Education Funding

School Budgets: Why They’re Not As Bad As Predicted

By Mark Lieberman — March 19, 2021 11 min read
Image shows a businessman searching for new revenue in unchartered waters standing on a compass among several waves.

Projections from economists last spring painted a grim picture of what the recession caused by the COVID-19 pandemic might look like, with schools facing cuts even more devastating than those that followed the 2008 economic downturn. Teacher layoffs, delays to much-needed construction projects, and cancellations of programs that provide extra support to students were all on the table.

Fast-forward to nearly a year later, and the outlook in many places is markedly improved.

Some state revenues have stabilized or even slightly grown year over year, thanks to an influx of federal relief funds and a smaller-than-expected drop in sales tax collection.

Not all states have weathered the pandemic unscathed, though. States that rely heavily on tourism, like Hawaii and Nevada, or revenue from the oil and gas industries, like North Dakota and Texas, are facing substantial losses and pondering significant cuts. That could prove particularly troubling for districts in those states that lie in low-income areas and rely heavily on state funds. State-level debates over school budget cuts are raging in New Jersey and Wyoming.

Even school districts in financially healthy states can hardly breathe a sigh of relief just yet.

Extended school building shutdowns and remote learning technology challenges have compounded inequities in access to high-quality learning and set back many students’ academic achievement by at least several months. Far more public school students than usual nationwide have dropped off their home district’s radar, either switching to private or charter options or disappearing from view altogether. Even as COVID-19 vaccines roll out, the still-rising death toll and more contagious virus variants stand in the way of a return to normal in-person interactions.

For districts with a high volume of federal Title I funding, the three sets of federal stimulus funds over the last year could go a long way toward addressing some of those concerns. But some school funding experts regard Title I as an imperfect and outdated system for dispensing aid to the students and schools that need it the most.

The uneven distribution of financial harm from the pandemic is a familiar story for the nation’s public education system, which is rife with systemic inequities. The federal government supplies less than 10 percent of K-12 school districts’ budgets; the rest comes from a blend of state and local funds that differs greatly from place to place. Districts with low property values tend to rely more heavily on state funds, which means they depend on the whims of the economy to drive spending.

“You might hear something like, ‘It’s only a 5 percent cut to education.’ But that 5 percent is much more meaningful to a district that can’t tap local resources,” said Michael Griffith, a senior school finance researcher and policy analyst for the Learning Policy Institute. “It’s the kids that need help the most that tend to get hurt the worst.”

School finance is notoriously tricky to parse in the best of times. During a pandemic that has brought no shortage of strife and uncertainty, understanding how schools are doing and where their greatest needs lie is an even more pressing challenge.

Here’s a look at some of the crucial facts to know about where schools stand financially as the current school year wraps up.

How much revenue did states lose because of the pandemic?

Most states’ current revenue stacks up to less than what they were expecting before the pandemic. For some states—Ohio, Vermont, and Kansas among them—the current revenue is only a hair lower than expected. In other states, though, pre-pandemic predictions far outpaced reality. New York, Alaska, Nevada, and Texas each came in more than 10 percent below expectations.

Even so, many economists in the early days of COVID-19 expected these numbers to look far worse for states. Federal funds directed to state and local governments to fill those gaps partially account for that positive outcome, but they don’t tell the whole story.

Why did some states lose less money than some analysts projected last spring and summer?

A conveniently timed 2018 Supreme Court decision deserves some credit. In South Dakota v. Wayfair, judges ruled 5-4 that states can collect sales taxes on online purchases, even if the online vendor doesn’t have a physical location in the state where the items were purchased. During COVID-19, with much of the country homebound and many brick-and-mortar stores closed, online purchasing soared, and states reaped the benefits.

Many states have also been spending cautiously and making more liberal use of rainy-day funds in the aftermath of the Great Recession. That meant they were better positioned for an emergency on the scale of the pandemic than they might have been otherwise.

Finally, economists have pointed out the unusual nature of the current recession, which has confounded expectations for the typical trajectory of an economic downturn. Some have called the economic recovery as “K-shaped” with high-income people getting back to normal more quickly while low-income people suffer disproportionately.

Low-wage jobs that require working in public have been the hardest hit by the pandemic, while higher-wage workers have more easily transitioned to remote work. People with high incomes naturally contribute more tax revenue to the states, which means school budgets haven’t lost as much of their state backing as they might have.

Why did some states lose so much more than others?

CDC guidelines have urged Americans against unnecessary travel since last year. States like Hawaii, Florida, and Nevada that center their economy on tourism revenue have naturally taken a big hit. Hawaii, for instance, saw a 17 percent drop in year-over-year revenue during the period between April and December, according to Urban-Brookings Tax Policy Center data.

States like California, which rely heavily on capital gains revenue, have been buoyed by the relatively resilient stock market of the last 12 months. California’s April-December revenue during 2020 was 1.2 percent higher than during the comparable period in 2019, according to the Urban-Brookings data.

States with economies centered around natural resources, like Wyoming, North Dakota, and Alaska, have suffered significant financial losses. But there too, prospects are mixed and subject to change: Revenue forecasts in North Dakota and Alaska have recently improved thanks to rising oil prices.

How badly did schools need relief from the federal government?

In a recent survey by the Association of School Business Officials International, a membership organization for K-12 finance decision makers, 55 percent of respondents said the two federal stimulus packages in 2020 were not enough to meet their unprecedented financial needs during the pandemic.

An analysis of school district budgets from Georgetown University’s Edunomics Lab shows evidence that schools with a high percentage of students learning in-person are spending far more overall than schools that have stuck with full-time remote learning for most students. The Biden administration is urging the safe reopening of most school districts as quickly as possible, which means even the districts that have managed to save money working remotely may need to shell out more before long.

