We are now less than a year out from the “obligation” deadline for the third ( $122b) tranche of K-12 stimulus funds passed in the wake of the pandemic. Although ED has updated guidance to allow for “late liquidation,” the wind-down of pandemic-era funding is upon us. In a moment of broader economic uncertainty, that will mean budget cuts for most school districts.
Of course, the end of stimulus funding will impact school districts around the country differently.
In general, school district budgets are comprised of 47 percent state, 45 percent local, and just 9 percent federal funds.
Districts that rely heavily on federal funds will feel the federal fiscal cliff more acutely. Districts that are more dependent on state, versus federal or local dollars, are most likely to feel the effects of state budget cuts.
Against that backdrop, investors and executives are asking our team what’s most likely to get cut.
What do districts typically cut during periods of economic recession?
There are some general patterns districts follow in the face of budget tightening. For instance, district leaders will try to avoid cuts connected to safety, core academics and staffing – in particular, instructional staff. According to W/A SVP, Evo Popoff who served as assistant commissioner of education in New Jersey in the wake of the Great Recession:
“When we worked with districts to help manage their budgets through fiscal challenges, we would only touch in-class instructional staff when other options were exhausted. After every new budget scenario we would run, the first thing we would look at was the student to teacher ratio to make sure that it didn’t change.”
Whiteboard Advisors’ analysis of budget cuts from 2007-2009, likewise, suggests that the first round of budget cuts focused on non-essential services and contracts with outside vendors for supplemental programming. Core classroom activities were among the last expenditures to be cut.
During the last recession the impact was also felt through the delay of big-ticket purchases, like instructional materials. According to an AASA report released in 2015, many schools delayed the purchase of instructional materials to accommodate the decline in revenue and federal sequestration.
Where was purchasing power concentrated in ESSER spending? What activities could see the biggest pendulum swing?
Afterschool and summer programs were major beneficiaries of ESSER spending.
Not surprisingly, a recent AASA district survey indicates that district leaders are likely to reduce after-school spending. According to the report, almost 6 in 10 respondents (57 percent) indicated that they would have to scale down or stop summer learning and enrichment opportunities currently being provided to students in the 2024-2025 school year.
Similarly, we are likely to see a drop-off in spending on certain types of chat-based and supplemental tutoring that many states funded using allowable state set-asides of stimulus funds. Teacher directed models and those more deeply aligned with state and district priorities are more likely to remain intact, and grow.
Contrary to the guidance of state leaders, districts directed much of their ESSER dollars to hiring additional staff. As Marguerita Roza at the Edunomics Lab noted, ESSER funds fueled a “hiring bonanza” that has resulted in school districts in 2023 having more staff than ever before.
As discussed in our recent Queen’s Court video on budget outlooks, expiring ESSER funds and declining student enrollment will likely make mass layoffs unavoidable in the upcoming years — what Roza refers to as the “perfect storm for school budgets.” Indeed, district leaders speaking off the record have raised a seemingly paradoxical challenge they will face at the end of the 2023-24 school year: the need to lay off staff brought on during the pandemic, while adopting increasingly creative strategies to hire educators in difficult-to-staff areas.
Paradoxically, that could be good news to a growing number of K-12 businesses focused on staff augmentation in mission critical areas like special education, and mental and behavioral health.
Is there any good news?
Some districts have seen an uptick in their federal funding allocations. Federal appropriations in Title I-A have seen year over year increases since FY 2019, currently totalling $18.3b from $16.5b. Title IV-A was also increased to $1.4b — from $1.2b. Both funding sources can be used to support evidence-based strategies including high-impact tutoring, afterschool programming, and academic enrichment.
At the state level, there is a wide variance in funding formulas and categorical funding available for the activities likely to be cut in the post-ESSER world. Several states have recently changed student funding formulas in an effort to be more equitable and provide more funding to low-resource schools, including Nevada and Tennessee. And other states are pumping additional funds into education or may do so with budget surpluses — Alabama, Georgia, and Minnesota for instance.
Districts in states with a less positive budget outlook or using surplus funds for non-education issues will likely face a steeper cliff.