Messy times ahead for school spending

Smart ways to track budget gaps, layoff decisions, and school closing deliberations many districts will soon face.

By Marguerite Roza

The next two years will be messy ones for district finances.

The biggest-ever one-time injection of federal cash (known as ESSER) has 18 months left. As that money runs out, a perfect storm of financial pressures will eclipse anything most districts have seen before. Our analysis suggests the gaps in 2024-25 will be worse than the last recession.

District financial teams can see it coming — it’s right there in the budget forecasts — even though few are at the point where they’re sharing out scenarios publicly.

In fact, most district leaders don’t yet have a plan for how to navigate the financial headwinds. Those plans will start to take shape in the next few months — and come with big consequences for downstream financial solvency, teacher and staff layoffs, school closures, and ultimately for students.

A perfect storm of financial pressures will eclipse anything most districts have seen before.

Much of this planning goes down in a sleeper set of district meetings: budget workshops.

These seemingly routine work sessions are held a few times each year between January and May. While they’re open to the public, they tend to get low attendance and little (if any) media attention.

But it’s at these budget workshops, with very little fanfare, that a mix of board members and district leaders hammer out key decisions that can impact districts for years to come.

It’s at these budget workshops that a mix of board members and district leaders hammer out key decisions.

For this spring’s budget reporting, I suggest keeping an eye on these five critical issues:

#1. Are ESSER investments getting students back on track? 

Before grappling with the forecast, every district should be tracking whether its ESSER investments are succeeding at addressing pandemic-era learning gaps.

Are math and reading scores coming back up? Is attendance improving? With only 18 months remaining on these funds, district leaders need to pivot now if their investments aren’t delivering real value for students.

Calling attention to student outcomes alongside finance deliberations isn’t typical, but it should be.

In some places like The 74, it’s happening: St. Paul is tracking whether its investments are working and making changes where warranted.

Elsewhere, the LA Times’ coverage of the high cost of the district’s acceleration days ($611 a day per student) against the backdrop of learning setbacks gets at whether the money is delivering value for students.

An Associated Press analysis tracks down just how much is being spent on facilities. Money spent on facilities means those funds aren’t available for learning supports. (Again, are students back on track?)

In-depth coverage by LA School Report and The 74 of Stockton’s finances unearths numerous problematic spending decisions, some with potential fraud implications.

(In addition to district financials, some ESSER spending details are available on Edunomics Lab’s ESSER Expenditure Dashboard or can be found in audit reports.)

Calling attention to student outcomes alongside finance deliberations isn’t typical, but it should be.

#2. What’s the magnitude of any forecasted budget gaps?  

Simply put, budget gaps occur when expenses are greater than revenues.

When the ESSER tap abruptly goes dry, we estimate the average district will have to cut costs by some $1,200 per student in 2024-25. As the LA Times demonstrates, for some districts the outlook is much worse.

Typically, district financial planning documents outline a multi-year forecast. In Spokane, the district’s planned expenditures exceed revenues by $12 million in 2023-24 and $62 million the following school year. Dividing that gap by the district’s enrollment of 28,000 yields likely cuts of $2,200 per student.

One can assume that the easy spending cuts (e.g., eliminating contracted services) are already baked into the figures. When the forecast shows a deficit, it means that more active cutting is required. That’s what happens when districts make recurring commitments that outpace the revenue stream, for instance when districts used ESSER funds to pay for new hires or grant permanent raises.

A few districts have played it safe, awarding only modest or one-time pay bumps and stashing funds away in reserves. Others made larger than typical inflation-era raises, with some guessing their state legislatures will fully cover the gap. Chalkbeat coverage of Detroit-area districts highlights the different decisions districts are making in preparing for the finances ahead.

Follow @thegrade_ for education news each morning and @alexanderrusso for media commentary and insight.

#3. Are enrollment and staffing trends headed in the same direction? 

Over time, enrollment drives revenues while staffing drives expenses. Nationally, enrollment is falling while staffing counts are climbing. Fewer students usually means a smaller staff, but many districts have used their relief funds to both hold on to existing employees and add more in the form of new counselors, reading specialists, nurses, etc.

