Concerns about a looming recession and even stagflation are already impacting the K-12 market. Many school districts are taking a conservative approach to their budget in preparation for declines in state revenue—and it’s happening when times are still good.  

There remains a ridiculous abundance of federal funding. School officials have a historic amount of federal funds to spend between now and 2024 (or sometime soon after with flexibility), and most states upped their education investments for the 2022-2023 school year in the latest legislative sessions. 

So why the belt-tightening? 

The Whiteboard Advisors Research team is tracking the underlying factors shaping the budget trends. Learn more about the research subscription offering here. Below are a few of the driving issues:  

  • Student enrollment is declining. Public school enrollment is down three percent in 2020-21 compared to the previous school year, and nearly 40 percent of the nation’s largest school districts are facing staff reductions and school closures due to lost enrollment, according to a review of 100 large and urban districts by the Center on Reinventing Public Education using data from the National Center for Educational Statistics. 
  • Personnel costs are rising. Teachers and staff shortages are driving up labor costs as school districts increase benefits and pay to retain and recruit staff. Going into the pandemic, teacher shortage was a looming issue and the pandemic has made it worse. Now districts are competing against each other (and other industries) to find and retain teaching talent.  
  • Non-personnel costs are rising. Inflation and supply chain issues are making everything more expensive, including school repair and construction, nutrition services, instructional materials, and more. Everything just costs more and that too is eating up revenue and making long-term planning more difficult. This is why the US Department of Education extended the time that schools can use their pandemic stimulus dollars.   
  • Future state revenue is likely to decline. While most states increased their investment in education this year, the future could be turbulent. The scenario of concern is where a recession tightens state revenues and lawmakers have to pull back on education funding. When combined with declining enrollment and long-term rising costs (for personnel and benefits in particular) any pullback may cause significant budget problems for school officials. Nothing is set in stone, of course, but just the possibility of this scenario is enough to chill long-term purchasing decisions. 
  • The federal stimulus dollars are one-time and non-recurring. But isn’t there enough federal stimulus funding to mitigate the concerns? $190 billion is an incredible sum, but while the federal pandemic funding goes away after 2024, many recurring costs from new investments do not. Teacher pay increases and benefits contracts go beyond 2024. Student mental health, counseling and the need for intensive academic interventions don’t stop. School officials are trying to extend the benefits of the federal stimulus as long as possible, but they do not want to end up in an impossible financial predicament once they go away.   
  • Political turmoil complicates budget planning. As if these concerns weren’t enough, the politics of division have found fresh footing in school board politics. Board meetings have been headline-grabbing, previously sleepy school board elections are now hotly contested, and the rate of turnover for school leaders is on the rise. All of these matters complicate school strategy, planning, and purchasing and it’s not going to get easier in the months ahead.  

These factors are colliding as administrators return to school for the 2022-2023 year and plan for the next year. The Whiteboard Advisors Research team tracks these matters daily, keeping an eye on how it’s playing out across the states and districts. Learn more about the latest developments and the research subscription here.