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Economies of Scale, School Violence, and the Optimal Size of Schools

J. Stephen Ferris


Edwin G. West1

28 January 2002 Department of Economics Carleton University 1125 Colonel By Drive Ottawa, Ontario K1S 5B6 Canada

Abstract Economies of Scale, School Violence, and the Optimal Size of Schools

In this paper we argue that policy in relation to education has relied too extensively on the more easily measured costs of production to support a common conclusion of economies of scale in school and/or district size. We argue that there are external costs that increase with size but that can be measured less easily that could offset this case. This would imply that the tendency within the education profession to advocate ever larger school sizes is premature at best. To make our case, we model the choice of school size to emphasize that costs, such as school violence, that are born by both students and their parents but not (necessarily) by education administrators may result in school sizes that are too big from the perspective of school users. In the second and third parts of the paper we introduce evidence to suggest that school violence is one of these external costs.

Key words: economics of education, school size, school violence, schooling externalities JEL Classification: I21, I28


Economies of Scale, School Violence, and the Optimal Size of Schools
The push for school and district unfortunate because...research has repeatedly found small schools to be superior to large schools on most measures and equal to them on the rest. Kathleen Cotton, 2000

In this paper we argue that economic analysis has relied too extensively on the more easily measured costs of production to support its conclusion of pronounced economies of scale in school and/or district size (Conant, 1959; Chakraborty, Biswas, and Lewis, 2000). Without wishing to challenge the finding of technical economies of scale, we argue that the neglect of costs that are equally important but can be measured less easily may well offset the overall case. This would imply that the tendency within the profession to advocate ever larger school sizes is premature at best. To make our case we provide a model of school size that emphasizes costs that are born by both students and their parents but not (necessarily) by education administrators. Although our particular focus on school violence is unique, our overall argument is not radically new, merely expanding the argument initiated by Kenny (1982). In that paper, Kenny stresses that if production scale economies were the only school size consideration, schools and school districts would continue to consolidate until there was only one school in operation! What prevents this, in Kenny’s case, is that complete consolidation would maximize the average distance travelled between home and school and hence the associated cost of transporting students. We argue that even after incorporating these physical transportation costs, Kenny may still have found too large a school size. Since many of the congestion costs of larger school size


3 are external to school administrators, the advantage of maintaining even current school size may well be exaggerated. In the second and third parts of the paper we introduce evidence to suggest that school violence is one of these external costs.


Scale Economies with Externalities The significance of Kenny=s (1982) work is its clear demonstration that technical

economies of scale are consistent with finite, optimally sized schools. This means that the case for larger school size cannot follow simply from the demonstration of production economies of scale. To illustrate the point, Kenny’s school size problem can be formalized by having administrators choose the school size that maximizes their perception of effective teaching, v, given that a fixed district school budget, C0, must be spent either directly on teachers, k, at a unit cost of pk, or on transporting students from ever distance places to fewer but larger schools, pt. The latter cost is assumed to increase at a growing rate in the number of students in each school, s. That is, pt = pt(s) where both Mpt/Ms and M2pt/Ms2 > 0. The problem can then be represented as Max ‹(k, s) = v + λ(C0 - pkk - pt(s)),


where Kenny assumes that effective teaching output, v, equals the quantity of market purchased teaching inputs, k (standing for teachers, equipment etc.), times the number of students in each school, s, raised to the power π-1, i.e., v = ksπ-1. Economies of scale arise if π > 1 (diseconomies if π < 1).2 In Kenny=s study, the value of π is to be determined empirically. In terms of the model, school administrators maximize their perception of what creates effective educational output, v, subject to their budget. The first order conditions for this internal

4 maximum are then: M‹/Mk = sπ-1 - λpk = 0, M‹/Ms = (π-1)ksπ-2 - λMpt/Ms = 0, M‹/Mλ = C0 - pkk - pt(s) = 0.




