COVID economic crisis threatens Kansas school budgets

COVID economic crisis threatens Kansas school budgets

As school leaders struggle with questions over when and how students will return to classes in school buildings, they face another issue: growing uncertainly over how to budget for next year.

The 2020 Legislature passed and the Governor signed an appropriations bill that increased state general fund aid to school districts by $117.5 million next (Fiscal Year 2021) over the current year. But new state revenue estimates indicate the state general fund is now facing a $653 million deficit next year – over 8 percent of approved spending.

With over 50 percent of the state general fund budget going to K-12 education, some legislators say the plunge in expected revenues means school leaders should expect cuts in K-12 funding.

Some or all of that revenue loss could be offset by federal aid. Kansas is expected to receive $2.1 billion in federal aid under the CARES Act, with $1.25 billion of that amount available for general state and local purposes to address the COVID-19 crisis. State officials say the current understanding is that the majority of funds allocated to the state cannot be used to directly fill revenue shortfalls.

Gov. Laura Kelly and other governors are urging Congress to provide federal aid to avoid deep cuts in state and local services caused by the COVID pandemic. The Kansas State Board of Education and state education organizations, including KASB, have also called on Congress to help offset these revenue losses.

While the Governor supported the increased school funding and said she will try to protect school funding and other critical services if possible, she also stated: “I cannot overstate the severity of the budget crisis on the horizon to both the state and local units of government. If the federal government fails to act we will be forced to make very deep cuts in critical services.”

Without additional federal aid, Kansas faces a significant budget crisis.

The budget shortfall could result in cuts to school district budgets because 52 percent of the state general fund goes to K-12 state aid. Another 11 percent is appropriated for higher education; 26 percent goes to human services, including mandatory state matching for federal Medicaid programs; and 6 percent to public safety, such as state prisons. All other government programs make up the remaining 5 percent. (See Kansas Legislative Research Department’s Fiscal Facts for 2019.)

That means if K-12 funding is excluded from reductions and the state cannot cut over $1 billion in matching funds for federal human services costs, it will require even deeper cuts in higher education, other social services like foster care, prisons and law enforcement.

The only other major source of revenue is to transfer funding from programs outside of the state general fund, such as transportation, which reduces support for highways, bridges and other infrastructure.

K-12 funding has received approximately 50 percent of the state general fund expenditures since the state assumed a larger role in school funding during the 1990s in order to reduce property taxes.

If $1.4 billion in human services caseloads is excluded from an approved $8.1 billion budget for next year, reducing $653.5 million would equal an “across the board” cut of 9.7 percent from all other funding, or $390 million from school funding.

Cuts in state funding will have a major impact on school budgets because most school funding comes from the state.

Last year, school districts received almost $4.4 billion in state aid (including the 20 mill statewide levy which is not part of the state general fund), or 66 percent of their total revenues. Local revenues were $1.78 billion, or 26 percent of funding; federal aid about 8 percent. This year, the state aid percentage will be higher, because the Legislature approved $173 million in additional base state aid and $255 million in KPERS aid.

Other states rely more on local revenues, mainly property taxes, to fund schools. The Kansas system relies on more state funding and limits how much districts can raise locally. That keeps property taxes lower and provides more equal funding and tax rates. But it also means reductions in state aid have a larger impact on district budgets and districts can’t replace those cuts by raising local revenues.

Most state funding goes to pay for instruction and other costs supporting students and teachers, so those cuts will impact learning at time when students are struggling.

Out of $6.7 billion in total school district spending last year, 74 percent (almost $5 billion) went to direct instruction, student support programs like counselors, nurses and social workers, instructional support such as libraries, technology and professional development, school principals and office staff, student transportation and food service. Less than 5 percent ($295 million) went to district administration and central services.

The remaining 22 percent went to operations and maintenance ($595 million), building acquisition and construction ($178 million) and debt service ($663 million).

Instructional and student costs are mostly paid from the school district general fund, local option budgets and special education state aid, which totaled almost $5 billion last year. State aid paid for over 77 percent of that amount. State aid provides all of the general fund ($2.9 billion), all of the special education aid ($479 million) and state aid for local option budgets ($494 million).

However, state aid for capital outlay ($65 million) and capital improvements/bond and interest ($203 million) provided only 32 percent of facility acquisition and construction ($178 million) and debt service ($663 million).

In addition, the state pays the entire amount of KPERS contributions for school employees, most of whom are in positions working with students and none of which are involved in school construction.

As a result, reductions in state funding will have the largest impact on programs and personnel directly helping students, because those programs receive the most state aid and are most dependent on state aid. Cuts in these areas will make it more difficult to help students catch up after losing about 25 percent of this school year in the classroom. Most educators believe students with the greatest needs will have difficulty making progress through on-line learning or take-home packets without daily support from teachers and school staff.

Most school funding goes to pay for personnel costs, so cuts will result in more unemployment and income loss in Kansas.

Sixty-five percent of total school district spending goes to employee salaries and benefits. Another 12.5 percent is spent on purchased services; essentially contracting with others for employees, from special education cooperatives to bus drivers to construction firms. About 11 percent is spent on debt service, which cannot be reduced until debt is reduced. Less than 12 percent is spent on supplies and material, property and other items.

As a result, cuts in state funding will result in reductions in school district staff and compensation, which will increase state unemployment and reduce wages available for rents, home mortgages, food and other purchases, harming both the state’s economic recovery and thousands of school district employees and their families.

Cuts in school funding will raise constitutional concerns.

School districts were hoping for stable and gradually rising funding after the Kansas Supreme Court approved a plan to increase base state aid per pupil over a six-year period to restore purchasing power to 2009 levels after adjusting for inflation to address the Gannon school finance case.. The Legislature has approved base budget increases for Fiscal Years 2022 and 2023. After that, the base is to automatically be adjusted by consumer price index-Midwest. The approved budget for 2021 also funds “equalization” programs at levels approved by the court. The court has opined that constitutional school funding must be both adequate and equitable.

Base State Aid. The base state aid amount was set using cost studies to determine what would be adequate for Kansas students to meet state educational goals agreed to by the Supreme Court and Legislature. Reducing base aid would reduce each district’s general fund budget proportionately, the same amount or percentage for each weighted student. It would further delay adequate funding at a time when most school leaders believe students will need more assistance after schools have been closed and only online or packets of instructional materials can be provided.

LOB, Capital Outlay and Capital Improvement Aid. Cuts in these programs would fall disproportionately on low wealth districts. Districts with higher per pupil property values depend less on this aid, and the wealthiest 19 percent do not receive any aid at all. Lower wealth districts would have to increase property taxes more to make up the loss or reduce spending. LOB funding has the same impact as base aid. Capital outlay is primarily used for long-term building and equipment purposes. Bond payments are legally required to be paid at the rate specified in the bond issue. The Kansas Supreme Court has ruled that wealth-based disparities in school funding are unconstitutional.

Although the state Supreme Court accepted the Legislature’s plan to address the Gannon decision, it has retained jurisdiction over base to ensure compliance. Changes in adequacy and equity components would invite scrutiny by the court.