At one time, economists commonly assumed that public officials, such as school administrators, acted purely in the best interests of the public. In the design of government programs and the setting of government spending levels, it was taken for granted that officials would correctly determine the amount and quality of government services the public wanted and act accordingly.

Based on this assumption, economists tried to control for each community’s level of demand for education when studying school district spending, expecting that school district officials would choose higher or lower per-pupil spending levels in response to higher or lower educational demand from one community to the next. That, of course, is the basis for the average income control discussed above.

But the assumption of the demand-driven public servant is viewed today with skepticism. Since at least the 1950s, economists have been concerned that such an idealized view of government service is implausible on its face and is inconsistent with the assumption that consumers act according to what is best for themselves and their families. If public officials and consumers are all human beings, would one group really be motivated purely by selfless devotion to others’ desires while the second group was chiefly self-interested? Public officials, after all, are also consumers themselves.

That shift in thinking lead to the development of “public choice theory.”

Public choice theory applies the economic assumption that human beings are rational and self-interested to everyone, including elected politicians and bureaucrats. The views of economist William Niskanen, a leader in the development of public choice, have been neatly summarized as theorizing that public officials “seek to enhance personal utility [their own interests] by maximising the budgets of their respective departments, since it is expected that their personal incomes and power status (through increased promotional opportunities) would be increased [as a result].”[12]

An analogous set of incentives is theorized to apply to such elected public officials as school board members. The most powerful political players in school board elections are typically school employee unions, who openly acknowledge their desire to raise salaries and overall public school spending. The public choice model suggests that school board members will have an incentive to please the teachers unions, because opposition to union interests would undermine members’ re-election chances. Indeed, candidates opposed to higher spending would have to overcome ardent and organized union opposition. Taxpayers in favor of spending restraint often have no corresponding political action organization.

If public school officials try to spend as much as they can in pursuit of their own interests, school district spending would be correlated with the ease of raising revenues. This expenditure-maximizing tendency would of course interfere with the measurement of the impact of district size on spending, and hence this potential factor must be controlled for in the model.

To do that, we need a way of measuring how easy it is for officials in any particular district to raise a given amount of money per pupil. As economist Larry DeBoer points out, “income is the most common measure of [taxpayers’] ability to pay.”[13] A control variable for the effects of public choice behavior can thus be obtained by dividing a district’s total household income by the number of public school students among whom tax revenues must be distributed.[*] Note that this conclusion should be true in Michigan even after the passage of Proposal A, which shifted most public school revenue generation from the local to the state level. While Proposal A all but eliminated local discretion over current per-pupil spending and raised many low-spending districts to a certain minimum revenue level, it did not impose uniform spending across the state, but rather locked in much of the pre-existing variation. Thus, the per-pupil foundation allowances assigned by the state under Proposal A are based in large measure on the level of per-pupil spending in each district prior to the reform’s passage. The districts that were spending the most before Proposal A generally continue to do so today, and some of this money is in fact still raised locally.

A real world example that is consistent with this theory, though not by itself conclusive, is the state of Utah. Utah’s average family size is well above the national norm, and the state’s per-pupil public school spending is well below it.

It should be noted that the inclusion of this public choice control variable — together with the average income variable that proxies community demand for education ­­— represents an interesting test of competing theories of bureaucratic behavior. The results will help determine whether school district officials in Michigan behave more like the selfless public servants of the traditional view or the self-interested economic agents of the public choice view. As will be discussed later, the answer to that question has at least as much relevance to education policymaking as does this study’s inquiry into the link between district size and spending.

As with the per-capita income variable, the source of the income data for this public choice control was “Summary File 3” of the 2000 Census.[14] Hence, we once again have the data for 1999 alone.[**] Fortunately, any actual inter-year variations in income per pupil were not sufficiently large to undermine the usefulness of this variable.

[*] To elaborate, let’s consider a hypothetical example. Imagine two communities of roughly equal income and number of households (and hence of equal aggregate household income). And let’s assume that community A has one public school student per household while community B has two such students per household. In order to achieve the same level of per pupil spending, the tax burden on householders in community B would have to be twice the burden in community A. But since voters’ ability to pay is constrained by their income, and since the household income in the two communities is the same, public choice theory predicts that public schools in community B would spend less per pupil than those in community A.

Hence, under public choice theory, a district’s aggregate income per pupil is a good measure of how easy it is for officials in that district to spend as much as possible.

[**] The same is true for the previous two variables (public demand for education and school enrollment as a percentage of the population), both of which came from the 2000 Census “Summary File 3.” Such single-year estimates are not uncommon in education research.