The Cost Impact of Small Enrollments and Large Geographies: A Rural Texas Two Step

Abstract

Rural school districts face distinct cost pressures. They often lack economies of scale while incurring higher costs due to their sparse populations and geographic isolation. Despite policymakers’ awareness of these challenges, state funding formulas typically rely on ad hoc adjustments that are often poorly calibrated.

This chapter examines the cost implications of scale, isolation and sparsity for Texas traditional public schools and charter schools in local education agencies (LEAs) with fewer than 3,200 students. Using campus-level cost-function analysis, the authors identify substantial economies of scale at both the campus and district levels. For example, they find that a rural district with 400 students spread across four campuses is 18% more expensive to operate than a similarly sized district with a single campus. Similarly, districts with more students benefit from lower per-pupil costs, holding the number of campuses constant, though cost reductions are nonlinear and depend on campus characteristics.

Importantly, most cost savings from consolidation appear to come from campus-level, not district-level, reorganization. Consolidating two 200-student districts without merging campuses would yield a 5% cost reduction; merging the campuses as well would yield an additional 10%.

The authors also find significant cost variation related to remoteness and sparsity. A rural LEA in a remote, sparsely populated area may face costs nearly five times higher than a larger, more centrally located peer. Finally, they find that charter LEAs operating at rural scale levels tend to have lower predicted costs than traditional rural LEAs even after controls for sparsity and remoteness, suggesting that policy flexibility may enable more efficient operations.