5 stressors states should expect when ESSER funds expire

Inflation is slowly declining. However, overall costs are much higher than they were in previous years, according to the authors of a new report. Here's what to look out for.

Last week, District Administration released episode four of the “Talking Out of School” podcast where we sat down with Marguerite Roza, a professor and director of Georgetown University’s Edunomics Lab, to learn how district leaders should prepare for the expiration of ESSER funds in September. She described it as “the most complicated budget year ever.” Now, another organization mirrors her concerns.

A February report from the Center on Budget and Policy Priorities suggests that the September deadline could pose several severe challenges for states. Some school districts have relied on these funds to stay afloat as they continue to feel the strains of teacher shortages, student mental health, inflation and other pandemic-related issues. Others, however, have yet to spend or allocate the funds and risk losing them in six months.

“As lawmakers take up education funding during this year’s state legislative sessions, the damage that the loss of ESSER funds will cause should be top of mind,” the analysis reads. “To prevent harm, state lawmakers will need to resist calls for further tax cuts and instead look for opportunities to raise revenues to keep investments in education steady.”

As school leaders brace for this looming fiscal cliff, the authors of the report caution administrators to be on the lookout for five factors that will exacerbate the deadline’s financial impact:

1. Costly state tax cuts

Several states have leveraged recent economic growth and federal dollars as a reason to push steep tax cuts in recent years, the authors declare. In four years, these cuts are expected to total $111 billion in lost revenue.

“These tax cuts have shrunk the funding available to address the upcoming decline in federal education dollars,” the analysis reads. “Historic rainy day fund deposits that states made during the pandemic could be used to help fill in the loss of funding.”

However, many areas will be forced to reverse tax cuts to address education funding deficits in the coming years.

2. Diversion of resources to school vouchers

Many states have joined the push to expand school voucher programs leaving less funding for public schools. Overall, the authors suggest these initiatives have a severe impact on low-income districts.

“Students in low-income families are typically unable to take advantage of voucher programs because private school tuition exceeds voucher amounts,” the report reads.

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Most families that take advantage of these vouchers exceed $200,000 in household income, research shows. In the meantime, low-income school districts will be unable to meet economic demands when funding dries up.

3. Inadequate school funding formulas

In some states, funding formulas provide insufficient aid for some of their most desperate school districts, only exacerbating the anticipated loss of ESSER funding.

Furthermore, many funding policies address student enrollment without taking into consideration fixed costs like building maintenance, the analysis suggests.

“The combination of the ESSER cliff and inadequate funding formulas will result in inequitable school closures, layoffs and program cuts to districts with high proportions of students living in poverty,” the authors wrote.

4. Elevated costs

Inflation has forced school districts to work around unexpected spikes in costs for a variety of basic necessities, including fuel, food and construction. Despite inflation slowly dipping back to normal levels, overall prices remain much higher than previous years’ figures.

5. Uncertain revenue outlook

Thanks to federal guidance, many states received “unexpected” revenue surpluses during COVID-19, despite a weaker economy at the time. Unfortunately, that revenue growth fell drastically in 2022 and 2023. State tax revenue across the board fell 11% in 2023, according to the analysis.

“Although economic growth has improved in recent months, state tax revenues were still down by 0.8% in real terms for the period between July and December 2023 compared to the same period the year before,” the report reads.

Micah Ward
Micah Wardhttps://districtadministration.com
Micah Ward is a District Administration staff writer. He recently earned his master’s degree in Journalism at the University of Alabama. He spent his time during graduate school working on his master’s thesis. He’s also a self-taught guitarist who loves playing folk-style music.

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