Phantom Students, Very Real Red Ink: Why Efforts to Keep Student Disenrollment from Busting School Budgets Can Backfire

This article is one in a series spotlighting the broader consequences of families disenrolling their children, students changing schools and children going missing amid the coronavirus crisis. See all our coverage at ‘COVID’s Missing Students.’ (If you or a student you know changed schools or stopped going to class altogether because of the pandemic, tell us your story. On Twitter: #WhereAreTheKids and #IAmHere)

It’s K-12 education’s financial third rail: Money is supposed to follow students. So how do schools keep the lights on when the kids hardest hit by the pandemic go missing?

Nearly halfway through the school year, the scope of the problem is becoming clear — and the solution is hard to fathom. In Michigan, 53,200 students have not shown up. New York City public schools have lost some 31,000. Miami-Dade is down 16,000. Anchorage started the year with 4,000 fewer students than projected.

Estimates are that nationwide, 3 million children are not enrolled in school — anywhere. The human toll may go uncalculated for years, but the principals and others responsible for their schools know that each missing student means less money to work with for all kids.

The potential impact is stark. Every dollar that a missing student does not bring in to school must eventually be cut from somewhere. And with estimates that one in four students with disabilities, English learners, students in foster care, migrant students and homeless students is not attending class, it is certain that the kids most likely to have disappeared will be hurt the most by the layoffs, crowded classrooms and other harsh realities this will trigger, particularly in impoverished schools.

Most education leaders’ immediate reaction is an on-steroids variation of the panic that unfolded after the Great Recession of 2008. The size of the fiscal cliff schools and districts are hurtling toward is too steep to deal with at once. States should continue to fund schools at or as close as possible to current levels, they argue, and Congress should send the money needed to do so.

But such hold-harmless efforts to keep student disenrollment from busting school budgets can backfire. Some education funding experts warn that as immediate as the need is, past strategies to help public education weather storms have created inequities that persisted for years.

Often, pushing a budget cut out a year or more just makes it more painful, says Marguerite Roza, a research professor at Georgetown University and director of the Edunomics Lab. “History tells us even a 3 percent hit is very destabilizing for districts,” she says. “Even half a percent or 1 percent decline, that can send them into financial chaos.”

Whether the cuts happen right now or after federal relief funds run out in a year or more, the reckoning is coming, the experts say.

The following case studies describe how four states have tried to deal with funding in the face of declining enrollment, and the consequences of their decisions:

  • Disproportionate cuts to the poorest districts;
  • Efforts to protect districts from declining enrollment causing a disproportionate impact on charter schools;
  • Layoffs resulting from attempts to continue full funding;
  • The politically difficult calculation of deciding when to revert to funding based on actual enrollment.

Pennsylvania: When ‘fair funding’ forces unfair cuts 

Five years ago, facing a lawsuit over the school funding system, Pennsylvania lawmakers passed a bill they called the Fair Funding Formula, intended to address the chasm between wealthy and poor districts. But the changes actually enshrined in law the worst of the funding disparities. Which means there’s a good chance the brunt of any impending budget cuts will be borne by districts with the largest concentrations of Black and Latino students.

Schools get the bulk of their money from states, a sliver from the federal government and the rest from local taxes. In many places, this creates a basic inequality, with wealthy communities better able than poor ones to make up for shortfalls in state funding. In recent years, states have sought to fix this by directing more money to districts serving bigger numbers of needy students.

In Pennsylvania, it was the Fair Funding Formula. Because the commonwealth’s overall education budget grew only slightly, increased per-pupil aid to poor districts initially would have meant decreased funds to wealthy districts.

No elected officials want to defend school spending cuts to their constituents, so to ensure enough votes to pass the bill, a clause was inserted prohibiting lowering any district’s existing funding. This meant the “fair” formula could be used only to distribute new or increased funds.

That hold-harmless provision placed 90 percent of state school aid off limits for funding the new system.