Atypical pandemic-era expenses for in-person schooling include more substitute teachers to make up for teacher absences due to illness or quarantine; more nurses to assist with COVID-19 screening efforts; and personal protective equipment like masks and hand sanitizers to prevent the spread of the virus.

Some critics of the latest federal relief package have pointed to statistics noting that many districts haven’t spent significant portions of the federal money they received last year. Those numbers may be deceiving, though. If a district is using some of those funds to keep staff on the payroll for the rest of the year, the full scope of that investment wouldn’t show up on a report on how much money has been spent so far.

“If you’re living paycheck to paycheck, you’re not going to spend every cent of your paycheck on the day you receive it,” said Elleka Yost, the director of advocacy for ASBO.

How will the American Rescue Plan, passed by Congress and signed by President Joe Biden this month, differ from last year’s stimulus funds?

It might be too early to tell exactly how the latest federal relief will play out. The funds from the previous relief package are still trickling out, even as many schools continue to grapple with the short-term calculus for reopening buildings.

Districts spent much of the early federal relief money on short-term COVID mitigation measures like masks and cleaning supplies, as well as digital devices and hotspots to improve the quality of remote learning experiences for students, according to the ASBO survey.

Now that some of those immediate concerns are out of the way, district leaders will turn to longer-term considerations: How far behind have students fallen? What’s the best way to get them up to speed? Which essential but previously underfunded initiatives are worth the investment now, and which ones can wait?

Spending the federal money will require some ambitious thinking, given the lack of precedent for the present conditions. But it will also necessitate some caution and long-term planning, school funding experts say.

Some districts may be wary of investments that lead to long-term costs, like payroll for new staff members or maintenance costs for construction projects, they might not be able to pay for once the federal funds run out in a few years. Schools are still feeling the effects of the aftermath of the 2009 federal stimulus plan—when the money ran out, budgets shrank, and many still haven’t recovered.

Ambitious projects like constructing a new building with more room for students to spread out, or installing an upgraded ventilation system as health experts have long advised, involve complicated, multistep processes for procurement and implementation that will pose logistical challenges. Governments may need to step in and offer relief from those burdens, like longer deadlines and less paperwork, if those projects need to be turned around quickly as responses to the COVID crisis.

See Also

President Joe Biden signs the American Rescue Plan, a coronavirus relief package, in the Oval Office of the White House on March 11, 2021.
President Joe Biden signs the American Rescue Plan, a coronavirus relief package, in the Oval Office of the White House on March 11, 2021.
Andrew Harnik/AP

The American Rescue Plan says districts must spend the relief funds by September 2023. An obscure law called the Tydings Amendment gives districts another year beyond that if the funds aren’t spent by then.

Given the longer timeline than for last year’s federal stimulus money, state elected officials might look more closely at putting their stamp on what purposes federal funds can be used for before they go to districts. Already, Republican state lawmakers in Wisconsin are pushing for CARES Act funds to be reserved for districts offering in-person instruction. North Carolina divided up a previous federal allocation into a number of categories for districts to spend within.

In addition to its education-specific portion, the American Rescue Plan is also sending $350 billion in fiscal aid to state and local governments. Some are already crowing about the opportunities to fund overdue projects and fill budget gaps. It’s unclear how much schools will benefit from that windfall, though. In a February nationwide CivicPulse survey of more than 500 local policymakers, only 8 percent said they plan to use future federal relief funds for K-12 schools.

How will this year’s drop in student enrollment affect districts’ budgets going forward?

Most districts are seeing enrollment declines that are far steeper than usual. More than 80 percent of schools consulted in the ASBO survey reported enrolling fewer students this school year than last school year. Of those, nearly a quarter said enrollment dropped by more than 5 percent—far above the typical average enrollment decline.

Both before and during the pandemic, some states have adopted “hold harmless” policies that continue to fund school districts based on earlier, higher enrollment numbers. Advocates for those policies have criticized funding models where money follows the student, pointing out that many of schools’ costs are fixed no matter how many fewer students enroll.

Some states, like Louisiana and South Carolina, don’t currently have policies for waiving cuts for enrollment declines, though. Texas is holding districts harmless for enrollment declines only if 80 percent of students are learning in person. Some relief that is currently on the books might not last once the pandemic is over.

What challenges lie ahead?

Even amid an economic crisis that has kept tens of millions out of work and unable to afford basic expenses like food and rent, the national household savings rate is at an all-time high, as people wait breathlessly for normal life to return. Some economists believe a massive boom in spending could be on the horizon and a thriving economy along with it. Others worry that such a rapid change in spending habits could accelerate inflation.

In the early days of the pandemic, many observers predicted a massive, nationwide exodus of teachers from the profession. Early indications suggest those projections may have been extreme, but burnout and demoralization among school workers remains a significant concern that could affect schools’ ability to expand staffing in the future to help students get back on track.

Perhaps the most confounding challenge is the lack of certainty about what the future will hold. The pandemic has upended even the most confident budget predictions and forced considerable introspection among policymakers and experts about how schools are funded and what will be necessary to stem a crisis that could define K-12 learning for generations of students.

“The only thing that we have that’s an experience like this are hurricanes. A hurricane comes through, wipes out a couple districts, they have to close and need remediation to help get kids up to speed,” Griffith said. “This isn’t a couple districts. This is a national issue.”

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A version of this article appeared in the March 31, 2021 edition of Education Week as School Budgets: Why They’re Not As Bad As Predicted

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