The Supplemental Report of the 2010–11 Budget Act directed our office to study school district consolidations and determine whether the state should more actively promote consolidating small districts into larger districts. Currently, about 40 percent of public school districts in California are “small” (serving fewer than 1,000 students), and about 10 percent of all districts are “very small” (serving fewer than 100 students). Under state law, minimum district size is very low—average daily attendance (ADA) of six for an elementary district and 11 for a high school or unified district. Under state law, California also currently leaves the decision over whether to consolidate school districts up to local communities, with local stakeholders required to initiate the consolidation process and ultimately a majority of the local electorate required to approve the merger.

Assessing the Merits of Consolidation. In this report, we investigate the competing claims made in support and opposition of consolidation. Whereas proponents of consolidation argue that combining smaller districts into larger districts would lead to savings, more overall efficiency, and a better academic experience for students, opponents of consolidation suggest that small districts already operate efficiently, offer an enhanced educational experience for students, and are important components of local communities. To analyze the merit of these contrasting claims, we compare fiscal and student outcome data for districts of different sizes.

Slight Differences in Spending Patterns and Student Performance in Small Districts, Notable Issues for Very Small Districts and Schools. Our review finds that while small districts tend to spend more on overhead costs and have slightly lower student achievement compared to midsize districts, the differences are not large. We find that the operational demands and limitations of being very small, however, are substantial. Specifically, compared to larger districts, very small districts tend to dedicate a significantly bigger share of their budgets to covering overhead costs and a smaller share to instructional staff and leaders. Moreover, very small districts are more difficult to hold accountable for student outcomes because their small enrollments do not yield statistically significant results. This is also a problem for very small schools.

Substantial Funding Advantages and Certain Disincentives Keep Small Districts From Opting for Consolidation. Despite some inherent challenges, small districts still tend not to pursue consolidation. In large part, we find this is because the state provides both fiscal incentives for districts to remain small and certain disincentives for districts to consolidate. Specifically, the state encourages districts (and schools) to remain small by providing them substantial funding advantages. These benefits are especially evident in very small school districts, which on average receive more than twice as much funding per pupil compared to midsize and large districts. Additionally, certain state laws, including those related to environmental reviews and district staffing, coupled with community preferences for small districts, serve as disincentives for districts to consolidate.

Recommend State Maintain Locally Based Decision–Making Structure…Neither the academic research nor our own review offers persuasive evidence that consolidating small districts would necessarily result in substantial savings or notably better outcomes for students. Thus, we recommend the state neither force all small districts to consolidate nor provide special fiscal incentives (particularly given the state’s current budget problems) to encourage such consolidation. Instead of a one–size–fits–all response to school district configuration, we recommend the state generally maintain California’s long–standing policy of letting local constituencies decide how to best structure their local districts.

…But Make Important Changes to Encourage Efficiencies and Improve Accountability. While our findings suggest the state has little justification for requiring all small districts to consolidate, they also suggest the state should not discourage districts from consolidating. Specifically, we recommend the state eliminate the substantial fiscal advantages that enable districts to remain small, often as single–school districts—particularly since we find little proof that being small leads to better student outcomes. We also recommend the state remove existing disincentives for districts to consolidate, including those related to environmental reviews and district staffing. In addition to removing both the fiscal incentives to remain small and the disincentives to consolidate, our review indicates that extreme inefficiencies and concerns about accountability do justify changing state policy regarding very small districts and schools. Specifically, we recommend the state increase the minimum threshold for districts to at least 100 students and consider establishing a minimum size for schools.

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