The net effect has been that the districts the measure was intended to benefit have gotten only small increases from this small slice of the pie. Now, more than 100 districts — those insulated by the prohibition of cuts — receive more than double the basic state aid allotment, while the poorest 100 receive $533 million less than they would if their affluent counterparts were not held harmless.

With the amount of money available for next year’s budget presumably shrinking, and protection for districts built into the law, Pennsylvania’s poorest districts could take the biggest hits.

It’s a replay of the disproportionate way the commonwealth made cuts during the Great Recession, says Michael Churchill, an attorney with the Public Interest Law Center, which is pressing a lawsuit charging that Pennsylvania children are being denied an adequate education.

“Cuts in services were really felt by the districts that needed the help the most,” he says. “Philly still hasn’t recovered from what was cut after the 2011-12 stimulus ran out.”

Officials have already failed to take advantage of one opportunity to remedy the inequities, choosing to send about $200 million of Pennsylvania’s federal CARES Act money — the stimulus funds Congress appropriated in the spring — to districts not according to the “fair” formula, but according to the shares each receives under the hold-harmless clause. The Pennsylvania Budget and Policy Center recently released a report describing the impact on poor districts.

One example: The lead plaintiff in Churchill’s lawsuit, the William Penn School District, spends about $13,000 on each of its 5,900 students. Four-fifths lived in poverty and 91 percent were Black. It is consistently one of the lowest-performing districts in the commonwealth. By contrast, residents of the Lower Merion School District, the commonwealth’s wealthiest, tax themselves to boost school spending to $31,500 per student.

The U.S. Education Department required states to distribute some relief dollars according to districts’ poverty rates. But Pennsylvania decided to give its districts $120,000 each, plus a share calculated by overall enrollment. William Penn got $500,000, versus the $800,000 it would have received had the commonwealth used the “fair” formula. Lower Merion, which serves some 2,000 more students, received $702,000, versus $175,000.

California: COVID-19 meets the politics of school choice

Pre-pandemic, enrollment declines were already a red-hot political issue in California, where charter schools have gained 46,500 students over the last two years, even as overall public school attendance is down by 104,000. Since June, lawmakers have crafted two pandemic funding formulas, both of which disadvantage charter schools.

In June, Gov. Gavin Newsom and the state General Assembly agreed to a budget that would reimburse schools for the number of students in attendance on Feb. 29, 2020, before COVID-19’s school shutdowns and the disappearance of tens, if not hundreds, of thousands of students. Districts, including charter schools, that grew in the 2020-21 academic year would not get funding for new students.

The agreement had catastrophic implications for charter schools and charter networks in the process of expanding, four of which sued the state in July. Having held enrollment lotteries and registered students in the spring, the schools were legally bound to serve children for whom they would no longer receive funding.

One plaintiff was a pre-K-8 school in Huntington Beach that had enrolled enough students to double in size. Because it has committed to the new students, it faced a funding cut for this year of 50 percent. The other three plaintiffs were charter networks in the process of opening new schools that were slated to welcome hundreds of new students.

Not only would the first pandemic-era funding formula hobble charter schools, it disadvantaged some of California’s traditional districts, too. Seven years ago, the state enacted its own version of a fair funding formula to direct more resources to high-needs schools. While widely regarded as more equitable than Pennsylvania’s funding overhaul, California’s Local Control Funding Formula could have new, unintended negative outcomes in coming months.

In an analysis of the tradeoffs, the Public Policy Institute of California cited two similarly sized districts. Riverside County’s Menifee Union Elementary School District has grown more than 12 percent in the last five years. If it grew this year — enrollment data is not yet available — receiving the same funding as last year to serve a larger population could mean $300 less per student.

To the north, in Santa Clara County, Alum Rock Union Elementary School District lost 17 percent of its enrollment in the same period. Assuming it has shrunk at the same rate, the hold-harmless provision could boost its per-pupil funding by $400.

In August, lawmakers passed a second bill sending funding to growing schools and districts — but with new wrinkles. The state would reimburse schools with new students for either their projected enrollment — the number estimated in the spring — or their actual enrollment in the fall 2020, whichever is smaller. In short, they might not be compensated for students who enrolled over the summer.

