School district consolidation is a striking phenomenon. According to the National Center for Education Statistics, 117,108 school districts provided elementary and secondary education in 1939-1940. By 2006-2007, the number of districts had dropped to 13,862, a decline of 88 percent. The rate of consolidation has slowed in recent years, but at least a few districts consolidate every year in many states. Most state governments have policies that influence school district consolidation. The most common form of policy is a state aid program designed to encourage district reorganization, typically in the form of consolidation, by providing additional money for operations or capital projects during the transition to the new form of organization. The aid bonus from consolidation can be quite large. On top of this aid, consolidating districts also may receive a 30 percent increase in building aid for projects initiated within 10 years of consolidation. In many cases, however, state aid policies concerning consolidation are contradictory. In fact, about a third of the states, including some that offer consolidation bonuses, use operating aid formulas that compensate school districts for sparsity (low population density) or for small scale and thereby discourage consolidation. So what do states do? Some recent research provides guidance for superintendents and school leaders, especially those facing consolidation. In this article, the authors summarize what recent research reveals about expected financial savings when small districts merge. They lay out the policy implications, too.