State budgets will not see the deep cuts that many feared at the height of the pandemic and are expected to funnel more money into school districts over the coming year, according to a new analysis.
New data from the National Association of State Budget Officers shows signs of improvement across state spending plans. While they generally haven’t rebounded to pre-pandemic projections, general fund spending is on track to increase by 3 percent in fiscal year 2021, the data reveals. And governors in 39 states proposed increasing state spending in fiscal year 2022, which covers the coming academic year.
That’s good news for public schools, which rely heavily on state funding sources. NASBO figures project K-12 spending to increase nationally by $23.9 billion in fiscal 2022 — a counterbalance to the $7.4 billion cut in spending schools faced in fiscal 2021.
And that doesn’t include the federal money directed to schools through the American Rescue Plan, the sweeping measure signed into law by President Joe Biden in March, which channeled $122 million into K-12.
It’s a very different reality than the one school districts and governors were bracing for around this time last year, when revenues in 45 states fell and experts warned it could take years to dig out of coronavirus budget holes.
“Last spring, when the pandemic first hit and the economy was spiraling down, there was definitely a fear that the cuts would be a lot worse than we saw,” said Kathryn White, director of budget process studies for NASBO. “Generally, the outlook has been improving since those spring forecasts.”
Tax Bases Bounced Back
There are multiple reasons the more dire predictions didn’t come to pass, White said. For one, the federal stimulus money pumped into the economy ultimately boosted state coffers.
States also didn’t see severe drops in income taxes as many higher-income workers were less impacted by COVID-19 than expected, because many transitioned to working from home. And she said online shopping helped mitigate losses in sales tax revenue.
Overall, 38 states had their general fund collections for fiscal year 2021 come in higher than expected. That’s a completely flipped story from 2020, when 35 states had revenues fall short of their budget.
States were also able to lean on their reserves. Prior to COVID-19, states’ rainy day funds were at an all-time high after a decade of rebuilding following the Great Recession, NASBO found. Balances were as high as 14 percent of states’ spending. After 2020, balances dropped 12.8 percent, and they’re expected to fall again in 2022.
While the national picture is rosy, White said it’s important to note that some states were hit harder than others.
For example, states with an especially strong tourism industry or a higher unemployment rate saw larger negative impacts on their budgets, according to the NASBO analysis. Those states were more likely to make budget cuts this year, and they’re planning more modest budgets for 2022.
That means the impact on K-12 spending will vary by state. And schools also will continue to cover additional costs caused by the pandemic, including extra safety precautions or increased support to address student academic stagnation during the pandemic.
States will have to be careful with how they allocate one-time federal money and budget for the next few years to ensure long term stability, White said.
“There’s just a lot of uncertainty about what the post-COVID economy will look like, how it will affect states,” White said. “And, of course, the Delta variant in the U.S. has tempered some activity in places, so that adds another layer of uncertainty.”
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