With λ = M‹/MC*Co, the lagrangian multiplier measures the value received by administrators from the increase in effective schooling generated by a slightly larger school budget. We assume that at C0 this marginal value is positive. Then following Kenny, we note from (2) that teachers will be hired until the value of their marginal contribution equals their cost and from (3) both λ > 0 and Mpt/Ms > 0 imply that (π-1) must be positive. This means that there needs to be some element of scale economies in school size to offset the increasing cost of transporting students ever further from home to school. Under reasonable conditions, then, there will be a unique school size that implies a certain average distance that students must travel to school.3 We label the values of s and k that come from the constrained maximization problem as s* and k*. Notice that from (2) the marginal product of teachers (to school administrators) is increasing in school size.4 Hence teachers as a group will favor larger school sizes since this implies higher levels of employment at competitive wages.5 By differentiating the set of first order conditions in equations (2) – (4) with respect to C0, we can solve for the comparative static effect of an increase in district budget size on s* and k*.6 Given economies of scale in school size and complementarity between school size and teaching

5 productivity, it is not surprisingly to find that both ds*/dC0 and dk*/dC0 are positive. This implies that prosperous school districts with larger sized district budgets will be characterized by larger schools with more teaching resources. Given that the demands on school administrators for education rises with income (so that district budgets increase with income), Kenny’s model is also consistent with the observed pattern of consolidation undergone by the education system (Kenny and Schmidt 1992, and Staaf 1977). In short, Kenny’s simple model succeeds in explaining some of the most important changes in the ongoing evolution of school size. With this background, we add to the problem the presence of non-transport congestion costs that depend on school size but are not borne by school administrators, i.e., costs like school violence that fall primarily on students and/or their parents. Assuming for the moment that it is too costly for students or their parents to (fully) reimpose these costs back on administrators, such social costs will not be reflected in that choice. Suppose then that the negative educational experiences associated with larger school size can be represented as a second (external) school output, v2. Aggregate schooling, v, is now the composite value v1 + v2, where v1 represents traditional schooling (as modeled by Kenny) and v2 reflects the negative external effect associated with larger school size. In the spirit of Kenny=s analysis, we allow for potential diseconomies by assuming that v2 = -sα-1. In this case α >1 would reflect scale diseconomies in these externalities.7 From the point of view of school administrators, external costs (by definition) have no influence on choice so that the maximization problem remains unchanged from that in (1) above (with v = v1). Hence the same k*, s* solution will arise. From the larger perspective of parents and the students that use the schools, however, the school choice appears as:

6 Max ‹s(k, s) = ksπ-1 - sα-1 + λ(C0 - pkk - pt(s)), (5)

That has as its first order conditions: M‹s/Mk = sπ-1 - λpk = 0, M‹s/Ms = k(π-1)sπ-2 - (α-1)sα-2 - λMpt/Ms = 0, M‹s/Mλ = C0 - pkk - pt(s) = 0.




As before, equation (6) states that additional teachers should be hired as long as their constant contribution (given school size) exceeds the rising marginal cost. This is unchanged from (2) above. On the other hand, when (7) is compared to (3), the marginal value to parents and students of having a larger school size can be seen to be smaller at each level of s than before (when only the direct education benefit was considered).8 Hence if π > α > 1 so that on net scale economies continue to exist in school size, the externality (the term bolded in (7)) lowers the net benefit that scale would otherwise add to the value of production and so lowers the optimal size of the school. Given rising transportation costs (so that a finite school size remains optimal), both students and their parents prefer a smaller school size than would be set by school administrators above.9


Is Violence in the School a serious cost and does it increase with School Size? As the quotation that begins our paper suggests, current research in education suggests that

a number of factors associated with school size can either increase schooling costs directly or

7 indirectly diminish the effectiveness of school learning. Here we question whether school violence falls in this category. In general there are many other schooling characteristics, such as school attendance, dropout rates, college acceptance rates, student alienation, student pregnancy and drug/alcohol abuse that are all likely to be perversely associated with school size (Cotton, 2000; Ferris and West, 2002). These characteristics share with school violence the feature that while their existence may be recognized to be costly, the cost is often not associated with school size nor easily measured. The purpose of this section is then to assess whether the evidence is consistent with school violence being recognized as a significant cost whether school violence rises with school size. These are assumed in the model above. In the period following the 1999 Columbine school disaster it has become popular to see the level of school violence as on the rise. However, when one looks at different time series on the extent of school violence, such a hypothesis is hard to confirm. For example, from the 1970s onward, the data that describes the general public’s perception of the level of violence in schools indicates that while public concern has both risen and fallen, more recent time periods give less evidence of a rise than of a fall. In Table 1 below, the time series of the three items most frequently picked as major problems facing local public schools (and most closely linked with school violence) are presented in the first three rows. By and large they present no evidence of an upward trend in public concern. Only with respect to a “lack of discipline” is there any evidence of a recent rise and this is to level that is still well below that experienced throughout the eighties. In the fourth row we present the level of public concern with whether large school size is a serious school problem. As that row indicates, except for a brief drop in 1995, the level of public

8 concern has remained relatively constant. For the public as a whole, then, school violence may be perceived to be a serious problem but it is not viewed as becoming increasingly serious.

