Highlights:
– Looming Fiscal Crisis: Public schools in the U.S. are facing a fiscal cliff with expiring federal relief funds and ongoing budget shortages, potentially leading to cuts in services and layoffs, particularly affecting high-poverty districts.
– Challenges in Staffing and Resources: Persisting issues in recruiting and retaining qualified educators, especially in high-demand areas, risk worsening educational inequities and undermining academic improvements and access to quality education.
– Need for Coordinated Action: Policymakers, educators, and advocates stress the importance of strategic funding, equitable allocation of resources, and sustained federal investment to stabilize school finances and tackle long-standing inequities, urging initiatives to navigate the challenging fiscal and staffing landscape effectively.
Prepare for this educational crisis by exploring innovative recruitment programs and legislations to support schools.
Summary
Public schools in the United States are confronting a looming fiscal crisis as the expiration of federal pandemic relief funds coincides with ongoing budget shortfalls and a surge in staffing demands. Following a period of increased hiring aimed at addressing widespread teacher and staff shortages during the COVID-19 pandemic, many districts now face the challenge of sustaining expanded payrolls amid shrinking revenues. This situation, often described as a “fiscal cliff,” threatens to force significant cuts in educational services, staff layoffs, and reductions in essential programs, particularly affecting high-poverty districts that relied heavily on temporary federal aid.
The fiscal challenges stem from a combination of factors, including historically uneven and inadequate public school funding, state-level budget cuts exacerbated by tax policy decisions, rising operational costs, and demographic shifts. Although emergency federal relief programs such as the Elementary and Secondary School Emergency Relief (ESSER) funds provided crucial short-term support, their sunset in 2024 exposes districts to sharp funding declines. Many states have also adopted conservative fiscal approaches during and after the pandemic, reducing or freezing education appropriations despite increased needs, thereby intensifying funding disparities across districts and states.
These financial pressures coincide with persistent difficulties in recruiting and retaining qualified teachers and support staff, especially in high-demand areas like special education, science, and mental health services. While the surge in hiring efforts during the 2023–24 school year partially addressed shortages, districts struggle with too few qualified applicants and competition that favors wealthier schools, risking the deepening of educational inequities. The resulting strain on staffing and resources undermines efforts to improve academic outcomes and maintain equitable access to quality education.
In response, policymakers, education leaders, and advocates emphasize the need for strategic funding frameworks, equitable resource allocation, and sustained federal investment to stabilize school finances and address longstanding inequities. Initiatives such as targeted legislative proposals, innovative recruitment programs, and fiscal management tools aim to help districts navigate this “perfect storm” of fiscal and staffing challenges. Without coordinated action, the fiscal cliff threatens to exacerbate disparities and compromise the educational futures of millions of students nationwide.
Background
The funding landscape for public schools in the United States has been shaped by long-standing challenges that predate the COVID-19 pandemic, including inadequate investment, budget cuts, and low relative pay for education support staff, all contributing to rising teacher turnover and a shrinking pipeline of qualified educators. The pandemic further exposed and exacerbated these preexisting inequities, highlighting the critical need for equitable distribution of resources and effective policy tools to address widening gaps in educational access and quality.
Historically, public education spending in the U.S. has lagged behind global benchmarks and economic growth, with total K–12 expenditures reaching approximately $857.2 billion annually, or $17,277 per pupil. Despite the substantial scale of funding, the system has struggled with disparities across districts, partly due to reliance on state and local revenues that fluctuate with economic conditions. Notably, school funding can serve as a countercyclical public spending mechanism—injecting resources into the economy during downturns to support recovery—yet it has not traditionally been recognized as such by policymakers.
During economic recessions, such as the one precipitated by the COVID-19 pandemic, state and local budgets often experience shortfalls that lead to reductions in education funding. In 2021, fourteen states reduced total state and local funding for PK-12 education, marking the largest disinvestment since the 2008 recession-era cuts. Although federal relief programs, including the Elementary and Secondary School Emergency Relief (ESSER) funds, were introduced to address the extraordinary costs districts faced during the pandemic, these funds were intended to supplement rather than replace state and local support. Despite provisions to maintain effort and equity in funding, some states either cut back on education revenue or failed to implement planned increases, adopting a conservative fiscal approach amid ongoing uncertainty.
