The next two years will be messy ones for district finances. The biggest-ever one-time injection of federal cash (known as ESSER) has 18 months left. As that money runs out, a perfect storm of financial pressures will eclipse any most districts have seen before. Our analysis suggests the gaps in 2024-25 will be worse than the last recession.
District financial teams should see it coming—it’s right there in the budget forecasts—even though few are at the point of sharing out scenarios publicly. In fact, most district leaders don’t yet have a plan for how to navigate the financial headwinds. Those plans will start to take shape in the next few months—and come with big consequences for downstream financial solvency, teacher and staff layoffs, school closures, and ultimately for students.
Much of this planning goes down in a sleeper set of district meetings: budget workshops held between January and May. It’s here, with very little fanfare, that a mix of board members and district leaders hammer out key decisions that can impact districts, schools, staff, and students for years to come.
For this spring’s budget discussions, I suggest focusing on these six critical issues:
#1. Are ESSER investments getting students back on track?
Before grappling with the forecast, every district should be tracking whether its ESSER investments are working to address pandemic-era learning gaps. Are math and reading scores coming back up? Is attendance improving? With only 18 months remaining on these funds, district leaders need to pivot now if their investments aren’t delivering real value for students.
Calling attention to student outcomes alongside finance deliberations isn’t typical, but it should be. (In some places, like St. Paul, it’s happening.)
#2. What’s the magnitude of any forecasted budget gaps?
When the ESSER tap abruptly goes dry, most districts will see a year-to-year reduction in spending. That’s the “fiscal cliff.” We estimate the average district will have to cut costs by some $1,200 per student in 2024-25.
One can assume that the easy spending cuts (e.g., eliminating contracted services) are already baked into the figures. When the forecast shows a deficit, it means that more active cutting is required to balance the budget. That’s what happens when districts make recurring commitments that outpace the revenue stream, for instance when districts used ESSER funds to pay for new hires or grant permanent raises.
Recent decisions will play a role here. Some have played it safe, awarding only modest or one-time pay bumps and stashing funds away in reserves. Others made larger than typical inflation-era raises, with some making a risky assumption that their legislatures will fully cover the gap.
#3. Are enrollment and staffing trends headed in the same direction?