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Districts must plan to identify and mitigate budget gaps and build strategies for long-term financial health as the ESSER funding cliff nears

District leaders: Act now to avoid financial disasters after COVID relief funding ends


Districts must plan to identify and mitigate impending budget gaps and build strategies for long-term financial health

Key points:

Among all institutions impacted by the COVID-19 pandemic, few faced challenges as profound and fast-moving as America’s public schools. But as many large organizations return to normal, school districts face a daunting challenge: key federal relief funds are set to expire next September. 

In 2020 and 2021, Congress passed the CARES and ARP Acts, which created and added to the Elementary and Secondary School Emergency Relief Program (ESSER). In total, ESSER funding has provided $190 billion for K-12 school districts across the country–an amount that has surpassed the annual budget of the U.S. Department of Education in recent years. For many districts, ESSER funding has been instrumental in helping serve students’ heightened needs during the COVID-19 pandemic and allowed schools to avoid financial catastrophe. 

In contrast to most federal education spending—such as Title I funds, which provide additional resources to districts that serve large numbers of students from low-income backgrounds—there were few restrictions on how school districts could implement ESSER funds. This allowed for increased flexibility so school districts could meet their unique needs, but also created challenges for districts as they sought to maximize the impact of these funds. Despite this flexibility, districts must spend their ESSER dollars by September 2024, before this infusion of federal funds winds down. 

Nationwide, school districts face heightened financial needs as their emergency funding is set to expire, while students have unprecedented unmet academic and socio-emotional needs. Many districts face declining enrollments, which threaten to lower their funding levels, as well as financial constraints stemming from economic uncertainty, continued high inflation, and challenges finding and retaining employees. School districts that used ESSER to address recurring expenses—things that districts will need to afford after ESSER goes away—are particularly vulnerable to financial dismay after ESSER expires.  

To avoid financial catastrophes, districts must plan to identify and mitigate impending budget gaps and build strategies for long-term financial health. Here are key steps districts need to enact to build healthy financial plans:

Step 1: Diagnose your district’s needs and financial realities 

To address the post-ESSER financial cliff, districts should reevaluate their definitions of student success in light of devastating learning loss experienced during the pandemic. Concrete, community-supported goals for student outcomes should serve as the north star for district operational planning. From there, districts should assess their current budgets and future projections, including their reliance on ESSER dollars to sustain staffing and operations, and assess if budget gaps exist, particularly if they anticipate continued enrollment decline cost increases, and staffing issues. To get started, if you don’t know the exact date your district will run out of fund balance, start your diagnosis by having your finance team run an analysis pinpointing exactly how much runway you have until you reach a deficit.

Step 2: Mitigate near-term crisis

Districts should then create a detailed close out plan for ESSER funding, including transition plans for ESSER-funded positions, programs, and interventions ahead of time, so they will not face lag costs when ESSER expires.

Identifying current operational inefficiencies can help mitigate near-term budget gaps. For example, districts should assess whether hiring and procurement processes are cost effective, whether they could solicit new bids on existing contracts like benefits programs, or if they can reimagine transportation and custodial operations systems. As a first step, assess your top 10 most expensive ESSER programs and answer these questions:

  1. What is our plan to close out or continue to fund this particular expenditure?
  2. What metrics should I be using to determine if this program/ expenditure is worth continuing?
  3. If close out is the answer, what is the change management plan?

Step 3: Reimagine what’s possible & re-prioritize your budget to meet student needs

Ultimately, meeting the needs of students, including addressing pandemic learning loss and exacerbated inequities in our educational system, may require districts to make more significant, transformational changes. Given the looming ESSER fiscal cliff, this means districts may have to make difficult decisions regarding what they can afford. Districts should start with evidence-based assessment on their most effective systems and programs. They should use data to identify programs that are the least effective to assess if they can streamline efficiencies. For example, districts should evaluate the structure of their central office, as well as their holistic district staffing model. 

District leaders should also consider key lessons from ESSER funding to identify best practices in how they prioritize resources. Districts should assess where ESSER funds allowed them to fill longstanding gaps, advance experimentation and innovation, and ultimately what emergency spending had the greatest impact on student outcomes. Returning to pre-ESSER budgets does not necessitate that districts return to the same structures they had before the pandemic, but instead allows districts the opportunity to evaluate how to prioritize spending that can most positively impact student academic and socio-emotional outcomes. Districts should start by doing an envisioning exercise to define clear, thoughtful district priorities and proceed to develop a plan for scaling the impact of those priorities. For example, if increasing the number of students who read on grade level post-pandemic is deemed a strategic priority, then focus your spending on how to scale high impact tutoring across the district. Clearly-defined district priorities will enable strategic spending on interventions that have proven effective in your district. 

With an impending fiscal cliff coming to school districts across the country, district leaders must prepare before it’s too late. By diagnosing their student and budgetary needs, mitigating immediate crises, and prioritizing budgets to drive student success, district leaders can navigate economic pressures without sacrificing student wellbeing. Given the unmet needs of our country’s students, this work has never been more important. 

Related: Districts brace for fiscal cliff as COVID relief funding nears an end

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