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COVID-19 and State Education Budgets: The Story Behind the Numbers

Learning in the Time of COVID-19 blog series art

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.

To expect the unexpected shows a thoroughly modern intellect.
Oscar Wilde

It has been six months since the coronavirus changed just about everything in our lives. How we work, play, and learn have all been dramatically altered since March. The pandemic has also upended state education budgets, leaving policymakers and analysts unsure how to plan for coming needs. Although cuts to school budgets have not yet been as severe as originally predicted, the evidence indicates that much more severe challenges lie ahead. This blog explains how COVID-19 has affected state education budgets—and explores the implications for public education funding this year and into the future.

Protecting Education Funding

Why are state education budgets looking better than some have predicted? Simply put, federal and state moves to infuse new funds and implement stopgap measures have been effective at stabilizing public education budgets—for now, at least. But without additional federal funds, we should prepare ourselves for large cuts to state education budgets.

Let’s take a closer look.

Federal Action Has Paid Off—So Far

In March, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided over $2 trillion in economic relief, including $13.2 billion in direct funding for k–12 public education. But while these funds and other provisions helped shore up state budgets—and thus provided some temporary financial assistance to public schools—the package lacked the size and flexibility to stabilize education funding for the long term. In fact, the dedicated k–12 funds in the CARES Act accounted for less than 2% of total public education funding in the 2020–21 school year. This funding must also be used to address the additional costs of dealing with the virus and cannot be used to fill budget holes.

In addition to direct funding for public education, the CARES Act included other provisions that helped stabilize the economy and state revenues. The program that may have had the most significant impact on state revenue was the $600 per-week increase in unemployment benefits, totaling an estimated $250 billion. These payments are subject to state income taxes, which helped to stabilize state revenue during some trying months. Additionally, consumers spent much of these additional resources in their local communities, supporting local businesses and thus generating additional sales tax revenue.

State Action

While additional federal funding helped, it was not enough. States still had to tap reserves or take other steps to balance their budgets. For example, during this recession, as in past recessions, states have enacted one-time budgetary moves to avoid cutting education budgets. These maneuvers included tapping reserve accounts, delaying spending on specific activities, or even delaying payments to districts. While states had record amounts in their reserve accounts before the downturn, those funds are now significantly depleted. Many states used these funds to stabilize their fiscal year 2019–20 budgets and help avoid or minimize cuts to their 2020–21 budgets. However, these funds alone will not be enough to weather the current economic storm that could bring with it more severe education cuts in 2021 and beyond.

During bad economic times, states commonly reduce or cancel spending on individual programs (such as capital projects or pension payments). One last way that governments have chosen to deal with a reduction in education funding is to postpone some payments to districts until the next fiscal year. Deferring funding to districts allows states to balance their books for the current year, but school districts pay the price for this one-time budgetary move. For example, California will be delaying $11 billion (13.5%) in public education spending in the 2020–21 school year until the 2021–22 school year. What all of these state budgetary maneuvers have in common is that they can only be used once and thus are only a short-term solution to a long-term problem.

The Unpredictability of State Revenue During COVID-19

Another issue that state policymakers are facing is the unpredictability of revenue streams. Why? Because no one working in government today has ever dealt with the financial impact of a pandemic. State and local "stay-in-place" orders resulted in an almost total shutdown of commerce in April and May. After those orders were lifted in June, states saw a burst of economic activity unheard of during traditional economic downturns. For example, some states, like Massachusetts and Texas, experienced increases in sales tax revenue this summer. However, in some states the opening up of the economy was accompanied by a surge of COVID-19 cases, which in turn forced additional rounds of economic shutdowns. States that experienced the burst in activity this summer do not know if will continue into the fall.

No one working in government today has ever dealt with the financial impact of a pandemic.

What's Going to Happen Next—And What Can We Do?

What will education budgets look like in the next 3, 6, or 12 months? While much is still unknown, there’s plenty we do know: CARES Act funding for education has been exhausted. States have, for the most part, made their one-time budgetary moves. We also know that states, districts, and schools face increased costs because of COVID-19 while they face declining revenues for the coming year with few reserves to stave off cuts this time.

Without a remarkable economic rebound in the next couple of months, America's public education system will require additional federal assistance to avoid a round of education cuts in the next 2 school years—cuts that, as we learned during the Great Recession, will fall hardest on historically underserved children.

The Size and Shape of Federal Assistance

LPI has estimated the pandemic’s financial costs to public school at between $199 billion and $246 billion (depending on how educational services are provided). These estimates include both the increased costs of dealing with COVID-19 and the loss of state revenue. This size of a financial impact on schools is unheard of and requires assistance from the federal government to prevent major cuts to our public education system. Any federal rescue package should focus on the following:

  • Ensuring that all public schools have the resources they need to keep their students and staff safe during the pandemic
  • Targeting funding to districts serving students from low-income families, students of color, students with disabilities, students experiencing homelessness, and other historically underserved students
  • Guaranteeing that all students have the resources necessary to make up for lost instructional time at the end of last year and the beginning of this year
  • Making sure that public schools can retain their teachers and other educational staff

With these goals in mind, policymakers will not just be supporting an opening up of the economy today; they’ll be ensuring our country’s viability in the future.