The Financial Implications of COVID-19 on School Districts

The COVID-19 pandemic has fundamentally changed the landscape for school districts. Leaders are left wondering how to meet the greater needs of students while managing uncertainty around safety, social distancing, and of course, revenue impact. With some districts already operating at the edge of deficit spending, there is difficult, strategic planning to be done to ensure that student needs are met despite significantly less funding. Our team has shared our findings and strategies with district leaders through a series of webinars, the content of which is reflected below. For more data and information on how ERS is exploring potential solutions to these challenges, see the accompanying webinar presentation.

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A Financial Challenge Greater than the Great Recession

Even before the COVID-19 pandemic, school districts were facing a triple squeeze on budgets: a higher bar for student learning and more high-need students, unsustainable cost structures, and flat or declining revenue. With the arrival of COVID-19, there is an even greater depth, breadth and inequity of student need that is magnified by the pandemic; ongoing constraints on service delivery from social distancing; and greater financial pressure due to massive drops in tax revenue. 

The financial challenges from COVID-19 are great. Economists predict that the COVID-19 pandemic will drive an economic decline significantly larger than the Great Recession, which saw 10 percent unemployment and a 2.6 percent decline in GDP. The current numbers are still evolving but experts predict more dire outcomes for the pandemic’s impact, including a peak unemployment rate of 16 percent, a 5.6 percent decline in GDP, and significant state budget slashing. According to CBPP, there could be an approximately $350 billion state budget shortfall in 2021, which is equivalent to more than a third of state revenues.  This will undeniably affect school districts in painful ways.

Not every state will feel the sting equally. Some states are more affected by state revenue declines than others. States that are already relatively low-funded and more reliant on state funding include Arizona, Utah, Oklahoma, Mississippi, Idaho, North Carolina, New Mexico, California and Washington. Higher poverty districts within states, in general, are also more reliant on state funding. 

Nevertheless, no state will remain unscathed. Holding all other revenue constant like local tax dollars and federal stimulus monies, the graphic below shows what percentage of revenue loss individual states can expect and which are more affected by being reliant on the energy and/or tourism industries, as well as having less economic diversification. 

Adjusting to the New Economic Environment

In anticipation of a new normal,  how might districts allocate money in the most strategic way possible? Every district will approach this differently and based on their own context but certain assumptions can be made. Students will return to school—virtually or otherwise—with greater needs. Districts will have to assess those needs, both academic and social-emotional, and provide the necessary supports to students and staff. They will need to provide extra time, staffing, and programming for education recovery. They will surely have to make changes to ensure public health like increased sanitization and enforcing social distancing. Flexibility will be paramount.

New strategic investments may include examples like the following: 

•Implement comprehensive “re-entry” assessment strategy for each student including social emotional well-being, and re-engage students who didn’t participate in remote learning

•Start school early for all or some students

•Add two weeks of teacher time to plan instruction based on assessment data and learn about integrating new instructional strategies for recovery

•Re-equip classrooms/students with technology/devices

•Extend the school day to provide additional time 

•Reduce building capacity to meet physical distancing requirements

•Partner with outside organizations to provide extra tutoring and social emotional supports

•Provide intensive supports for special ed, ELL and other high-needs populations

•Engage in professional learning to integrate and scale trauma-informed practices into instruction across school levels

To meet student need in the new economic environment, districts must begin scenario planning that considers potential savings from the SY 2019-20 budget, the infusion of CARE Act funds, and innovative ways to deal with a significant shortfall—all while responding to the challenges and inequities exacerbated by COVID-19. There are still many unknowns, but scenario planning should be in full swing and considering the multiple ways that schools might reopen. Districts should start by assessing the SY 2019-20 budget savings. Are you saving on transportation, travel and energy costs? Have there been hiring freezes? Have you cut hourly workers and overtime? Though the average taxpayer might expect that schools would have piling up the savings since school will have been closed almost one-third of the year, analysis across a set of diverse districts suggests limited relief here.  Because they mostly have to continue paying staff, districts may find they have savings anywhere from 0 to 3 percent from this school year’s previous budget. On the additive side, the new federal CARES Act infuses new money into the system and provides more flexibility with the use of Title I, II, and IV funds. The graphic below outlines the particulars. 

Currently, states are facing a much greater economic hit than the Great Recession and a much smaller infusion of money. On average, states are getting 2.7 percent of education funds but it varies widely. It’s anticipated that there will be more federal stimulus coming, but when and how much is yet to be determined. In a mock planning scenario below, we estimate anywhere from 3 – 6 percent. 

While savings from SY 2019-20 and CARES money will help districts, the reduced revenue to states will be significantly greater and a large funding gap will remain. This means districts won’t be able to bridge that gap with small changes; instead, they’ll have to fundamentally rethink the basics of how school is delivered while making new strategic investments in direct response to COVID-19.

Traditional budget reductions can help, but they only get districts so far and may not always match the current reality. A business-as-usual budgeting strategy of cutting everything in small amounts is largely unsustainable in this new landscape and may be detrimental to the needs of students. This means that everyone in the education space is going to have to put their heads together and make compromises. Flexibility will be paramount. Without dramatically rethinking large aspects of education such as the delivery of virtual learning, teaming, job sharing, class sizes, how time is used, teacher loads, and who is allowed to instruct students, districts may be unable to rise to this unprecedented challenge. 

See the accompanying webinar for more information.