Budget Battles: An Uncertain Future for U.S. Public Schools
End of Federal COVID aid, universal voucher programs, and declining enrollment are among the fiscal challenges facing school district finances.
The pandemic worsened long-standing problems and created new difficulties for school districts across the U.S. But the coming end to Federal aid spending, increasing private school voucher programs, and declining enrollment are all creating fiscal pressures. While an influx of Federal aid from three coronavirus-related stimulus measures was vital to help schools through an extraordinarily difficult period, it was never meant to last. Still, the nation’s public education system seems far from recovery.
The fiscal issues affecting public education include:
Spending Federal aid ends in 2026, requiring governments to find new revenues or make dramatic expenditure reductions. Congress appropriated over $275 billion to the Education Stabilization Fund (ESF) in response to the pandemic.
A number of states are diverting public funds from public to private schools. Studies of states offering private vouchers reveal a consistent trend: initially limited programs expand over time, diverting increasing public funds to private institutions while public education funding decreases.
Declining enrollment and students “missing” from the education system reduce revenues for schools reliant on per pupil funding formulas. A 1.2 million decline in K-12 public school enrollment over the first two years of the pandemic, combined with a 4% private school increase and 30% homeschooling increase, tells only part of the enrollment changes.
A 1973 Supreme Court decision, San Antonio Independent School District v. Rodriguez, determined there is no constitutional right to equal education. Obligations for public education vary across the country and often enshrined in state constitutions. Some states bar public funds for religious schools, most have specific education funding requirements, but the variation leaves the U.S with an unequal system. With the system under increasing strain, it will primarily be left for state governments to determine how they want to live-up to their public education obligations and face the challenges ahead.
The Fiscal Cliff is Coming, are States and School Districts Prepared?
The National Association of State Budget Officers annually releases a state expenditure report giving insights into spending. It is clear states allocate a substantial amount of funds to public education. From 2012 to 2019 they spent an average of $53 billion annually on public education. But when Federal pandemic aid started coming in, that number jumped. Over the three-year period, 2021 to 2023, states spent $188 billion more than average from Federal funding on education. While this number is dwarfed by state general funds for education, it presents a problem to new positions and programs created in the aftermath of the pandemic. Many of those programs were intended to be short-term in nature, but districts may find it difficult to eliminate them.
In New York State, the Governor’s recent fiscal 2025 budget proposal spends $35.4 billion on state education aid, a 2.7% increase over the prior year (and that does not including Federal funds). When it comes to Federal education funds, the state budget proposes spending $4 billion from CRRSA and ARPA. According to the state's budget data, New York estimates spending approximately $15 billion from fiscal year 2021 to 2025 from extraordinary Federal pandemic programs. In New York City, the largest public school system in the country, the city expects to drop from spending $3 billion of Elementary and Secondary School Emergency Relief Fund (ESSER) funds in 2022 to $0 in 2026.
Researchers at The Brookings Institution issued a warning last year that high-poverty communities will see the sharpest impacts to their education budgets since ESSER funds were intended to provide more support for these schools. The researchers recommend state governments carefully evaluate proposed changes to revenue structures, ensuring that equity is not compromised during the transition. Facing these issues, leaders have an opportunity to make intentional and proactive choices to ensure students do not fall further behind.
Public Diversion: The Rise of Near-Universal Private School Voucher Programs
Since September 2022, eight states have implemented universal or nearly universal private school voucher programs or Education Savings Accounts (ESAs). These initiatives are new or expand access of existing programs for all students, including those currently enrolled in private schools. While vouchers have traditionally placed limits on eligibility and how money can be spent, the more recent push for universal school choice programs have no such limits. The lack of limitations and significant expansion is costing states more than anticipated:
Arizona: The state’s voucher program, dubbed “the most expansive and least accountable in the country,” may cost the state close to $1 billion in fiscal year 2024-2025, over 1,000% more than expected.
Arkansas: Education Freedom Accounts provide funds up to 90% of the State’s prior year per student foundation funding amount, or around $6,600 for the 2023-2024 school year.
Florida: The state, already the largest subsidizer of private schools, expanded its voucher program in 2021. Vouchers provide funding of around $8,000 per year per pupil. The program added about 123,000 new students in 2023, doubling from its previous size.
Iowa: The state’s ESA program had 3,000 more students utilize the program than expected. Due to each student being granted an individual ESA of about $7,600, the total cost of the ESA program for the state will amount to $128 million -- $20 million more than original estimates.
As one study points out, it is difficult to determine a direct causal relationship between declining funding for public education and increased spending on voucher programs. However, revenue is fungible, and as states funnel hundreds of millions of dollars into private hands, it leaves less resources for other public projects. States heavily increasing these programs, with little oversight, place the quality and equity of their education systems at risk.
Combination of Issues Contribute to Long-term Decline of Public School Enrollment
Federal data showed a slight uptick in enrollment in private schools during the initial years of the pandemic, while simultaneously indicating a decline in public school enrollment. A recent surge in private school enrollment is particularly noteworthy among early grades, where public school enrollment experienced the most substantial decrease. These private school figures pertain to the years just before the enactment of state laws that allocate more public funds to ESAs and voucher programs.
Last year an analysis conducted by The Associated Press, Stanford University’s Big Local News project, and Stanford education professor Thomas Dee shed light on the issue. Approximately 230,000 students in 21 states are unaccounted for, having not moved out of state, enrolled in private school, or taken up homeschooling, according to publicly available data. These “missing” students were initially a crisis focus in 2020, prompting door-to-door efforts to reengage them, but have since turned into a budgeting concern. The absence of these students poses challenges not only in terms of fiscal impacts on districts but also raises questions about their well-being, potential dropout rates, and the educational void they are experiencing.
Over the long-term, the National Center for Education Statistics estimates that from 2021 to 2031, demographic changes will drive an estimated total enrollment decrease of 5% (49.4 million to 46.9 million students). Here are some recent examples of declines:
Arizona’s largest school district, Mesa Public Schools, reported state funding down nearly double what it budgeted. Competition from the increase of private school enrollment is a contributing factor.
Enrollment in Colorado’s public schools has reached a decade low, continuing a multiyear decline through the pandemic in large part due to falling birth rates.
New York City’s Education Department wants to spend $21 million over the next two years on an ad campaign to provide families with enrollment information. The City’s K-12 enrollment has declined 120,000 over the past five years.
Declining public school enrollment, fueled by a combination of demographic shifts, private school subsidies, and "missing" children from the education system pose major challenges for districts across the country. With each student's departure representing a loss of financial support, districts may face budget constraints that could impact their ability to maintain quality education standards. Beyond fiscal challenges, shifts in student enrollment raise concerns about the equitable distribution of educational opportunities. States may need to reassess resources and educational strategies to address evolving student needs.
Any opinions expressed herein are those of the author and the author alone.