs. Nevertheless, interviews with affected Student Performance Appears Slightly Better superintendents suggest that juggling innumerable in Midsize Districts. Our review of data from the administrative responsibilities makes dedicating 2010 Academic Performance Index (API) suggests sufficient time to instructional leadership difficult. that, after controlling for student characteristics, While multi-tasking may be efficient—and midsize school districts (2,000 to 10,000 students) essential—for small school districts, it may not have, on average, better student performance always be the most effective use of staff skills and than smaller districts (under 2,000 students). The expertise. Furthermore, fewer staff means more difference, however, is slight, with smaller districts limited opportunities for professional collaboration scoring only six API points lower than midsize and peer-to-peer learning compared to districts districts. Perhaps unsurprisingly, the data suggest that employ larger cadres of teachers. that midsize districts also outperform exceptionally large districts. These findings are consistent with District Size Has Some Effect on academic research, which has shown that districts Student Performance, but very Small with 2,000 to 6,000 students tend to outperform Districts Are Difficult to monitor other school districts. The policy implications One argument for consolidating small school of this research, however, are complicated. Most districts is that the limitations of their academic notably, researchers suggest that school size may be programs—such as multigrade classrooms and driving some of the student performance trends, less variety in upper-division coursework—result with students in smaller schools outperforming in an inferior education Figure 6 for students. While our Smaller Districts Dedicate a Larger Share of review of California Their Budgets to Overhead student performance data and the relevant academic 100% literature indicates some 90 correlation between 80 district size and student 70 outcomes, the evidence 60 does not show especially 50 strong support for the assumption that small 40 Average Per Pupil Expenditures Servicesa districts inherently 30 Books and Supplies are worse for students. 20 Benefits Classified Staff However, we are 10 Certificated Staff concerned that state and 6-100 101- 1,001- 5,001- 10,001- 40,001+ federal accountability Very Small 1,000 5,000 10,000 40,000 Very Large systems cannot draw Small Midsize Large Average Daily Attendance (2008-09) meaningful conclusions a “Services” include insurance, rent, consulting fees, and other operations costs. 10 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t their peers (which could partially explain the related to how these specific student populations findings for exceptionally large districts, as they may perform. This is another example of how the also tend to contain exceptionally large schools). state and federal accountability systems do not Very Small Districts Much Harder to Hold fully apply to smaller districts, making it difficult Accountable for Overall Student Outcomes. While for the state to monitor and intervene if a district our review of API data suggests that smaller school is struggling to meet the needs of certain student districts perform only slightly worse than midsize populations. districts, we have concerns that these data do not Small Districts Have Substantial tell the whole story. This is because the number of Funding Advantages students being tested in very small districts is too small to ensure results are statistically accurate. As discussed, many small school districts argue State API reports display scores for very small that consolidation would offer them few fiscal districts with an asterisk, indicating the scores are benefits because they already maximize resources of questionable reliability. In a slightly different through consortia and creative arrangements. approach, federal performance targets are adjusted However, our review of district fiscal data suggests for districts with fewer than 100 test-takers. Given it is more than these partnerships that enable the statistical uncertainty associated with their small school districts to operate even without scores, very small districts are allowed additional economies of scale. Specifically, we find that the latitude for meeting federal accountability bench- state and federal governments provide substantially marks. For example, a district with 50 test-takers more funding per pupil to smaller school districts can meet a 55 percent federal proficiency target compared to larger districts. It is these fiscal with only 19 students (or 38 percent) scoring at the advantages that allow small districts to opt against proficient level. These issues raise questions as to consolidation. whether the local community, as well as state and Small Districts Receive Special Fiscal Allow- federal governments, truly are getting an accurate ances. As noted earlier, per-pupil funding formulas reflection of student achievement in very small may not generate sufficient revenue to support districts. even basic school operations at very small districts. Smaller Districts Also Not Accountable for For example, the state’s general purpose funding Important Subgroups of Students. In addition to formula—known as “revenue limits”—provides overall district performance, most school districts districts with roughly $5,000 per student. For a are held accountable for the outcomes of particular district with fewer than 40 students, this formula subgroups of students, including economically would generate less than $200,000 to cover salary disadvantaged students, English learners, and and benefits for district personnel and all of the students with disabilities. However, the state does