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Coronavirus Impact Puts Spotlight on States’, Districts’ ‘Rainy Day’ Funds

By Daarel Burnette II — March 20, 2020 2 min read
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Since the Great Recession, school districts, legislatures, and teacher unions have been at war with each other over whether states and districts should spend or save.

There are critical teacher shortages in some areas, buildings are falling apart and unsafe for kids, and test scores aren’t what they should be, many argued. Let’s hurry up and raise teacher pay, take out bonds, and spend money on things that boost academic achievement.

But more fiscal conservatives, traumatized by the last recession, have argued in favor of squirreling away cash in case another recession hits. Don’t folks remember the rounds and rounds and rounds of layoffs districts suffered, they ask?

That recession, many analysts predict, may now loom with the rapid spread of the coronavirus and the expected hit to state revenues.

Already, states and districts across the country are reaching into their piggy banks to spend on a host of unexpected costs: makeshift child-care centers, distance learning programs, and sanitizing products.

Analysts say the districts that will feel the most financial pain for at least the next two school years will be the ones in states and districts that have very little money in their savings account. Others will be better cushioned.

After the last recession between 2007 and 2009, some state legislatures, including in Arizona, California, and Maryland, created laws that increased the amount of money state and their school districts must keep in their savings account.

Many, such as Arizona, went further and shoveled surplus dollars into their reserves.

“This is a success story for a lot of states,” said Josh Goodman, a senior officer for The Pew Charitable Trusts, who has analyzed the impact the coronavirus could have on state budgets. “The last recession showed them that they need to be saving more and they moved aggressively to increase their savings.”

For other states, including Illinois, Kansas, and New Jersey, analysts warn of tough days ahead.

On the district front, savings accounts have taken on political heat the last two years as teachers bristled at the millions of dollars superintendents had stashed away in preparation for the next recession.

Los Angeles teachers last year, angry that the district had stored more than $1.9 billion in its savings account, went on strike, demanding that the district use some of that money to provide them with a pay raise, smaller class sizes, and wraparound services for students.

Credit rating agencies typically advise districts to keep at least 15 percent of their revenue in savings, though that amount varies widely.Palmyra-Eagle in southeast Wisconsin, has carried forward from one fiscal year to the next as little as 7 percent of its savings, while Twin Lakes School district on the other side of Wisconsin has carried over as much as 55 percent.

All this week, politicians, advocates, school board members, teachers and superintendents have been either praising or demonizing savings accounts.

In Arizona, the epicenter of the nation’s #RedForEd movement, Republican Gov. Doug Ducey has more than doubled the state’s savings amount from $445 million in 2015 to $1 billion. This week, Ducey’s administration started dipping into that fund to wage a war against the coronavirus.

Republican state Rep. Mark Finchem, who once was opposed to keeping so much of the state’s budget in savings said to the Arizona Capitol Times, “I’m somewhat ambivalent at this point. The money is there, but I pray that we are cautious, very cautious and prudent about how we extend those resources for the greatest community.”