Special Report

How Districts, States Can Survive the COVID-19 Recession

By Daarel Burnette II — June 02, 2020 8 min read
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Are district leaders prepared for the fiscal firestorm bearing down on them from the coronavirus pandemic, even as they struggle to get their disrupted school systems back on track?

The Lehman Brothers collapse in September 2008 sparked the start of the last Great Recession, sending sales and income tax revenue into a tailspin and forcing school districts over the next three years to lay off more than 300,000 employees.

Now, just a little over a decade later, America’s public school system stands on the heels of yet another recession, this one sparked by COVID-19. Many analysts expect it to be deeper and longer than the last.

How district leaders go about chiseling away at huge chunks of their budgets in the coming months will have long-term academic implications for the students in their districts. They will have little choice. Governors’ shutdown of the economy in order to prevent the spread of the virus has caused a precipitous drop in sales and income tax revenue, which more than 6,000 school districts rely on heavily. Fiscal analysts expect school districts in the next two years to lose more than $200 billion in revenue and more than 300,000 teachers to lose their jobs.

Because this downturn was so unexpected and will come crashing down on districts sooner than expected, policymakers, advocates, and administrators who were around during the last recession are now scrambling to help their peers avoid some of the same mistakes that were made before.

“There’s a reason people called it the Great Recession. We really thought something like this wouldn’t happen again in our lifetime,” said Michael Griffith, a senior school finance researcher and policy analyst for the Learning Policy Institute. “Now we’ve come up to something again. There are a lot of people at the district level and at the state level who weren’t around for the last recession. A lot of folks have retired or moved into the private sector so, in a lot of states, there’s not a lot of institutional knowledge.”

Act early and often. In 2007, the first year of the last recession, many district administrators didn’t believe that the collapse of the housing market would fiscally impact their districts.

Administrators rolled their budgets over into the next year and passed along raises to teachers, fully expecting that state revenue would keep pace. Many districts were caught flatfooted when states instructed districts to cut millions of dollars out of their budgets.

Marguerite Roza, a school finance professor at Georgetown University, said districts should use the time before state legislatures cut their budgets combing through academic and spending data to see which programs are most effective, which should be kept, and which should be scrapped; coming up with budget-cutting scenarios; and negotiating potential layoff scenarios with teacher union leaders. Last-minute scrambling leads to deeper, sometimes unnecessary cuts, contentious school board meetings, and sour feelings, she said.

Any federal bailout money should be directed at the districts that need it most. In 2009, newly elected President Barack Obama signed the American Recovery and Reinvestment Act, which flooded fiscally strapped states with more than $100 billion to spend on schools.

The federal government directed states to roll the money out to school districts through existing funding formulas. But those state formulas, say researchers Matthew Steinberg, a professor at George Mason University, and Kenneth Shores, a professor at the Pennsylvania State University, failed to take into account districts that were suffering from high unemployment rates. Those districts also had poorer and more-academically struggling students who ultimately suffered when districts laid off teachers, said the two professors who have studied the impact that the last recession had on academics.

This time around, the federal government is using the Title I formula to send to districts $13.5 billion under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the federal government’s first attempt this year to revive the economy. But that formula is antiquated and it doesn’t account for districts and states economically hit hard by the virus.

“The federal government sent out money without any consideration about which districts needed it the most,” said Steinberg, pointing out that there are already large spending gaps between wealthy and poor school districts.

Flat percentage cuts to K-12 funding disproportionately hurt low-income students: More than half of the nation’s districts get more than 50 percent of their revenue from states. These districts serve a disproportionate number of black, Latino, and low-income students, many with special needs.

During the last recession, many state legislatures decided to make flat percentage cuts to their K-12 aid. While it looked fair on its face, this sort of budget cutting ultimately fell disproportionately on low-income districts, many of which were already underfunded and academically struggling.

Meanwhile, wealthy school districts raised their property tax rates to offset declining state revenue and property tax value, resulting in them not having to make budget cuts and widening the spending gap between wealthy and poor school districts.

Aaron Garth Smith, the director of education reform at Reason Foundation, a libertarian think tank, suggests that states consider cutting from wealthier districts first, overhauling state funding formulas to even out spending cuts or redistribute property tax revenue.

“You want to use a scalpel instead of a sledgehammer,” he said.

Save, save, save: The districts that fared the worst during the last recession were districts that had little money in their reserves to fall back on when state legislatures unexpectedly began slashing away at K-12 spending. Rob Miller, the superintendent of Bixby Schools outside Tulsa, Okla., said his district decided to save much of the federal bailout money under AARA in the last recession instead of spending it on teacher salaries to avoid layoffs. That money came in handy when the federal bailout money ran out and the recession dragged on for another several years.

“We knew it was one-time money, and we couldn’t count on it coming again, and we still needed to spend conservatively,” Miller said. “In 2014, we really did start having significant economic issues related to our oil and gas industry. That’s when most of the school districts had worn through that stimulus money that had been saved. AARA was critical in sustaining the quality of education for those couple of years.”

On the state front, while many districts didn’t save their money, leading to a fiscal cliff when the federal money ran out, states enacted laws requiring legislatures to save a portion of their revenue every year in rainy day funds. Since the last recession, states have collectively stashed up more than $170 billion in savings. They are now reaching into those rainy-day funds to push them through the next recession.

Think twice before deciding who to lay off and which program to get rid of: Many district employees and programs are funded through grants that operate outside state funding formulas. These are typically the first to get cut by legislatures during a recession.

But Griffith, of the Learning Policy Institute, a think tank that has pushed for a congressional bailout for schools, says state and local leaders should be careful when deciding which programs to cut. Many of those programs are fundamental to some districts’ academic progress, he said.

“You really want to take your time and don’t quickly make these changes, try to make sure the neediest children aren’t hit as hard,” Griffith said. “You want to do all you can to protect low-wealth districts and students in high-needs student groups. It’ll be tempting to take a shot at programs that those students benefit from, but maybe your state won’t benefit in the long run from that. You want to work right now to get a full understanding of how money is distributed in your state.”

Similarly, districts’ first-in, last-out layoff policies could potentially result in some schools losing a large portion of their staff, or districts losing their most-effective teachers or all of their teachers of color. Administrators should work collaboratively with teacher union leaders early in the process to establish common academic goals, Georgetown’s Roza said.

Take a hard look at funding systems and equity: Even though districts this year collectively spent more than $700 billion, that money was distributed to schools in an inefficient, inequitable way and many districts today, for a variety of reasons, are on the brink of insolvency.

“We’re heading into this recession with school funding systems in states that are not in very good shape: historically there are a lot of states with school finance systems that aren’t built to deliver the resources to children in need,” said David Sciarra, the executive director of the Education Law Center, a law firm and advocacy organization which has sued states for having inequitable funding systems.

Linda Darling-Hammond, the president and CEO of the Learning Policy Institute, said this next recession may provide an opportunity to overhaul funding formulas, make districts less reliant on volatile sources of revenue, and provide more local control so that spending is more aligned with schools’ needs.

“It’s hard to reallocate resources in society,” said Darling-Hammond, who currently is serving as president of the California state board of education. “The rich get richer, and the poor get poorer.”

She uses California as an illustration for how a fiscal crisis could be a springboard for significant change.

“California during the last recession was losing money hand over fist. We probably cut budgets by more than $2,000 per pupil. Everybody had to cut below the bone,” she said. “Gov. [Jerry] Brown proposed and got enacted a very progressive funding formula, that prioritized homeless and foster children. Just like then, we should be seizing this moment to make long-lasting change.”


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