Table 1
Items most frequently cited by the general public as a major problem facing local public schools
1975 Lack of discipline Fighting/violence/gangs Use of drugs Large schools 23 na 9 10 1980 26 na 14 7 1985 25 na 18 5 1990 19 na 38 7 1992 17 9 22 9 1994 18 18 11 7 1995 15 9 7 3 1996 15 14 16 8 1997 15 12 14 8 1998 14 1999 18

10 8

8 8

Source: Table 23, Digest of Education Statistics, 2000.

To some extent the general public is quite far removed from the actual school environment and must form a second or third hand impression of what actually happens in schools. Moreover, when looking at the wide variation in public concern over such Table 1 items as drug use, one cannot escape the feeling that public perceptions are somewhat transitory and perhaps heavily influenced by a few isolated events that receive extensive press coverage. Because the schooling decisions of school boards will reflect the views of the public as a whole in a democracy, there is then a concern whenever the views of the public are at odds with what is happening in the schools and hence what is experienced by consumers of education. As we will see, recent interest in the level of serious violence within schools may reflect just such a situation. It is in this important sense that the costs of school violence may be external to the decision process. Teachers, unlike the general public, are in the classroom daily and can be expected to have more accurate information on the situation facing students and the trend in school violence. In

9 Table 2, then, we report the most recent evidence on teachers= perception of the seriousness of six different measures of violence for the 1990-91 and 1993-94 school years.

Teachers= perception about serious problems in their schools: 1990-91 and 1993-94 (Percent of teachers indicating the item is a serious problem, public school teachers (total)) 1990-91 6.5 3.4 5.4 1.2 7.5 13.0 1993-94 8.2 4.1 6.7 2.8 11.1 18.5

Table 2

Physical conflicts among students Robbery or Theft Vandalism of school property Student possession of a weapon Verbal abuse of teachers Student disrespect for teachers

Source: Table 27, Digest of Education Statistics, 2000.

Table 2 supports the hypothesis that teachers do see school violence as becoming a more serious problem. In all six categories, the percentage of teachers that see violence as a serious issue has risen. On the other hand, the level of perceived violence itself does not appear to be that serious. Of the six violence categories, student disrespect for teachers carries the highest level of teacher concern and all six categories of student violence rank well behind such other areas of concern such as the lack of parental involvement (27.6%), student apathy (23.6%) and student not being prepared for class (28.8%) as teacher concerns.10 When we turn to how students feel about the level of violence that surrounds them in school, however, the story does change dramatically. Table 3 reports the percentage of students in grades 7 to 12 in 1996 who felt affected by certain key categories of violence arising in school.

Table 3

10 Percentage of students (grade 7 to 12) who feel that the following problems are very serious 1996 (all students) Hostile or threatening remarks between groups of students Threats or destructive acts other than physical fights Turf battles between different groups of students Physical fights between different groups of students Gang violence Table 151: Digest of Education Statistics, 2000. With roughly one in four students affected, Table 3 reveals that students do see school violence as a highly serious issue. While there are no readily available statistics relating to the perception of the problem by their parents, it would seem likely that parent’s perception of violence in schools would lie much closer to those of their children than to the public at large. The data above report on the perception of the school violence problem and thus illustrate the important point that the perception of the problem differs widely across groups. In particular, the groups directly effected feel more threatened than the decision makers. In terms of the actual level violence that does arise in the school, there is somewhat less evidence. However in 1999 (updated in 2001), the U. S. Departments of Education and Justice combined to begin to collect statistics on the levels of different crimes that occurred in schools over the 1990s (Indicators of School Crime and Safety, 1999, 2001). Table 4 then reports their aggregate findings for the number of nonfatal crimes committed against students (ages 12 to 18) occurring at or going to school and then away from school for the years 1992 through 1999. 25 % 24 % 21 % 26 % 26 %

Table 4

11 Number of nonfatal crimes against students ages 12 through 18 per 1000 students 1992 A. At or going to and from school: Violent 48 Serious violent 10 B. Away from school: Violent Serious Violent 1993 59 12 1994 56 13 1995 50 9 1996 43 9 1997 40 8 1998 43 9 1999 33 8

71 32

70 35

69 33

58 23

55 26

59 24

48 21

39 18

Source: Tables 2.2, 2.4, Indicators of School Crime and Safety, 2001.

