Budget & Finance

5 Signs a District Will Be at Risk When ESSER Runs Out

By Mark Lieberman — August 22, 2023 4 min read
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School districts need to start preparing for how they’ll cope with the expiration of pandemic-relief aid from the federal government. Districts that are experiencing declining enrollment and made recent increases to teacher pay or staffing levels should be particularly vigilant.

Those are some key takeaways from two new publications out today from advocacy and research organization the Education Trust and the school finance consulting firm Education Resource Strategies. The groups have assembled resource guides for districts to assess how likely they are to be in fiscal hot water in the coming years and how they can best target their remaining resources to help improve academic outcomes for students.

Congress sent nearly $200 billion in three installments to school districts during the first year of the pandemic, aiming to help them maintain operations and get students back on track after unprecedented disruptions.

Many districts have already finished spending their portion of that money. The rest have only a few weeks to commit the second round of funds to particular expenses and about one calendar year before all their relief aid dries up.

“It is not enough to spend down ESSER funds,” Nicholas Munyan-Penney, the assistant director of P-12 policy at Ed Trust, writes in a press release. “This historic aid must be spent well on sustainable programs and resources that are meeting outcome goals and ultimately benefiting students—particularly those with the highest needs—in the classroom for years to come.”

Here are a few issues that the expiration of these funds will raise for districts and students:

Which districts are at greatest risk of financial distress?

Once federal relief funds expire, districts nationwide stand to lose an average of $1,200 for each student, according to estimates from Marguerite Roza, a research professor of school finance and the director of the Edunomics Lab at Georgetown University.

That’s an 8 percent reduction in the average amount spent per K-12 pupil nationwide. In some states where per-pupil spending is lower than the average, that $1,200-per-student loss will account for an even larger share. In Arizona, for instance, the end of federal relief funds will translate into a 12 percent loss.

The report from Education Resource Strategies identifies risk factors that indicate the likely severity of a district’s post-ESSER fiscal situation:

  • Districts that saw an enormous leap in per-pupil revenue likely faced more hurdles to spending that money quickly and wisely than districts that got only a small sum per student.
  • Districts that invested federal relief funds in recurring expenses like increased teacher salaries or new staff positions will have to find new funding sources to cover those investments or risk needing to cut them.
  • Districts seeing increases in state aid or local tax revenue will have an easier time filling ESSER-shaped budget holes than districts in states that have kept education funding flat amid high inflation.
  • Some states and localities allow districts to maintain funding reserves from state and local sources that they can use for emergency situations, like the sudden loss of federal relief aid. Those districts have a financial cushion that their counterparts in states that restrict how districts can spend excess money won’t have.
  • Districts that have been slow to invest their ESSER allocations could be tempted to hastily allocate funds to recurring or unwise expenses that come back to haunt them.

What factors should guide districts’ decision-making about investments after ESSER runs out?

Districts with even a moderate risk of budget constraints in the post-ESSER era will have to make tough choices about which programs, services, and staff members to keep and which to cut.

EdTrust recommends districts let takeaways from the current investments guide those decisions. Among the key indicators EdTrust recommends is whether existing programs are making a meaningful dent in opportunity and achievement gaps. If not, is that because the program isn’t working as desired or is that because the students who need it the most can’t access it?

“Even if districts are achieving their overall goals, school- or districtwide averages could be masking inequities in outcomes,” the report says.

For example, EdTrust says, a district that sees low-income students performing poorly on math assessments after attending a supplemental summer program might conclude the program isn’t worth the money. But it’s possible that low-income students simply had a tougher time getting to summer school and needed more help with transportation.

How can states help smooth the road for districts?

Education Resource Strategies is urging states to be active players in helping districts navigate the transition away from ESSER. That includes collecting robust data on districts’ financial situations to determine which ones will need the most help; highlighting evidence-based strategies that have emerged as proven, effective uses of federal aid; and tweaking laws and regulations to give districts more time to spend remaining funds.

The federal government has provided some flexibility for districts that ask for more time to spend relief funds on construction projects that play out over multi-year contracts. The U.S. Department of Education has said it will set up a process for states to seek waivers on behalf of their districts for such relief, but that process hasn’t yet materialized.

That shouldn’t prevent states from getting started on their own efforts to help districts apply for those waivers, though.

According to a previous ERS guide, several states are already working on legislation that would allow districts to carry unrestricted reserves for longer periods of time than they currently can. In essence, that would allow districts to spend federal funds quickly while holding on to additional funds they can use later.

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