We are more than halfway through 2020, and the consecutive number of unexpected crises and turbulence have given us all exhaustion. This is especially true for educators and school leaders, as the health and safety of students has become a high priority and directives change constantly.

This is true for budget planning, too. Constant changes create moving targets. Every state and district is going to be in a different place when it comes to state budget shortfalls, as several variables make up the outlook for the next fiscal year (FY) budget numbers.

You’ll need to consider these variables when anticipating what the state appropriations might be in the aftermath and ongoing considerations of the coronavirus pandemic. These include the condition of the budget going into the crisis, what tax revenue a state depends on, how much of the state budget goes to K-12 education, and finally how hard the virus has hit the state in general.

Budget conditions pre-pandemic

We’re only just beginning to get an idea of where states are with estimated shortfalls. Several states have opted to not yet reconvene the legislature, and many had not passed a budget before suspending the session due to coronavirus concerns. The National Conference of State Legislatures is keeping an up-to-date chart and map on revised state revenue projections (https://www.ncsl.org/research/fiscal-policy/coronavirus-covid-19-state-budget-updates-and-revenue-projections637208306.aspx). The best-case scenario right now is if a state can manage to maintain a mostly status quo budget from the last year, but that scenario will hold true for only a handful of states.

The Center on Budget and Policy Priorities (CBPP) explains that states have rainy day funds that they can dip into if they need—the 50-state total recently reached $75 billion, according to the Pew Charitable Trusts. But those funds can only go so far. The CBPP estimates state budget shortfalls due to coronavirus and the economic crisis could total more than $500 billion. Federal aid to date, plus state emergency funds, can close about one-fifth of those state gaps, leaving states $590 billion short.

Many states were in a pretty good place budget-wise before the pandemic hit. Now they are struggling with when, where, and how to cut sometimes already lean budgets. From meat-packing plants to oil or tourism, states’ main economic drivers vary.

Taxes that fund budgets

According to Education Week, “the spread of the virus has caused a precipitous drop in sales and income tax revenue, which more than 6,000 school districts rely on heavily. Fiscal analysts expect school districts in the next two years to lose more than $200 billion in revenue and more than 300,000 teachers to lose their jobs.” Essentially, districts that depend more heavily on sales and income taxes will fare worse than districts that rely more heavily on property taxes.

The Brookings Institution also notes that, “it wasn’t always the case that school district funding was so tied to the economy. Local schools used to be fairly insulated from economic downturns because they relied largely on local property taxes, a highly stable revenue source.” There are really two schools of thought when it comes to the mechanisms of funding. Funding schools on property taxes leads to a wider gap between the wealthy and poor schools. States saw the discrepancies, and now most states now play a much bigger role in funding schools.

In fact, the Brookings Institution shares that “analysis of the state share from 1970 to 2019 demonstrates that in 34 states, the share of K-12 revenue coming from state sources has grown from decades past. In doing so, many of these states have effectively traded K-12 revenue stability for greater funding equity. This little-discussed dynamic raises big questions as the education sector starts to grapple with the financial implications of the coronavirus-sparked economic slowdown.”

State budget allocations

Every state does things a little differently, but on average federal funding only accounts for approximately 8 percent of district budgets. The rest of the funds comes from state and local monies. Education funding is always a major item in the state budget, and often the single biggest item. On the high end of budgets is Vermont, with 90 percent of its state budget going to education. On the low end is South Dakota, with almost a third of its state budget funding education. The other states fall somewhere in between.

Education Week notes that more than half of the nation’s districts get more than 50 percent of their revenue from states. These districts serve a disproportionate number of Black, Latino, and low-income students, many with special needs.

During the last recession, many state legislatures decided to make flat percentage cuts to their K-12 aid. While it looked fair on its face, this sort of budget cutting ultimately fell disproportionately on low-income districts, many of which were already underfunded and academically struggling.

Veteran school finance consultant Michael Griffith has stated that, “With a cut of 3 or 4 percent to their own school spending, many states would come out ahead. But in a hypothetical world with an across-the-board 8 percent reduction in state K-12 spending? Every state loses out.” How states fare with K-12 education cuts depends largely on where their revenue comes from.

The burden of coronavirus also varies by state. There have been obvious hot spots, such as New York City and Seattle, and now in the Southeastern U.S., but the burden of lockdowns created a large spectrum across which states will have to make up funds. Several competitive federal funding opportunities that have been announced out of Washington, D.C., give preference during evaluation to states and cities that have the most to make up when it comes to how the pandemic impacted state monies.

