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7 Issues Facing K-12 Budgets as COVID-Shocked Legislatures Reconvene
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Almost every state's legislature is expected to reconvene in the coming weeks to cut billions of dollars from their budgets. The coronavirus-driven shutdown of the economy caused a precipitous drop in income and sales tax revenue, which states heavily rely on. 

Without another federal infusion of aid for states on the horizon, the consequences for public schools will be swift and severe. More than half of the nation's school districts get the majority of their revenue from state aid. These districts, on average, serve a disproportionate number of poor, black, and Latino students, many of whom were lagging academically before the crisis abruptly closed schoolhouse doors this spring.  It's well-documented that it will cost billions of dollars more for schools to reopen this fall and to get children back on track. 

How legislatures decide to fill a multi-billion-dollar deficit will have long-lasting effects on academics and politics. After school districts laid off more than 300,000 people between 2008 and 2010 in the last recession, students' performance on tests stagnated and disparities between wealthy and poor students widened.  Many districts have yet to recover.

State lawmakers have their work cut out for them as they encounter difficult, if not impossible, financial choices.

Here are seven key issues on their summertime agendas that will affect school finance.

1. States will attempt to change who gets taxed and how much, which could worsen the fiscal crisis for schools.

Lawmakers are looking for ways to jump-start their economies and ease the financial burden for millions of unemployed constituents. 

The federal government, along with states like California and Oregon, have extended the deadline for individuals and corporations to pay their tax bills. That's pushed back the timeline for when school districts expect to receive cash from local, state, and federal agencies to pay their bills. 

Many legislators want to limit how much school districts can tax their constituents and how often and when they can go to taxpayers to ask for more money.  Pennsylvania is now considering a bill that would cap property tax revenue.  For most districts, when state revenue dips, school boards and voters attempt to raise the local property tax rate to make up for the lost revenue. Capping property tax rates is like "tying one hand behind your back," Bruce Baker, a K-12 finance expert at Rutgers University who has pushed for more school funding, said in a webinar a few weeks ago. 

In Vermont, where property taxes are pooled by the state and then redistributed to districts, Gov. Phil Scott, a Republican, has proposed telling school districts to put their 2020-21 school year budgets back up for a vote and ask local residents if they want to see their property tax rates jump 14 percent this fall.  Many legislators balked at that idea.

Alternatively, states' legislatures could decide that the budget cuts are too much to bear and raise taxes to bring in more revenue, though higher taxes during a recession is a tough political sale.

Read our coverage here. 

2. Lawmakers will grapple with how states and districts spend their limited federal aid money. 

It's now very unlikely that Congress will provide states with anywhere from $100 billion to $200 billion that K-12 finance experts agree is the amount needed to avoid mass layoffs this summer.

But there's heightened political scrutiny on how states should spend the $13.5 billion they got from the federal government through the Coronavirus Aid, Relief, and Economic Security Act.  One issue is whether legislatures can or should use the money to shrink their looming budget deficits, as New York's legislature already did, or treat it as extra money on top of the funds states would have sent to districts otherwise. 

States are split on the issue of what the federal law allows, though the language in the law is very loose.

Meanwhile, U.S. Secretary of Education Betsy DeVos wants the states to share the money with private schools, a move that's infuriated public school advocates. 

And remember: Once that $13.5 billion is split among 50 states and then again among 13,000 districts, it will do little to spare deep budget cutting for schools. The vast majority of districts will have to carve a range of 10 to 25 percent from their budgets.

Read our coverage here.

3. Every K-12 program that exists outside states' funding formulas will have a target on its back. 

Districts get most of their state aid through complicated funding formulas that consider factors including district size, poverty rate, and location. 

But as these funding formulas have aged, and it became increasingly difficult to funnel money to districts that needed it most, legislatures have created a variety of grants and categorical funding streams outside their funding formulas. 

State lawmakers will first do everything they can to avoid cutting back money that flows through their funding formula. 

That means big initiatives launched after a state created its funding formula are at risk. That includes pre-K programs, after-school programs, vocational programs, programs for English-language learners, and, in many states, school choice programs such as vouchers and charter schools.

States' school construction projects will likely be placed on hold. And states' education departments, which have specific duties under the federal Every Student Succeeds Act and play a pivotal role in leading school systems through the pandemic crisis, will likely experience deep cuts. 

Read our coverage here. 