Two things are apparent: first, the actual level of violence experienced in schools has not risen (at least in the nineties); and, second, the level of violence within and on route to school is only slightly less than that experienced by students outside of the school. Hence while the problem does not appear to be getting worse, finding that a student is only marginally safer in school than on the streets is not a positive signal of a healthy school environment. If the ratio of serious to simple violence crimes mirrors the ratio of threats to committed crimes (i.e., roughly 1 to 5 in Table 4), then the time series in Table 4 confirms the general message conveyed by Table 3. Students do perceive school to be a place of potential violence, with all the associated negative effects on total educational experience and achievement. Even if school violence is granted to be a serious education concern for students, it is not clear from the data presented thus far that school violence is a function of school size. To justify smaller sized schools, we would need to show that school violence increases with school size (and not just with other characteristics associated with school size that have a deeper causal influence over school violence). Table 5 then collects from the Indicators of School Crime and Safety, 2001

12 the data related to school size, measured in terms of enrollment.

Table 5
School violence and School Size A. The percentage of public schools that reported one or more criminal incidents to police by seriousness of the incident: 1996-97 School enrollment less than 300 300-999 1000 or more Any incidents 37.8 % 59.6 % 89.1 % Serious violent incidents 3.9 % 9.3 % 32.9 %

B. The percentage of Public Schools that report 1 or more of 17 discipline issues as a serious problem in their school: 1996-97 School enrollment Less than 300 300-999 1000 or more Percentage Reporting 9.5 % 15.4 % 37.6 %

Source: Table 7.1 and Table 16.1, Indicators of School Crime and Safety, 2001.

What Table 5 indicates clearly is that school violence does rise rapidly with school size (measured by student enrollment) and almost exponentially so for seriously violent crimes. What is not shown in Table 5 is the sensitivity of the reported figures to other potential causal factors in determining violence as reported in Indicators. It is true, for example, that students who attend city schools face a higher probability of experiencing serious violence than do students in schools in either towns or rural areas (16 percent compared to 5 and 8 percent) and city schools are typically larger.11 However, within each of these location categories, the same pattern of violence by school size is repeated. For example, the percentage of schools that report serious crimes is more than three times higher for large schools of 1000 or more compared to middle sized schools

13 of 300-999 for both city and urban fringe schools. Similarly in smaller towns, the largest sized schools are five times more likely to report serious violence than their mid-sized alternatives.12 School violence also differs by other characteristics such as by minority enrollment, by region from northeast to west, and by the percentage of students who qualify for free/reduced-price lunch eligibility. None of these factors, however, shows anywhere near the same degree of association with school violence as does school size.13 In summary, our reading of the available evidence suggests that school size does matter for the level of violence arising in schools and that its size and significance to both students and their families is not fully recognized by the public as a whole. In this sense, our findings are consistent with assumptions embodied in the model of Part I.


Is the cost of school violence external? Even if school violence does increase with school size and the public remains less aware

of the educational effects of school violence than do students and their parents, the cost of school violence need not be under-represented in the choice of school size. Students and their families have strong incentives for taking their concerns directly to the school administrators that determine actual school size. To complete the reasoning as set out in the model, then, we need to establish reasons why these administrators are more likely to respond to the concerns and wishes of the public at large rather than the expressed wishes of current students and their parents. The fundamental reason for believing that the current education experiences of students and their families will be underrepresented in school size choice is that public education is provided by an educational bureaucracy designed to represent the wishes of a government that is

