Budget & Finance

4 Financial Headaches Schools May Not Be Able to Avoid This Year

By Mark Lieberman — February 06, 2024 6 min read
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School districts this year should expect to contend with financial challenges both familiar and fresh as temporary but substantial funding sources wind down and the financial picture starts to worsen in some states.

In terms of the familiar, major disparities in resources persist from state to state, from district to district, and even from school to school. Rising prices in some categories and shortages of qualified employees continue to drive up costs and strain hiring efforts. And the ripple effects from the pandemic, including learning loss and exacerbated mental health problems, continue to present major challenges.

Meanwhile, fresh challenges include the reality that the revenue boom many states experienced during the last couple of years appears to be waning. And numerous federal and state efforts to relieve pressure on school district budgets will run out in the coming months.

Education Week interviewed two leaders from the primary organization representing school finance officials to get their take on the impacts of new state laws, dwindling pandemic aid, shortages of qualified employees, and other issues districts will contend with in the coming year.

Here are some of the top concerns for school finance officials, according to Elleka Yost, director of advocacy and research for the Association of School Business Officials (ASBO International), and James Rowan, the association’s new executive director as of Jan. 2.

Here are a handful of key themes they’re watching this year:

Mental health remains a top area of investment

Districts’ top priority for spending the largest set of pandemic-relief funds was “addressing learning loss,” with 91 percent of school business officials who last fall answered an ASBO International survey identifying that as a top category of their districts’ spending of the federal funds Congress sent to districts in the first year of the pandemic.

Not far behind in the survey released last week, though, were mental health services, with 80 percent of district leaders saying they were a major area of investment. The survey includes responses from 116 districts across 38 states.

In addition, 69 percent of districts surveyed said students’ mental health and behavioral needs were a top driver of spending decisions for the relief funds, known as ESSER. That was more common than any other factor influencing districts’ spending decisions, including students’ learning loss and academic trends.

“The fact that that mental health piece seems to be [one of the most-funded areas] really shows what these funds are able to do, especially beyond what local and state funds would be able to typically pay for,” Yost said.

Some districts have already begun laying off counselors, social workers, and other professionals who provided much-needed mental health support to students in the aftermath of the pandemic. The survey data, ASBO officials say, show those services will still be needed even after funding for them dries up.

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Intensive audits are already ramping up

Rowan’s entry point into school finance was his role as assistant auditor for the state of Ohio roughly 30 years ago, which was followed by stints in finance posts for several Ohio districts. He’s acutely aware that districts need to ensure they have trained staff ready to produce documentation of spending in preparation for regular audits, including justifications to ensure money was spent according to the rules and regulations attached to that funding.

Many districts have already begun undergoing audits of their federal relief spending to date. Most districts that receive federal funds are required to go through an audit each year, but the large sums of expenses tied to federal money in recent years have made the process more complicated.

As a result, some districts may have to wait an uncomfortably long time—the increased demand for auditors means some states and districts are struggling to find enough people to conduct them, Rowan said.

Once auditors do arrive, Rowan advises districts to be prepared to demonstrate with concrete evidence that they engaged community members in the planning process for spending the funds. And they need to be rigorous in showing that they spent at least 20 percent of funds from the last round of COVID aid on efforts to address learning loss, broadly defined.

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Shortages of educators, bus drivers, and even CFOs

The acute labor shortages of the early pandemic appear to have eased in many places. But that hasn’t stopped many districts from continuing to struggle to find qualified staff members to fill teacher and bus driver positions, Rowan said.

A dearth of qualified or willing candidates is also affecting the school finance administrator job itself, according to Rowan.

ASBO International plans to work this year on partnering with universities and even K-12 schools to help strengthen the pipeline for these roles, which are responsible for crafting district budgets, tracking expenses, applying for grants, communicating with the public, and more.

As baby boomers retire in droves, younger generations will need to fill those positions. Part of the effort to draw in new blood, Rowan said, is making people aware that the job exists.

“It’s kind of an unknown profession in many respects,” Rowan said.

Plus, the compensation package for these positions often falls short of matching the pay for comparable positions in the private sector. School district CFOs typically need to have a master’s degree or professional accounting certificate, as well as plentiful experience with budgeting and compliance.

But working for a school district can be enticing for some people who hold finance jobs in other arenas and want to make a switch. Anecdotally, ASBO has seen a recent rise in the number of school business officials entering the role from other industries, rather than rising up through the educator ranks.

“Now, we’re seeing CFOs from government agencies or the private sector who are looking to do more meaningful finance work,” Rowan said.

Recruiting more people to the field will be crucial for ensuring school districts can stay on top of grant opportunities and evolving regulations attached to state and federal funding, Yost and Rowan said.

New state laws could further squeeze district budgets

ASBO International is watching with interest proposals in several states to dramatically increase teacher pay. The details will be key, Yost said: “Are these unfunded mandates that shift the burden onto local districts to have to fund?”

In South Dakota, for instance, school district leaders have voiced concerns about a bill that would set a statewide minimum teacher salary—not because they don’t want to pay teachers more, but because without state aid, the financial burden for bumping pay upward would fall on local taxpayers.

Missouri lawmakers, by contrast, are proposing to increase state aid so that districts can ensure all their teachers make at least $38,000. That would mark a substantial increase from the current minimum of $25,000. Missouri’s average starting teacher pay, just over $34,000 in 2020-21, was among the lowest in the nation.

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Similarly, increased momentum for universal private school choice programs is only beginning to have an effect on the prospects for public school budgets, Yost said. School finance chiefs are particularly keen on ensuring that dollars that flow to private schools come with the same requirements for accountability and transparency that public schools are expected to follow.

Republican-led states including Alabama, Idaho, Tennessee, and Wyoming are considering plans to launch new education savings account or voucher programs that give parents state funds to spend on private education.

Some may struggle, though, to build on the momentum of high-profile private school choice initiatives in states like Arizona and Ohio. Those programs have already drawn scrutiny for costing their states more than expected.

Along the same lines, Tennessee is staring down a substantial deficit that may complicate the political prospects for a major new education investment—particularly one setting aside substantial funding for private schools.

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