The second law also explicitly excluded funding for new students in online charter schools, which, by August, were seeing an enrollment boom. Finding distance learning at their home schools frustrating or low quality, this year families throughout the country have flocked to online-only programs.

According to the Digital Learning Collaborative, a group of organizations and districts sharing information about remote learning, in April, a third of parents said they would consider an online school. By August, the number had risen to 57 percent.

With some 9,000 families on its wait list — 1.5 times its enrollment — California Connections Academy stopped accepting applications. The online school Compass has a wait list of 2,000, the equivalent of half its enrollment. There are 4,000 students on wait lists for Innovative Education Management’s three schools.

A poll released in November by the National Parents Union found that 59 percent of parents say they want schools to focus on improving online or remote learning now, and 58 percent want schools to continue to offer online options even after the pandemic.

Online-only schools aren’t booming just in California. K12 Inc. enrollment is up 40 percent, to about 170,000 full-time students nationwide. In Oklahoma, Epic Charter Schools now has nearly 60,000 students. Michigan Virtual grew by 184 percent to 37,000 course enrollments in the fall of 2020.

States have struggled to regulate online-only charter schools, in particular those run by for-profit companies. In 2016, then-state Attorney General Kamala Harris negotiated a $168 million settlement with K12 Inc. Among other assertions, the state claimed schools operated by the publicly traded company often counted students as present if they signed on for as little as a minute.

Now, with large numbers of brick-and-mortar schools delivering learning online, states are debating how to define attendance for funding purposes. Some require schools to document actual interaction with students, but some now count any student who logs in at all, even for a few minutes.

Florida: Smaller shares of a shrinking pie 

While the extent of Florida’s school funding problems going forward is not yet clear, several factors make the state interesting to anyone thinking about strategies for addressing both budgetary and enrollment losses. Despite dire predictions about looming revenue shortfalls, this year, at least, the state Department of Education is both holding harmless districts that have lost students and sending more money to districts with enrollment gains.

Whether this can continue if the overall budget shrinks is an open question. Patricia Levesque, CEO of the policy incubator ExcelinEd, predicts it will be hard to fix a moment when funding in Florida goes back to being based on actual enrollment. “It’s going to be a disaster, and we’ll never get back,” she says. “Next year [school and district leaders] will say, ‘No, you have to hold us harmless another five years.’”

While most states saw better-than-projected revenue in the recently concluded fiscal year, the Center on Budget and Policy Priorities is projecting hundreds of billions in shortfalls over the next two years. Using estimates that assume a COVID-19 vaccine will bring the tourism economy back to life over the summer, Florida is projected to have a $3.4 billion shortfall in the fiscal year that will end in June and another $2 billion for the next year.

At the urging of Gov. Ron DeSantis, lawmakers last spring declared 2020 the “year of the teacher,” passing a law ordering school districts to submit plans by Oct. 1 to increase minimum teacher salaries to $47,500 a year. The legislature did not, however, appropriate enough funds to pay for the raises in their entirety.

As a result, some districts drafted plans that will bring up salaries over time, instead of all at once. Some are both paying teachers more and contemplating layoffs. Hillsborough County Public Schools, which serves Tampa, is spending $39 million more this year on teacher salaries and preparing for eventual staff cutbacks based on enrollment losses.

That combination could translate to less funding to send to schools for each student, “phantom” or real. And unless policymakers figure out where missing students are, it will be hard to know whether, or when, it’s prudent to stop holding districts harmless for declining enrollment.

“We just don’t know how much of this is permanent and how much is temporary,” says Christian Barnard, an education policy analyst at the Reason Foundation. “You can’t just assume students will go back where they were.

“On the other hand, they need a school to go back to. You don’t want their school to fire half the staff.”

Many students have transferred to the 23-year-old Florida Virtual School, the nation’s first online-only public school, which offers several programs that often outperform traditional schools. Full-time enrollment is up 64 percent, according to the Digital Learning Collaborative.

