Districts around the country are having hard budgeting conversations right now with their school boards, cementing priorities and negotiating the final details of line items before signing next year’s operating budget. And in 2025, they’re doing so against a backdrop of increasing financial uncertainty.

From the increasing threat of a recession to plummeting enrollments, from the loss of pandemic relief aid to a new administration pushing big changes in federal K-12 support, school leaders and finance teams at the district and state levels have a more complex risk analysis on their hands than they have in years.

Questions we’re being bombarded with include whether the coming months will bring unexpected financial swings, how to plan for that, and how to forecast which pots of funding are at greatest risk. Moreover, what else is coming down the pike that may not be so obvious?

Here’s a top-level breakdown of what’s at risk and how districts and states should be preparing right now for what could come their way:

  • Title I and IDEA: The two biggest federal K-12 programs, which are popular on both sides of the political aisle, are at low-risk of being eliminated or substantially reduced. For one, the funding for them has already been appropriated for the 2025-26 school year, and neither program is subject to the reconciliation process Congress is preparing to undergo in the coming weeks. Moreover, the formulas for the programs are written into federal law, so any formula changes would require an implausible 60 Senate votes to overcome a filibuster.
  • ESSER funding: Districts and states were supposed to spend the last of their federal pandemic aid in September, and indeed, all but 2% did get spent. States and districts with unspent balances got extensions to continue spending funds past the deadline, but then saw those extensions eliminated by the Trump administration last month. While there’s still a process for states and districts to refile for an extension, there’s a real probability that some of that money is gone for good. While extensions never permitted use of funds for salaries or benefits, there were plans in some states (like Maryland) to use those funds on vendor contracts for tutoring or afterschool programs.
  • Medicaid: School districts can tap Medicaid to support some services for low-income students with disabilities. These funds typically amount to less than 1% of district budgets. While it’s not a huge pot of money, there’s a good chance Congress decreases funding for the program in the coming months through the reconciliation process, and as a result, likely decreases the amount that ends up at schools. 
  • Financial threats over DEI and treatment of transgender students: The Trump administration has asked states to sign a letter certifying it is not using “illegal DEI practices,” threatening investigations under Title VI of the Civil Rights Act and a loss of federal funding. While 18 states and the District of Columbia signed the pledge, 22 refused. The issue is already tangled up in the courts and set for a protracted fight over what does and doesn’t constitute a violation of Title VI. For that reason, we think there is some risk for certain districts that are flouting the federal discrimination laws, particularly as they may end up embroiled in legal battles with uncertain financial outcomes.
  • Recession risk: Fears over a tariff-driven recession, which some forecasters put at just north of 50 percent probability, could impact state revenue. Since K-12 spending tends to be the largest item in state budgets, even small changes in state revenues can have sizable impacts for district funding levels. Districts in states with more rainy day funds would be more protected, whereas those in states with smaller reserves  (like New York, Florida, Ohio, and Washington) could feel the impact more quickly.
  • Financial impact of enrollment declines: This is a major factor given that schools are generally funded based on the number of students enrolled—and right now, enrollment is falling in most districts. While nearly all states are experiencing some declines, the National Center on Education Statistics is predicting double digit declines in states California, New York, New Mexico, and Louisiana over the next decade. While these patterns aren’t new, the federal pandemic aid had been masking much of the impact, and that pot of money is now gone. States and districts that have had a regular stream of migrant arrivals—and now suddenly don’t—will likely feel this more acutely as well.
  • Layoffs and reduction in force: There is a high risk that districts will need to shrink their workforces, particularly as federal pandemic aid—which allowed districts to hire additional staff—has sunsetted. As it stands, many are now over-obligated and staring down enrollment drops—an unsustainable combination. 

As districts and states prepare for final board votes in the coming weeks, how can they mitigate risks?

  • Maintain allowable reserves: Protecting reserves better prepares districts to weather whatever challenges come. 
  • Avoid recurring financial commitments: Districts can resist multi-year labor contracts and ensure any vendor contracts have an out clause.
  • Track enrollment carefully and take steps to downsize operations when warranted.
  • Where possible get rising special education costs under control, and improve K-3 reading instruction to avert excess special education placements associated with reading deficiencies.
  • Ensure legal compliance with Title VI. 
  • Build finance capacity among district leaders who may not have recent experience in budget cutting.
  • Stay laser-focused on student outcomes, spending smarter to maximize value for students.