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Education Funding Opinion

The COVID-19 Stimulus Money Won’t Last Forever. Here’s What’s Next for Schools

3 ways states can help schools prepare for this inevitability
By Zahava Stadler & Victoria Jackson — April 26, 2021 5 min read
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For over a year, school leaders have faced steep challenges and, often, high costs in serving students at home and in the classroom during the pandemic. Congress stepped in to provide $67.5 billion in additional federal aid for education in 2020 and then, with the American Rescue Plan Act of March, provided another $129 billion to K-12 education. School districts have until 2024 to spend the latter, which should arrive in the next few weeks.

Buoyed by this aid, many states’ budget forecasts are now more positive than expected. Even as districts face the high costs of safely reopening schools and addressing “unfinished learning”—lessons that students missed or didn’t master during COVID-19—there is a sense of cautious optimism.

That hopefulness is warranted, but, as district leaders will remember with stimulus money during the Great Recession of 2008 and 2009, federal aid doesn’t last forever. And many leaders are concerned about this so-called “funding cliff” when the money dries up three years from now. To avoid financial problems when that occurs, school leaders must get their state financial houses in order now to prepare for the future.

While we urge state leaders to spend their stimulus dollars now to boost student learning, we know that the supports that students will need in the wake of COVID-19 will extend beyond 2024. Even after people are no longer buying masks and plexiglass, schools will need to maintain big investments in learning recovery and social-emotional-health supports. That’s especially true in districts serving communities that have been hit the hardest by the pandemic, including communities with large populations of students of color or students from low-income backgrounds. Once federal aid dries up, these districts could be hard-pressed to find the necessary funds unless they start planning now.

Luckily, the new infusion of federal aid provides a bit of breathing room, making this the perfect time for states to act. Here are three paths they could follow now:

1. Clean the cobwebs off funding formulas. In some states that have changed their funding policies, elements of old systems may remain, providing state money to places that no longer need it. Fine print may guarantee school districts the level of support they received under old funding schemes, regardless of changes in district conditions or state priorities. For example, Missouri provides less state money to districts with higher property values, a policy that’s meant to recognize that they can raise more of those dollars from local property taxes. But the state’s calculations ignore any increase in property values since 2005, so Missouri now overfunds districts that can absolutely afford to power a bigger share of the education budget with local dollars. Eliminating funding distributions to districts that don’t need them would free up state money to bolster services to students in hard-hit communities.

2. Tap new revenue sources but choose carefully. The usual ideas for raising new revenue, like lotteries or taxes on cigarettes, marijuana, and alcohol, traditionally fall more heavily on people in low-income households. It’s always a bad time for a regressive tax, but it’s especially so on the heels of a pandemic that profoundly affected communities experiencing poverty.

States can find new education dollars, including by creating a more equitable state income tax. Most people in low-income households pay a greater share of state income tax than high-income earners. Better aligning tax rates to income or imposing a new tax on high earners, as Arizona did last year, are fair ways to raise new funds for schools. (Although a constitutional challenge to the Arizona tax is currently before the state’s supreme court.) Capital gains taxes and estate or inheritance taxes offer additional opportunities. Real estate transfer taxes (sales taxes on the purchase of property) exist in 35 states, but few vary the tax rates based on the value of the property. Taxing the sale and purchase of more expensive homes at higher rates would generate additional school dollars more equitably. Expanding the state sales tax also could help. While existing sales taxes on household goods and necessities impact people who are facing economic hardship the most, expanding those taxes to services like tax preparation, financial advising, or even personal services like massages and self-tanning could raise education dollars in a progressive way.

3. Let the money flow to where it’s needed. States can shore up district budgets by letting existing education dollars go where they are needed. Nearly half of education funding is raised from local sources, mostly property taxes. That means districts with million-dollar mansions raise far more money for education than districts with modest houses. And, in nearly every state, property-tax dollars raised in wealthier districts stay locked within them, often shortchanging students of color. America’s history of racial discrimination in homeownership (such as redlining to keep families of color from buying homes in certain neighborhoods) has produced lower home values and less local school funding in districts with more students of color.

There is a lot of money locked in affluent districts. Last year, the (now defunct) school finance organization EdBuild found that in counties with multiple school districts, the districts raising the most and the least had a whopping local dollar disparity of more than $6,000 per pupil on average. Sharing local funds at the county level, or even through a statewide pool, would enable those dollars to buoy the whole system and reach the students most in need. Some states have already moved in this direction. Vermont pools all education tax revenues at the state level, and Nevada recently made plans to do the same. Wyoming shares a portion of local school taxes across counties. There is no justification for some school districts to be flush with cash while others, often serving the highest-need students, face the looming prospect of shortfalls.

To be sure, this has been a challenging time for families, students, and their communities. The next few years must be a time of recovery, not financial peril. Federal aid may be a lifeline right now, but soon, states will need to make sure that schools remain funded at a level that matches the importance of their mission. They can do that by modernizing school funding formulas and sending money where it’s most needed today; by raising new revenues through fair and progressive taxes; and by letting existing education dollars flow across district borders. With the right approach, states can help schools emerge from this crisis stronger than before.

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