Should districts brace for a recession? A heads-up for leaders

An education finance expert addresses three economic shifts that schools will be facing all at once and what they should do to prepare.

America may not be expecting a recession, but there are several economic changes that are going to be hitting school districts all at once—and if leaders aren’t prepared, they’ll have to make major budget cuts.

That’s according to Research Professor and Director of the Edunomics Lab at Georgetown University Marguerite Roza.

Schools have had access to billions of dollars in federal funding to increase teacher pay and hire mental health professionals, among other things. But many have been too quick to make long-term financial decisions that they may not be able to sustain, according to Roza. She addresses three economic shifts that district leaders need to be prepared for:

An end to relief funds

While federal funding has proved helpful for many districts struggling to keep their heads above water post-pandemic, they need to have a strategy in place for when such funding ends.

“They have ESSER money from the federal government that is phasing out as of September 2024,” says Roza. “That alone will create a fiscal cliff—basically, a moment when districts were accustomed to spending a lot more money than they’re able to spend now.”

Will Schofield, superintendent of Hall County Schools in Georgia, says his district realized this early on and have adjusted its spending accordingly. “Not only is an economic downturn on the minds of us who lived through the ‘Great Recession,’ the infusion of the federal funds has given many systems a false sense of security that will end at the end of this fiscal year,” says Schofield. “We have tried to be very cautious in utilizing the ESSER funds in a manner that is not sustainable. We fully expect the economy to cycle down and have planned [for it] with reserve funds and sustainable expenses with one-time funds.”

Adjusting for decreasing enrollment

More students equal more money, Roza says. Due to declining enrollment, many schools are going to have to adjust to receiving less funding.

“A lot of districts around the country have lost enrollment,” she says. “When you’re losing students, you have to downsize or get ready to shrink. Some states have held the districts harmless for a year or two. And even in the states that didn’t, the federal relief funds were filling in the gaps.”

Declining inflation

Schools have increased spending in several areas amidst inflation, such as pay raises and labor. Once the economy returns to normal, these permanent changes will become a financial burden for many districts.

“Some districts have given out larger-than-normal raises this year,” says Roza. “Those raises could be permanent and yet the districts may not have the money going forward to pay for those raises. If the state is not growing as fast, and yet districts have built in these cost escalators, then suddenly they’re going to be in a financial pickle.”

She adds that education has an expectation of “continued employment,” which makes it hard for schools to adjust to economic changes. “It’s temporary money,” she notes. “A lot of districts have spent it on labor. It’s very hard for districts to walk those expenses back. So, if you gave away a permanent raise, you don’t take that away later. Or if you hired 15 new people, districts don’t really do well when they have to do layoffs.”

How to plan ahead

Administrators should be proactive in making sure that the combination of these effects doesn’t disrupt learning services for children. She provides several strategies to ensure that schools are spending their funds in a manner that won’t negatively impact them later.

  • Consider offering one-time raises to retain teachers instead of permanent raises.
  • Hire contractors for certain services instead of full-time employees.
  • Communicate with your employees about sustainability and how temporary funds will be used.
  • If you’re short on teachers, consider hiring retirees who don’t plan on staying long-term.

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Micah Ward
Micah Ward
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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