4. States will attempt to cut equitably, but will struggle. 

Researchers have now concluded that the budget cuts made during the last recession directly led to widening achievement gaps between black, Latino, ELL, and poor students and their white, wealthier peers. Overall, standardized test scores have stagnated and, in recent years, have begun to backslide. 

Dan Thatcher, a K-12 fiscal analyst for the National Council of State Legislatures, said legislators this summer are attempting to spare academically struggling districts by working more collaboratively with education department officials to make more surgical cuts.

But those sorts of budget-cutting strategies are complicated to execute and politically difficult to get through legislatures.

No matter which way you slice it, low-income and school districts with lower-performing students are most heavily reliant on state aid and stand to lose the most when sales and income tax revenue go into a tailspin. The nation's wealthiest, highest-spending districts rely mostly on property taxes. Those rates historically have been set locally, not by the state.

Lawmakers in Ohio last month devised a formula that cut more money from wealthier school districts than low-income school districts, a move that's gotten some blowback but has been praised in K-12 funding circles.

In recent weeks, K-12 finance think tanks have come up with alternative, more progressive budget-cutting strategies for states to consider.

EdBuild, an organization that's pushed states in the past to overhaul their funding formulas in order to close spending gaps between wealthy and poor school districts, released a paper this week that urges states to pool more-stable property tax revenue at the county level rather than at the school district level.

And WestEd, a think tank that works with states to spend money more efficiently, released a paper this week that encourages legislators to spare programs and districts that serve an overwhelming number of poor students; avoid cuts to districts hit heavily by the coronavirus; and spread cuts out over several years.

Read our coverage here.

5. Districts are asking legislatures for waivers from states' K-12 finance rules. Civil rights advocates will push back.

More flexibility in how districts collect and spend their money would allow CFOs to be more creative in their attempts to keep classrooms intact and open schools sooner this fall, they have argued.

Also, because teachers have had a hard time tracking students to make sure they log on for distance learning, districts are pushing for states to waive average daily attendance rules that determine how much money districts get annually.

Similarly, districts want states to waive class-size requirements since online classrooms can handle dozens more students. Bigger class sizes would allow districts to lay off more teachers, whose salaries take up more than 80 percent of their budgets.

Other requests include waivers from increased minimum wage requirements; federal and state maintenance of effort rules that require districts to annually spend a base amount on items such as special education costs; staffing rules that dictate things such as how many librarians and counselors students have access to; and requirements that dictate how much money districts need to save annually.

But civil rights advocates have urged legislatures to be cautious when deciding which rules to waive.

"We should be granting districts waivers where it's appropriate and necessary," said Ary Amerikaner, the vice president for P-12 policy, practice, and research for EdTrust, a group that advocates for poor students and children of color. "But we should be taking into account that these compliances aren't just hoops we make people jump through but they're civil rights protections to make sure vulnerable kids get the resources they need."

Read our coverage here.

6. K-12 faces fierce competition for money from other struggling government services. While public schools typically take up the largest chunk of states' budgets, they are not the only part of the public sector that is struggling.

The higher education sector, rapidly losing student enrollment, is facing mass layoffs and some smaller private and public colleges have threatened to shut down permanently.

Millions of unemployed people have joined states' Medicaid and welfare rolls, requiring states to spend more on housing vouchers, food stamps and unemployment checks.

Public hospitals have been slammed with coronavirus patients, and states have spent hundreds of millions of dollars purchasing face masks and ventilators, and to prop up chronically underfunded local health departments.

In addition, states must find a way to pay down their public pension debt which has lost more than $1 trillion in value in the last few months.

While K-12 funding advocates have been able to convince legislatures to prioritize the needs of schools in years past, they will have a more difficult time this time around.

Read our coverage here.

7. With no clear end in sight for the downturn, expect rolling legislative sessions throughout the 2020-21 school year. That means midyear cuts are likely. States' fiscal analysts are having a difficult time making projections given the uncertainty surrounding the pandemic and the turnaround in revenues as state economies reopen. That has raised anxiety among district administrators who anticipate budget cuts to come close to or even after the new school year starts.

In the meantime, legislatures in some states like New York and Pennsylvania are passing temporary budgets with promises to meet again throughout the fiscal year. That pattern will likely be replicated throughout the nation in the coming months and complicate districts' reopening plans and, possibly, interrupt classroom learning next school year as districts are forced to make midyear layoffs.

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