School districts are headed for a fiscal cliff in the next year and a half. Their location will determine how painful the fall will be and how challenging it will be to get back up.
That’s the premise of a new report from Education Resource Strategies, a nonprofit consultant that works with school districts on school finance issues.
The report identified 15 states that meet three criteria that put them at a particular disadvantage when the unprecedented surge in federal funding from pandemic relief efforts expires in the next year and a half.
Those states—Alabama, Arkansas, Arizona, Georgia, Kentucky, Louisiana, Missouri, Mississippi, North Carolina, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, and West Virginia—have:
- the highest ratios of federal relief funds to overall education spending,
- the largest shares of students who attend school in high-poverty districts, and
- the largest proportions of districts that have high percentages of students in poverty.
Three-quarters of states meet at least one of these criteria, but schools in the states that can check all three of those boxes are most likely to feel the effects of the fiscal cliff, the report says.
Congress passed three rounds of relief aid totaling $190 billion for school districts during the first year of the pandemic. The deadline to commit the first round of funds, colloquially known as ESSER I, to specific expenses has already passed. Districts are required to commit the second round of funds by Sept. 30, 2023, and the third round of funds by Sept. 30, 2024.
Some districts have used these one-time funds for one-time costs, like repairing HVAC systems or buying new laptops. But others have used them to pay for salaries and benefits for tutors, mental health counselors, and other workers. The fiscal cliff means they’ll either have to pay those costs with other money, or cut those positions altogether.
Why these metrics matter
The three rounds of ESSER funds schools have received represent a staggering amount of money, dwarfing some of their regular annual funding streams.
Annual Title I funding from the federal government, for example, makes up between 1 percent and 4 percent of total education revenue each year depending on the state, according to the Education Resource Strategies report.
By contrast, the federal relief funds since their release have represented anywhere from 4 percent of annual education funding in New Jersey to 17 percent in Mississippi.
States where federal relief funds make up a smaller percentage will still feel the effect of an unusually large drop in funding. But states such as Mississippi and Louisiana (where ESSER funds have represented 14 percent of annual funding) are likely to face an “unprecedented drop in revenue” when the federal relief funds dry up, the report says. And that drop could be even steeper in school districts that reserved most of their federal relief spending for the last year before the deadline rather than spreading it out over more time.
Poverty will further compound those challenges.
States with a large number of high-poverty districts will struggle to provide the ideal amount of targeted fiscal support to counterbalance the federal relief fund losses, the report says. If states only have a handful of high-poverty districts, providing a financial cushion might not be as challenging.
Even so, states where high-poverty students are concentrated in a small number of districts could still face fiscal cliff challenges if those few districts are large ones, like New York City, that serve high numbers of students from low-income families.
What else is coming, and how districts can prepare
The fiscal cliff isn’t a new phenomenon—district leaders who were working after the 2008 recession remember the cliff that followed the expiration of stimulus funds. But as speculation mounts about the prospects of an economic downturn and fallout from the pandemic continues to play out, districts have a lot to balance in the coming years.
States aren’t powerless to help districts more smoothly transition away from federal pandemic relief funds.
They don’t have the power to extend the spending deadline for the temporary funds, but they can pass laws that allow districts to carry over more of their state and local funds from one year to the next, Ventura Rodriguez and Katie Roy from Education Resource Strategies write in a companion piece to the report.
That way, districts can more easily cover expenses with federal funds before the deadline and then shift those expenses back to more reliable revenue streams in future years.
States can also play a more active accountability role to ensure federal relief funds are being spent wisely on support for students. If districts spend wisely now to mitigate learning loss, they’ll also be mitigating the possibility of future high costs of instruction, according to the report.