We all keep hearing about the fiscal cliff headed our way after Covid relief funds come to an end. September 2024 will bring forth a great shift in the education market. Marguerite Roza and her team at Edunomics Lab (opens in new tab) out of Georgetown University are predicting not only the end of the stimulus dollar, but three other atypical shocks for education finance.
It’s one thing to know that the shocks are coming, but even more to know the date of when one will begin. Let’s first take a look at each one of these shocks.
What are the 4 Atypical Shocks on the Horizon?
None of these atypical shocks should come to a surprise to anyone who understands how the market works. The team at Edunomics Lab did an excellent job succinctly predicting what these shocks will be (the extent of each shock will be unknown for some time):
- Federal funding will end: Fiscal Cliff (September 2024)
- Enrollment is declining
- Inflation and labor
- Economic slowdown (recession)
Federal Funding Obligation Deadline
We all know it’s coming: The deadline for obligation from the $190 billion dollars allotted to ESSER (opens in new tab) will either be spent or returned back to the federal government. (For what purpose, we do not know. It could be turned into competitive education grants, or it could be sent to a completely different government agency.)
Regardless of what happens, it will no longer be at the discretion of the district to spend. At the current rate, districts across the nation will need to draw down approximately $5 billion/month to meet the spending deadline.
This is significant in itself, but after the dollars drop off, there are still three other shocks to consider.
This is a short-term and a long-term problem. The headlines have all shown how large urban districts, especially, have seen a decline in enrollment. In fact, The 74 (opens in new tab) reports that, “The Oakland Unified Public Schools offers a preview of what other districts with declining enrollment and birth rates will soon confront — the painful and unpopular decision to close schools. In February, the district, which saw a 5.6% enrollment decline compared to last year, decided it would close seven schools (opens in new tab) over the next two years. Four others will merge or reduce grade levels.”
Regardless of why there is declining enrollment, many leaders will face hard decisions, and a shock to their budgets, in the coming years.
Inflation and Labor
We’ve all felt inflation over the last few months, this summer reaching an all time historic 40-year high of 9.1%.
Districts are not immune to inflation and it will have a great impact on the labor market. Typically, districts will be able to give raises in the 3% to 5% range with COLA and steps. The use of federal funds to hire educators paired with inflation will up that number to the 5% to 8% range.
This is huge and as we know, most of a district's budget (somewhere in the ballpark of 85%) is for human capital. Inflation will have a great impact on the budgets moving forward.
Economic Slowdown (Recession)
A national recession will hit states differently. A lot of how hard this one shocks districts is the structure in which the state funds districts.
Historically, a district that funds districts based off of property taxes have fared better during hard economic times, while states that rely on sales tax have a less stable mechanism that depends on citizens spending their money. Not to say that states that rely on sales tax are immune, as the housing bubble was proof of that. More foreclosures mean less taxes to allocate for schools.
This Is Hard
Between the market, test scores, chronic absenteeism, and school safety, sometimes being in education is hard and emotionally taxing.
Over the next couple of weeks we will be unpacking each of these shocks in deeper detail, and looking back at history to see which districts handled these problems with the most grace and success, and we’re going to share what they did with you. We hope that this will help you to examine your own districts and provide strategies to help “absorb the shock” (be a shock absorber, if you will.) Come back for the history and lessons, stay for the great plays on words.