Federal aid is keeping Pa. schools afloat, but state will need to step up with funding, report says

While federal aid has helped keep Pennsylvania’s school districts afloat during the pandemic, the state will have to intervene as those dollars dry up and local revenues falter amid the economic downturn, according to a new report..

The report, released Wednesday by the Pennsylvania Association of School Business Officials, Pennsylvania Association of School Administrators, and Pennsylvania Association of Rural and Small Schools, credited the influx of federal funding for the state’s 500 school districts — $575 million this year, followed by $1.6 billion expected in the next — with subsidizing costs brought on by the pandemic.

But, it warned, school districts could be facing a budget hole once the aid expires in 2023 — particularly if the money is used to backfill traditional funding streams, as during the Great Recession more than a decade ago. Many schools used that federal stimulus money to cover positions as state funding plunged; when it expired, districts were forced to make deep cuts, the effects of which endured for years.

» READ MORE: Pennsylvania schools need an additional $4.6 billion to close education gaps, new analysis finds

Gov. Tom Wolf and lawmakers this year maintained state aid to schools at last year’s levels, though what will happen in the coming budget is unknown.

And local revenues, which Pennsylvania school districts heavily rely on, are uncertain. Property tax collections occur in the spring; school districts, some of which have suspended penalties for late payments, are unsure what collections will look like amid the economic downturn.

The federal aid is “not a silver bullet,” Hannah Barrick, assistant executive director of the Pennsylvania Association of School Business Officials, said Wednesday. School districts are “not out of the woods in terms of the COVID impact.”

» READ MORE: Pa. shortchanged its poorest school districts in giving out federal CARES Act money, report says

The report looked at financial information submitted by school districts to the state, as well as survey responses from 269 school business managers and 215 superintendents. It found that at least 20% of districts lost some local revenue last year as the economy slowed and interest earnings, real estate transfer taxes and earned income tax revenues decreased.

School districts also held back on raising taxes: For the first time since before the passage of Act 1, a property tax relief measure passed by Pennsylvania lawmakers in 2006, more than half of school districts did not raise their rates, according to the report.

While districts were able to save some money as school buildings shuttered last year — in part by renegotiating transportation contracts — costs increased in other areas as schools responded to the pandemic. About 75% of districts reported increased instructional and special education costs, according to the report, which also noted that state law required public schools to continue paying employees last spring after the building shutdowns.

This year, districts have also incurred increased costs for technology to facilitate remote instruction, and cleaning supplies and custodial staff for schools operating in person. For schools offering both instructional models — many districts that have opened in person have also given families the option of online schooling — the costs were “extreme on both sides,” the report said.

And some fiscal pressures that existed before the pandemic have accelerated. Among the most pressing: A surge of students have enrolled in cyber charters, which are funded by school districts and have long stirred scrutiny and criticism from public school advocates.

Tuition payments from school districts to charter schools are estimated to grow by $475 million this year, the report said — more than double the annual growth in recent years.

The increase “is wreaking havoc on school district budgets for 2020-21,” the report said. Nearly 25% of superintendents surveyed named charter tuition payments as their top financial concern, it said — more than any other challenge, including the impact of pending tax appeals (selected by 13% of superintendents) and state funding prospects (almost 12%).

» READ MORE: Cyber charter enrollments are surging. School districts are picking up the tab.

While this year’s level of state aid was “very positive” for school districts given the financial challenges facing the state, the report said, if funding remains flat for another year, districts that rely most heavily on state aid will be especially challenged. State funding increases for public schools are distributed through a formula that directs more money to the neediest districts; if there is no increase, then those districts don’t see any greater share of state dollars.

The report also noted that the federal funding coming to Pennsylvania’s districts is expected to be double what the state’s schools received during the Great Recession — meaning its eventual expiration could leave a bigger hole in district budgets.

Given the ongoing fiscal challenges facing many districts — including growing special education and pension costs — “the state will need to step up to fill in the federal funding void and address the constant increase in mandated costs,” it said.