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Coronavirus creates funding time bomb for public schools

Districts that rely heavily on sales tax may be especially vulnerable

Sir Francis Drake High School in San Anselmo, Calif., like other schools across the country, has had to close because of the coronavirus pandemic.
Sir Francis Drake High School in San Anselmo, Calif., like other schools across the country, has had to close because of the coronavirus pandemic. (Ezra Shaw/Getty Images)

The economic pain brought on by the coronavirus pandemic is just about everywhere. 

Atlanta businesses that rely on tourism took a huge hit after the NCAA canceled the Final Four college basketball tournament. The iconic Las Vegas strip is shut down. New Orleans’ French Quarter is a virtual ghost town.

But a budgetary time bomb for public schools is likely to explode long after the pandemic ends and lawmakers shift their focus to the next crisis — and the crisis after that. 

Many public school districts rely heavily on state sales tax revenues that have already plummeted and may not recover for a very long time. State income taxes and local property taxes are both significant sources of funding and are also likely to dip. Personnel and pension costs could rise at the same time. Even school districts in areas mostly untouched by the virus will feel the economic impact.

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For now, many school districts have their hands full closing buildings, moving classes online and figuring out how to provide meals and lesson plans remotely. Many districts haven’t seen an immediate economic impact since budgets tend to be locked in through June. As a recession sets in and state revenues decline, however, school officials worry they could see steep cuts in the years to come.

Federal dollars make up a small but crucial portion of most district budgets. Now, school districts may have nowhere else to turn as state budgets shrink. The recent stimulus package will help, but some experts say public schools will need more federal help in the months ahead. 

The looming financial woes for public schools may affect the 2020 election season as well. A bad economy is never good for incumbents, and the current crisis could mean deep cuts to education and other basic public services in battleground states. Nevada, Texas and Florida are just three examples of key states where school districts rely heavily on vulnerable sales tax revenue.

At the end of the day, many school officials say that they don’t know what to expect. Decisions about hiring, capital improvements and more that seemed clear a few weeks ago are now in limbo.

“We feel pretty good come June. The question is what happens come July and moving forward,” said Marvin Dereef, chief financial officer for the Fulton County, Georgia, school district. “Our biggest enemy when it comes to making budgets is uncertainty.”

‘A different timeline’

Coronavirus hit the Atlanta metro area hard, with over 600 confirmed cases and 19 deaths in Fulton County alone as of Wednesday.

With big events like the Final Four college basketball tournament canceled and many businesses closed, the pandemic is having an immediate impact on the city’s finances. And an executive order by Atlanta’s mayor urged residents to “stay at their place of residence” for a two-week period beginning March 24.

For the Fulton County School District, one of the largest in the greater Atlanta area, however, the financial hit could be years down the road.

“It’s usually two or three years from now that we start to see what really the impact is going to be,” Dereef said. “We faced that at the last recession. It hits the schools on a different timeline that it may hit the other businesses and organizations.”

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Public schools typically are funded through a combination of state taxes, local property taxes and a relatively small percentage of money from the federal government. The exact mix varies from state to state and even district to district, leaving some schools more or less vulnerable when a recession hits.

In some states, the amount of education funding a county receives from the state depends on the strength of local taxes. Counties with a strong local economy are less dependent on state funds to fill out their budgets. 

Education funding in Nevada is determined by a complex formula designed over 50 years ago that balances the proportion funded by the state with the amount a district can raise in local taxes.

Clark County, for example, where Las Vegas is located, gets very little money from the state because of revenue generated by the casinos. But about 200 miles northwest of Las Vegas, rural Esmeralda County, with fewer than 1,000 residents, gets most of its education funding from the state. 

But during a recession, whether a county gets its funding from local taxes or state taxes, tax revenue tends to drop, and the pot is smaller for everyone.  

Like many states that don’t have an income tax, Nevada depends on its sales tax. Nearly 40 percent of its tax revenue comes from sales tax, according to a census data analysis by the Tax Foundation, an independent tax policy nonprofit. That’s left the state in a precarious position as businesses closed, conferences got canceled and travel dried up.

Greg Bortolin, a state education department spokesman, said no other event in recent history compares. Even 9/11 didn’t have the same economic consequences. 

“We didn’t shut down Las Vegas and Reno when 9/11 happened. Right now everything’s shut down,” he said. “We don’t know how severe it’s going to be. We don’t know how quickly the economy will bounce back.”