Part-time enrollment, typically for students supplementing course offerings at their home school, is up 52 percent. Still more attend the virtual school through online “franchises” open to students enrolled in Florida’s 67 districts — the state says it has yet to calculate the number — and via a “global” option available to students anywhere.

Along with New Hampshire’s online school, Florida Virtual is one of only two state-run cyberschools that are funded according to the courses students complete, rather than the age-old concept of seat time. Funding for course completions that are the equivalent of full-time enrollment adds up to $5,230 per student.

To shift all schools to funding according to course completion would not be practical and would come with its own downsides, Levesque says. But with the centrality of seat time now in question, given at-home learning, basing a “small but meaningful” amount of school funding on student outcomes is something she says policymakers should consider.

Texas recently did just that, she notes, tying some money to schools’ results for vulnerable kids and for the first time creating specific incentives to position students for success after high school. But it may be a struggle for lawmakers to keep the funding reforms in place when the Legislature convenes in January.

Texas: There’s no good moment to go over a fiscal cliff 

In July, Texas announced it would insulate schools from the financial impact of declining enrollment for 12 weeks. In theory, this pandemic practice made fiscal conservatives happy. Districts and charter school networks got time to find their students, an incentive to do so and fair warning that they would not be held harmless forever.

The politics of both school reopening and the presidential election have complicated matters.

In the summer, with COVID-19 ravaging the state and reopenings the most heated topic, many districts pushed back the first day of school in hopes of buying more time before the financial impact of missing students showed up on the books. On Oct. 12, with the election looming and reopenings still a raging controversy, the state extended the grace period to 18 weeks.

In many places, the hold-harmless school funding order is set to expire Dec. 31 — shortly before the 2021 legislative session. Even without the issue of missing students, education was already atop lawmakers’ agenda.

When they last met, in 2019, Texas legislators finally succeeded in restoring some $5 billion cut from school budgets in the Great Recession. Absent a fresh injection of federal relief dollars, the landmark revision of the state’s funding system that restored the money could be endangered.

That revision included $6.5 billion in new school funding and $5.1 billion in property tax relief, boosted teacher pay, increased basic per-pupil state aid by 20 percent and funded pre-K. It also provided a number of financial incentives for schools to close achievement gaps.

Because high-poverty districts could also lose these compensatory funds, intended to support needy students, their enrollment drops could translate to bigger budget hits — and could be more keenly felt. A disproportionate number of missing students throughout the country are believed to be impoverished — and to be particularly at risk of needing intensive help catching up. Trying to meet more acute needs with funding based on lower enrollment will be devilishly hard, says Elliot Haspel, program officer for education policy and research at the Robins Foundation in Virginia.

“There’s going to be a need for a massive learning recovery,” he says. “The school year might need to be 200 days instead of 180 for a while, or extend through the summer. Maybe intensive tutoring.”

Larry Taylor, chair of the state Senate Education Committee, told the Houston Chronicle editorial board that lawmakers and state officials are determined to preserve the 2019 reforms and hope education is the last place they will be forced to cut. But they may not be able to afford to hold schools harmless indefinitely.

“We can’t print money at the state level,” he says.”We can’t just keep paying you for kids that you don’t have.”

Ultimately, states need federal relief funds, but also plans for ensuring cuts don’t compound inequities, says Neil Campbell, director of innovation for K-12 education policy at the Center for American Progress. “Every state right now ought to have a task force on this,” he says. “And no one’s doing it.

“On one level, I get it — just managing the politics of the ‘should we be open or not,’ they’re so toxic it’s all-consuming,” he adds. “But a budget is a statement of priorities. We need to spend time talking about those values so we can protect the kids who are harmed the most.”

Disclosure: The Walton Family Foundation, the Carnegie Corporation of New York and the Bill & Melinda Gates Foundation provide financial support to the Center for American Progress and The 74. The Walton Family Foundation and the Bill & Melinda Gates Foundation provide financial support to the Edunomics Lab and The 74

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