With a Fiscal Cliff Looming, States Must Ensure Districts Maximize Every Dollar for Students

The last few years have seen states and districts flush with cash, thanks to historic sums of pandemic relief aid in the form of the Elementary and Secondary School Emergency Relief Fund, or ESSER.

But come September 2024, districts–which have collectively spent more than $60 billion in ESSER funds for each of the two prior years–will suddenly have to make do without it. That leaves states and districts staring down a massive fiscal cliff. While amounts vary across districts, on average, that equates to a single-year reduction in spending of over $1,000 per student.

It is no exaggeration to say that school finance is at an inflection point. And equity–in resources, staffing, and learning opportunities–hangs in the balance.

At the state level, we suggest leaders outline any proposed changes to revenue structures and find ways to ensure equity isn’t lost in transition. State legislatures dole out the cash for schools. But it’s the districts that decide how to spend it. Sometimes those decisions go well and schools beat the odds on student outcomes. Other times they don’t, and outcomes lag those of similar peers.

But it doesn’t have to be that way. States can pull levers to help districts maximize the value of every dollar for students. These levers don’t require politically complicated changes to state funding formulas or limiting funding flexibility with class size caps, staffing prescriptions, or mandated programs.

Best of all, these five levers are low-cost and popular on both sides of the aisle:

1. Prioritize Student Outcomes. Have leaders weigh student outcomes in budget decisions. Typically, the budget gets discussed at one meeting, and student outcomes at another. Never the twain shall meet. One challenge is that test scores don’t surface until months after budgets are finalized. Two easy fixes: State laws can mandate that districts include prior-year test scores in budget packages, and specify that boards revisit the budget when test scores emerge.
2. Ensure Fiscal Literacy. Require finance training so district leaders are equipped to spend money well. Most district leaders get little to no prep on how to deploy their mega sums. Given so much of it is state money, legislatures or state boards can ensure that training on strategic spending happens by bolstering requirements for administrator certification. School boards too should have to build skills in budget tradeoffs.
3. Contain Benefits Costs. Districts often struggle to contain healthcare and retirement costs. Legislatures can rein in those obligations with statewide “pooled” health plans or caps on pricey retiree health care offerings. To control pension obligations, more states could exclude one-time pay increases and stipends from spiking employee pension payouts and cap the amount of salary that is pensionable.
4. Make Sure Districts Plan (Several Years) Ahead. The medium-term financial outlook for many school districts is ugly. State leaders can ensure districts look ahead by requiring them to publish balanced, four-year budgets. Doing so would help leaders, stakeholders, and labor groups get on the same page earlier about the district’s budget realities.
5. Be Proactive and Hands-On. States must support and intervene in fiscally mismanaged districts. Sometimes leaders are resistant to making hard tradeoffs, or they commit to unsustainable labor agreements. Occasionally, there’s fiscal malfeasance. In any case, students suffer when districts can’t get their financial house in order. Some states have laws offering support, oversight, and ultimately intervention when needed to invalidate unaffordable commitments.

Let’s not forget: K-12 funding is the biggest line item in most state budgets. Legislatures should do what they can to ensure that investment is spent well on behalf of their state’s students. With the fiscal cliff coming, that matters more than ever.