district’s overhead costs—an unworkable amount. In not hold districts accountable for subgroup perfor- acknowledgement that they generally lack economies mance if they have fewer than 100 students overall of scale and cannot stretch per-pupil allocations or 50 students in a particular subgroup because to cover all of their costs—even with the creative these groups do not have numerically significant arrangements described earlier—the state and populations. As such, these districts do not face federal governments provide extra funding for small performance targets, monitoring, or sanctions districts. Figure 7 describes some of these special www.lao.ca.gov Legislative Analyst’s Office 11 An LAO RepOR t fiscal allowances. Given the proportion of funding districts, small districts with somewhat larger they already spend on operational costs, it seems enrollments (between 100 and 1,000 students) certain that many small districts—particularly very also receive more per pupil across all funding small districts—could not afford to operate without categories, but to a much lesser degree than very these significant funding advantages. small districts. Very Small Districts Receive Notably More Per Charter Schools Differ From Small Districts. Pupil Compared to Other Districts. Due primarily One of the frequently asked questions we faced to these additional allowances, very small school while researching this report was whether there is districts receive substantially more funding per a contradiction in the state investigating options pupil than do larger districts. Specifically, as shown for consolidating smaller school districts while in Figure 8, districts with fewer than 100 students simultaneously continuing to allow districts receive, on average, more than $18,000 per enrolled and independent operators to open new, often student, or more than twice as much as districts small, charter schools. While there may be some that enroll at least 1,000 students. They receive overlapping policy concerns, we believe there more revenue from each of their funding sources— are several key differences between small school revenue limits (due primarily to the necessary districts and charter schools. First, in contrast small school [NSS] supplement discussed later in to the special fiscal allowances it provides to this report), excess property taxes (discussed in smaller districts, the state does not offer special, the nearby box), federal funds, other state funds higher funding rates to charter schools. Second, (mostly reflecting categorical program funding), in many cases, charter schools are more similar and other local revenues (including fees, interest, to other schools than districts, in that they have and parcel tax revenues). Compared to larger a larger oversight entity handling administrative Figure 7 Special Fiscal Allowances for Small School Districts 2009‑10 Number of Statewide Total Average Per- Allowance Description Districts Receiving (In Thousands) Pupil Amount Necessary small school Provides higher fixed grant amounts in- 144 $39,773a $7,300a supplement stead of per-pupil revenue limits to small districts that contain small schools. Categorical program Provides higher fixed grant amounts Varies by program Varies by program Varies by program minimum grants instead of the normal per-pupil allocation to small districts.b Federal Small Rural Provides additional funding to districts 281 5,606 257 Schools Achievement with under 600 students that are located Fund in rural areas (federally funded). County direct services Funds COEs to provide additional ser- 397 7,987 61 vices to small districts free of charge.c a Reflects amount in excess of what districts would receive from revenue limits. b Programs with minimum grants include Economic Impact Aid, the Arts and Music Block Grant, the Supplemental Counseling program, Gifted and Talented Education, and the School Safety Block Grant. c Typical services include supervision of instruction, attendance and health services programs, and library services. LEA = Local Educational Agency; COE = County Office of Education. 12 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t responsibilities and gener- Figure 8 ating economies of scale Very Small Districts Receive Notably More (either the authorizing Funding Per Pupil district/COE or a charter school management $20,000 Average Revenue Per Pupil organization). Third, Other Local Revenue 18,000 while it may be hard to Federal Funds 16,000 Other State Funds hold very small charter Excess Local Property Tax Revenue 14,000 schools accountable for Revenue Limit Funds student outcomes at the 12,000 school level, performance 10,000 for locally funded charter 8,000 schools is accurately 6,000 tracked within the 4,000 district-level systems as 2,000 long as their authorizing district/COE is large 6-100 101- 1,001- 5,001- 10,001- 40,001+ Very Small 1,000 5,000 10,000 40,000 Very Large enough to yield statisti- Small Midsize Large cally significant data. Average Daily Attendance (2008-09) (Direct-funded charter M S S D S e l p t r any Mall chool iStrictS upporteDby xceSS ocal roperty ax evenueS While not a fiscal allowance created specifically for small districts, excess local property tax revenues play an important role in financing small districts in many areas of the state. This fiscal advantage further enables small districts to opt against consolidation. Most California school districts receive general purpose funding (or revenue limits) from a combination of local property tax revenues and state aid. In some areas of the state, however, property tax revenues alone exceed the district’s per-pupil revenue limit entitlement. These districts can keep the “excess” local revenue and use it for any educational purpose. This occurs in districts that have highly