The coming recession will be deeper and possibly longer lasting than the Great Recession, according to a new analysis of states’ forecasts by the Center on Budget and Policy Priorities, a liberal think tank that pushes for more state spending.
“Each state’s massive budget shortfalls will be much more severe than they faced in the Great Recession,” Michael Leachman, the senior director of state fiscal research, said in a conference call Tuesday. “They need substantial relief before they start laying off workers and imposing cuts that will make it even worse.”
K-12 fiscal analysts have similarly concluded that America’s public school system is poorly positioned to weather the coming storm.
Below are a handful of economic trends that will prove detrimental to thousands of school districts next year.
The cuts will be deeper: Each week brings a new series of forecasts about how much revenue states expect to lose as large swaths of the economy remain shuttered due to the coronavirus outbreak. CBPP now projects states to collectively lose close to $500 billion next fiscal year. To put that in perspective, states collectively spent $1.2 trillion in 2016. About a quarter of that money was spent on public schools (more on that below).
During the last recession, between 2007-2009, states altogether laid off almost 4 percent of its workforce, or 300,000 teachers. It would have been much worse without President Barack Obama’s $100 billion stimulus package, of which $54 billion was dedicated to schools.
This time around, the looming severity of the revenue losses depends on states’ individual taxing infrastructure and the amount of money states have placed in their rainy day funds (CPBB estimates states have collectively saved $170 billion, much more than they had saved during the last recession). Because most states have laws requiring a balanced budget, unlike the federal government which can run a deficit, states will most likely make cuts. And those cuts will likely be most severe with schools (in some states, K-12 spending amounts to almost half the state budget).
As unemployment continues to climb at a record rate, more and more people have filed to receive Medicaid and unemployment benefits. That means there will be much less money left for public schools next year.
School districts are more heavily dependent now on state aid: Since the Great Recession, states infused districts with billions of dollars, according to a recently released analysis by Georgetown University professor Marguerite Roza and published by the Brookings Institute. In North Dakota, for example, state aid shot up by 28 percent. While it’s true that district spending is more equitable now that states even out disparities between property-rich and property-poor districts, state aid—made up of sales and income tax revenue—is extremely volatile, as we will all soon find out.
”...Many of these states have effectively traded K-12 revenue stability for greater funding equity,” Roza wrote. “This little-discussed dynamic raises big questions as the education sector starts to grapple with the financial implications of the coronavirus-sparked economic slowdown.”
In addition, most states now, because of legislative inaction, distribute billions of K-12 dollars in an outdated, inefficient and ineffective manner, leaving wide disparities between districts and many districts on the brink of insolvency. Efforts to revise those formulas since the last recession have, by and large, failed.
Pension costs will spike: During the last recession, states refinanced their pension funds so that costs would not spike. That option for many states, including Illinois and New Jersey, is now off the table. With the market crash, public pension funds have lost close to $1 trillion in value. In many states, including California and Pennsylvania, districts and teachers will have to absorb that blow through increased pension costs. Read more about that here.
Classroom costs will be higher: What makes this recession so extraordinary is that millions of children will miss out on months of class time. While the severity of what’s now known as the “corona slide” is not yet known, many fiscal analysts predict that superintendents will want to provide smaller classrooms to help students make up lost academic ground and meet some states’ strict accountability standards. Districts will also want and need to provide more wraparound services to help students cope with trauma caused by the virus. Read more about classroom costs here.
The federal government may not bail schools out this time around: The $13.5 billion the federal government infused in school spending through the first round of stimulus spending (known as the CARES Act) will not be enough to make up for budget cuts, the CPBB predicts. The group is now asking for the federal government to send states close to $500 billion to make up for anticipated lost revenue (the National Education Association has asked for the federal government to send states around $175 billion). But the timing of the recession, the existing political dynamics and the looming election could make another bailout challenging. That could change. Read more about the liklihood of another bailout here.