Research on the impacts of increased funding has demonstrated positive effects on student outcomes, particularly when directed toward low-income districts. For example, expanded funding under Massachusetts’ Education Reform Act of 1993 was linked to significant improvements in academic performance in disadvantaged areas. However, findings from studies of federal Title I funding indicate mixed results, with some analyses showing no measurable impact on test scores at the individual or school level. These mixed outcomes underscore the complexity of education finance and the importance of how funds are allocated and utilized.
Surge in Hiring
The 2023–24 school year saw a significant surge in hiring efforts across public schools in the United States, driven by widespread teacher shortages and the need to fill both teaching and non-teaching vacancies. Despite the urgent demand, schools faced persistent challenges, including too few candidates applying and a general lack of qualified applicants. Specifically, 86 percent of public schools reported difficulties hiring teachers, and 83 percent struggled to fill non-teaching positions as the school year began.
Among teaching roles, general elementary and special education teachers were the most in-demand, with 71 percent and 70 percent of schools respectively identifying these positions as hard to fill. For non-teaching vacancies, transportation and custodial staff were particularly challenging to recruit, with 92 percent of schools reporting transportation positions as difficult to fill and 78 percent for custodial roles. Only 8 percent of schools described hiring transportation staff, such as bus drivers, as “easy”. Additionally, shortages extended to mental health professionals, with 49 percent of schools feeling understaffed in this area.
The shortage in qualified candidates remained the top challenge in filling vacancies with fully certified teachers entering the 2024–25 school year, cited by 64 percent of schools, while 62 percent noted too few applicants, though this represented a slight improvement compared to the previous year. The persistence of shortages was particularly acute in traditionally difficult-to-fill subject areas like special education, science, and foreign languages.
This surge in hiring attempts coincided with complex fiscal realities. Emergency federal aid had temporarily alleviated some budgetary pressures, but with those funds expiring and economic recovery lagging, many districts faced looming revenue shortfalls that threatened to undercut staffing efforts. The competition for scarce educators and staff risked exacerbating existing inequities, as wealthier and more desirable schools were better positioned to attract and retain personnel, potentially deepening disparities between districts.
Budget Shortfalls
Public schools in the United States are facing significant budget shortfalls following a surge in hiring during the COVID-19 pandemic, driven largely by federal relief funds that have since expired. The Elementary and Secondary School Emergency Relief (ESSER) funds provided substantial temporary financial support, enabling schools to increase staffing levels to address pandemic-related challenges. However, the expiration of these federal funds in September 2024 has created a fiscal cliff, forcing districts to reconcile expanded payrolls with diminishing resources.
A common strategy to manage immediate budget gaps includes short-term interfund loans, such as the $27.5 million loan employed to balance the 2024-25 budget, which requires repayment by mid-2026. Despite such stopgap measures, many districts struggle to maintain staffing and program levels without renewed or increased funding.
Underlying these shortfalls are broader state-level fiscal challenges. Since the 2008 recession, numerous states have implemented significant cuts to K-12 education funding, often exacerbated by policy decisions such as income tax reductions that reduce available revenue for schools. For instance, states like Arizona, North Carolina, and Oklahoma have both cut income tax rates and made deep school funding reductions, complicating recovery efforts. Additionally, rising costs associated with inflation, demographic shifts, and increased student enrollment—estimated at 1.4 million additional K-12 students since 2008—have further strained budgets.
The reliance on spending cuts rather than balanced approaches involving revenue increases has been a hallmark of post-recession education finance, with states closing nearly half of their budget gaps through cuts and a smaller portion through tax or fee increases between 2008 and 2012. This trend has led to persistent underfunding and widened inequities, particularly affecting high-poverty districts where funding lags behind that of low-poverty areas even after economic recovery.
Federal emergency aid during and after recessions has helped mitigate some shortfalls and funding disparities, but the temporary nature of such funds means districts remain vulnerable once the support ends. Efforts like Polco’s K-12 Fiscal Cliff Package, including budget simulation tools, aim to assist districts in optimizing limited funds while maintaining educational quality amid these constraints.
