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Five Ways America's Public Schools Could Survive the Coming Fiscal Storm

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With K-12 revenue having cratered, school administrators, policymakers, and school funding advocates are now devising strategies to help school districts survive the coronavirus-sparked recession. 

After this year's election, politicians at the federal, state, and local levels will begin to debate in earnest how to cope with an anticipated $500 billion budget hole. At issue is which districts should absorb the most pain, whether to restructure school funding policies and tax revenue sources, and how to cut while also boosting academic outcomes. 

Following are five ideas that have been surfaced in school funding policy circles and a look at some of the political and logistical headwinds they face:

1.) Raise taxes.

Raising taxes during a recession is politically a hard sell since taxpayers argue they have little money to pay their bills—let alone higher taxes—and business owners say they need to spend any extra money they have on rehiring laid-off workers. 

But Democrats in recent years have taken the message that the rich can afford to pay more onto the campaign trail

A proposal on California's ballot this year would increase taxes on properties worth more than $3 million.  If passed, it would provide more than $6 billion in additional funding for schools. 

"A balanced mix of tax and other policy options must be employed to maximize revenues while spreading the tax burden, minimizing volatility, and mitigating negative economic consequences," researchers Carrie Hahnel, Heather J. Hough, and Jason Willis wrote in a paper recently published by PACE, a research consortium that represents Stanford University, the University of California at Berkeley, and the University of Southern California.

Last week, New Jersey, facing a $5 billion budget deficit, raised its taxes on millionaires and businesses that annually make more than $1 million.  Democratic Gov. Phil Murphy had been pushing the so-called millionaire's tax for several years now but the pandemic and the fiscal fallout provided the political environment to get the proposal through the state's legislature. 

Similarly, wealthy districts may attempt to replace lost aid by raising their local levy, if the state allows them.  Vermont earlier this year attempted to prevent local school districts from raising their tax rates. 

2.) Diversify revenue.
Hardest hit by this recession are states heavily reliant on oil, gaming, and tourism.  Districts in Alaska, Hawaii, Nevada, and New Mexico now anticipate having to incur at least a 20 percent dip in revenue over the next two years.  In those states, school funding advocates are urging legislators to create new lines of revenue so that the state is not so dependent on one industry in the coming years. 

There are also calls to institute higher property, income, and sales taxes after years of statewide opposition. (Hawaii is the only state in the nation without a property tax for school districts.)

3.) Federal bailout
Districts' best hope is for a sizeable federal bailout. The $13 billion provided under the CARES Act is now mostly used up and was not enough to spare districts from budget cuts this spring.  Another package, which isn't expected to arrive until after this year's election, would have to bring in closer to $100 billion to $200 billion in order to make a dent into districts' anticipated budget cuts. 

The longer the federal government waits to bail out schools, the deeper this year's budget cuts will be

4.) Rely on state and district savings.

States since the last recession have stored up billions of dollars in their rainy day accounts. By the beginning of this year, states had saved on average around 8 percent of the amount of money they annually spend overall.

School officials now want states to dip into those funds in order to cushion the blow from the current financial meltdown. 

Most states have caps on how much money they can take out of their rainy day funds at once and rules around how they can spend that money. 

Many state leaders, including in New York and Arizona, are also reluctant to pull out significant chunks of money now since there's no telling how long the current recession will last. 

Districts also have money stashed away in savings, though many districts used much of that money to reopen their schools this year.  

5.) Piecemeal budget cuts

Flat percentage budget cuts to states' funding formulas during the last recession proved devastating to low-income school districts, which are heavily reliant on state aid. Several states this time around want to cut outside of their school funding formulas or cut from their wealthiest districts first.  Ohio tried this strategy in the spring and school funding advocates in New York and Michigan are hoping their legislature will do the same this year.

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