valued property within their boundaries—such as nuclear power plants, oil wells, large receipts of timber taxes, or very expensive homes—and, in most cases, relatively smaller student enrollments across which to spread these revenues. In 2009-10, there were 120 such districts in the state, with excess property tax revenues ranging from $10 per pupil to over $26,000 per pupil. These districts, commonly referred to as “basic aid districts,” tend to be smaller—about 85 percent served fewer than 5,000 students, and 20 percent served fewer than 100 students. Moreover, in general, the fewer students the district served the more excess revenue it received per pupil. Very small basic aid districts (serving fewer than 100 students) received an average of almost $8,600 in excess tax revenues per pupil, compared to about $4,600 for small basic aid districts (between 100 and 1,000 students) and about $2,800 for midsize basic aid districts (between 1,000 and 5,000 students). www.lao.ca.gov Legislative Analyst’s Office 13 An LAO RepOR t schools are not included in district-level perfor- state mandate claiming process—it typically is not mance results, and therefore those that are very sufficient to cover all associated costs. Interviews small are affected by some of the same account- suggest the requirement that many consolidations ability problems as very small school districts.) necessitate a California Environmental Quality Act Finally, the authorizing entity has the authority to (CEQA) study can be especially costly. close a low-performing or fiscally unsound charter Non-Fiscal Disincentives Can Also Inhibit school, whereas the state generally does not have Consolidation Efforts. In addition to these fiscal this option for a similarly struggling school district. disincentives, there are a number of other reasons As such, we believe that fiscal and policy concerns that districts opt against consolidation. Among regarding small school districts are somewhat these are the local community’s perceived benefits distinct from those related to charter school of smaller districts, apprehension about the lengthy oversight and accountability. and elaborate process described in Figure 3 (see page 7), fear that district consolidation could lead Disincentives keep School to school closures or loss of jobs, and the conflict of Districts From Consolidating interest inherent in tasking school board members In addition to the fiscal advantages that help with approving consolidation efforts. (On this last some districts remain small and opt against point, interviewees note the difficulty of expecting consolidation, we find several other disincen- local school board members to approve a merger tives for districts to consolidate. Perhaps most that ultimately will result in one governing board importantly, under existing state laws, districts can rather than several, thereby potentially voting experience other funding losses and some higher themselves out of a job.) costs if they consolidate. The extensive process and Local Communities Often Prefer Small uncertain outcomes of consolidation also function Districts. Interviewees cite a number of advantages as disincentives. In addition, strongly entrenched unique to smaller districts, which for many local community preferences for school districts to communities outweigh the fiscal efficiencies remain small can thwart consolidation efforts. and enhanced curricular offerings that might Consolidating Can Lead to Loss of Funding be available within larger districts. In rural and Additional Costs. In addition to losing areas, districts typically play a vital role in the funding, consolidating can lead to higher costs for community, with the school site serving as the districts, both in the short term (such as the admin- center of civic activity. While district consolidation istrative costs of the consolidation process) and does not always necessarily equate to school longer term (such as the pressure to increase staff consolidation and school closures, the research compensation to match that of the most generous shows that this can frequently ensue. This tends to consolidating district). Figure 9 summarizes lead communities, which under current law must potential fiscal disincentives for a district consid- initiate and approve any consolidation effort, to ering consolidation. While the state provides some be skeptical of potential long-term consequences funding to assist consolidating districts—including for their local schools. Interviewees also claim providing an ongoing revenue limit “bump” to help that staff and leadership typically are more acces- in blending employee salary schedules, offering sible and responsive to community and parent short-term loans for start-up costs, and reimbursing input in smaller districts, leading to widespread some qualifying administrative costs through the parent involvement in both day-to-day operations 14 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t and long-term planning. Stakeholders argue fiscal allowances that enable small districts to opt this increases family engagement and engenders against consolidation. We find that the primary a deeper sense of belonging in small districts issues of concern regarding very small districts, compared to what parents and students typically including substantially higher funding rates and experience in larger districts. insufficient accountability for student outcomes, also apply to very small schools. Moreover, very very Small Schools Also Are Enabled by small schools are notably limited in the educational Extra Funding, Lack Accountability programs they can afford to offer. While the primary focus of this report is small State Provides Additional Funding for Small school districts, there are overlapping fiscal and Schools it Deems “Necessary.” State law specifies student performance issues related to small schools, the conditions that establish school eligibility particularly because so many small districts for the NSS supplement. The eligibility criteria consist of one or two small schools. This overlap is include size (elementary schools must have fewer especially evident in the NSS supplement—which is than 101 ADA and high schools must have fewer provided to small districts based on their very small than 301 ADA; both must be in districts with schools—because it serves as one of the primary fewer than 2,501 ADA), distance (for example, if Figure 9 Potential Fiscal Disincentives to Consolidate 9 Loss of Special Fiscal Allowances. Consolidated districts may become too large to qualify for Necessary Small School supplements, categorical program minimum grants, federal Small Rural Schools Achievement Fund grants, or funded direct services from the county office of education. 9 Loss of Excess Property Tax Funding. The newly drawn district’s jurisdiction might not benefit from as much—or any—“excess” local property tax funds. 9 Loss of Parcel Tax Revenue. When districts consolidate, any existing parcel taxes for component districts are nullified unless or until the newly formed district’s electorate reauthorizes them. 9 Lower Base Revenue Limit (RL) Rate. A newly consolidated district’s RL rate is the weighted average of component districts’ RL rates. This means a district with a higher RL rate could see its rate leveled down. 9 Cost Pressure to Level-Up Salaries and Benefits. Employees typically expect the consolidated district to adopt the most generous compensation package of the component districts. While the state generally gives the consolidated district a RL “bump” to address this issue, it often is not sufficient to fully meet local cost pressures. 9 Costs of Consolidation Process. Administrative costs associated with consolidation include California Environmental Quality Act studies, conducting analyses and compiling documentation for the application, holding hearings and elections, and the start-up costs associated with running a new district. 9 Inability to Realize Savings From Potential Efficiencies. Current law prohibits newly formed districts from laying off or reducing the salaries of classified employees from component districts until two years post consolidation. www.lao.ca.gov Legislative Analyst’s Office 15 An LAO RepOR t as many as five elementary students would have to small single-school district. Because the current travel more than ten miles one way to attend the statutory definition of whether a school is “neces- nearest other school within that district), or other sarily small” does not require looking beyond condition (for example, if nearby roads are typically district boundaries, single-school districts can impassable for more than two weeks a year). The qualify for the additional funding even if there base statutory NSS grant amounts (in lieu of is another public school just down the street— revenue limits) provide $138,000 for each group provided that school is in another district. This of up to 24 elementary students and $500,000 practice is particularly evident in counties that for high schools with up to 19 students and three have numerous adjacent, single-school districts, teachers. (In recent years, these amounts have been including Siskiyou (20 NSS), Humboldt (19 NSS), deficited commensurately with revenue limit reduc- and Mendocino (13 NSS). The geographic proximity tions.) Figure 10 provides some information about of many of these schools calls into question whether districts receiving the NSS grant based on their all of them truly are “necessary” and deserving of exceptionally small schools. As shown in the figure, additional funding allowances. how much additional funding the supplement Very Small Schools Also Hard to Hold provides can vary significantly based on school Accountable for Student Outcomes. The previ- size. (If it yields them more funding, districts with ously discussed problems with applying federal larger NSS-eligible schools may opt to receive and state accountability systems to very small per-pupil revenue limits instead of the NSS grant.) school districts also pertain to very small schools. Of the 203 schools generating the NSS supplement, Because the overall student population and/or 74 serve fewer than 20 ADA, with 58 of these particular subgroups may be too small to produce schools serving fewer than 15 ADA. Figure 10 Some NSS Are of Supplement Provides Additional Funding to Questionable Necessity. “Necessary” Small Schools Presumably, the goal of 2009‑10 the NSS supplement is Number of entities funded: to enable exceptionally Districts 144 small schools to operate Schools: 203 in remote areas of the Elementary (127) High (72) state so that children Middle (4) do not have to spend School Size: excessive time in transit. Average 56 These funds, however, Maximum 252 Minimum 2 also are subsidizing very Total ADA funded 11,848 small schools that qualify not because they are Per-Pupil Supplement:a Average $7,300 geographically isolated, Maximum $194,000 but simply because the Minimum $34 local community has a Reflects amount in excess of district revenue limit. ADA = average daily attendance. chosen to maintain a 16 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t statistically significant results, it is difficult to get unable to offer the variety of courses—particularly an accurate picture of student performance at for high school students—that are standard in very small schools. This problem is less severe for larger schools. As such, many small schools small schools located in larger districts because enroll students in distance learning courses via at least outcome data become significant and