Fiscal Cliff Explained
The fiscal cliff facing many U.S. public school districts refers to the sudden and significant reduction in federal funding that followed a surge in spending during recent years, particularly as emergency funds such as those from the Elementary and Secondary School Emergency Relief (ESSER) program expire. This reduction threatens to create substantial budget shortfalls for districts, especially those serving high-poverty communities that had relied heavily on these federal dollars.
Education Resource Strategies identified 15 states where districts are especially vulnerable to this fiscal cliff due to their greater dependence on federal aid and higher poverty rates. In these areas, the expiration of emergency funds will result in a sharp drop in available resources, which could force difficult decisions including layoffs and reductions in essential services like counseling, nursing, and transportation.
State school funding formulas, which determine the distribution of state and local revenues to districts, also contribute to the challenge. These formulas dictate the expected revenue from property and other local taxes alongside state contributions. However, actual funding appropriated in state budgets often fails to align with these formulas, exacerbating financial instability for districts. In some states, the failure to restore funding to pre-recession levels stems from both stagnant per-student state revenues and significant state tax cuts, which have reduced governments’ capacity to fund education adequately. States such as Arizona, North Carolina, and Oklahoma experienced deep cuts exacerbated by income tax reductions, while others like Hawaii, Indiana, Kansas, and Vermont struggle due to insufficient local revenue.
The financial strain disproportionately affects high-poverty districts, where per-student funding remains lower than in low-poverty areas despite recovering from recession-era cuts. This longstanding inequity, combined with the impact of the fiscal cliff, threatens to widen achievement gaps and undermine educational outcomes. Moreover, some high-poverty districts are spending their remaining federal funds more slowly than wealthier districts, which may prolong fiscal challenges by creating larger funding contractions when these funds eventually run out in 2024.
Additional factors, such as declining enrollment in high-poverty districts and state policies that allocate funding based on the proportion of low-income students, further complicate the fiscal outlook. These dynamics suggest that districts serving vulnerable populations will face compounded financial pressures in the coming years. Overall, the impending fiscal cliff is described by experts as a “perfect storm” that will reshape public education finance and demand difficult choices from school leaders and policymakers.
Responses and Strategies
In response to the impending fiscal challenges facing U.S. public schools, a range of strategies and policy proposals have emerged to address budget shortfalls and ensure equitable resource allocation. Central to these efforts is the development of communication and spending frameworks that align financial resources with student achievement goals. For example, the Government Finance Officers Association (GFOA) advocates the Smarter School Spending Framework, which provides actionable steps for school districts to strategically allocate funds while maintaining educational priorities.
Addressing equity in funding has been highlighted as a critical component, particularly in the wake of the COVID-19 pandemic, which exacerbated existing disparities. Policymakers are urged to implement tools and policies that promote the equitable distribution of funds, focusing on high-poverty districts that incur additional costs for educating their students. This approach aligns with research emphasizing the importance of both sufficient funding levels and targeted financial support to close achievement gaps and mitigate the long-term consequences of crises on students.
The role of the federal government in sustaining and increasing education funding has also been a focal point. Historical analyses demonstrate that during economic downturns, federal investments, such as those made through the American Recovery and Reinvestment Act (ARRA), helped counteract state and local revenue shortfalls, preventing deeper cuts to educational services and staff. Advocates argue for a permanent expansion of federal contributions to stabilize school budgets and leverage education spending as a countercyclical economic tool.
At the state level, conservative fiscal approaches during the pandemic have led some states to reduce or withhold planned increases in education funding, offset only partially by federal emergency relief funds. Experts warn that without renewed investment beginning in fiscal year 2025, harmful cuts may become inevitable, threatening access to essential educational resources and personnel. The paradox of widespread teacher shortages coexisting with layoffs underscores the complexity of funding decisions, enrollment trends, and the expiration of federal relief funds. Strategies aimed at addressing these issues include legislative actions and financial incentives designed to recruit, prepare, and retain a diverse and well-qualified teaching workforce.
