For school districts facing enrollment declines and mounting budget pressures, closing schools seems like an obvious – if often contentious – way to get finances back on track. But new research from Stanford suggests the reality is not so open-and-shut. 

A study drawing on data from all California public school districts between 2011 and 2019 found that those entering a period of school closures did not, on average, improve their financial standing, and that fiscal returns were curbed by enrollment declines brought on by the closures.

While districts reduced spending after closures, they also saw decreased revenue, resulting in essentially no measurable improvement in their budgetary challenges overall.

“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,” said Francis Pearman, an assistant professor at Stanford Graduate School of Education (GSE) and author of the study. “But school closures are complex restructuring tools that don’t always play out in expected ways.”

The findings were released in conjunction with Getting Down to Facts III, a 2026 review of California’s public education system led by GSE Professor Susanna Loeb, faculty director of the SCALE Initiative at the Stanford Accelerator for Learning. 

Questioning conventional thinking

The study is the latest in a body of research by Pearman investigating the effects of school closures on students and communities, with prior studies exploring aspects including racial disparities in school closure decisions and the impact of school closures on gentrification.

For this study, he set out to examine the assumption that shuttering schools produces a net financial benefit for districts in distress. 

“By now, most school districts are generally aware that school closures have meaningful implications that reverberate beyond the school systems themselves,” Pearman said. “Perhaps because of that, school closures need strong justification, and they most commonly are justified on fiscal grounds. And that reasoning is so conventional that it can be difficult to pause and say, ‘Do we actually know this to be the case?’”

California offers a particularly distinctive and relevant setting for the study, he noted, as a state that has undergone major demographic changes over the past two decades. Public school enrollment has fallen dramatically statewide, with declines concentrated in many urban core and older suburban communities. 

California is also noteworthy for its Local Control Funding Formula (LCFF), enacted in 2013. The formula is built around a base grant allocated per student according to average daily attendance – not just enrollment – and supplemented by funding targeted for students such as English learners, students from low-income families, and foster youth. 

“Because state funding is tied so closely to the number of students attending school, losing students means lost revenue,” Pearman said.

Determining whether closures actually improve the financial stability of school districts in California involved a more complex calculation than simply comparing districts that closed schools with those that didn’t. 

“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.”

He addressed that problem using a statistical technique known as “synthetic difference-in-differences,” comparing districts that closed schools with a weighted composite of nonclosing districts that followed very similar financial trajectories before the closure. That provided a more credible estimate of what might have happened to districts that closed schools if they had followed their previous trajectory without embarking on the closure.

The study examined four measures of a district’s financial circumstances: the per-pupil funding deficit (revenue minus expenditures); whether the district had a balanced budget; per-pupil expenditures; and per-pupil revenue.

“If closures operated as expected, districts that close schools should be doing better financially after the fact. But we didn’t see that. We found that districts that underwent closures were just as likely to remain in financial distress as they were to experience improved financial outcomes.” 

Savings on one side, losses on the other

While closures did reduce expenditures in large urban districts, he found, they also drove a decrease in revenue due to enrollment loss. Districts that began the process of closing one or more schools during the study period lost an average of about 288 students across the study’s 10-year time frame. 

“When you close schools, there is a disruption absorbed at the community level, and connections to place become more tenuous,” he said, attributing the departures to the likelihood of families leaving the public school system or moving away entirely.

Across all districts, the study estimated that closures were associated with a roughly $447 reduction in per-pupil expenditures and a roughly $433 reduction in per-pupil revenue. Neither estimate is statistically distinguishable from zero in the full sample, but their near-symmetry indicates that whatever savings the closures generated were accompanied by comparable losses in revenue.

The pattern became even sharper in large urban districts, where school closures were associated with a decline of about $1,224 per pupil in expenditures and about $845 per pupil in revenue, estimates that were statistically meaningful. But these districts’ overall financial position still did not improve significantly. 

Rural districts showed little measurable change, while even districts identified as financially distressed – where their expenditures far exceeded revenue, and the fiscal rationale for closure would seem strongest – showed no significant positive effects. 

“If closures operated as a clean tool to balance the financial equation, cash-strapped districts would be the most motivated to achieve that balance,” he said. “But that’s not what we saw.”

Pearman also found no statistically significant reduction in the number of teachers, principals, or total district staff among districts that closed schools, precluding the potential cost savings from layoffs. 

Closing a school can eliminate some building and operating costs, Pearman said, but it can also generate expenses – for instance, to manage decommissioned buildings and increase transportation for students. And if districts don’t scale back staff, a predominant fixed-cost structure remains.