the internet, which can allow students access to can be reliably tracked at the district level once specialized and advanced coursework schools aggregated with the district’s other schools. It is cannot afford to offer without generating additional more difficult to ensure accountability for the staff or transportation costs. However, options outcomes of students attending very small schools for digital coursework approved by the University located in very small districts. Moreover, for the of California for high school credit currently are 230 single-school districts in the state, there is no somewhat limited. Additionally, an estimated 37 difference between school-level and district-level districts and 174 schools still lack the “last mile” accountability. high-speed internet connectivity necessary for Very Small Schools Offer Limited Educational students to take advantage of virtual learning Programs. With few enough students that a single opportunities. Distance learning also cannot make instructor might teach multiple grades and/or up for all of the offerings smaller schools often lack, courses simultaneously, small schools often are including courses in visual and performing arts. rECommEnDATIonS Our review does not convincingly substantiate consolidation does not appear justified. most of the claims in support of district consoli- While our findings do not suggest the state dation. Although the data suggest that midsize should actively pursue greater district consolida- districts can allocate a greater proportion of their tions, nor do they support the current system that funding for instruction and tend to have slightly implicitly discourages districts from opting to better student achievement, the differences are not consolidate. Specifically, we do not find evidence large. Moreover, neither the academic research to justify the state’s current practice of providing nor our own review offers persuasive evidence substantial fiscal advantages to districts that have that consolidating small districts would neces- opted to remain small, often as single-school sarily result in substantial savings or notably districts—particularly since we find little proof better outcomes for students. (Indeed, poorer that being small leads to better student outcomes. student outcomes at exceptionally large districts Additionally, we believe the data do justify raise cautions about the potential downside of too changing state policy regarding very small districts. much district consolidation.) Thus, while it might As such, we recommend the state remove some be easier for the state to have fewer agencies to current disincentives for districts to consolidate, oversee, the data do not convincingly support a including unwarranted fiscal incentives to remain dramatic change to current state policy such that small, and make moderate changes to current small districts—those serving between 100 and minimum size thresholds. We also recommend the 1,000 ADA—be forced to consolidate. Likewise, state apply some of these principles to very small dedicating scarce funding resources to provide schools. new fiscal incentives to promote greater district www.lao.ca.gov Legislative Analyst’s Office 17 An LAO RepOR t Figure 11 lists our specific recommendations. minimum requirement. However, we estimate that Adopting these recommendations could result just moving to a minimum of 100 ADA would in some modest savings for the state. Because the eliminate roughly 100 (or one in ten) districts in amount of additional funding supporting the the state. (The state could use the current policy affected districts is relatively small, however, we for districts that do not meet existing minimum believe the state-level savings might only be in the size requirements, which allows them to “lapse” tens of millions of dollars. Yet these changes would and immediately merge into a neighboring district remove problematic fiscal incentives and contribute without undertaking the formal consolidation to a more rational and equitable school funding process.) The state could maintain an option system. Furthermore, we believe our recommenda- for districts to petition for a waiver if they are tions would encourage small districts and schools just under the cut-off point or if they exceed the to opt for greater efficiencies and accountability, minimum but still wish to merge into a neigh- while preserving the state’s commitment to locally boring district without the formal consolidation based decision-making. In this section, we discuss process. each of these recommendations in more detail. Eliminate Fiscal Incentives for Districts Increase Minimum Threshold for District to Remain Small. Because we find no rationale Size to at Least 100 Students. Because they spend for why a community that has chosen not to notably larger proportions of their budgets on consolidate their small districts deserves fiscal overhead costs and are difficult to hold accountable advantages, we recommend the state stop providing for student performance, we recommend the state extra funding to districts based solely on their change its policies regarding very small districts. small size. Specifically, we recommend eliminating Specifically, we recommend the state increase the the practice of providing minimum grants for minimum size for districts from ADA of six for certain state categorical programs. Current elementary and 11 for high school and unified programs with minimum grants include the to at least 100 ADA for all types of districts. We Economic Impact Aid (EIA) program, Gifted and believe this still is an extremely low threshold, Talented Education, the Supplemental Counseling and the state could certainly consider a higher program, the School Safety Block Grant, and the Figure 11 Summary of Recommendations 9 Increase minimum threshold for district size to at least 100 students. 