Innovative programmatic responses have also been proposed to strengthen the educator pipeline. Grow-your-own (GYO) programs, which recruit and train local community members such as paraprofessionals, parents, and career changers to become teachers, show promise in both diversifying staff and improving retention rates. For example, Wisconsin’s initiative to allocate $5 million in grants toward GYO programs exemplifies efforts to locally tailor solutions to staffing challenges.
Moreover, research on funding reforms such as California’s Local Control Funding Formula (LCFF) illustrates the positive, albeit gradual, impact of increased financial investment on student outcomes. Increased funding under LCFF enabled districts to hire additional teachers and support staff, many of whom were initially novice. Although academic improvements were not immediate, gains accumulated over time as staff gained experience, highlighting the need for sustained investment and long-term planning.
Legislative and Policy Initiatives
Federal and state governments have enacted various legislative and policy initiatives to address the fiscal challenges facing U.S. public schools, especially in the wake of recent economic fluctuations and pandemic-related disruptions. The President’s fiscal year 2024 budget proposal outlines resources and funding priorities aimed at supporting schools, educators, students, and families, reflecting an ongoing commitment to education despite budgetary constraints.
During the early stages of the COVID-19 pandemic, state legislatures grappled with uncertain revenue forecasts as they negotiated fiscal year 2021 budgets. Many states responded with conservative fiscal policies, either reducing or freezing increases in education funding. For example, states such as Colorado and Hawaii cut state or local revenue allocations to school districts, while others like New Jersey and Illinois delayed planned funding increases. However, these setbacks were partially offset by federal relief funds, notably the Elementary and Secondary School Emergency Relief (ESSER) funds, which provided critical financial support during this period.
Congress has continued to play a significant role in supplementing education funding through targeted appropriations. In early 2022, a federal spending plan allocated $42.6 billion for K-12 education, marking a $2 billion increase from the previous year and including enhanced funding for schools serving students in poverty, mental health services, and Community Schools programs. Nonetheless, this omnibus plan was less ambitious than the original proposals by President Joe Biden. The 2023 budget, approved in December 2023, provided $79.6 billion for education, including $18.4 billion dedicated to Title I schools—a 5 percent increase over the previous year but notably below the $36 billion initially proposed for addressing educational inequities.
Beyond direct funding increases, policymakers and economists emphasize the importance of recognizing public education spending as a countercyclical economic stabilizer. Increased federal investment in education during economic downturns not only mitigates funding shortfalls but also helps narrow funding disparities between low-poverty and high-poverty districts. Such countercyclical measures contribute to broader economic recovery efforts by sustaining public spending when overall expenditures decline, underscoring the need for a more robust federal role in school funding during fiscal crises.
At the policy level, federal education reforms have shifted over the past decade. Earlier initiatives like No Child Left Behind and Race to the Top aimed to improve student outcomes but ultimately failed to generate significant gains and have largely been rolled back. The current legislative framework under the Every Student Succeeds Act (ESSA) requires states to maintain transparency regarding student academic performance through annual assessments and public reporting, while granting states and local education agencies greater discretion in the use of federal funds. This balance aims to promote accountability while allowing for
Impact on Students and Educators
The fiscal challenges facing U.S. public schools have significant repercussions for both students and educators, particularly in high-poverty districts where funding disparities are most pronounced. Declines in school budgets have been linked to a variety of school-related problems, including reductions in education employment, increases in class sizes, and declines in student performance. Because salaries constitute the largest portion of school budgets, funding shortfalls severely limit schools’ ability to hire and retain qualified teachers and support staff, which in turn undermines effective instruction and administrative support.
Students in high-poverty communities are disproportionately affected by these funding issues, as revenue declines in these districts tend to be sharper and more impactful due to the structure of federal aid such as ESSER funding. Even after recovering from recession-related cuts, per-student funding in high-poverty districts remains lower than in low-poverty districts, perpetuating long-standing inequities that negatively affect student outcomes both in the short and long term. These inequities also manifest in disparities in access to essential resources, including counselors, librarians, nurses, updated technology, and adequate facilities.
