Enrollments, Projections, Black Swans and Economic Utility

Disclaimer:  Opinions expressed are those of the author and not necessarily those of the Salem School District or any other school board member.

The topic of enrollments and where they are headed is important because enrollments will determine how much classroom space is needed for elementary students. First we choose a target class size; next we predict the total number of elementary students the district will have enrolled; finally we divide the predicted number of students by the target class size and that tells us how many classrooms we need.  Sounds simple, but is it?

What should be our target class size? The only respected study that relates class size to academic achievement says class sizes should be below 15 students. If you support academic achievement, you might support small class sizes, but that means more teachers and higher taxes. If you are a baby-boomer you remember classes with 25 to 30 classmates. You may also remember that a high school education could get you a really good job in manufacturing. That was then, this is now. A 15 student class size is probably too small; a 30 student class size is probably too large. Maybe the average, 22 or 23 students, is better. Let’s think about this a while.

Estimating the total number of elementary students that will be in the district is a bit more involved. This is where we need an enrollment projection. Depending on what we’re trying to do, the projection complexity could vary. If we’re estimating next year’s budget and trying to decide how many books to buy or teachers to employ; short-range, one year accuracy is good enough. If we’re trying to decide on what our Master Plan should be and we’re trying to decide how to spend millions of dollars; we want a more detailed, comprehensive, long-range projection. We also want to consider how easy it would be to adjust to a projection that turns out to be not as accurate as we’d expected. It’s relatively quick and easy to order more books; it’s reasonably quick and easy to add or reduce staff. It’s not so quick or easy to add classrooms.

So for enrollment predictions that need a simple,short-range projection, we do it ourselves. We do a cohort survival projection. How many children were born to Salem parents six years ago and how many typically enter public school. Good enough. But if we’re planning a multi-million dollar construction program, we want to consider other factors like birth trends, economic conditions, employment trends, available housing, housing sales trends and other factors. Now we’re looking at something better handled by a firm that does complex enrollment projections on a regular basis. A consulting firm has the time and resources to do a more extensive projection than we can do ourselves. However, we should also remember what Yogi Berra said about predicting:  “It's tough to make predictions, especially about the future.”

How does a Black Swan, which in this case has nothing to do with the Natalie Portman movie, fit in? Nassim N. Taleb wrote a book titled "The Black Swan, The Impact of the Highly Improbable". The book draws its title from the Old World belief that all swans were white, because no one had ever seen a black swan. After  Australia was colonized, a black swan was discovered and that one unpredicted event reversed a century old belief that all swans were white. The book deals with the occurrence of unexpected events that have extreme impact on those affected, who then try to explain why the event should have been predictable. These unexpected events that have extreme impact are called Black Swans. Could we experience a Black Swan that reverses our beliefs based on what we’ve always seen or known? We probably shouldn’t ignore that possibility.

We have data that tells us that between the year 1996 and the year 2001 nearly 2,000 elementary students attended Salem schools. That fact says that there is housing capacity in Salem for that many elementary students. Since that time, housing capacity has been added to Salem. Is there a potential Black Swan that could bring our elementary enrollments to 2,000 or more students?

What about Rockingham Park, for example? We always talk about the impact of expanded gambling or, if that doesn’t happen, new residential units replacing the racing facilities. What if something else happens? What if that land becomes a high-tech research and development site for the next Google or Facebook? What if hundreds of highly-educated, highly-paid young engineers and business people move to Salem?  What would happen to our school system?

More importantly, what should we do now to minimize the impact of that potential Black Swan? Adding classroom capacity for hypothetical students seems excessive, premature and expensive. Probably not the wisest approach. However, reducing the elementary classroom capacity of our school system doesn’t seem like the right thing to do either.

"Naked Economics: Undressing the Dismal Science" by Charles Wheeland, gets its title because the book, unlike most economics books, uses no formulas or charts. It’s not as exciting as the title might lead you to believe, but it’s a fairly easy read if you’re interested in learning a bit about economic theory.

The book introduces the topic of economic utility which can be thought of as the value someone gets from using a service or consuming a good. Someone could choose to do something that isn’t the least expensive option if they get enough economic utility from their choice. Economic utility can’t always be measured directly. For example, what value is there from driving that sporty little convertible instead of the two-door sedan I should have bought? The economic utility could turn out to be worth the cost difference (which was negligible, in my opinion … ) between the cars. No one is obligated to choose the least expensive solution if they believe they’re getting enough economic utility.

So how do we tie together enrollments, projections, Black Swans and economic utility?  We know enrollments drive our classroom needs and we expect that enrollment projections will give us some good guidance on future enrollments, but we know predicting the future is risky. We need to be aware of the possibility of experiencing a Black Swan and we need to assess the economic utility (value) of our alternatives.

You don’t need to choose the least expensive solution if you believe the value (economic utility) provided by a more expensive solution is worth the higher cost. Do you believe that renovating Haigh School provides 90 cents a month in value because it could help mitigate the effects of a Black Swan event that might raise elementary enrollments to 2,000 or more students? Do you think there is 90 cents a month of value  in maintaining six neighborhood schools? Give it some thought. You’ll need to decide in the near future.

Please email questions and/or comments to pmorgan@sau57.org .