We have had some good discussions in the last week on school finances. To some extent these discussions have paralleled discussions that Alan Fernandes and Joe DiNunzio had over the previous year as they attempted to see what alternatives they might have to simply raising the parcel tax to shrink the teacher compensation gap.
The most difficult part of the discussion is explaining why you really can’t reduce your way to savings here.
One idea that has been put forth is reducing the size of the district through limiting out-of-boundary students (inter-district transfers). One problem is that it’s hard to limit those numbers because (a) once they are in the district, they become like resident-students, and (b) under state law if their parents live here and the district has space, they are required by state to accept them.
The district would have to be able to demonstrate to the county office of education that they do not have space – this becomes tricky and I want to focus on the finances of reduction rather than the law on out-of-boundary students in this column.
According to Associate Superintendent Bruce Colby, when you shrink the number of students, whether through attrition or by design, you are fortunate if you save 40 cents for every dollar you lose from the loss in ADA (average daily attendance).
This is likely where all of the analysis and discussions, which we have had, have gone awry.
There are several problems that prevent the ability to gain savings on a one to one basis for a school district. The biggest has to do with economies of scale. Economies of scale means you get “a proportionate saving in costs gained by an increased level of production.”
As you expand, the cost of providing things shrink on a per unit basis. Declining enrollment is basically the inverse of this. As you contract, the proportionate savings goes down and it actually becomes less efficient.
One way to think about this is if we assume about $9000 per student and a class size of 28, the average teacher gets $70,000 in total compensation. That means that every classroom generates around $250,000 in ADA. If you remove 28 students from the school district, you can save $70,000 on the teacher but that doesn’t account for the other $180,000 that those students generate. Some of that is covered by the school – principal, custodian, aids and safety staff, and utilities. But a lot of that goes districtwide and some of that really can’t be proportionately reduced.
Bruce Colby and Matt Best, for instance, walked me through an example of what would happen if the district was able to simply close a school and eliminate 500 students.
Those 500 students generate $4.5 million in ADA for the district.
At 28 students per classroom, you can therefore eliminate 18 teachers. To make it simple, we simply took the average total compensation, but Bruce Colby reminded us that you actually eliminate teachers at the bottom of the pay scale, not the top – but perhaps they get lucky and get some veterans to take early retirement.
Eliminating 18 teachers at $70,000 average total compensation saves about $1.3 million.
By closing the school, you save another $500,000 by their estimates. Again this is the cost of the principal ($120,000), custodian, aids and other staff, as well as things like utilities.
But guess what, that means that the district saved about $1.8 million but cost themselves about $4.5 million in ADA money. That’s right at the 40 percent that Bruce Colby estimated.
The result is that what you think will save you money actually ends up leaving you worse off.
Why? It’s very simple – we could account for the money directly spent on the school and in the classroom when the school was closed and the need for the students was eliminated. But the district may not be able to shed enough other costs on a districtwide basis to make up for the lost revenue.
Bruce Colby explained that is what is happening to districts like Oakland which are losing students perpetually. They can shed costs, but they are always chasing that lost revenue.
That’s why he believes that their best strategy is enrollment stabilization, which maintains a more or less steady revenue and costs.
The above scenario actually is a best-case scenario. Out-of-boundary students are distributed relatively evenly throughout the district. That means with 740 currently, dividing by 16 schools you end up with 46.25 per school. They are also relatively evenly divided by grade. That means at an elementary that’s about 6.6 per grade and about 2 students per section. It is not even clear you would be able to close a school without massive disruption of forced boundary changes.
As I pointed out earlier, having lived through the reality of closing Valley Oak and the discussions the following year about closing Emerson, the district put forth Measure W as the community’s preference over closing a school.
—David M. Greenwald reporting