Ring the Bell

Financial Implications of the COVID-19 Crisis and What Public Schools Can Learn from the Great Recession

By Rich Billings, DeLano Ford, and Aimee Martinez

It’s budget season for public schools around the country — a stressful time in any given school year, but now leaders are faced with the most uncertain budget environment in memory as a result of the COVID-19 crisis, ongoing school closures, and the start of an economic downturn.

This is not the first time public schools faced an unclear path in budgeting, however. Here are a few learnings from what happened to public school finances during the 2008–2010 Great Recession, key differences with the current crisis, as well as resources to help leaders navigate the situation.

Looking Back at the Great Recession (2008–2010)

As a result of the Great Recession, state and local revenues declined across the nation, and budgeting became challenging to predict, both in amount and in timing. Some states were hit harder than others based on funding formulas, state reserves, and politically-driven decisions.

Eight years after the beginning of the financial crisis, state and local education funding still was below pre-recession levels in some states.

There were four key financial implications for public charter schools:

1. Per pupil revenue drops were significant — but largely offset in many states by a large federal stimulus.

Looking across 25 states, state and local per pupil revenue (PPR) fell up to 20% between 2008 and 2011. These cuts disproportionately impacted high poverty areas.

However, the 2009 federal stimulus package (ARRA) helped offset a significant amount of K-12 funding cuts at the state and local level, temporarily increasing federal funding by more than 40% in some states.

2. State and local payments were delayed.

To balance budgets, some districts and states began deferring payments. This caused disruption in public schools’ cash flow projections, raising concerns they’d run out of money before the end of the school year. Toward the end of the crisis, in 2011–12, California still deferred over 35% of state and local funds until the first three months of the following fiscal year.

3. Tapping into the financial market (including facilities financing and lines of credit) became more difficult and more expensive.

Many public charter schools were unable to secure financing or had their financing revoked; others were able to secure financing but at significantly higher prices than they were expecting. Facility financing became uncertain (and more expensive) as commercial banks reduced their willingness to lend, the worst slowdown in credit flows since World War II.

4. Both foundation and individual philanthropy declined.

Schools saw both a decline in and delay of private philanthropy, and many foundations stopped making multi-year commitments. Foundation giving saw aggregate decreases of 2% in 2008 and 2009, although education and health remained top priorities. The impact on public charter schools was varied.

Nuances of the Current COVID-19 Crisis

While there are similarities with the Great Recession, this economic downturn has been quicker and more widespread as a result of the global lockdown and likely will have more unpredictable impact on public school finances.

Here are a few unique challenges related to COVID-19 that increase the level of financial uncertainty for public charter schools:

1. The economic impact is likely to be larger and more immediate.

Business is at a standstill for many sectors, and unemployment claims have exceeded 22 million over the last four weeks. This is more than twice the number that was seen over two years during the Great Recession. Leaders should expect to see the effects of this downturn into FY21–22.

2. The federal response for K-12 education still is uncertain.

Thus far, the federal stimulus funding set aside for K-12 education is less than half of what was allocated between 2009–2011. More federal stimulus funds could be released — but it is unclear how education ranks in priority compared to economic, health, and community needs.

3. Ongoing school closures will lead to student enrollment and recruitment challenges.

A significant number of public schools have shut down for the school year and we still have no real indication of when things will return to normal. Schools will need to adapt to recruiting students virtually, creating significant uncertainty in enrollment projections.

4. These disruptions have begun impacting the timing and cost of construction projects.

Public charter school construction projects have already been delayed in certain states and more delays are likely to occur. Additionally, disruptions in the global supply chain may lead to further hold-ups and increased expenses.

5. Mitigating the effects of this crisis on staff and students may require additional spending.

While the Great Recession hurt student learning, particularly for low income students, the trauma caused by COVID-19 and unprecedented school closures may necessitate significant expenditures to counteract student learning losses and provide comprehensive social, emotional, and mental health support for students, staff, and families.

Strategies to Mitigate These Challenges

While we don’t know yet what will happen, we hope that these resources and tools can help public school leaders navigate this untraversed path. We will continue to share strategies as we learn more about how great schools are navigating this financial crisis.

• Build and maintain your organization’s financial health. See “Cash is Really, Really Important” and “Got a Line of Credit? If Not, You Should.”
• Manage your FY20 budget tightly. See “The Art and Science of Forecasting” and “How IDEA Manages to Financial Results.”
• Develop and evaluate multiple FY21 budget scenarios. See KIPP’S FY21 Budgeting Advice ” and “Questions Great Board Treasurers Ask About the Annual Budget.”
• Allocate resources to maximize impact. See “How Uplift Budgets for Home Office Staff Positions” and “Five Tips for CFOs to Lead Through Budget Season.”
• Monitor and evaluate federal stimulus programs. See CARES Act Summary, as well as the National Alliance for Public Charter Schools.
• Evaluate possibility of construction delays on new school facilities. CSGF portfolio members can reach out to our Structured Finance Team for advice, strategic support and potential funding.

Want more? See COVID-19 Resources from Charter School Growth Fund.