Bortolin said approximately half of the state budget goes to fund K-12 education. During the last recession, he said, state employees were furloughed because of education funding cuts. A budget shortfall seems inevitable in the coming academic year, and federal support could help make up some of the gap, he said.

“We will need it. Two-thirds of our economy right now is shut down,” he said. 

‘We don’t know’

School districts that differ dramatically in terms of geography, size and population all have questions about funding the next academic year. Just as the uncertainty of the pandemic stymies the ability of businesses and healthcare institutions to plan ahead, school districts struggle to work out budgets and staffing. 

Oklahoma’s Delaware County is mostly rural and almost one-quarter Native American. As of Wednesday, there had been just eight confirmed coronavirus cases and no deaths there, according to the Oklahoma State Department of Health website. 

The school district for the Delaware County town of Kansas serves about 875 students. Superintendent Jim Burgess said he doesn’t foresee budget issues finishing out the current school year but predicts deep cuts for next year. 

“The economy is not producing anything for the state right now,” he said.

In Massachusetts, the suburban Newton school district serves over 12,000 students. Superintendent David Fleishman agreed that uncertainty characterizes next year’s academic funding.

He doesn’t have details on how money will flow from the federal stimulus package. 

“The bottom line is that it is too early to know,” he said in an email. 

On the other side of the country, coronavirus arrived as Sonoma County, California, was still trying to recover from several years of wildfires

Diann Kitamura, superintendent of Santa Rosa City Schools, said school enrollment declined after the wildfires because the high cost of living made it difficult for families to rebuild. She said more families may move away next year due to job loss during the pandemic. 

All the unpredictability, she said, creates a “very difficult situation for our budget next year.”

Kitamura said nearly all of her school district’s $190 million budget is allocated from the state based on how many students show up for classes each day, an “average daily attendance” metric. Only $8 million comes from federal funding. 

“We are trying to calculate what our proposed revenue will be in a situation that’s so uncertain,” she said. The school board is supposed to approve next year’s budget by June 30. 

She said the state may allocate the same amount in funding for the coming academic year as this current one because of difficulty calculating this year’s average daily attendance due to school closures. 

But if the current recession does drive families out of the county, reduced enrollment could cause an even steeper drop in education funding down the road. 

Kitamura cautioned against viewing these challenges solely through a monetary lens. She said the pandemic will take an emotional toll as students and teachers make up for lost instructional time and families make hard decisions about relocation. 

“The economic impact will be for years to come. … It goes much further than the bottom-line dollars of budget. It’s really about the … human economic loss and well-being loss too,” she said.

‘Just not enough’

Current funding for many public schools will run out in June, when their fiscal year ends. That’s when school officials and education experts say dips in state revenue will start to trickle down to local school districts.

When that happens, education will be just one on a long list of budget priorities — not least of which will be a massive emergency investment in public health and first-responders. Colleges and universities, transportation, small businesses, industry, housing, local governments and more will all take a hit.

With less money to go around, state legislatures will have tough choices to make. And lawmakers in Washington will almost certainly face more pressure to help out.

At the same time, many school districts have locked in annual raises for their teachers. Senior teachers who would ordinarily change jobs or retire may choose to stay put if the recession deepens. That lower rate of turnover may further strain school budgets.

Add in declining returns for state pension funds, and you have a perfect recipe for budget woes — costs will go up just as revenues go down.

“That could spell a lot of financial turmoil for K-12 education this fall,” said Marguerite Roza, who runs the Edunomics Lab at Georgetown University.

The stimulus package enacted last week includes about $13 billion for education, along with a $3 billion fund for governors to use on K-12 and higher education. The early childhood education program Head Start will get an additional $750 million, while the Bureau of Indian Education will get $69 million. Millions more are set aside for mental health services, child care programs, disinfecting schools, and spinning up distance learning programs, according to an analysis by Education Week

To qualify for the core of that money, states will have to keep their education budgets stable in fiscal years 2021 and 2022. Still, advocates say the money won’t be enough to fill state budget deficits. It falls short of the $75 billion requested in an open letter to Congress on behalf of seven national education organizations.

One concern is that any federal money will be one-size-fits-all, spread evenly across the states rather than targeting those states and districts that are hit worst.

Kitamura said the amount allocated to K-12 education is inadequate, especially considering the cost of implementing distance learning for the remainder of the current academic year. 

“It’s not going to even come close,” she said.

Douglas Harris, who runs the Education Research Alliance for New Orleans at Tulane University, agreed.

“It’s just not enough money,” he said. “They’ll eventually need many times that to maintain services.”

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