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6 Key Factors to Assess Every District’s Risk of an Upcoming ESSER Fiscal Cliff

August 22, 2023

We know that some states face a more complex challenge when it comes to managing the end of ESSER. Depending on how much money you received and the distribution of poverty in your state, some of your districts may be facing a very steep cliff when relief funding officially expires in Fiscal Year 2025.

But what does that picture look like for individual school systems within each state? As districts close their books and release updated financial statements, and as states begin to develop spending proposals for Fiscal Year 2025, now is a great opportunity to explore this question and act early.

We considered trends in ESSER spending in dozens of districts across the country and explored historical data to identify six key factors that indicate whether a particular district might be at greater risk of an upcoming fiscal cliff. These indicators will help states understand where districts stand—and how to better position those high-risk districts for long-term sustainability.

Table of Contents:

The data shown below is real district data, but we’ve anonymized the names for this display. Texas is one of 15 states facing a more complex sustainability challenge in 2024. Fortunately, the Texas Education Agency collects data on many of the six indicators, meaning state leaders are well-positioned to assess districts’ risk and direct their support. The visualizations below use publicly available SY2022-2023 data for the 100 largest districts in Texas to demonstrate what analysis of these indicators might look like and what insights they can provide. With the books soon closing on FY23, ideally these indicators would be calculated using updated financial data to be released this fall.

Indicator 1: Large ESSER allocations

The federal government distributed COVID relief funding for K-12 education to states using the same formula that determined ESEA Title I funding, and states used this same formula to distribute those funds to school systems. This means that districts serving more students in poverty—one significant indicator of student need—received more ESSER revenue to re-engage students and mitigate learning loss.

When you compare the amount received to a district’s overall revenue, it becomes clear that ESSER represented an enormous increase for some districts: as much as 40% or more.i For these districts, the expiration of ESSER funds is a considerable change in their overall financial picture.

How to measure it: District’s total ESSER allocation as a percent of pre-pandemic operating revenue

Total Enrollment Data for the 2018-19 school year is from the National Center for Education Statistics, Common Core of Data, “2018-19 Membership.”

Percent of students living in poverty is from US Census Bureau SAIPE School District Estimates for 2021. Total ESSER Revenue is sourced from Office of Elementary & Secondary Education reports for ESSER I, ESSER II, ESSER III. Pre-pandemic operating revenue contains state, local, and federal sources and was collected from the National Center for Education Statistics, Common Core of Data, “2018-19 National Public Education Finance Survey.“

Indicator 2: Increased teacher salaries

Districts that invested in programs or initiatives with recurring costs will face a greater challenge adjusting to decreased revenue than those who prioritized one-time or non-recurring investments. One particular investment is at the top of the list when it comes to recurring costs that are difficult to dial back: compensation.

Many districts invested in teacher salaries to keep pace with rising inflation and retain staff amidst growing hiring challenges. Teacher salaries are typically the largest recurring expense school districts face and often serve as a bellwether for salaries of other positions. School districts that increased teacher salaries will see their baseline operating costs increase. When it becomes more expensive for school districts to maintain their existing services, it becomes more difficult to find ways to reduce spending.

How to measure it: Average teacher salary compared to pre-pandemic baseline

Total Enrollment Data for the 2018-19 school year is from the National Center for Education Statistics, Common Core of Data, “2018-19 Membership.”

Average teacher salary is collected from Texas Education Agency Public Education Information Management System (PEIMS), “Staff FTE Counts and Salary Reports.” These figures do not account for changes in the teaching population.

Indicator 3: Increased staffing levels

Many districts across the country used their ESSER dollars to pay for positions. In some cases, this has meant funding new or additional staff in schools, such as social workers or literacy coaches. Other districts used ESSER dollars to avoid eliminating positions despite declining enrollment to better ensure staffing stability during a tumultuous time. In either case, when ESSER comes to a close, districts will have to face eliminating positions they can no longer sustain, which can cause significant disruption in the system.

How to measure it: Number of students per Full Time Equivalent (FTE) compared to pre-pandemic baseline

Student-to-staff ratios reflect the number of students for every Full Time Equivalent (FTE). Negative numbers reflect a decrease in student-to-staff ratios, which indicate richer staffing relative to the number of students in the district. Total Enrollment Data for the 2018-19 school year is from the National Center for Education Statistics, Common Core of Data, “2018-19 Membership.” Full Time Equivalent (FTE) counts and enrollment figures are from Texas Education Agency Public Education Information Management System (PEIMS), “Staff FTE and Salary Reports.”

Indicator 4: Change in per-pupil funding levels

Districts receiving more per-pupil funding from the state or local levels will be more insulated from the effects of ESSER dollars going away. States such as Tennessee, Maryland, and Massachusetts, for example, have adjusted their funding formulas in ways that direct more dollars to public school districts, especially districts serving students with greater needs and expecting larger declines in revenue once ESSER funds expire. Other districts have raised additional funding locally to offset the loss of ESSER revenue.

Districts whose state and local per-pupil funding levels remain similar to pre-pandemic baseline levels will have to make more significant reductions in spending or rely on reserves to maintain investments and smooth reductions in spending over time.

How to measure it: Per-pupil revenue from state and local sources compared to pre-pandemic baseline

Total Enrollment Data for the 2018-19 school year is from the National Center for Education Statistics, Common Core of Data, “2018-19 Membership.”

State and local revenue is collected from the Texas Education Agency Public Education Information Management System, “2007-2022 Summarized PEIMS Actual Financial Data.” Per-pupil revenue was derived using enrollment from the Texas Education Agency Public Education Information Management System, “Student Enrollment Reports.”

