Midsize Michigan school districts tend to spend less per pupil than smaller or larger ones do, but forcing smaller districts to merge would probably not have a large impact on education spending in Michigan, a new study says.

The study, titled "School District Consolidation, Size and Spending: an Evaluation," was commissioned by the Mackinac Center for Public Policy, which publishes Michigan Education Report. The study’s author is Andrew J. Coulson, director of the Cato Institute Center for Educational Freedom and an adjunct fellow with the Mackinac Center.

Based on analyses of district size, per-pupil operating spending and a variety of factors statistically associated with district expenditures, Coulson concludes that districts of roughly 2,900 students tend to have lower per-pupil operating expenditures.

"Both smaller and larger districts are likely to spend more per pupil, other things being equal," Coulson writes in the study. While he originally set out to study the potential cost savings of consolidating smaller districts, the analyses showed that the theoretical savings from forcing small districts to merge would be only one-twelfth the theoretical savings from breaking up larger districts.

At best, Coulson says, "rough, ballpark figures" show potential annual savings of approximately $31 million through small-district mergers and approximately $363 million through large-district breakups. However, in either case, the full gains would only be realized if all small districts could be consolidated and all large districts could be divided into districts of optimal size, an unlikely event because of geography and practicality alone, he points out. Approximately 70 percent of Michigan’s conventional public school students are enrolled in districts the study finds to be overly large.

The study also concludes that district size only accounts for about 2 percent of the variation in per-pupil spending across districts, and that size is much less important to per-pupil spending than the district’s total income divided by its enrollment — a measure of how easy it would be in theory for districts to increase per-pupil spending.

"If legislators and the governor wish to address the spiraling cost of public schooling, this study points to a far more important factor than district size: the incentive structure of the system itself. The model developed here indicates that public school districts generally endeavor to spend — and succeed in spending — as much as they can," the study says.

Consolidation of school district services — as opposed to school districts themselves — is one topic under discussion at the state level, as legislators and policymakers discuss ways to address shortfalls in the education budget. Gov. Jennifer Granholm, in her 2007 State of the State address, called for schools to share noninstructional services as a cost-saving measure. That idea has been echoed by Superintendent of Public Instruction Mike Flanagan.

"I don’t think consolidation of school districts is the first step," Flanagan said in an April podcast posted on the Michigan Department of Education Web site. "There may be some of that that needs to happen, but frankly, I really like small high schools and I’m a little fearful that if we just rushed to consolidate school districts we would suddenly lose that. … The first step is, I think, really, consolidation of services at the regional level." Flanagan said he was referring mainly to noninstructional services, such as transportation or accounting.

Coulson’s analyses were based on Census 2000 figures and five years of data from the National Center for Education Statistics of the U.S. Department of Education on district size and spending, not including capital spending. The study controlled for at least six factors that could affect per-pupil spending in a given district: federal funding, state categorical funding, cost of labor, special education costs, public school enrollment as a share of district population, and racial composition of the student body. It also took into consideration "demand for education" by controlling for aggregate household income per capita. Previous studies have shown that higher-income families have higher expectations of schools, and some researchers theorize that school officials may spend more to meet those expectations.

Finally, the study discusses at length the question of whether public school officials, including administrators and school board members, ask for and spend as much money as possible, an outcome predicted by an economic theory known as "public choice," or whether they spend only as much as necessary to meet taxpayers’ wishes. Either approach could affect per-pupil spending. For example, according to public choice theory, school board members who want political support from employee unions, or administrators who want to "grow" their programs, might push for larger budgets regardless of public demand for services.

One way to measure this, Coulson says, is to determine the total household income in the district and divide that by public student enrollment. This measures the ease with which districts can raise per-pupil spending, because household income is the accepted measure of taxpayers’ ability to pay. If the ease with which spending can be increased turns out to be a strong predictor of actual spending after controlling for other possible factors, then district officials are simply spending as much as they can, Coulson contends. This should be true despite Proposal A, he says, because districts that spent more before Proposal A still spend more today due to the "grandfathering" clause in the legislation.

The study found a strongly positive relationship between total household income per pupil and spending, Coulson reports. His findings, Coulson argues, "compellingly support public choice theory."

"In short, public schooling’s incentive structure appears to encourage district officials to maximize their budgets. To improve the efficiency of Michigan’s education system, this problematic incentive structure would have to be replaced with one in which school officials are instead rewarded for simultaneously controlling costs and maintaining or improving quality," the study continues.

Injecting more competition and parental choice into the system would be more likely to bring down costs than state-mandated mergers or breakups, the study says. The study is available online at www.mackinac.org/8530 or can be ordered from the Mackinac Center.