With the recent spike in coronavirus infections and the impact on the economy, states now face an estimated $555 billion budget deficit over the course of the next three years, according to several projections.
Half of states’ money typically goes to schools, and K-12 finance experts now estimate districts in many states could lose up to a quarter of their funding.
But in many states, where pressure is mounting to reopen schools and a pivotal election hangs in the balance, legislatures prefer to take a more wait-and-see approach to politically sensitive budget cutting.
Below are four strategies lawmakers have at their fingertips to stave off budget cuts in the immediate future. All four strategies involve deeper—and more painful—cuts down the road.
Delay a payment (or two) to districts: Districts get their money from states in installments throughout the school year. One trick states might consider, said Michael Griffith, a senior school finance researcher and policy analyst for the Learning Policy Institute, is bumping one of those buckets of cash into the next fiscal year. Instead of receiving the last payment in June, for example, districts would get that money in July.
That allows states to tell districts they’ll get the same amount of money they got last year but force districts throughout the school year to rely on savings and short-term loans to hold them over until states’ payments comes through.
The downside to this strategy is that, unless state revenue bounces back, the following year’s budget deficit would be significantly worse than otherwise.
In California, the state’s legislature effectively wrote a $1 billion dollar IOU to districts, resulting in districts taking out hundreds of millions of low-interest loans in recent weeks.
Pull the money from state rainy day accounts: After the last recession devastated states’ budgets, legislatures passed laws that forced their successors to start stashing away money for the next recession. States now have collectively saved more than $75 billion in those accounts, according to the Center on Budget and Policy Priorities.
And now, that rainy day has arrived. With states facing 15 to 20 percent shortfalls, they could drain their savings this year to spare school districts from having to immediately make budget cuts. Indeed, in California, Indiana and New York, administrators have urged legislatures to do as much.
But, while today could be rainy, there could be a hurricane tomorrow. And that’s when states will really need the savings to avoid government services from collapsing.
Also, there’s no telling how fast America’s economy could pull out of this recession or how long it could last. And states have already committed billions of dollars of their rainy day funds toward fighting off the coronavirus and propping up welfare programs.
Delay a pension payment:While public pensions lost almost $1 trillion in the early months of the pandemic, they have mostly recovered in recent months, said Chad Aldeman, a senior associate partner at Bellwether Education Partners, who has pushed for states to better manage their pension crisis.
That gives states some flexibility, but not much, to either restructure their pension funds or skip a payment to their funds.
“Skipping a pension payment has downstream effects on the teaching profession and for the next generation of teachers,” Aldeman said.
States in 2018 spent more than $19 billion on teachers’ pensions, a 47 percent increase in just four years. That’s the result, pension experts say, of states delaying pension payments during the last recession. In some states, such as Illinois, the state spends almost as much on pensions as it does on schools.
Pray for a congressional bailout.
Right now, the vast majority of state politicians are telling their constituents who are nervous about K-12 budget cuts to go to the feds. They’re hoping that, with all the political pressure to reopen schools, congress will decide to send, at the very least, $60 billion (and as much as $200 billion) to states as part of a stimulus package.
Many state legislatures have said they’ll reconvene to hash out their budgets once Congress finishes deciding whether or not to send schools a lifeline.
President Donald Trump and Education Secretary Betsy DeVos want to condition any new money for schools on whether or not they reopen—and a growing number of districts have already said they’re not willing to do that.
Sen. Lamar Alexander, R-Tenn., the chairman of the Senate’s education committee, said this week he’s willing to provide K-12 and higher education anywhere from $50 billion to $75 billion to reopen safely. Many have taken that as a hint that the federal government will require that money to be spent on personal protective equipment. But school districts also need money to spend on staffing, since that’s where the majority of their costs are right now.
Some other things to keep in mind: Congress in the last package sent its money to heavily impoverished, large, urban, school districts through the somewhat-flawed Title I formula. If it does so again, thousands of other districts that face budget cuts and have large numbers of impoverished students won’t see much stimulus money.
And there’s already frustration among congressional leaders and civil rights groups that several states took Coronavirus Aid, Relief, and Economic Security (CARES) Act money and filled their budget deficits with it, defeating the explicit purpose of the bill to help districts cope with extra costs associated with the pandemic.
The next bill could come with hard-to-swallow strings attached.