Teacher shortages remain a critical concern, especially in subjects historically difficult to staff such as special education, science, and foreign languages. While some improvements in staffing sentiments have been observed since the previous year, high-poverty districts continue to report understaffing issues. The COVID-19 pandemic exacerbated existing teacher shortages and dissatisfaction, with job satisfaction among teachers plummeting to 12% at one point before partially rebounding to 20% in 2023. Correspondingly, the percentage of teachers planning to leave their positions has declined but remains significant. Projections indicate that job openings for kindergarten and elementary school teachers will remain relatively stable over the next decade, offering cautious optimism for addressing shortages.
Given the central role of teacher quality in student achievement, recruiting, developing, and retaining effective educators is essential. However, budget cuts hinder these efforts by restricting districts’ ability to increase teaching staff or offer competitive compensation. Research emphasizes that improving resources such as smaller class sizes, additional student supports, early childhood programs, and teacher pay are tied to better educational outcomes. Without sufficient and equitable funding, schools struggle to provide these critical supports, ultimately affecting student success and educator capacity.
In sum, the intersection of fiscal shortfalls and heightened hiring needs creates a precarious environment for U.S. public schools, where students in vulnerable communities and educators face ongoing challenges that impact educational quality and equity.
Academic Performance and Equity
School finance is currently at a critical juncture, with equity in resources, staffing, and learning opportunities hanging in the balance. Research indicates that reductions in school funding correlate with adverse effects on several key factors such as education employment, class sizes, and student performance. Although it is challenging to isolate the exact impact of funding cuts, substantial evidence supports the positive influence of increased spending on both short- and long-term student outcomes, overall school quality, and adult life prospects.
The relationship between funding and academic achievement is complex but significant. Schools with smaller budgets frequently struggle to provide smaller class sizes, enhanced programs, and competitive teacher compensation, which are all linked to higher student achievement. According to the Albert Shanker Institute, resources that require additional funding—such as early childhood programs, supplemental supports, and better teacher pay—play an important role in closing achievement gaps. Conversely, inequities in funding contribute directly to socioeconomic disparities in educational attainment.
Moreover, equitable and sustained investments in education have been shown to reduce the long-term negative impacts of crises on students by ensuring access to critical services and compensatory resources. The heavy dependence on local funding for public schools exacerbates these inequities, as variations in property values, tax efforts, and political decisions create wide disparities between communities. This decentralized funding system is a core driver of ongoing challenges related to fairness and opportunity in American public education.
While federal grants and loans allocate the majority of funds directly to students, a portion of education budgets is also spent on areas like school construction and safety, whose effects on student outcomes are less direct. Despite record-high funding levels in some states like California, gaps in student outcomes persist, highlighting that how funds are distributed and used is as crucial as the amount available.
Data and Reporting
The financial data concerning U.S. public schools during the 2021-22 school year, which was the second full academic year following the onset of the COVID-19 pandemic, were collected through the Common Core of Data National Public Education Financial Survey. This survey annually gathers detailed revenue and expenditure information from school districts nationwide, providing insights into the financial health and resource allocation within the public education system.
In addition to this survey, several other data sources contribute to the understanding of school funding dynamics over time. These include the U.S. Census Bureau’s Annual Survey of School System Finances (covering 2008–2020), the Small Area Income and Poverty Estimates by the Census Bureau (2008–2020), and State Gross Domestic Product reports from the U.S. Bureau of Economic Analysis (2008–2020). Funding levels are typically calculated by dividing combined state and local revenues by student enrollment figures, with the exception of certain federal revenues such as Impact Aid and Native American education funding, which are treated as substitutes for state and local funds rather than additive sources.
School finance systems involve complex formulas that regulate how much revenue districts may raise from local property and other taxes and how much state funding or aid is provided. Although these formulas set theoretical funding levels, actual appropriations decided by state legislatures during budget cycles often diverge from these formulas. Notably, enrollment declines affect per-pupil funding measures; states experiencing significant student population decreases may show increased per-pupil funding levels without a corresponding rise in total revenue. Thus, analyzing total state and local revenue alongside enrollment trends is essential to assess disruptions in public education funding.