9 Eliminate fiscal incentives for districts to remain small. 9 Eliminate some additional fiscal disincentives for districts to consolidate. Specifically: • Clarify that most consolidations can waive California Environmental Quality Act review requirements. • Eliminate statutory two-year salary and position protections for classified staff. 9 Strengthen eligibility requirements to ensure state provides extra funding only to small schools that truly are necessary. 9 Consider instituting minimum threshold for school size. 18 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t Arts and Music Block Grant. (With the exception an employee’s position and its associated of EIA, all of these programs are part of the state’s responsibilities are no longer necessary. current categorical flexibility initiative.) Some of This can prohibit newly consolidated the funding advantages small districts receive, districts from realizing all the potential such as excess tax revenues and some other local savings that greater efficiencies and revenues, are somewhat outside of the state’s economies of scale might yield. We jurisdiction. However, the state could recognize the recommend the Legislature repeal this excess property tax revenue that basic aid districts statutory provision. receive and provide those districts commensurately Strengthen Eligibility Requirements to less state aid for categorical programs in an effort to Ensure State Provides Extra Funding Only to “level the playing field” with nonbasic aid districts. Small Schools That Truly Are Necessary. We Eliminate Some Additional Fiscal Disincen- recommend the Legislature revise the statute tives for Districts to Consolidate. Besides the that defines eligibility for the NSS supplement to unattractive possibility that they would lose special incorporate students’ ability to access other nearby funding advantages, districts also are reluctant schools, even if they are in other districts. We do to undertake consolidation because of potential not believe the state should pay more for small, associated costs and the possibility that it would costly schools simply because a community has not yield much savings. We recommend the state chosen to maintain a single-school district when make two changes to address these issues: there are other public schools and districts within ➢ Clarify That Most Consolidations Can close proximity. Moreover, we recommend the Waive CEQA Review Requirements. state simplify and increase the statutory distance Currently, district consolidations are thresholds for how far students would need to viewed as CEQA “projects,” often neces- travel to get to another public school before their sitating a costly and lengthy review local school is declared “necessary” to generate the process that can serve as a deterrent to supplement. consolidating. Because district consolida- Consider Instituting Minimum Threshold tions do not typically have significant for School Size. We recommend the Legislature environmental impacts, we recommend the consider establishing a minimum school Legislature remove the requirement that size—perhaps 20 students—to encourage greater a CEQA study be undertaken (though in efficiencies and opportunities for students, with particular instances, a review may still be an option for waivers based on extreme circum- warranted, for example if the consolidation stances. While we do not believe the state should would necessitate building a new school). maintain exceptionally small school districts, there is a persuasive rationale for why some remote ➢ Eliminate Statutory Two-Year Salary schools are necessarily small—and therefore costly. and Position Protections for Classified However, we remain uncertain as to whether some Staff. Currently, districts are prohibited schools might also be too small. The state currently from laying off or reducing the salaries does not have a minimum threshold for school of classified employees (such as clerical, size, and funds 75 schools that serve fewer than custodial, or other support personnel) 20 students, with 40 of these schools serving fewer until two years post-consolidation, even if than ten students. Even if they are sufficiently www.lao.ca.gov Legislative Analyst’s Office 19 An LAO RepOR t geographically isolated to qualify for the NSS schools with few teachers and few peers are getting supplement under our revised eligibility criteria, we a different educational experience compared to question whether exceptionally small schools make most students in the state. Comparing the student sense—for the state or for students. Because of the benefits of avoiding extensive transit time and statistical limitations related to their small size, it is receiving a more individualized program against difficult to draw conclusions as to the performance the drawbacks of more limited opportunities outcomes of students who attend these schools. It is and notably higher state costs is a difficult policy clear, however, that students at exceptionally small decision that we believe merits further review. ConCLuSIon The issue of school district consolidation is While our recommendations to restructure certain fraught with difficult policy questions, including fiscal allowances and make a moderate increase to debates over ideal district size, the role of the the state’s minimum district size threshold would state in deciding local district configurations, the affect some small districts, we do not recommend relationship between cost efficiencies and educa- a fundamental shift in the state’s locally based tional programs, and the best structure for deliv- decision-making structure. Instead, our recom- ering education in rural and geographically isolated mendations are intended to assist the Legislature communities. In most cases, these questions in creating school funding and accountability lead to inconclusive answers that can vary on a systems that are fair and effective for all of the case-by-case basis. This report does not attempt to state’s districts. These improvements can, in turn, define a one-size-fits all response to school district encourage local communities to opt for the most configuration, but rather defaults to California’s efficient and effective structure for delivering long-standing policy of letting local constituencies education to their students. decide how to best structure their local districts. 