End of Pandemic Funding for Schools Requires States and Districts to Plan

As students and teachers head back to school this fall, state leaders are faced with the challenge of how to fund public education without additional support from federal COVID-19 pandemic-era aid. School districts nationwide are reporting budget deficits and weighing layoffs, spending cuts, and service reductions. In West Virginia, for example, federal pandemic-era aid helped cover more than 1,400 salaries, and districts are now faced with cutting staff. Declining enrollment, among other factors, is adding to their budget pressure.

The Elementary and Secondary School Emergency Relief (ESSER) Fund program, first enacted in 2020, provided historic levels of federal education funding to support states through the public health emergency and the ensuing recovery. Elementary and secondary education is the second-largest budget expenditure for states; as the federal funding boost winds down, district officials face difficult choices—and large potential fiscal cliffs—that will likely have implications for state budgets.

ESSER funding initially provided $13.2 billion to states as part of the CARES Act (a package known as ESSER I), then an additional $54.3 billion through the Coronavirus Response and Relief Supplemental Appropriations Act (ESSER II), and finally $122 billion—nearly double the previous rounds—through the American Rescue Plan (ESSER III) enacted in 2021.

ESSER III maintained the broad list of activities that schools could spend money on outlined in earlier packages, but it also required them to spend at least 20% on addressing learning loss. Districts have until Sept. 30, 2024, to obligate their ESSER III funds and until Jan. 28, 2025, to spend them. Fund recipients can request a 14-month extension to disburse funds.

The expiration of ESSER III funding, in particular, poses challenges for districts and states in ways that the first two tranches of funding—which focused on the direct impact of the pandemic on school operations—did not. ESSER III’s focus on pandemic learning loss helped schools add student support services that will require recurring funds to continue.

These differences matter given the one-time nature of the funding. Using one-time funding for recurring costs presents challenges to local education and state budget officials and can lead to major funding gaps. The prospect of such steep declines means districts could face hard decisions around finding funding to maintain programs.

A historic level of funding

ESSER formula grants established during the pandemic provided unprecedented support to K-12 schools. The federal infusion of $190 billion represented about a quarter of total annual pre-COVID K-12 revenues. The expiration of this funding comes as school districts are facing other challenges as well, including persistent inflationary pressures, declining enrollment, and more widespread demand for supports for students with unique learning needs.

These challenges are particularly prominent in high-poverty districts that received more dollars per student than the national average in total ESSER funding. The boost allowed them to fund programs and staff that meet the specific needs of their student populations, but these districts now also face much steeper challenges as the funding expires. States with a concentration of high-poverty districts may encounter budget pressures to sustain funding for programs and staff that have been supported through ESSER. Rural schools will face challenges as well—many used ESSER funding to retain teachers and specialists in their districts, which often experience staffing shortages.

Major influxes of one-time federal funding can be challenging to use effectively while maintaining structurally balanced budgets, especially in education, where ongoing personnel expenses dominate spending needs. But school districts are not alone in facing such potential fiscal cliffs. Other government entities that have spent one-time pandemic funds on ongoing operational needs also face difficult choices as different types of pandemic funding wind down.

To address this reality, some state education agencies and school districts are now evaluating the impact of investments made with this pandemic aid. These actions can help district officials assess where they are getting the most value for each dollar spent and highlight where they should focus their attention when ESSER funds are depleted.

Connecticut, for example, is convening state education experts to conduct research into pandemic-related projects funded via ESSER. North Carolina assembled an ESSER funding cliff toolkit for district officials and related dashboards to review the return on investment of programs developed using ESSER funds. New Jersey, meanwhile, built a website to help districts identify other federal grants that might be available to sustain key programs when ESSER funding ends.

States may be able to work with districts to help them identify alternative sources of revenue to sustain spending on key initiatives. And federal agencies might be able to provide ongoing grant funding for some programs, such as Mississippi’s telehealth initiative and Indiana’s career pathway program, both of which were initially established with ESSER funds. Without an alternative funding source, districts may turn to their state budgets, which would pose a challenge as many states seek to curb spending, or to local voters to supplant federal dollars, an approach that is already seeing mixed results.

As the Sept. 30 obligation deadline approaches, states and districts can also learn from past education funding wind downs as they chart the course forward. Although ESSER was by far the largest infusion of federal dollars into K-12 schools in U.S. history, it is not the first time that districts received such surges of money—and it will likely not be the last.

To minimize future risk around one-time dollars, states and districts should carefully consider infusions of federal dollars, assess how money was optimally spent, and examine how critical programs could be sustained using other resources once federal money is depleted. New Jersey’s Maximizing Federal Funds website provides examples of alternative federal funding streams that could be tapped to maintain programs going forward.

Final thoughts

Pandemic aid packages such as ESSER brought unprecedented federal financial support and ample flexibility to states and school districts. Because of this additional funding, districts have been able to pay for long-sought programs. But the one-time nature of this funding means states and school districts must strategically decide which recurring programs to wind down. And that can lead to cascading effects on students, faculty, and staff.

With this funding set to expire this fall, states could face pressure to fill the funding gaps. Officials should work with school districts to evaluate how this federal aid has been spent, what ongoing programs or services will need to wind down as funding expires, and whether state or other funding sources are available to continue some key new programs or services that would otherwise end.

Additionally, when deciding where to dedicate limited funding, states and districts can work to identify the programs that proved most effective and provided the highest return on investment. And some are already doing so. With such an approach, they may make a compelling case for alternative federal funding streams, enhanced local support, or private dollars, and could soften the landing of the end of ESSER on state finances.

Samuel Pittman works on The Pew Charitable Trusts’ managing fiscal risks project.