Edward Lotterman
The St. Paul Public School District’s need to close a projected $100 million deficit for the coming year, discussed in recent weeks, is not unique.
Similar situations prevail for school districts large and small across the state.
Moreover, the same underlying problem is hitting many other institutions, including churches, scout troops and American Legion posts.
The phenomenon is more than nationwide. Other industrialized countries face it as well, especially in Europe. For economics teachers, it illustrates at least two important introductory principles, plus several others.
One is “age structure of a population.” This deals with how all the persons in specific jurisdictions, from nations to states, cities and school districts, are divided by gender and into various age groups.
The “population pyramid,” a graphic device shaped somewhat like a Christmas tree, is a quick way to convey this demographic situation. It basically is two bar charts, male and female by age, placed back to back vertically. A quick look illustrates when there were large or small birth groups. The wider the bars, the more people there are in the population of that age, the narrower the fewer. An excellent explanation can be found by clicking here.
The second topic, that of “cost curves of the firm,” is foundational to all “production economics” dealing with how goods and services are produced, whether for profit or not.
Now, let’s apply these two principles to real-world situations.
On the first topic, consider that public school districts, congregations, rural clinics, 4H clubs and so forth all struggle with the fact that our population is aging. Even though the populations of our nation and state are higher than ever, the fractions of these populations that are of ages for schooling or for youth activities are smaller, relative to the general population, than they were a generation ago.
Do the math: In 1957, we had 4.3 million births in our nation when the population totaled 172 million. In 2022, 3.67 million babies were born to 334 million inhabitants. Births per 1,000 population were at 25 or above for most of the 1950s but are now under 14. If one excludes births to females who immigrated at any age and their first-generation daughters, that indicator drops significantly more. So as more people age, fewer people are born to replace them.
Secondly, the costs of producing almost anything: cars, corn or educated kids, are complex.
“Fixed costs” must be paid regardless of the number of “units” produced, whether bushels of corn, Sunday school attendees or high school graduates. It costs the same to light and heat a classroom whether it has five students or 40. Readers may be more familiar with it as “overhead.”
Other costs do vary with output. These “variable costs” increase or decrease based on units served or produced. Textbooks, numbers of teachers, cafeteria groceries, fuel for buses, all vary with the number of students, although not necessarily in a smooth linear fashion. Natural gas to heat a school building only becomes a variable cost when there are so few students that the building has to be shuttered. Cafeteria food costs, on the other hand, will vary greatly when more or fewer students eat lunch in a given school year.
For each of such costs, the district may want to know a per-unit-of-product amount. Say a school district needs to spend $1 million on something regardless of number of students. If there are 20,000 students, the “average fixed cost” per student is $50. Drop enrollments to 10,000 and the average fixed cost doubles to $100 per student. With 5,000 kids in the schools, each would represent a $200 share. The same calculations apply to a rural congregation dividing the insurance cost for their building or a pastor’s salary by 300 members versus 75.
Similarly, a district may want to know variable costs on a per-student basis. The number of teachers needed for an 800-student district is less than for an 8,000-student one, but the amount per student is not exactly the same. The per student cost of groceries for a 1,500-student district may be lower than for a 400-student one because of discounts for larger orders.
The problem for school districts and churches is that a high proportion of costs are fixed. One must heat buildings and periodically renew roofs whether there are 50 worshipers or 500, whether there are 800 students or 200. A classroom floor needs cleaning whether 12 kids use it or 28. Nowadays, you need a school nurse or other person qualified to manage kids’ mediations in a building with 200 or 500. Ditto for a custodian, for someone in the office answering phones, accepting deliveries and handling visitors. And you always need someone who can fix glitches with routers, servers and video projector connections.
Some “inputs,” like teachers, are “lumpy.” You can have one biology teacher or three but you cannot have 2.63. Yes, you can have half-time positions. You can have one degreed librarian cover five buildings while less-educated and less costly aides actually help students. You can teach biology every semester but offer geology or physiology only every other year. But it is not a smooth operation like gently easing up on a gas pedal. Considering whether the staffing costs are governed by a collective bargaining agreement adds a new element to the budgeting process.
Another problem is that parents and citizens in general demand certain services. Federal and state laws mandate services for special needs students who would have been shut out when I was a kid. Even in small districts, AP math or calculus courses are demanded rather than just the algebra-geometry-trig offerings most baby-boomers got.
Yes, staffing and costs at district offices have burgeoned. For some people, including some teachers, “360 Colborne” — the street address of SPPS central administration — has become an epithet used to explain myriad problems. Bureaucracies burgeon easily but resist downsizing. A big part of St. Paul’s budget problems stem from the very predictable ending of large sums of federal funds available under the COVID-era American Rescue Plan Act of 2021. Skeptical conservatives are entirely correct when they say that “temporary” programs funded with temporary dollars inevitably become permanent to some extent because no organization wants to cut back. There always is someone who benefits from a program and doesn’t want it ended.
Don’t blame “bureaucrats” for all problems though. Every district superintendent and finance chief knows that fixed costs can be cut by closing school buildings. They also know that announcing closings of schools that have served neighborhoods for a century always touches off political firestorms. Ditto for tax referendums that could increase school funding.
The final econ idea that is useful in thinking about these challenges is that of “marginal cost,” the change in total costs with a one-unit change, up or down, in some output or input. If we lose one student, how does that change our total costs? If we added another service, how would that increase our total costs? How would it increase total costs to add one section of AP physics? How much would it decrease total costs to cut lacrosse?
Specific situations will change, but demographic changes, especially rapidly dropping birth rates everywhere, will be even more salient in this century than in the last. Knowing how economists explain what’s going on can help understand things.
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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
