School Districts Face Mounting Financial Problems

November 20, 2009

As school districts throughout the country begin the process of drafting their operating budgets for the 2010-2011 School Year, they are faced with the pro spect of even more financial pressure and problems.  While some of these are local in nature (e.g., declining property tax revenues; increasing number of students enrolled in charter schools; etc.), others are related to circumstances and issues that are State-wide and/or national in scope (e.g., decreasing income tax and sales tax revenues; the scheduled end  of Federal stimulus funding; etc.).

In its most recent analysis, the Pew Center On The States rank-ordered all 50 States based on several economic measures (e.g., Recent Change In State Revenues; Current Budget Gap; Housing Foreclosure Rate; Unemployment Rate; etc,).  The States were then divided into six categories that reflected their likelihood of facing fiscal problems similar to those of the State of California (view report).

Other analyses have concluded that all but two States – i.e., North Dakota and Montana – will likely face significant budgetary shortfalls during the current fiscal year and/or during the next fiscal year.  Unfortunately for local school districts, these State-level fiscal problems will likely result in further reductions in State funding for K-12 programs.

When it comes to K-12 school funding, financing has already been impacted significantly. According to the Center on Budget and Policy Priorities, 25 States and the District of Columbia have already reduced their funding for K-12 schools during the current fiscal year.

To understand why States have – and will – cut funding for school districts as one of their primary budgetary reduction strategies, it is important to be aware of two facts about State finances: (1) States can not operat e in a deficit mode: i.e., they must balance their books at the end of each fiscal year; and (2) At least 50% of most States’ annual budgets are spent on two programs: Medicaid and K-12 education.

Despite the fiscal problems noted above, most States actually increased their Medicaid-related expenditures during the 2009 Fiscal Year.  This is primarily due to the fact that Medicaid enrollment has been spiking as unemployment continues to rise in most States. Overall, Medicaid enrollment increased by 5.4% during the last  fiscal year – and it is expected to increase an additional 6.6% during the current fiscal year.

In addition to being unable to decrease their Medicaid-related expenditures because of the increase in enrollment noted above, States are always reluctant to reduce those expenditures because doing so also reduces the amount of Federal funds that are spent on the program.  For example, when the average State reduces its Medicaid expenditures by $40 million, there is a corresponding decrease of $60-$80 million of Federal Medicaid-related expenditures in that State.

In light of the fact that K-12 funding is likely to continue to be reduced at the state level for the next 18-24 months, it is incumbent upon school districts to identify areas where they can either generate additional revenue or trim unnecessary costs. A program that meets both of these criteria is the Medicaid reimbursement programs available to most districts throughout the country. The cost of providing special services to children continues to rise. By utilizing and, more importantly, maximizing Medicaid reimbursements, districts can recoup significant portion of these outlays.

While this does require districts to devote energy to this effort, the benefit is outsized in comparison. In a recent heart felt discussion with a client district Accelify personnel were told by an emotional school administrator "You just saved my nurses."