20 Legislative Analyst’s Office www.lao.ca.gov AppenDIX r c o e egionalizationof ounty fficeSof Ducation In addition to district consolidations, we were directed to explore options for consolidating county offices of education (COEs) within regions in order to achieve greater efficiencies. Currently, COEs play an intermediary role between the state and local districts. Due to the expanse and diversity of the state, we would not recommend eliminating COEs. (However, we are uncertain about the added value of the seven COEs located in counties that maintain only one school district.) While we think more regionalization for certain initiatives likely has some advantages, we also believe changes in COE responsibilities should be part of a broader discussion on educational gover- nance and service delivery in California. Not All COEs Created Alike. Each of the state’s 58 counties maintains a county superintendent of schools and associated COE. In general, COEs offer certain support services (such as professional development for teachers and administrators), operate educational programs for specific student populations (such as alternative schools and special education services), and provide local school districts with fiscal and academic oversight and technical assistance. However, the specific roles, activities, and capabilities of these offices can vary greatly across the state depending upon local characteristics. For example, the COEs operating in counties with numerous school districts and/or particularly small districts meet different needs compared to those in counties with few and/or large districts. Moreover, the nature of the services individual COEs can provide is affected by their funding levels, which differ based on historical factors and the number of children in the county. Interview responses suggest that COEs can also differ in the quality of the services and assistance they provide to local districts. In addition, some COEs have developed unique and entrepreneurial services, including insurance pools, legal services, and extensive teacher resource centers. Finally, in the seven counties that contain only one school district, the role of the COE is not as clearly defined, with it typically serving more as an extension of the district office rather than a regional coordinating entity. Regional Service Model Has Both Promise and Limitations. Because they operate countywide, COEs already represent a regional approach to providing academic and support services. However, the state has explored even higher level service delivery by implementing some initia- tives through 11 consortia of COEs. The figure on the next page shows a map of these 11 regions. Examples of existing regional initiatives include the Statewide System of School Support (support for low-performing schools and districts), the California Technology Assistance Project, and the California Preschool Instructional Network. Interviews suggest this regional approach yields both fiscal and programmatic efficiencies. Greater economies of scale allow regions to pool resources and take full advantage of a certain county’s comparative advantages, allowing all districts in the region to have access to expert services regardless of their local COE’s capacity. To expand this approach, the state could consider making strategic investments to develop regional centers of expertise for additional programmatic areas. However, given the expanse and diversity of the state, the regional model is not appropriate for all initiatives—particularly those requiring greater responsiveness to www.lao.ca.gov Legislative Analyst’s Office 21 AppenDIX unique local needs. County Offices of Education Organized Regionalization Into Eleven Regions of COE Services Should Be Part of Larger Conversation 2 on Education 1 Governance. While there is value in exploring expansion 3 of the regional model, we believe 4 6 this is merely one component of a 7 5 broader discussion on the state’s system 10 of educational 8 delivery. The role of the COEs 11 is inextricably linked to the role of the California 9 Department of Education (CDE) and the appropriate division of responsibilities between the state and local educational agencies. In an effort to bring services closer to districts, the state has devolved a number of technical assistance, monitoring, and intervention responsibilities from CDE to COEs. We believe the state should undertake a serious discussion of which types of educational activities are most appropriately conducted at each level of government—state, region, county, and district—then align responsibilities and funding correspondingly. An explicit focus on regionalizing COEs absent this larger discussion would be shortsighted and likely counter-productive. 22 Legislative Analyst’s Office www.lao.ca.gov An LAO RepOR t www.lao.ca.gov Legislative Analyst’s Office 23 An LAO RepOR t LAO Publications This report was prepared by Rachel Ehlers, with assistance from Jim Soland, and reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an email subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 24 Legislative Analyst’s Office www.lao.ca.gov