14 rewarded for producing in relation to the wishes of its electorate. Hence if the bureau were a “perfect agent” for its principal “the electorate”, the structure of public education would be determined by tastes, preferences and perceptions of a public that undervalues the presence and cost of school violence as experienced by students and their parents. Because the bureau cannot be monitored and policed costlessly, there will always be some slippage in reproducing the wishes of the principal exactly. The agent will always retain some margin over which personal preferences gain expression. However, because the public education system tends to recruit its department of education administrators out of the school classroom, teachers’ interests are likely to receive more than their proportional weight in the decision making process. Because teachers have been shown to under-recognize the incidence of school violence among students and because their own productivity is positively related to school size, the preferences of school administrators are likely to further weigh the decision making in favor of larger sized schools.14 One test of the hypothesis that public school administrators undervalue education costs such as school violence that increase with school size is to see whether school sizes are smaller (as would be predicted) under an education system that allowed students and their parents to have a stronger voice in determining the characteristics of their school. If this could be verified, the subsidiary question would be whether the smaller schools in such a system actually had a lower level of school violence than the larger sized public system. Because the private school system must both attract and hold individual students and their parents, the private school system has more of an incentive than does the public system to produce in accordance with the demands of its constituents. Hence if school size related costs are

15 undervalued in the public system, we should find that the private system produces private school sizes that are smaller on average than are public schools. The data do appear consistent with this hypothesis. For example, in 1998-99, average school enrollment in public elementary schools, all secondary, and regular secondary public schools was, respectively: 478, 707 and 786 students per school.15 The latest evidence (for 1997-98) on average enrollments in private elementary, private secondary, and private combined elementary-secondary schools was, respectively, 170, 321 and 175 students per school.16 It would then appear that the school system that relies more on its students and their parents for support utilizes schools that are smaller in size than the school system that relies more on revenues from the public at large. This is consistent with the hypothesis that the public school system undervalues the costs associated with larger school size. That school violence is an external cost in the public system requires more than just evidence that schools are smaller in the public system. It also requires evidence that in equilibrium, the level of school violence will be lower in smaller sized private schools. This prediction also appears to be consistent with the data. In Table 6 below we present the data on the levels of violence experienced by students in the two school systems in both 1995 and 1999. As that table suggests, the level of reported school violence is always higher in the public system than in the private. In addition, the level of experienced violence is frequently more than twice as high in the public system as in the private school system.


Table 6
Percentage of students aged12 through 18 who reported criminal victimization at school, by school type and year 1995 Violent Public school Private school Serious Violenta Public School Private School Bullied at School during the last six monthsb Public School Private School Street gangs present at schoolc Public School Private School
a b a

1999 2.5 0.3

3.1 1.7

0.7 0.1

0.6 0

5.3 2.8

30.7 6.9

18.6 4.4

Table 3.1, Indicators of School Crime and Safety, 2001. Table 6.1, Indicators of School Crime and Safety, 2001. c Table 15.1, Indicators of School Crime and Safety, 2001.

On the other hand, it is sometimes maintained that because private schools attract student with certain types of characteristics that there is a self-selection bias in interpreting the data as we have done (Murnane, Newstead, and Olsen, 1985; Figlio and Stone, 1999). For example, if the students attracted to the private system were inherently less violent than the students who remain in the public system, then it would be the students rather than the school size that produced the correlations found in Table 6 above. There is, however, additional evidence that does suggest that it is the school size rather the student that accounts for the fall in school violence experienced within the private system. This is presented in Table 7 below.


Table 7
Percentage of students aged 12 through 18 who report fearing attack at or on the way to school, by school type and year 1989 Feared attack or harm at school Public School Private School Feared attack or harm on the way to or from Public School Private School 5.9 1.7 1995 9.1 3.3 1999 5.7 1.7

4.5 4.3

6.7 5.0

4.0 2.8

Table 12.1, Indicators of School Crime and Safety, 2001.

What the bottom half of Table 7 suggests is that when private school students are on their way to and from school, the level of fear of violence they experience is close to that experienced by public school students. Only in 1999 is there more than a ten percent difference between the two sets of numbers in the bottom half of the table. On the other hand, when the same students are in school, the level of fear from violence falls dramatically for private school students while actually rising for students going to public schools. In relative terms, private school students have about a third of the level of fear of violence than have public school students. Because the fear of violence changes in opposite directions for students attending different school systems, we can have greater confidence that at least some of this differential is attributable to public/private school differences. That is, there is evidence that the reduction in fear of violence is coming from organization within the school system rather than from student differences. This is then consistent with the hypothesis that school size itself has a negative effect on the level and fear of violence experienced within the school.

