Schools’ COVID cash to run out

When $190B in federal aid ends in next academic year, budget crunch could begin

U.S. public schools are girding for a major financial blow in the next academic year, when the record $190 billion in federal aid they received during the pandemic will expire and leave them with sparser resources to halt a massive exodus of teachers and reverse learning loss.

Districts across the country have used the funds on everything from one-time capital expenditures such as improved ventilation to expenses including higher wages that will elevate costs for years after the aid runs out.

It won’t be easy for state governments to fill in the budget holes, with many expected to see softer tax collections.

New York City estimates it will run up against a $700 million shortfall in September 2024, by which point the funds must be earmarked. Chicago schools are staring down a cliff of about $628 million for 2026. The pain could also be acute in smaller districts, including those with high proportions of students living in poverty.

Many school systems are starting now to draft budgets that reflect next year’s grim reality: Districts on average will have to cut costs by some $1,200 per student, with budget gaps in the 2024-25 academic year expected to exceed those during the recession that ended in 2009, according to a Georgetown University analysis.

As a result, districts may be under pressure to reduce staff, close schools or rethink their programming.

“If you are responding to a shock, you have to cut lots and lots of things, or raise taxes really aggressively, all at once. That’s super painful,” said David Schleicher, professor at Yale Law School, who focuses on state and local finances.

Roughly half of the federal aid went to wages, meaning that the end of the stimulus dollars will exacerbate what is already

one of school districts’ most pressing problems: Attracting and retaining educators.

The average 2021-22 teacher salary of $66,397 was the lowest on an inflation-adjusted basis since the 1985-86 school year, according to the National Center for Education Statistics.

School employees are chafing at their reduced spending power: A third of respondents in a survey of more than 1,800 U.S. educators, school leaders and school mental health professionals at the end of the 2021–22 school year said they planned to leave their role before the next school year began, according to a March 2023 report by McKinsey & Co. Compensation, including benefits, was the top reason educators want to leave, with nearly two-thirds saying they can’t live comfortably off their pay, according to the report.

In June, New York City public schools had 2,500 fewer teachers compared to the year that ended right before the pandemic hit, according to a report released Wednesday by the city’s Independent Budget Office.

That has pushed some districts to sign multi-year contracts with staff guaranteeing annual raises – an expense that will be harder to shoulder without the cushion of federal funding.

In the Los Angeles Unified School District, one of the largest in the country, the union reached a tentative agreement for 21% raises over three years, bringing the average teacher salary to $106,000.

“We’re one of those districts that broke the mold in terms of our adjustments to pay,” said David Hart, the district’s chief business officer, speaking on a panel. “We kind of felt like we had to do that to try to be that district of choice and to be able to maintain a workforce.”

Charles Ebea, 42, is a counselor at a school in the Highbridge neighborhood of the Bronx, where he works with students from 6th through 12th grade. His union, the United Federation of Teachers, ratified a contract that guaranteed raises of around 3% annually over the next several years.

Still, with a new baby at home and student loan payments set to resume in October, Ebea, like many of his colleagues, is feeling the pinch. “Those little things that may not have been that big of a deal before are bigger when I’m buying formula every three days,” he said. “It creates a situation where teachers find themselves looking for an exit strategy.”

Enrollment decline

The teacher shortage will make it harder for schools to help students recover from the learning disruption that occurred at the height of the pandemic, when social distancing and online classes upended typical academic routines. The achievement gap, measured against pre-pandemic peers, did not shrink last year, and in some grades slightly widened, according to July data from the Northwest Evaluation Association.

The pandemic also accelerated an enrollment decline at public schools that contributes to their financial quagmire. Because a school’s funding often reflects its headcount, fewer students can mean fewer dollars, even as costs such as electricity, janitorial services or teacher salaries remain fixed — or even rise.

U.S. public school enrollment peaked at 50.8 million students in the fall of 2019, right before the pandemic, and is expected to continue a gradual decline through 2031 to 46.9 million.

Denver’s public school system is one that is grappling with a significant dropoff in students. Over the last five years, enrollment in Colorado’s largest district fell 4.5% to roughly 88,000, according to state data. District officials expect headcount to drop by another 1,000 students this year, the lowest in about a decade.

Chief Financial Officer Chuck Carpenter said the district was cautious to use its aid, which represented about 7% of its operating budget, in ways that could be phased out with minimal disruption, but managing the convergence of enrollment declines, wage inflation and the end of stimulus will require “real skill” from budget officials across the country.

“In Denver I think these are manageable challenges, but if you throw another two or three curveballs, it could be really hard,” Carpenter said.

Districts around the U.S. may be forced to adapt by trimming headcount or narrowing their offerings for students. In Detroit, the school board approved a proposal to cut 300 jobs in June to balance its budget.

New York City schools, the largest district in the country, received over $7 billion in stimulus funds. About $700 million supports recurring expenses like summer programs and social worker salaries.

“We have programs we are eager to continue, but to be able to do so will take additional investment from some level of government,” said Emma Vadehra, the district’s chief operating officer.

One bright spot for schools could be the surge in property values that has widened the base for property taxes, which often flow to school districts. In August, U.S. home prices were up 3% compared to last year, selling for a median price of $420,846, according to RedFin Corp. data.

Shaky finances

All these challenges will converge in Chicago in the year ahead, when the Chicago Board of Education is expected to negotiate a new contract with the teachers union, one of the most powerful political forces in the city.

The more than $2.8 billion the district of about 322,000 students received in federal pandemic aid has recently provided a crutch.

Stacy Davis Gates, president of the Chicago Teachers Union, said that talk of a fiscal cliff is nothing new for the city’s schools, which have long faced shaky finances and deficits.

While many districts are similarly accustomed to fiscal turbulence, the end of federal aid might be particularly noticeable to parents and students.

“If you don’t care about it now, don’t be surprised when you have 40 kids in a classroom in two years,” said Schleicher.