At first blush, the answer may seem obvious. Districts in Los Angeles, Philadelphia, Chicago, Detroit and Newark are losing enrollment to charters. Since most school systems are funded based on the number of students served, when enrollment drops, so does total district revenue. A report circulated by the United Teachers of Los Angeles last week claims that the Los Angeles Unified School District loses about $500 million a year, thanks to charters.
But there is another way to do the math. Across California, districts with fewer students have smaller total budgets. The budget for Lindsay Unified is one-tenth the size of Sacramento Unified because Lindsay has one-tenth the students. When students move to charters, districts still receive the same money for each student — about $9,300 per pupil on average in California — they're just serving fewer of them.
So, yes, while LAUSD has lost revenue in recent years, those funds were for the students it no longer serves. And if a system educates fewer students, shouldn't it operate on a smaller budget? Some will say that economies of scale work such that the district can't be expected to operate with proportionately fewer dollars when it loses students. But that argument doesn't hold water. There are 14,000 or so districts in this country that can and do operate at all different sizes. And most are much smaller than the urban districts perpetually in fiscal trouble.
It isn't the smaller enrollment itself that's problematic; rather, it is the shrinking process that ignites fiscal chaos. One might expect that a 5% drop in enrollment would prompt a proportionate reduction in teaching staff, central office departments, administrators and so on. Instead, over the last six years, as LAUSD lost nearly 100,000 students, its staffing actually grew.
When enrollment falls — regardless of whether it falls because students leave to attend charter schools, move away or because birth rates dip — districts have a hard time reducing their spending to match their revenues.
Charter schools aren't to blame; typical district budgeting practices are. Districts often make bulky, inflexible and sometimes irreversible spending commitments that outlive their administrations or don't match up with revenues. They allocate staff in increments tied to schools or departments. And they inherit promises for unpaid obligations like retiree healthcare that are only affordable if enrollments and state revenues never decline. These legacy costs linger as a fiscal burden to future district budgets.
The situation, however, isn't hopeless. Districts like LAUSD can escape this downward fiscal spiral.
They can start by restructuring their school budgets to automatically expand and contract with enrollment. Instead of apportioning a fixed number of staff to each school, allocations can be made in per-pupil terms. In dozens of districts including in San Francisco, Denver, Boston and Houston, district money is equitably distributed in per pupil increments across schools, weighting for factors like poverty, homelessness or English-learner status.
In fact, LAUSD would do well to reshape its entire budget around students. Each central office department could get a fixed-dollar increment, say $106 per pupil for human resources. This would make district-level budgeting inherently responsive to enrollment changes.
Districts must also reconsider long-term spending commitments, such as retiree healthcare benefits, that are unsustainable when the financial landscape changes. Full financial transparency of legacy costs per pupil can help create a public appetite for tweaking these arrangements when they are no longer financially viable. State policymakers can also help by making new funds contingent on phasing out these kinds of commitments. After all, it is often the states that get tapped for a bailout when the district financials fall apart.
Clearly, downsizing can be challenging and painful, regardless of the cause. If districts proactively adapt, these shifts don't have to mess with the system's fiscal or instructional priorities, compel panic or force massive (and massively unpopular) budget overhauls.
Marguerite Roza is director of the Edunomics Lab at Georgetown University.