Over the last 50 years, consolidation has dramatically reduced the number of school districts in the United States, and state governments still recommend consolidation, especially in rural school districts, as a way to improve school district efficiency. However, state policies encouraging consolidation are often challenged on the grounds that they do not lead to cost savings and instead foster learning environments that harm student performance. Existing evidence on this topic comes largely from educational cost functions, which indicate that instructional and administrative costs are far lower in a district with 3,000 pupils than in a dsitrict with 100 pupils. However, research on the cost consequences of consolidation itself is virtually non-existent. This paper fills this gap by evaluating the cost impacts of consolidation in rural school districts in New York over the period 1985 to 1997. Holding student performance constant, we find evidence that school district consolidation substantially lowers operating costs, particularly when small districts are combined. The operating cost savings ranges from 22 percent for two 300-pupil districts to 8 percent for two 1,500-pupil districts. In contrast, consolidation lowers capital costs only for relatively small districts, and capital costs increase substantially when two 1,500-pupil districts come together. Overall, consolidation is likely to lower the costs of two 300-pupil districts by over 20 percent, to lower the costs of two 900-pupil districts by 7 to 9 percent, and to have little, if any, impact on the costs of two 1,500-pupil districts. State aid to cover the adjustent costs of consolidation appears to be warranted, but only in relatively small districts.
