Education Funding

States Are Rolling in Surplus Cash, But It’s Not All Good News for Schools

By Mark Lieberman — January 25, 2023 7 min read
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The state of Texas is sitting on a $33 billion surplus, and Michele Trongaard is itching to see what lawmakers do with it.

She’d prefer a decision sooner rather than later. As associate superintendent of business and finance for the 35,000-student Mansfield district in the Dallas-Fort Worth area, she’s responsible for shepherding next school year’s budget into final form by June. But she’s heard that final state budget decisions might not happen until the end of May.

In Mansfield, the fate of crucial priorities like raising teacher pay, replacing aging digital devices, and recruiting qualified staff hangs in the balance.

Still, Trongaard said of the surplus, “let’s just say I’d rather see that than the other way.”

Districts nationwide are grappling right now with cognitive dissonance.

All but one state last year collected higher-than-expected revenue, according to the National Association of State Budget Officers’ fall 2022 report, as inflated costs of goods and services bolstered sales and income tax collections.

Yet it’s not a universal cause for celebration. Public officials and some economists are sounding the alarm about a possible recession, federal COVID relief dollars will expire the school year after next, and the cost of schooling is growing at a rapid clip. Also, other state priorities like tax cuts, higher education, and health care threaten to crowd out the K-12 share of the spoils.

Many district leaders and school advocates believe momentary relief from fiscal calamity represents an opportunity to make worthwhile investments that help students. And states are in a unique position to do that, as they have deeper pockets to fill gaps for low-wealth districts that can’t raise sufficient taxes on their own.

In some places, those investments are already in the works. Georgia Gov. Brian Kemp has proposed $1 billion in education spending that would provide full funding to the state’s base aid formula, raise annual pay for 200,000 teachers by $2,000, and pave the way for more school counselors. In Minnesota, lawmakers are considering investing $185 million to revive a universal school meal program that the federal government established temporarily when the pandemic began. The newly elected governor of Nebraska wants to send a minimum of $1,500 per student to the state’s nearly 250 school districts.

But the story is less rosy elsewhere.

Iowa legislators just passed a law that will allow parents to use taxpayer money for private school tuition. The program will cost the state up to $345 million a year, angering public school advocates who argue those funds would do more for K-12 schools desperate for basic resources. The Charles County district, for instance, recently dismayed families when it announced layoffs of three teachers, a coordinator for at-risk students, and several staffers for summer learning programs.

In Illinois, lawmakers have proposed a 5 percent increase in the state’s education budget. But advocates point out the investment still falls $200 million short of full funding for K-12 schools as laid out in the state funding formula.

In Missouri, Heath Oates, superintendent of the rural El Dorado Springs district, recently learned that lawmakers don’t plan to use the state’s $6 billion surplus to raise the base amount of $6,375 per student that the state uses to determine school funding. The last time that number increased was 2017.

Instead, state officials have signaled that tax cuts and school choice are higher priorities.

“While the state has patched together things with a grant here and a grant there, what school districts really need is an increase in the foundation formula so that we can be flexible to our needs locally,” Oates said.

New York City education observers are feeling similarly frustrated. The state is projected for the first time to fully fund its per-student formula. But city officials have slashed more than $200 million from school budgets, prompting rebukes from courts and staff and student walkouts at more than two dozen schools.

“We’re like, ‘Hey, it’s raining now. Can we use those rainy day funds instead of just cutting from our schools?’” said Jasmine Gripper, executive director of the New York-based Alliance for Quality Education.

Inflation is a puzzle for states and districts alike

States are deciding how to use their surpluses as districts have already begun thinking about how to wind down investments they made with nearly $200 billion they collectively received from the federal government to help respond to and recover from the pandemic.

Meanwhile, longer-term concerns haven’t gone anywhere. District leaders are fretting about everything from widespread enrollment drops to their students’ deteriorating mental health and academic performance. Eliminating staff shortages is a perpetual puzzle, and preparing buildings for the emerging effects of climate change looms on the horizon.

Confronting these challenges won’t come cheap. The Texas School Coalition, a statewide advocacy group, estimates that the state needs to raise its base aid per student from $6,160 to slightly over $7,000 just to help districts keep pace with inflation that’s occurred since 2019, the last year the state revised the base aid.

The state has already committed nearly half its budget surplus to property tax relief. It likely won’t have the $13 billion that would be necessary to ensure base aid keeps pace with inflation, said Christy Rome, the organization’s executive director.

“Increased funding for public education in the initial budget bills is not for the purpose of helping schools address inflationary costs for operations, but rather to help taxpayers with the inflationary costs of tax bills,” Rome said.

Indeed, Trongaard in Mansfield is bracing for a far smaller base aid increase, and planning for how increases in hundred-dollar increments will affect her district’s calculations.

We’re like, ‘Hey, it’s raining now, can we use those rainy day funds instead of just cutting from our schools?’

The district has opened three new schools in the last four years. Enrollment dipped when the pandemic hit. And the district continually loses teachers and bus drivers to neighboring urban districts with higher wages.

Right now, her draft budget reflects what the state must provide to districts by law. If new laws change spending rules or the amount allocated to schools, she’ll hurry to make adjustments before adopting the final budget in June.

Inflation is top of mind in most states. Minnesota is among the states proposing to commit to annual education spending increases that keep pace with inflation.

But the details aren’t so simple—the proposed annual increase includes a cap of 3 percent, “which defeats the purpose,” said Tanya Monson-Ek, business manager for School Management Services, a school finance consulting firm that works with several Minnesota districts.

Inflation in the U.S. hit 7 percent in 2021 and 6.5 percent in 2022, according to federal data.

A mixed outlook for districts depending on location

Districts in states that aren’t prioritizing education spending are already dreading the upcoming budget process.

The El Dorado Springs district desperately needs to expand mental health services for students, and hire more special education process coordinators to execute the district’s federally mandated obligations to help students with disabilities, said Oates, the superintendent.

Raising salaries for teachers—who are paid less on average in Missouri than in any other state—would also be nice, he said.

But with a small tax base, there’s only so much his district can do without more robust state help.

“In terms of real dollars, we aren’t functioning in a long-term sustainable environment,” Oates said.

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District leaders in other states are feeling more pleased with their financial prospects. David Blanchard, superintendent of the 800-student Schoharie district outside Albany, N.Y., is excited about planned state investments in career and technical education programs, and about a proposed 13 percent increase in state aid per student.

Still, rural districts like his are always looking for ways to cut costs and hedge their bets for an uncertain future. The district’s enrollment has dropped by roughly 80 students, or 10 percent, since he took over in 2015.

Blanchard has been talking to neighboring peers about opening enrollment in programs like pre-engineering and Future Farmers of America to students in multiple districts, rather than offering identical programs in each district.

He’s tried his best to craft budgets so that the district can still afford priorities funded by federal COVID relief dollars once that money expires.

“Even though there are pressing things today, looking down the road, how can we best poise the district to educate as effectively and efficiently as possible?” Blanchard said. “Trying to have a long-range vision is really necessary.”

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