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Is Your School District Ready for the Next Recession?

The economy's record-breaking streak of job growth for the last eight years has many politicians bracing for the next recession. 

The latest prediction from Moody's, the financial services company, is that the next recession could come as soon as 2020. And the next recession, according to Marguerite Roza, a school finance professor at Georgetown University, could have a more far-reaching impact on school districts than the last one. 

The majority of states this year are flush with cash, and many school officials are advocating for state officials to pour millions more dollars from those surpluses into school districts' coffers for teacher raises, pre-K programs, and new facilities.  

The last recession, between 2007 and 2009, had devastating effects on school districts, and it took a surge of money from the federal government in the form of the American Recovery and Reinvestment Act to stave off further cuts. 

So are districts ready for the next recession? 

In the years before the last recession, most districts had a mixed funding model and were equally dependent on state and local funds. But today, Roza points out there are lots more districts—especially in low-income areas— that are disproportionately dependent on state sales and income tax revenue. Similarly, in wealthy enclaves there are a lot more districts that are mostly dependent on local property tax revenue.

In a recession, state sales and income tax revenues are often the first to be effected. That means many more of the nation's districts (many of them with large enrollments of poor students) could lose a large portion of their funding with little recourse to replace those funds.  

Following are five things Roza suggests district administrators consider when crafting their budgets for next school year and lessons learned from the last recession. Roza is fiscally cautious and her suggestions deal strictly with the bottom line—not the political lift it might take to put them into effect. Suggestions such as outsourcing some district tasks, for example, would be likely to raise fierce opposition from teacher unions, parents, and advocates.  

1. Be realistic. Are you really broke?  

With the mainstream media providing wall-to-wall coverage of this year's teacher strikes in California, Colorado and West Virginia, school officials and parents across the nation are starting to think that all the nation's districts are broke. That may not actually be true.  

Since the end of the Great Recession in 2009, many states have increased K-12 spending. Last year, for example, states provided more than $294.8 billion in K-12 dollars, a 4 percent increase from the previous year. And local property tax revenue is finally starting to climb after getting off to a slow start after the end of the recession.  

"With the news focused on states with teacher strikes, it's made everyone feel that education is underfunded. It may not be in their state," Roza said. "You're so used to kind of saying, 'We don't have enough money.' It's a [political] strategy.  But you don't notice when you have more money than you normally do."

In the year before the last recession, there were similar news stories about how broke districts were but, in hindsight, those were actually glory days, Roza said. When the bottom fell out of the national economy and districts really did fall on hard times, it was hard to convince the public that districts were worse off than they already were.   

Roza suggests that for districts where spending is up this year, administrators convey that to school board members, the local press, and parents. 

2. Hire Sparingly

Many districts may be eager to continue reducing class sizes by using new money to hire more teachers and support staff. But hiring new employees can significantly increase districts' overall health care and pension costs, two of  the biggest drivers of districts' budget woes. 

"It's very hard to shrink your work force in a recession," Roza said. She said it's logistically difficult to lay off and close schools fast enough to make up for large budget deficits. And figuring out who to lay off can be politically thorny and academically devastating, since a school's success is in large part dependent on people and culture. 

Roza suggests that districts consider strategies such as contracting out certain services—nursing, for example—with a local agency, rather than hiring new permanent employees. Or districts could consider allowing existing staff to pick up extra duties such as tutoring or after-school programs for extra compensation.

Bottom line: It's easier to end a contract with an outside vendor than it is to figure out which employee you need to lay off.  

3. Consider alternative ways to give teachers a raise. 

With the wave of strikes across the nation, many teachers are demanding that district administrators provide them with significant pay increases to make up for the years many went without raises.  

Roza points out that giving teachers a pay raise can have a compounding impact on districts' costs since most teachers' pay climbs with the more years they're in the classroom.  A pay raise also means retirement benefits will also be higher.  So while a district might be able to afford an across-the-board pay raise this year, it might not be able to afford it next year. 

Roza suggests alternatives to teacher pay such as providing teachers with a one-time stipend or allowing teachers to pick up after-school and before-school duties to make extra money. 

4. Save, Save, Save. 

During the last recession, districts emptied their "rainy day" funds in order to spare mass layoffs, but many districts failed to replinish those rainy day funds, Roza says. 

Los Angeles—which has a $1.8 billion rainy day fund—was criticized during a recent teachers strike for hoarding those funds instead of giving teachers a raise. But Roza says that while stashing away a percentage of your budget may look illogical, it could be the difference between how long a district could survive a recession without having to make dramatic cuts that could ultimately cripple it.  

In other words, think long term.  

"I do think that if a district is looking ahead, and it has money that [it] could roll over or spend, it's not the worst time to roll it over," Roza said.  

5. Be honest and transparent with constituents. 

Roza, who for several years has advocated for more transparency in school spending habits, said one of the biggest hurdles for district leaders in deciding how to spend their money is that parents, teachers, and school board members don't understand how districts receive and spend money.  

She suggests that before a recession hits, district administrators should spend time explaining why they spend taxpayers' money the way they do. When it comes time to cut—a politically fraught and emotional draining process—the public will have a better understanding as to why you're doing what you're doing.  

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