"Education spending constitutes up to
half of many state budgets in the United States. In recent years, tighter
state budgets, surging school enrollment in many districts (and falling in
others), executive mandates, and court rulings have put increasing pressure
on states and school districts to reduce education costs, especially for
non-instructional services.
In most states at least 40 percent of
every dollar spent on education never makes it into the classroom. Instead
it is expended on business operations: transportation, human resources, food
services, information technology, building maintenance, administration and
other largely support functions. The often high costs of providing these
services, and the inefficient way in which they are often provided, has
caused more and more state political leaders to call for school district
consolidation. The goal—to take advantage of economies of scale and reduce
these costs—makes a lot of sense. Consolidation, though, can also have some
serious downsides: it is politically unpopular, reduces local control, can
negatively impact educational outcomes, and eventually can lead to even
higher costs due to the dead-weight of bureaucracy. In short, consolidation
may not be the most effective strategy to help districts direct more money
into the classroom.
With large districts often generating
high overhead and instructional spending, does this mean that small
districts and small schools are the answer? From an education quality
perspective, a strong case certainly can be made for smaller schools, which
have been associated with higher SAT, ACT and National Assessment of
Educational Progress scores. There is a major problem, however, with small
school districts. According to a substantial body of research, they tend to
have comparatively high non-instructional costs. The ten smallest school
districts in California, for example, had average spending on “other
services” 578 percent higher than the state average for all districts.
Fortunately, there’s another option, one
that makes it possible to educate students like a small district and still
have the economies of scale and buying power of a large district. How? By
implementing shared services. Small districts can band together to share
everything from transportation services to building gymnasiums, creating the
purchasing power and economies of scale of medium-sized districts. Large
districts can organize their individual schools into smaller clusters and
still benefit by sharing services internally. Charter schools can purchase
administrative services from school districts or other charter schools.
Districts of all sizes can participate in agreements that improve the
quality of their staff and internal capacities.
Sharing services is a technique that
both the private and public sectors have employed for decades and has been
growing rapidly in popularity in recent years due to its proven ability to
reduce costs. Since the late 90’s, companies such as Ford, General Electric,
Hewlett Packard, Pfizer and British Petroleum have all realized significant
cost savings from shared services.
Shared services have also become
commonplace in government. The U.S. Postal Service saves $25 million a year
by using shared services for accounting. Work that had been performed by
1100 employees at 85 unique district offices has been consolidated and
standardized, and is now being performed by only 350 employees at three
Accounting Service Centers (ASCs). In New Jersey and Michigan, many
municipal governments have engaged in shared services agreements for
everything from purchasing to benefits administration.
School districts have also made use of
productive shared service arrangements. For example, two school boards in
Ontario, Canada joined together to share bus transportation services and
audio-visual resources. By creating a single bus system, the two boards will
save $8 million in administrative, capital, and fuel costs over three years.
The boards’ shared AV library serves classrooms in both districts, saving
$300,000 annually. Similarly, in the greater Lawrence area of Massachusetts,
10 school districts banded together to provide special education services.
This sharing will save them approximately $13 million over the next two
decades.
Yet across the country, school districts
have barely scratched the surface in terms of tapping into the cost savings
potential and other benefits from shared service arrangements. Shifting just
a quarter of tax dollars spent by school districts throughout America on
non-instructional operations to shared services, for example, could
potentially yield savings in the range of $9 billion. To put this number in
perspective, it is equivalent to 900 new schools or more than 150,000
additional school teachers.
States that desire to promote the
greater use of shared services in local school districts have several levers
they can pull, including budget pressure, financial incentives and technical
assistance. The states of New York and New Jersey, for example, both provide
financial incentives for school districts to engage in shared services. One
New Jersey incentive program, the Regional Efficiency Aid Program, provides
tax credits directly to homeowners as a way to publicly reward school
districts and municipalities for sharing services. Meanwhile, Texas Gov.
Rick Perry has taken a different tack, issuing an executive order mandating
that school districts limit non-classroom spending to 35 percent of their
total budgets. The order is expected to create strong momentum for more
service sharing by Texas school districts.
Sharing services creates the economies
of scale and consistency of process and results that come with more
centralized models. It also allows districts to maintain the benefits of
decentralized control, allowing individual administrators to retain
oversight of curriculum, education, and other aspects of non-shared
processes. By sharing processes that aren’t mission-critical while still
retaining local control of the most important aspects of education, shared
services can bring the best of big and small."