18 IV Conclusion In this paper we have used school violence as one particular example of an education cost that both rises with school size and is external to those making the school size decision. Such an argument could perhaps be repeated for the effect on school size of other less easily measured attributes of educational effectiveness, such as student alienation, extracurricular participation, school dropouts, interpersonal relations etc. (see the summary by Cotton, 2000). However because these characteristics are hard to measure, the same degree of rigor and precision cannot be attached to this hypothesis as that achieved by evidence of scale economics in the physical cost of producing traditional education achievement measures. It is then not our objective to argue that school sizes are too large and should necessarily be reduced. While the data we have presented inclines us in that direction, we would be first to point out that there may well exist other benefits of school size, not so easily measured, that may more than compensate for the considerations we have raised. Our point is rather that all bureaucracies can be expected to respond to their structural incentives and that to the extent that society values the educational experience of its users (rather than the public at large) bureaucratic choices will undervalue those attributes of performance that are less easily measured and external to decision makers. Hence in choosing the dimensions of industry structure (such as in our case school size), decision makers should make special efforts to become aware of the missing elements in their measures and question more closely outcomes based on only the subset of variables that seem relevant to that choice. It is our contention that the accepted notion of economies of scale in school size is one example of this measurement bias at work.




With Eddie’s death from cancer in early October 2001, this paper represents the last of our

collaborations in education. Much of our joint work has focused on the hidden education costs, costs that arise as a byproduct of incentives introduced by state provided education under majority voting. This particular paper was motivated by Eddie’s concern that an event such as that at Columbine High School was yet another symptom of this general problem. We would like to thank Ambrose Leung for his comments and encouragement.

When π = 1, v = ks0 = k. This would imply that output and inputs are strictly proportional

(here equal) so that neither economies nor diseconomies arise from combining teaching and student inputs in a school.

A sufficient condition for an internal maximum is 2 > π > 1. More generally, an upper bound

on school size requires that the economies of scale in production not be so large that they overcome the ever rising cost of transporting students further to school.

That is, M2v/ MkMs = (π -1)sπ-2 > 0 as long as π > 1. With control over entry, large school sizes would allow higher than competitive wage payments


to be realized.

This exercise is presented as an Appendix to the paper available on request. In our discussion we typically assume that π > α > 1. This preserves an optimal size for the


20 school while permitting the external effect to exhibit scale diseconomies. Should 1 > α > 0, the negative schooling externality would diminish with size and so reinforce the case for larger scaled schools. See footnote 8 below.

Note that - (α -1)sα-2 is negative only if α > 1. That the optimal school size is too large from the perspective of students and their parents can be


seen from equation (7). That is, at the previous optimal k*, s*, M‹s/Ms*k*, s* = M‹/Ms*k*, s* - (-1)(s*)-2 < 0 since M‹/Ms*k*, s* = 0 and (-1) > 0. In addition, with s < s* equation (6) indicates that fewer teachers will be employed. With s and k smaller there is now less value to students and parents of having the budget constraint lessened and this lowers the value of &.
10 11

See Table 27, Digest of Education Statistics, 2000. Table 7.1, Indicators of School Crime and Safety, 2001. There are not enough of the largest rural schools to make a meaningful comparison in this


category, although violent crimes are five times more likely to occur in middle as opposed to small sized rural schools. Table 7.1, Indicators of School Crime, 2001.

Regional variation in the percentage of schools reporting any incidents, for example, runs from

51.6% in the northeast to 64.3% in the west. Similarly, the percentage of schools reporting 1 or more of 17 discipline issues as a serious problem rises from 17.3 to 21.7 percent as minority enrolment rises from between 5 and 19% to 50 percent or more. These variations are small relative to those reported above. Table 15.1, Indicators of School Crime and Safety,2001.


The first point is indicated by the result of Table 2 versus Table 3. Then, with teacher unions

controlling entry and influencing school district structure, there is from (2) or (6) an incentive for incumbent teachers (as a group) to wish to increase school size and so realize through higher salaries Digest of Education Statistics, 20the resulting increase in educational productivity.

Digest of Education Statistics, 2000, Table 94. Calculated from Digest of Education Statistics, 2000, Table 60, enrollment divided by schools.


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