For Seattle, those concerning patterns are on display below. (To graph your own district’s staffing and enrollment trends, use this template.)

Nationally, enrollment is falling while staffing counts are climbing. 

One obvious question for district leaders is whether (and how) they plan to reduce staffing counts when relief funding ends — or if not, how they plan to pay for them. While Detroit notified some staff that their positions will be eliminated, in most districts plans to right-size the district are still in the very early stages.

#4. What options are on the table?

It’s not unusual for a district to put off making tough (and unpopular) budget-cutting decisions. But any delay can make a bad situation worse, especially if the overspending continues in the interim. Ultimately, when it comes time to cut budgets, most start with a commitment to protect students and classrooms, and minimize job losses.

Beyond those statements, the next steps involve some months of tinkering around the edges (postponing maintenance, freezing hiring, or cutting contracts). In the end, if the budget gap represents more than about 2% of the total district budget, districts have no choice but to cut labor costs (labor being some 80-90% of the budget).

If the budget gap represents more than about 2% of the total district budget, districts have no choice.

A better process would be to get clear on the magnitude of the deficit and move quickly to surface several budget cutting options (complete with numbers) for public debate. An easy way to start is to ballpark the number of jobs at risk using the back-of-the-envelope calculation pictured here. As shown below, the basic calculation is the number of employees times the budget gap as a percentage of annual spending.

When it comes to cutting labor, eliminating jobs isn’t the only path (although it does help convey the magnitude of the challenges ahead). Reducing labor costs can also take the form of eliminating school days (via furloughs), scaling back benefits, or suspending pay raises. Getting concrete options on the table can help communities weigh the different options and offer opinions.

Where districts do pursue layoffs, they’ll also need to decide who gets let go. A common default is to use seniority (aka last-in, first-out or LIFO.) LIFO tends to disproportionately hit high-needs schools, where less experienced teachers tend to be concentrated. It also often results in eliminating teachers of color. As Educators for Excellence and TNTP report, some states (like New York) require layoffs be done via seniority. Others (like Colorado, Pennsylvania, and Florida) prohibit seniority as the sole factor. In most states (like Washington, Maryland, Michigan, and Connecticut) those decisions are left to individual districts.

In most states, layoff decisions are left to individual districts.

#5. Are school closures warranted? 

School closures are emotional affairs — it’s understandable the information often gets covered that way. But what the drama often misses is what’s at stake for families.

Given the magnitude of the gaps, a district can afford only so many staff. In a district with enrollment declines, the question becomes whether the district will spread those staff across a larger number of under-enrolled buildings or concentrate those staff in a smaller number of more fully enrolled sites.

With the former, there are fewer staff in each building, and that means students at all schools forego some of their specialists (music teachers, counselors, and the like) in order to ensure all buildings have a set of core staff (principal, core teachers, PE teacher, etc.).

Is it better for kids to stay in a school with a skeleton crew or shift schools for one that’s got a full complement of staff? That’s a debate worth having.

Where closures are warranted, K-12 Dive’s Naaz Modan covers different strategies districts can consider in the process. Of particular interest is whether the district weighs each school’s performance in deciding if it gets closed. (Students reassigned to another school tend to fare better when the school they transfer to is a higher performing one.)

What the school closing drama often misses is what’s at stake for families.

When it comes to school finances, some translation is needed.

One challenge in following district finances is decoding district budget speak, which sometimes soft pedals some dire realities.

For instance, as Jessica Seamen translates in Denver: “compounding decline… [puts] financial stress on the situation” means that the district has ignored years of enrollment declines which is forcing even deeper cuts now.

In another example, Seattle Times’ Monica Velez helped the Seattle community understand that “the need to consolidate into a system of well-resourced schools” translates to school closures.

In Houston, a proposal to “remove the hold harmless” means that shrinking schools will lose staff.
For journalists who aren’t fully fluent in district budgeting, Georgetown University’s Edunomics Lab offers a two-day finance training with some scholarship funds to defray costs.

Marguerite Roza, Ph.D., is director of the Edunomics Lab and a research professor at Georgetown University.

Previously from The Grade
How to cover schools’ COVID recovery spending this spring
The scarcity mindset that plagues education news
Smart ways to cover the coming ‘year of ed finance’