COVID-19 and School Funding: What to Expect and What You Can Do
Updated October 7, 2020
This post is part of LPI's Learning in the Time of COVID-19 blog series, which explores evidence-based and equity-focused strategies and investments to address the current crisis and build long-term systems capacity.
The numbers are staggering. In the past 5 weeks alone, since states began to issue shelter-in-place orders, virtually all 50 states have significantly reduced economic activity in this country, and almost 22 million Americans—more than one in ten working adults—have applied for unemployment insurance. The International Monetary Fund has predicted that this will be the worst economic downturn since the Great Depression. This downturn will impact state tax revenue and thus result in reduced state P-12 education spending. The questions are, how badly will our public education system be affected, and what can we do about it?
State Revenue and Public Education Spending
According to the U.S. Census, 47.1% of public P-12 education funding comes from state sources. Another 44.9% comes from localities, and typically just 8% comes from the federal government. While localities rely on more stable property taxes, the vast majority of state revenue (just under 90%) comes from two sources—sales and income taxes. Retail sales started to take a hit in February, while state unemployment numbers—which will ultimately affect overall wages and taxes—did not begin to climb until the end of March. Because of this, we’d expect to see state sales tax revenue decrease first, but that will be followed quickly by very large reductions in income tax revenue.
CARES Was a Good First Step
The federal government has recognized that public education funding will suffer during and after the pandemic. Because of this, they provided $16.2 billion in the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act to help fund public education. While the additional federal funding is helpful, it is not nearly sufficient to make up for potential state budget cuts. CARES education funding is equivalent to only 1.9% of P-12 education revenue in the 50 states and Washington, DC, in the 2020–21 school year. To put it another way, this additional federal education funding is equivalent to only $286 per pupil, on average.
Trying to Determine the Impact of State Budget Cuts
I have spoken to revenue and budget experts from around the country, and none of them currently feels confident in projecting how far state revenues will fall this year and next. Some preliminary estimates from states are showing state revenue drops of between 10% and 20%. These drops are likely to be even larger in 2021–22, when the income tax effects will be felt more fully. Furthermore, the extraordinary costs to states of health care investments and social services for those rendered unemployed, homeless, and food insecure by the crisis will absorb a large share of the shrinking state revenue, leaving education far behind.
If we assume that state education spending will decrease by 10% this coming year, P-12 programs would see a reduction of over $21 billion—even after the current CARES Act funding takes effect. A 20% drop in state education budgets would result in funding decreases of just over $57 billion for America’s public schools. As I will describe in an upcoming blog, this would likely be equivalent to the loss of nearly 750,000 teaching jobs. Because of these large projected shortfalls, education leaders have advocated for $200 billion for schools in the next recovery act (CARES II), a very sizable increase over the current allocation. This would be spent over the next 2 to 3 years as the full effects of the recession set in.
Instead of trying to guess what will happen to individual state education budgets under different scenarios for state budget cuts and federal aid, I created an interactive tool that can be adjusted to look at any budgeting scenario. The CARES Act has two funding sources for K-12 programs. The first is the Elementary and Secondary School Emergency Relief (ESSER) Fund. The second is the Governor’s Emergency Education Relief (GEER) Fund. For the ESSER Fund, I used the CARES Act distribution formulas, which follow Title I allocations, and further assumed that half of the Governor’s discretionary education dollars (GEER funds) will go to P-12 schools (with the remainder to higher education). I used current data about spending, revenue sources, and enrollment in each state, and took into account the differences in the state share of education funding in each state to calculate how the current CARES Act—and other larger allocations—would affect education spending, while also examining the effects of state budget cuts of varying sizes.
This tool shows, for example, that at the current CARES Act funding level, a 20% state funding decrease in Georgia would result in a per-pupil funding cut of $869, even after the stimulus funds land, while that same size budget cut would result in a $3,530 reduction in per-pupil spending in Vermont. Readers can explore the results of the stimulus investment in conjunction with state education budget cuts of different sizes for any of the states.
Data for this interactive provided by LPI; design courtesy of Education Week. See related story at Education Week.
Funding Allocations to Districts
As previously mentioned, under CARES, states are required to distribute ESSER funding to districts in proportion to their share of the state’s total Title I-A funding and Governors can choose to distribute GEER funds to k-12 or higher education institutions. Districts must then allocate a portion of any CARES Act funding to private schools in their jurisdiction. Under the bi-partisan passed Every Student Succeeds Act (ESSA) (Sec. 1117), districts must provide Title I participating nonprofit private schools’ equitable services based on their enrollment of low-income students (measured by Free/Reduced Price lunch participation). Non-binding Guidance issued by the U.S. Department of Education regarding the use of funds under the CARES Act states that districts should share their funding from the CARES Act with private schools based on their total enrollment instead of their low-income student enrollment. This change would impact both the GEER funds, which provides $2.9 billion in overall funding, and the ESSER funds, which provides $13.2 billion in overall funding. The Department is considering issuing a rule to make this shift away from the calculation under ESSA a requirement rather than non-binding guidance.
I conducted an analysis to estimate the impact of this guidance and potential rule. Nonpublic schools serve about 10% of all students in the United States, including about 1% of low-income students. The state of Arizona was excluded from this analysis because Arizona’s data from the U.S. Department of Agriculture contained some inconsistencies. This analysis shows that, under the Department of Education’s Guidance, districts would provide an additional $1.35 billion in funding for services to private schools ($1.22 billion in CARES ESSERF funding and $133 million in GEERF funding), which amounts to approximately an additional 10% of CARES Act funding.
Download the "CARES ACT Private Schools State Analysis" spreadsheet >>
Download the "CCCERA State Analysis" spreadsheet >>
Download the "HEALS Act State Analysis" spreadsheet >>
Download the "HEROES Act State Analysis" spreadsheet >>
Download the “Updated HEROES Act State Analysis” spreadsheet >>
What Can Be Done
Knowing that the current federal funding program will not be sufficient to cover state education cuts, what can state and local leaders do? The following are some suggestions for education leaders as they face difficult budgetary decisions:
- Push for Increased Federal Assistance: A 30% reduction in state education funding over each of the next 2 years could result in cuts to public P-12 systems of almost $200 billion. This kind of massive state funding cuts would require a federal investment to allow districts to weather the economic downturn without dramatically impacting the education of our country’s neediest students.
- Protect Vulnerable Student Groups: Unfortunately, services for students who are English language learners, those with disabilities, or those from low-income families tend to feel the brunt of education cuts. State and district leaders should ensure that any cuts made to education do not fall disproportionally on these high-need student groups.
- Increase Flexibility: If states have to cut education funding, they can at least provide districts with greater flexibility in how they spend their dollars. After the last economic downturn, states such as California changed their funding systems to a weighted student formula, in lieu of a bevy of categorical programs, to allow districts greater financial freedom while focusing more on pupil needs. States may want to take this opportunity to create more flexible, equitable, and responsive funding systems.
The times ahead will be difficult for the education community. However, we must stay focused and know that we will overcome these difficult times. With some planning and hard work, we can ensure that all students in this country will have the resources they need to enable them to reach their full educational potential.
Michael Griffith is a Senior Researcher and Policy Analyst at LPI.