DAVIS, Calif. — Closing public schools may do little to improve the financial condition of California school districts, according to a Stanford University study that challenges one of the most common arguments for consolidating campuses amid declining enrollment and mounting budget pressures.
The research found that districts closing schools experienced reductions in both expenditures and revenue, leaving their overall financial position essentially unchanged. The findings suggest that school closures, frequently presented as a necessary response to fiscal distress, may fail to deliver the anticipated savings because districts also lose students and the state funding attached to them.
The study, The Fiscal Consequences of School Closures in California, was conducted by Francis A. Pearman II, an assistant professor at Stanford Graduate School of Education, and released as part of the Getting Down to Facts III research initiative examining California’s public education system.
Drawing on financial and enrollment data from California school districts between 2011 and 2019, Pearman found no statistically significant improvement in budget balance or financial health among districts that closed schools.
“A common thread we hear from decision-makers around school closures is that, at the end of the day, these moves are necessary for financial reasons,” Pearman said in a Stanford University report published Sept. 4. “But school closures are complex restructuring tools that don’t always play out in expected ways.”
The findings have implications for California communities grappling with declining student populations, including districts where officials face pressure to reduce costs while preserving neighborhood schools.
The central problem identified by the research is that closing schools can reduce expenses while simultaneously accelerating enrollment losses, undermining the financial benefits of consolidation.
California’s Local Control Funding Formula, adopted in 2013, distributes much of the state’s education funding based on average daily attendance. When students leave a district, the district loses revenue even if its operating expenses remain relatively fixed.
“Because state funding is tied so closely to the number of students attending school, losing students means lost revenue,” Pearman said.
Across the districts studied, school closures were associated with an estimated reduction of $447 per pupil in expenditures and $433 per pupil in revenue.
Neither estimate was statistically significant across the full sample, but the nearly equal reductions suggest that any savings were largely offset by lost funding.
The pattern was particularly pronounced in urban districts, where closures were associated with a statistically significant reduction of approximately $1,224 per pupil in expenditures and $845 per pupil in revenue.
Despite those reductions in spending, urban districts did not experience a statistically significant improvement in their overall financial position.
The results were similar for financially distressed districts, which might be expected to benefit most from consolidating facilities and reducing operating expenses.
Pearman found no statistically significant improvement in financial health among districts classified as cash-strapped before entering a period of school closures.
“If closures operated as a clean tool to balance the financial equation, cash-strapped districts would be the most motivated to achieve that balance,” Pearman said. “But that’s not what we saw.”
The study also found that districts closing schools lost an average of approximately 288 students relative to comparable districts that did not close schools.
That enrollment loss was statistically significant, providing evidence that school closures can contribute to the very financial pressures districts are attempting to address.
“When you close schools, there is a disruption absorbed at the community level, and connections to place become more tenuous,” Pearman said.
The researcher suggested that families affected by closures may transfer their children to other school systems or leave their communities altogether.
Those decisions can produce lasting financial consequences because districts depend on maintaining student attendance to sustain state funding.
The study also found no statistically significant reductions in the number of teachers, principals or total district employees following school closures.
That finding suggests districts may continue carrying substantial personnel expenses even after eliminating campuses.
Closing a school can reduce some maintenance and operating costs, but consolidation can also generate new expenses associated with transportation, facility modifications and the management of vacant properties.
As a result, the assumption that fewer campuses automatically produce a healthier district budget may be overly simplistic.
Pearman examined the financial effects of school closures using a statistical approach known as synthetic difference-in-differences.
Rather than simply comparing districts that closed schools with those that did not, the method constructed comparison groups of districts with similar financial trajectories before closures occurred.
The approach was intended to account for the fact that districts experiencing financial problems are often more likely to close schools in the first place.
“Districts don’t close schools at random,” Pearman said. “As researchers, we have to account for the fact that districts closing schools may be on different financial trajectories from districts that aren’t.”
The analysis included approximately 796 districts annually, producing 7,164 district-year observations.
It excluded single-school districts, charter-only agencies and county offices of education, along with districts lacking the complete financial records needed for the analysis.
The study also focused on the years before the COVID-19 pandemic, avoiding the extraordinary financial effects of federal emergency education funding.
The findings do not establish that every school closure fails to save money, nor do they rule out the possibility that individual districts may benefit from consolidation under particular circumstances.
Instead, they challenge the assumption that closures reliably produce net financial improvements.
Pearman said the findings should not be interpreted as an argument against all school closures, particularly in districts facing severe enrollment declines or deteriorating facilities.
Rather, he argued that school officials should evaluate both sides of the financial equation before presenting closures as a solution to budget problems.
“If closures operated as expected, districts that close schools should be doing better financially after the fact. But we didn’t see that,” Pearman said. “We found that districts that underwent closures were just as likely to remain in financial distress as they were to experience improved financial outcomes.”
The research also raises questions about what districts do with school properties after campuses close.
Vacant buildings can continue generating maintenance and security expenses, while opportunities to sell, lease or repurpose properties may be constrained by state laws and administrative requirements.
Pearman identified California’s surplus property rules, including provisions of the Naylor Act and Field Act, as potential obstacles to converting closed school properties into revenue-generating assets.
He suggested that districts considering closures should prioritize retaining students and developing strategies for using school properties before making consolidation decisions.
The findings come amid substantial demographic changes in California, where public school enrollment declined by more than 700,000 students between 2003 and 2023, according to the study.
Declining birth rates, population shifts and changing residential patterns have placed pressure on districts throughout the state, particularly in older suburban communities and urban centers.
For districts confronting those trends, closing schools may appear to offer a straightforward way to reduce costs.
But the Stanford research suggests that the financial benefits depend heavily on whether districts can retain students and prevent revenue losses from offsetting operating savings.
The study also points to broader consequences that are not captured by district budgets, including disruptions to students, families and neighborhoods.
Pearman’s earlier research has examined racial disparities in school closures and the effects of closures on neighborhood change.
He emphasized that the financial analysis should be considered alongside those social and educational consequences.
“School closures may be inevitable, but it’s important to know that the financial analysis is complicated, and that we need to pay close attention to the revenue side of the ledger,” Pearman said.
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