School budgets are in big trouble, especially in high-poverty areas. Here’s why — and what could help

When the last recession hit school budgets about a decade ago, it didn’t hit them equally.

Affluent school districts saw their state funding drop by more than $500 per student after the downturn. High-poverty districts in the same state lost much more: over $1,500 per student in state funds.

Now, the coronavirus has brought much of the American economy to a halt. Another recession is possible, even likely. And the poorest school districts, which are particularly reliant on state funds, may once again bear the brunt of the budget crunch.

That has some school finance experts nervous. Research has found that spending cuts in the wake of the Great Recession hurt students academically, and right now, students from low-income families are experiencing particular challenges accessing online learning and other services with schools closed nationwide.

“There’s a potential squeeze that’s happening here that is going to destroy equity if we’re not very careful — that is, increased need in areas that are very, very vulnerable to state funding cuts,” said Rebecca Sibilia, head of the school funding group EdBuild.

But allowing the highest-poverty districts to absorb the biggest cuts is also avoidable.

“It’s very important that states not repeat the mistakes they made during the recession,” said David Knight, an education researcher at the University of Washington who did the analysis of Great Recession funding. “They did their best to patch holes, but they let equity fall apart.”

Here’s why school budgets are in such trouble — and what the last recession says about how state and federal officials could blunt the impact.

🔗The major cause of the looming school budget crisis: state tax revenue is cratering.

On average, U.S. public schools spend more than $12,000 per student. More than 90% of that is state and local funding. (The exact mix, and the total spent on each student, varies a lot by state.)

Funding has been rising in recent years, but that trend is likely to end. The big problem for school districts right now: those state dollars.

Most state revenue comes from income taxes and sales taxes. Workers are being laid off, which means income taxes are falling. And people are spending less, which means less is being collected in sales taxes.

States, unlike the federal government, are generally required to balance their budgets. Less revenue from existing sources means taxes have to go up or budgets have to shrink, quickly. Some states, including New York, Georgia, and Idaho, have already begun cutting.

“This is a time of hurt for state and local government budgets,” said Lori Taylor, a school funding researcher at Texas A&M University. “And school districts rely on transfers from state government.”

The biggest source of local dollars, meanwhile, is property taxes. Property values are less volatile than other parts of the economy, so this slice of a school district’s budget is likely to be less affected.

“One of the comforts to educational policymakers at this time is that property values adjust slowly even in recessions,” said Taylor.

🔗Since high-poverty districts are more reliant on state funds, they’re at risk of deeper budget cuts.

Since local funding for education comes mostly from property taxes, affluent areas have more of it. Across the country, state funding disproportionately goes to poorer areas to help level the playing field among districts.

Because state dollars are more at risk, the economic downturn could hit low-income students and their schools the hardest.

“It’s most likely that high-poverty districts, being more dependent on state aid, and generally wielding less legislative power, will get hit harder,” said Bruce Baker, a school funding researcher at Rutgers University.

That’s what happened a decade ago. Knight’s research, along with separate research from Baker, found that high-poverty districts lost more funding than affluent districts after the Great Recession.

This can happen even when states make seemingly equal cuts. If a state cuts 10% of its funding to every district, that might seem fair on its face. But if one district gets $10,000 per student from the state and another gets only $1,000, the first will have to deal with a much bigger shortfall.

🔗Big cuts to high-poverty schools are not inevitable, though. State policymakers have choices.

Allowing high-poverty schools to experience the biggest budget cuts is still a policy choice. State lawmakers will determine which schools face cuts when they construct their new budgets.

Consider New York. In 2007, in response to a long-running court case, the state introduced a new funding formula designed to send more money to high-poverty school districts. Then the Great Recession happened. New York responded with deep cuts to state education spending — particularly to money funnelled through the new formula.

A recent study concluded that New York could have chosen to balance its books by cutting other forms of aid that largely went to affluent districts. Instead, the state effectively gutted the legal reform efforts, and poorer districts continued to get less.

Some argue that legislators should take the opposite tack to avoid making existing inequities even worse.

“States should look first to the aid that goes to the districts with the least need,” said Baker. “If you took that first approach, you wouldn’t have to cut that much from the highest poverty districts.”

It also may be possible, though politically challenging, to avoid cuts to school funding altogether by raising additional money. In New York this year, some advocates pushed for new taxes on the wealthy to do just that. Lawmakers rejected the idea.

🔗The federal government could help, too. The last recession indicates districts might need extra support for years.

The federal government already passed a stimulus package that includes $13.5 billion for K-12 schools across the country. But that money is designed to help schools cover the extra costs they’ve incurred because of the coronavirus, not cushion the blow of an economic recession.

Some advocates, including a number of education groups, are pushing for a much bigger infusion of cash for schools.

“What they’ve provided so far is not close to enough, so they’re going to need to do more, and as soon as possible,” said Michael Leachman of the Center on Budget and Policy Priorities, a progressive think tank.

During the last recession, the federal government directed tens of billions in stimulus dollars to schools. This effectively filled funding gaps caused by declines in state spending, preventing cuts and saving education jobs.

But researchers have highlighted two problems with the stimulus that kept it from filling the gaps for needy school districts — issues that Congress might consider when passing the next.

First, it didn’t provide extra support to the most affected schools, according to a recent study. Specifically, school districts that were heavily reliant on state dollars and had little property wealth faced the toughest circumstances, but didn’t get a disproportionate share of federal dollars.

Second, the stimulus money fell off by the 2011-12 school year, well before state budgets had fully recovered. “If you look at the year when the aid disappeared, states relied very heavily on layoffs and other spending cuts,” Leachman said.

Ultimately, about 300,000 school employees lost their jobs after the last recession.