The data reveal that in 2021, fourteen states reduced their total state and local funding for PK-12 education, marking the largest disinvestment since cuts experienced during the 2008 recession. These trends highlight the political decisions shaping education funding in a post-pandemic context and underscore challenges in maintaining consistent financial support for public schools.
Further information and resources connected to federal budget proposals and Department of Education efforts are available to stakeholders such as communities, educators, and families, which help provide context and guidance regarding ongoing fiscal planning for education. However, general education funding figures reported often exclude local property tax revenues and focus primarily on state budget allocations, which can differ from total funding available to school districts.
Case Studies
State-level reforms provide important insights into the impacts of increased education funding and subsequent budgetary challenges. Michigan’s 1994 education reform serves as a notable example, where increased spending was linked to improvements in student academic performance, graduation rates, and college attendance. Multiple studies found evidence supporting these positive outcomes, highlighting the potential benefits of targeted investment in schools. Similarly, California’s Local Control Funding Formula (LCFF) demonstrated that additional funds were used primarily to hire more teachers and support staff, many of whom were initially novice. While academic gains were not immediate, improvements accumulated over time as the workforce gained experience, suggesting that investment effects may manifest with a delay.
More recently, concerns about looming fiscal cliffs have emerged in several states where districts face sharp reductions in funding after the expiration of federal relief programs. Education Resource Strategies identified 15 states where districts are particularly vulnerable to sudden budget shortfalls, a situation exacerbated by cautious state funding decisions during the COVID-19 pandemic. Despite an overall recovery in revenue trends, many states maintained conservative funding levels in fiscal year 2021 by reducing state or local allocations or failing to implement planned increases. These reductions were partially offset by federal Elementary and Secondary School Emergency Relief (ESSER) funds, which temporarily boosted district budgets.
However, disparities in how quickly districts spend ESSER funds have created uneven fiscal pressures. In some states, districts serving higher proportions of students in poverty are slower to expend their federal allocations than more affluent districts, resulting in larger budget contractions as these funds are depleted. This uneven spending pace exacerbates fiscal challenges for districts already struggling to maintain staffing levels and support services, including counselors, librarians, nurses, and up-to-date technology—resources that vary widely both across and within states.
These case studies illustrate the complex dynamics of education funding reforms and the challenges districts face as temporary funding surges subside, underscoring the need for sustainable fiscal strategies that balance immediate instructional needs with long-term budget stability.
Future Outlook
Public schools across the United States are facing a significant financial challenge beginning in 2025 as federal pandemic relief funds expire amid continuing declines in student enrollment. This combination has led to what experts describe as an impending “fiscal cliff,” where many school districts will be forced to make difficult budgetary decisions due to inevitable revenue shortages. The severity of this fiscal cliff varies by state and district, with some regions—particularly those that received substantial federal aid during the pandemic and have high poverty rates—expected to experience more acute funding drops.
The fiscal pressures are compounded by a longer-term trend of state and local disinvestment in education. In 2021, fourteen states reduced total state and local funding for PK-12 education, marking the largest cuts since the 2008 recession. Declining enrollment further complicates funding formulas, often resulting in higher per-pupil costs even without revenue increases, which creates challenges in sustaining adequate funding levels. This dynamic suggests that some school districts will face a gradual reduction in resources, while others might encounter more abrupt financial shortfalls depending on the scale of federal aid previously received and their local economic conditions.
Despite these challenges, there is a growing recognition of the important countercyclical role that public education funding can play in stabilizing the economy during downturns. The federal government’s pandemic-era interventions successfully mitigated some of the worst impacts on schools, highlighting the potential benefits of sustained and robust federal investments to support education through economic fluctuations. Moving forward, policy discussions may increasingly focus on strategies to maintain and stabilize funding streams to avoid deep disruptions to public education systems and to better support students, especially in vulnerable communities.
Given the anticipated financial constraints, school districts and policymakers will need to develop comprehensive communication and fiscal strategies to navigate the upcoming budget shortfalls effectively. How states and districts respond to this fiscal cliff will significantly shape the educational landscape in the coming years.
The content is provided by Jordan Fields, Scopewires