Indicator 5: Limited unrestricted fund balance

Many school districts have the ability to carry forward unspent revenue as a fund balance to spend in the following year(s). In some cases, these dollars are earmarked for specific expenses, but some districts—depending on state or local regulations—have fewer limitations. This is an “unrestricted” or “unassigned” fund balance.

Why does this matter for ESSER? Districts with fewer limitations on general fund balances have more flexibility on how they spend down ESSER—and how they might sustain ESSER investments in the future. For instance, districts with relief funds left to spend might use that money to cover eligible general operating expenses now and carry forward their excess general fund balance to spend on strategic recovery efforts next year. This isn’t a permanent solution, but the additional flexibility can allow districts to make gradual reductions over time instead of making cuts in a single fiscal year as the official ESSER obligation deadline approaches.

How to measure it: Unrestricted fund balance as a percent of annual operating expenditures

Indicator 6: Unspent ESSER dollars

As the window to obligate relief dollars draws to a close, it will become more difficult for school systems and states to invest remaining funds in ways that are both impactful and sustainable. Those with large amounts of money left to spend in FY24 are at greater risk of investing in recurring expenditures with limited time to plan for long-term sustainability, or of prioritizing quick one-time investments that are designed more to spend quickly than spend well.

This challenge may be mitigated in some districts by large unrestricted fund balances (see above), but many districts may simply be looking for ways to spend the money—and fast. While there are still strategic ways to invest remaining ESSER dollars, those spending large amounts close to the deadline are at more risk of facing an unwelcome fiscal cliff.

How to measure it: Total unspent ESSER III funds as of the end of FY23, as a percent of pre-pandemic annual operating expenditures

Total Enrollment Data for the 2018-19 school year is from the National Center for Education Statistics, Common Core of Data, “2018-19 Membership.”

This chart reflects available ESSER III spending data as of July 2023. ESSER III spending data is collected from the Edunomics Lab at Georgetown ESSER Expenditure Dashboard. Pre-pandemic operating revenue contains state, local, and federal sources and was collected from the National Center for Education Statistics, Common Core of Data, “2018-19 National Public Education Finance Survey.”

Bringing It All Together

State leaders should focus their energy on monitoring and supporting the largest districts facing the greatest sustainability risk. In these conversations, states should help districts go beyond sustainability as an end unto itself, and instead as a means to meeting the needs of students long-term.

In the sample illustration below, we’ve sorted districts by their “risk” for each indicator, with districts at the top of the list representing those facing the greatest risk across the five for which we have data. About one in four of the largest 100 districts in Texas are in the highest risk quintile for multiple indicators, with ten seeing the highest risk in 3 or more indicators. District 28, for example, is in the highest risk quintile for 4 of the 5 indicators we analyzed. This would suggest greater sustainability risk than in districts like District 29, which is only in the highest risk quintile for Indicator 1. We would encourage states to focus on districts at the top of their list: those at highest risk in multiple indicators. These are the districts that will need to balance decisions about how to spend remaining ESSER dollars with disinvestment decisions as they begin their Fiscal Year 2025 budget development cycle.

Yellow highlighting indicates that a district falls within the top quintile for that indicator.

What Can States Do?

  1. Assess district sustainability risk post-FY2023 close. Start by measuring these and any other indicators of long-term financial health to identify and begin directing support to districts at risk of a steeper ESSER funding cliff. These indicators can be assessed using data already collected by many states. Where this is not true, states may want to collect new or additional data directly from districts to ensure that leaders have critical information to support districts in planning for long-term sustainability.

  2. Provide guidance and support for districts with ESSER dollars left to spend. While many have already accounted for remaining funds, spending may continue to fall below budget estimates. We highlighted sustainable, evidence-based investments that are still possible that states can highlight and share with districts. States can also support districts in planning for long-term sustainability, including creating multi-year forecasts and taking a system strategy approach to assessing current spending and deciding what to stop, continue, scale, or improve.

  3. Help districts modify their ESSER plans. Investments that were strategic when districts had years to spend their ESSER allocations may not be sustainable when we’re down to a matter of months. States can help districts expedite modifications to their ESSER plans to ensure they can spend remaining un-spent ESSER funds effectively and sustainably.

  4. Explore flexibility in carryover or fund balance policies. States may be able to change laws and/or regulations to create more flexibility to carry forward funds in fund balance, even temporarily. States can explore this and other actions here.

  5. Explore pre-approval processes for late liquidation. According to the US Department of Education, under some circumstances, ESSER-funded activities may continue after the obligation and liquidation period—such as pre-paying for multi-year licensing contracts—but doing so requires “late liquidation approval.” The challenge for districts is that they can’t risk losing the funding if their liquidation request is rejected too close to or after the obligation deadline of Sept 30, 2024. As such, for late liquidation of ESSER III to be a viable option for districts, they need a pre-approval process that gives them time to determine alternative uses of funding prior to the deadline if their request is rejected.

  6. Increase state revenue to help smooth the cliff. A clearer picture of district sustainability can inform state-level appropriations for FY25 happening this fall. States may direct more revenue to districts, either through changes to the state funding formula or one-time investments. This could even include innovation funding to provide additional support for investments in transformative redesign efforts—especially for high-risk districts serving students with greater needs. States experiencing a net decline in K-12 enrollment can increase per-pupil funding without increasing their total investment in education. Tennessee, Maryland, and Massachusetts have each adjusted their funding formulas to direct more state revenues for districts.

i 1. ESSER revenue is from US Department of Education Office of Elementary and Secondary Education 2021 report on ESSER: US Department of Education ESSER 2021 report

2. Pre-pandemic baseline revenue is from National Center for Education Statistics Common Core of Data: 2018-2019 National Public Education Financial Survey

For information about ERS’ work with state leaders, contact ERS Partner Ventura Rodriguez.