The Cost of the Pandemic

Since the pandemic shut down businesses and schools across the country, schools have faced mounting financial uncertainty. With costs estimated at billions of dollars, pitted against declining and uncertain revenue streams, school leaders will be faced with difficult financial decisions and the likely need for significant cuts. Recent research suggests that the consequences of financial uncertainty — including increased teacher turnover — could affect student achievement. (And teacher turnover could also have a negative impact on economies that are already struggling.)

With an economic stimulus package that could address some of these concerns in limbo, Usable Knowledge sat down with the executive director of the Center for Education Policy Research at Harvard University, Jon Fullerton, to better understand the link between school finances and the economic conditions caused by the pandemic.  

How have schools’ revenue streams and costs been affected by COVID?
States depend on sales tax and income tax for most of their revenues — both those streams have been hit dramatically by COVID. While it varies by state, education accounts for the largest single chunk of state general fund spending. On the whole, state aid is about 47% of the revenue districts get. So, if you combine shrinking state revenues with the fact that education budgets are the biggest chunk of what states spend money on — some of this financial pain is going to have to flow down to school districts. Of course, state revenues have taken different levels of hits so there is some variability. But unless there’s substantial additional federal funding, there will be major implications [for education] over time.

Along with this collapse in state revenues, costs are increasing for three reasons. One is direct COVID response issues — we’re buying laptops, implementing social distancing and safety measures, and these things just drive up costs. A second area is baseline costs going up. These are going up due to “normal” inflationary pressures (including planned pay increases), but also may go up even further because you don’t have the normal amount of turnover. In recessions, people tend to stay longer on the job, and [in education] the longer you’re on the job, the more you get paid. And the third big cost is going to be trying to catch kids up from missing a quarter to a third of last year, plus additional losses from this year. So overall, districts are experiencing both decreased revenues and increased cost pressure.

Finally, uncertainty itself can drive costs. Los Angeles, for instance, experienced over a 10% drop in kindergarten enrollment this year. Are those students just gone, or will they show up when schools open for in person instruction? How do you staff when enrollments are this uncertain?

How has the CARES Act helped schools, and how does it compare to previous economic recovery packages?
In the CARES Act there was an additional amount of funding provided to help schools, districts, and states deal with the extra costs from COVID. Thirteen billion went to states and flowed through the normal Title I channel and an additional 3 billion went to the governors who could use and deploy it as they saw fit in education. That’s been the federal response thus far. But, if you compare this to 2008 and what happened under the American Reinvestment and Recovery Act (ARRA), it’s much less. Under the ARRA, Title I and what went out through IDEA basically doubled and an additional $40 billion was sent to states to support education as part of a fiscal stabilization fund.

How are states accounting for the rising gap between revenue and cost? And why is this next relief bill so important in that accounting?
States have taken different tactics. And at this point, a lot are, I would say, doing some version of kicking the problem down the road. For example, Massachusetts has kept its Chapter 70 funding [state aid allocated to public elementary and secondary schools] flat (though CARES money has been used to create a small increase), but the state is operating on an interim budget that runs out October 30. What the fiscal state of Massachusetts will be next year is still unknown.

What ended up happening in California is that they did not cut education spending this year but are instead deferring some of this year’s payments to districts until next year. As a result, next year the state will have to pay both the payments for 2021 and 2022. That can only go on for so long. I would say these are both examples of a bet on a recovery package.

It seems to me a number of states have protected schools in the short term [for this year] but, longer term, it will be harder to do that. I think one thing to keep an eye on is that this is not the only year we have to worry about. In fact, the California example suggests that next year is a bigger year to worry about if no support from elsewhere comes in.

If cuts are made, what will the implications be? Is there anything district and school leaders need to be considering right now?
One implication of shrinking state aid is, depending on the state, in general, cuts may hit high-need districts harder because they’re getting more of their funding from states. So, if state aid were cut flatly by, say, 10%, a wealthier district that’s getting 10% of its budget from state aid only experiences a 1% cut. But for a district that’s getting 90% of it’s funding from the state, that’s a 9% cut. My hope is that governors and legislators take such differential impacts into account when they are deciding how to make reductions. 

But, in any case, districts should be preparing for funding reductions. And when looking to reduce costs, 80% of district budgets are personnel, so that’s mostly where cuts will be made. But layoffs are not the only option. You can use furloughs, temporary pay reductions, and could also not implement pay raises. There’s some challenging negotiating with unions around this, but these are options that might protect jobs and students more than layoffs.

This is a time that districts and schools should be thinking about other ways of being more efficient, generally. If we do have to reduce spending over the next few years, we need to start thinking now about how we can do that strategically. One thing that strikes me is, as a result of COVID, many districts now support 1:1 computing. What is the plan to use these devices post-COVID? Can we use these devices to not just stumble through the immediate emergency, but to improve instruction in the longer term? For instance, are there ways we can use distance learning to provide students with new opportunities and classes they would not have had before?

Finally, I would suggest that those of us in education try to understand the wider context from which these cuts may be coming. We have a tendency in education to say, "How could you make cuts to education — it’s so important!" Which it is! But states have a lot on their plates right now. Should we instead cut public health, Medicaid, or higher ed? What choices do we have? K–12 education is not an island on its own. Tough choices are going to have to be made.