Enter the CARES Act

In a historic manner, Congress and the White House agreed upon a $2.2 trillion package to create a stopgap for the immediate danger forecasted from nationwide state lockdowns. Not only did the bill pass incredibly fast, but the agencies in charge of distributing funds acted very quickly as well.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to help states, localities, and districts use block grants in as flexible a way as possible, as quickly as possible. There are many opportunities for districts within the CARES Act to use funds where their states will otherwise fall short in the coming year, and years.

There are three main formula areas of the CARES Act section specific to K-12 education, known as the Education Stabilization Fund.

  • $13.5 billion for K-12 districts: Elementary and Secondary School Emergency Relief Fund (ESSER)
  • $3 billion for Governor’s Emergency Education Relief Fund (GEER)
  • $300 million for Microgrants: Rethink K-12 Education Models Grants

ESSER is the largest block grant available for K-12 education. This formula grant was distributed to states and districts from the Title I, Part A formula, with the most- populated states receiving over $1 billion to be distributed among school districts. There are very few restrictions on this fund. In fact, instead of a formal application process, states had to fill out and sign a certification and agreement. The process was meant to be streamlined and simplified to quickly get the funds out.

Along those same lines, once a state submitted its application for approval, the U.S. Department of Education was required to obligate funds within three days of approval. This is extremely fast for a federal agency.

U.S. Secretary of Education Betsy DeVos also released a statement on the ESSER Fund that encourages recipients to think differently about how education is provided to students, stating, “my department will not micromanage how you spend these funds, but I encourage you during these challenging times to see this unprecedented disruption as an opportunity to rethink the way students access education.” This sentiment will remain moving into the fall, as uncertainty about a continued spike in cases looms over the future and reopening of schools.

As of now, 23 states have indicated that these funds will be used for devices and connectivity, 19 have indicated uses for professional development, and 15 states have indicated they don’t yet have any concrete plans for these funds.

Many district leaders have made it clear they do not believe the ESSER Fund is enough to provide access and services they need to establish equitable learning environments with so many students and teachers without connectivity or devices at home.

Along with the ESSER Fund, Congress allocated $3 billion for the GEER Fund. This additional formula block grant (based on each state’s relative population of individuals aged 5 through 24, and 40 percent based on each state’s relative number of children counted under the Elementary and Secondary Education Act) allows governors to choose both districts and uses for these funds. The priorities for uses largely mirror the priorities of the ESSER Fund.

Microgrants, or the Rethink K-12 Education Models Grants, are essentially set up to act like vouchers. Here’s what’s known so far:

  • $300 million in discretionary grant funds have been awarded for states to use to create adaptable, innovative learning opportunities for K-12 and postsecondary learners in response to the COVID-19 national emergency. (This means states must apply and compete for the dollars. They are not formula grants.)
  • The range of awards is from $6 million to $20 million, with the estimated average award being $15 million.
  • There are three categories of microgrants in the CARES Act:
    • Microgrants for families, so that states can ensure they have access to the technology and educational services they need to advance their learning.
    • Statewide virtual learning and course access programs, so that students will always be able to access a full range of subjects, even those not taught in the traditional or assigned setting.
    • New, field-initiated models for providing remote education not yet imagined, to ensure that every child is learning and preparing for successful careers and lives.
  • The department awarded these funds to 11 states.
  • The project period is three years.

The grant competition was based in part on preference to “states with the highest coronavirus burden,” which in turn is “based on indicators and information factors ... that demonstrate the significance of the impact of COVID-19 on students, parents, and schools in the state. This description may include additional data, including other public health measures such as coronavirus-related deaths per capita, or any other relevant education, labor or demographic data.”

These grants were just awarded to states on July 29, and the grantees can be found on the Department of Education’s website.

What's next for federal funding?

The following months after the passage of the CARES Act led to a great deal of speculation about a “phase four” of funding. The speculation appears to be true. However, Congress just failed to meet a deadline on the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act. Under this next round of funding, K-12 education would receive another $70 billion for the Education Stabilization Fund, and $5 billion for the GEER Fund.

Congress set a deadline of Aug. 7 but failed to get a deal done. There are several variables still at play for negotiations, so this proposed funding is still nowhere near a certain thing.

It is a critical time to plan out the use of these funds effectively and with vision. District leaders must make funds stretch as far as possible to ensure access and equity of learning opportunities for every student.

Susan Gentz (sgentz@bsgstrategy.com) is the founder of BSG Strategies, LLC, in Ankeny, Iowa.

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