IPS is in a stable financial position for now, but it could be hard hit by a recession

Containers hold markers and scissors in a classroom at Thomas Gregg Neighborhood School, an elementary school in Indianapolis, Indiana. —April, 2019— Photo by Alan Petersime/Chalkbeat

Indianapolis Public Schools says it is in a strong financial position in the short term, despite the upheaval caused by the coronavirus pandemic. But the district could eventually be hard hit by the deepening recession.

The state’s largest district is more financially stable than many school systems across the country for several reasons: The state has not cut this year’s education funding, voters recently approved a referendum to boost local dollars, the district has access to bond funding, and the Indianapolis economy is strong, said Weston Young, the district’s chief financial officer.

“IPS is positioned well, in my opinion, for the short term to navigate the recent historic and severe COVID-19 economic impacts,” Young said during a media briefing ahead of an IPS board meeting Thursday. The district will also receive about $21 million in federal coronavirus aid, which can be used to cover a wide range of costs.

Over the long term, however, the financial implications for the district are far less certain. Unemployment in Indiana has surged, while sales and income tax revenue have fallen in recent weeks

Although it’s unclear how bad the recession will be or precisely how it will impact the school system, the district may need to begin making decisions to save money to build a cushion for the future, said Jason O’Neill, a consultant with Policy Analytics who is advising the district. 

“The impact of a recession on school finance is not immediate, at least the majority of the impact is not immediate,” O’Neill told the IPS board, “but preparations should be made in the short term.”

Noting that state revenue is “going to diminish significantly,” IPS Board President Michael O’Connor said at Thursday’s meeting that the district must “be prepared to make some very conservative, very difficult decisions about preparing for those cuts.”

Indiana school budgets are particularly vulnerable in recessions because districts get much of their funding from the state, which relies on income and sales tax — a less stable source of revenue than property tax. 

If tax revenue continues to decline, the state may cut budgets for schools next year or the years after, Young told the board. “A state can’t pass dollars to schools that it doesn’t have.”

Some Indiana districts have raised concerns that they could also lose state funding, which is awarded on a per-student basis, if parents decide to keep their children home in the fall due to health concerns.

As the pandemic unleashes turmoil across the country, many school systems are facing severe financial challenges. The Los Angeles Unified School District estimates that it has shouldered $200 million in emergency coronavirus costs. As New York City grapples with severe drops in revenue, schools could see $827 million in budget cuts. And in Denver, district officials said the pandemic would cost its schools about $10.5 million this year — a figure that includes the unplanned cost of purchasing about 9,000 laptops for students.

In the early weeks of the crisis, IPS has not taken a severe financial hit. In fact, it spent less than anticipated because school closures reduced costs in some areas, such as transportation, extracurricular activities, and facilities, Young said. 

The district, however, is in the midst of making a huge investment in technology. Amid fears that schools could be closed in the fall or the need for some form of social distancing could continue, IPS is spending about $12 million so that every student has a device. That will pay for 14,000 Chromebooks, 7,000 iPads, and 9,000 mobile hotspot devices for students without broadband at home. The purchases will be funded with several sources, including reserves and philanthropic giving.

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