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What Will the Coronavirus Mean for Ed. Finance?

By Rick Hess — April 10, 2020 7 min read
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CORRECTION: The original version of this post included an incorrect date range for when today’s financial leaders weren’t in their current positions.

As families, educators, and community leaders wrestle with COVID-19, we’ll be trying to bring conversations to readers that will be helpful in confronting the challenge.

Marguerite Roza is the influential director of the Edunomics Lab at Georgetown University, former senior economic adviser to the Bill and Melinda Gates Foundation, and a good friend. Her work on examining how dollars are used and calculating marginal costs has helped shape a decade of thinking on school spending. I recently had the chance to ask Marguerite a few questions about what the coronavirus and subsequent recession are likely to mean for ed. finance. Here’s what she had to say.

Rick: What are the immediate fiscal impacts of this economic downturn on K-12 education? What are we seeing already?

Marguerite: Actually, 2019-20 district finances are relatively stable. It’s the 2020-21 school year that looks to be devastating. If anything, for this year, many districts have logged some savings with the COVID-19 school closures. They’re not spending on things like substitute teachers, utilities, and transportation. And sanitizing school buildings isn’t a particularly big-ticket item. Most districts gearing up for online learning aren’t incurring huge short-term costs because they’re using their existing teacher corps, not hiring new labor. Labor is by far the single biggest cost in public education; technology costs tend to pale in comparison. From what we’ve seen, districts generally are asking families to use their own computers or tapping computers the district already has to get devices to those who don’t have them at home. The Los Angeles Unified school district seems an exception to this, spending $100 million on devices and connectivity for students. Some ed-tech companies are offering programs for free now but not forever. We may be headed for a situation where there’s more appetite for digital learning as teachers get attached to it but less money is available to sustain it.

Rick: If this year doesn’t look so financially dire for public education, what happens that makes next year so bad?

Marguerite: In most states, the big financial crunch will be for the 2020-21 school year when state revenues have been decimated by the economic shutdown. Since most states now play a bigger role in funding schools than they did at the turn of the century, that means lots of districts are especially vulnerable to drops in state revenue. When states have less money to spend, they have less to give to districts. As millions of people lose their jobs, income taxes fall. And we’re already seeing state sales-tax revenue plummet and state reserves drained to meet current public-health needs. Because states differ in the structure of their revenues, and their vulnerability to the economic impacts, some states will be worse off than others. My home state of Washington relies more on sales tax than any other state in the nation, leaving us particularly vulnerable. Every state should be sharing its revenue forecast early and often. While we won’t know for a while how much future stimulus plans work to offset state losses, districts should prepare for substantial cuts now.

This new reality is the equivalent of a U-turn from only a few months ago, when teachers were winning raises and governors were making commitments to new education programs like pre-K, mental-health supports, computer science, and so on. Some states will start by eliminating those newer initiatives, delaying promised pay raises, and more. Where states have holes in their pension funds (and most do), the declines in the stock market will exacerbate those.

Rick: What does all this mean for school districts—especially for paying teachers?

Marguerite: The sooner districts realize the predicament they are in, the better. First, leaders need to shed the mindset that we’re facing a widespread teacher shortage in this country, other than in high-demand niches like special education. With widespread layoffs in other sectors, it is unlikely that we’ll see the same level of voluntary teacher turnover that we’ve had in recent years. That shortage mindset has been baked into labor contracts designed to attract and retain teachers. So, districts may have committed to things like across-the-board pay raises that now they won’t be able to afford. Given that it is so difficult to do teacher layoffs, I suggest districts stop hiring, stop making promotions, and, where possible, protect their reserves. You don’t want to raise spending through hiring that only works to force deeper layoffs next year.

Rick: What other advice do you have for school system leaders worried about money right now?

Marguerite: I’d start by actively communicating with your community and workforce about what’s in store. Many people don’t understand the profound impact a recession can have on schools. Explain where the money comes from and that districts have no choice but to balance their budgets. We don’t want to stir panic, but we need to socialize people to the fact that recessions do directly impact K-12 education. And that tough decisions lie ahead.

Most will start with skin-deep cuts to contracts, periphery programs, and so on, but now is also a good time to look hard at the bigger-ticket items, like benefits. Districts might also do well to engage their principals, encouraging them to weigh in on what to protect or cut for their schools. One-size-fits-all decisions are the most likely to inspire a widespread revolt, so it may be better to ask schools for ideas on how their teams can absorb unfilled positions in each of their buildings.

Rick: Okay, so what places or students are you most concerned about?

Marguerite: This financial fallout is going to disproportionately hit states in parts of the country that are especially reliant on “high risk” industries, like tourism (like Hawaii) or on tax revenues that tend to be more volatile. I’ve already mentioned Washington state, which tops the nation in terms of reliance on sales tax.

Even within states, it is the high-poverty districts that tend to rely the most on state money. We know that reliance on local money is inherently inequitable. But if we can let wealthier districts raise more money locally and reduce our state aid to those wealthier districts, can we free up state money to shore up the poorer districts? All this requires careful attention going forward. The math is tough.

Inside districts, more layoffs in a community means more students in poverty and/or trauma, more transience, and uneven attendance. In districts where travel-dependent industries are prompting massive rates of job loss, like those in Las Vegas, Atlantic City, and Orlando, leaders should expect to see a higher proportion of their families impacted.

Rick: What policies or rules—federal, state, or local—get in the way of good decisionmaking in an economic downturn?

Marguerite: For states, it is being wedded to inflexible staffing or programmatic prescriptions that can inhibit decisions that make sense in one context but not another. For districts, antiquated policies that dictate layoffs by seniority can do a lot of damage. These policies ignore teacher effectiveness and the disproportionate effects on some schools. During the last recession, we saw some schools lose nearly all their staff, while others with more senior teachers skated free. We learned a lot in the last recession about what not to do, but unfortunately, most of today’s financial leaders weren’t in their current positions back in 2007-08 and may not have that information. Our students will depend on them getting up to speed quickly.

Rick: One last question. Amidst all this, is there any reason for optimism?

Marguerite: The school closures are forcing many districts to figure out how to leverage technology in new ways that could ultimately hold some promise for controlling cost growth going forward. For instance, where a district does find a way to teach computer science remotely, could it continue to use digital learning for hard-to-staff courses. Hiring one computer science teacher to cover courses across several schools could be a more financially sustainable way to ensure all students have access to technology courses. Similarly, prior to the pandemic, districts were increasingly shifting to a four-day week to cut costs. Perhaps digital learning could fill the fifth day, enabling the savings without the loss of learning days. In that sense, I’m hopeful that districts will uncover new ways to better leverage their limited resources to do the most for their students.

This interview has been edited and condensed for clarity.

The opinions expressed in Rick Hess Straight Up are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.