Coronavirus Resources for Schools

Financial Recovery Research Brief Hanover Research

Contains resources from school districts and public health agencies.

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RESEARCH PRIORITY BRIEF— FINANCIAL RECOVERY © 2020 Hanover Research 1 Introduction School districts across the country may experience cuts in state funding as a result of revenue shortfalls due to the Covid-19 pandemic, and several states have already announced funding reductions. Although the CARES Act allocates $13.5 billion in federal funding for school districts, experts project state funding reductions to exceed this amount. 1 In addition, many school districts are facing additional revenue losses from programs such as early childhood education. 2 To support districts anticipating financial challenges, Hanover Research has prepared the following research brief exploring strategies used by school districts to establish financial priorities during financial crises. This research brief draws on secondary research and experiences of school districts during previous financial challenges. It begins by providing a short overview of the financial challenges likely to face districts in the near future before discussing best practices for identifying cost savings, including using program evaluation to prioritize expenditures and cost savings related to staffing. This brief concludes with a discussion of common challenges facing cost reduction initiatives related to student achievement and stakeholder relations. Recommendations • Begin communicating with stakeholders immediately to prepare for potential budget cuts. Research finds that stakeholder trust in districts declines during budget reductions, but that open and honest communication can mitigate this decline. • Freeze new hiring and promotions immediately. Districts should seek to maintain financial reserves and replace open positions with current employees where possible. • Eliminate ineffective or inefficient programs. Districts should establish expected returns with empirical success metrics and review programs annually to identify underperforming programs. Key Findings • The economic repercussions from the Covid-19 pandemic are likely to result in budget challenges for many school districts. Most states are likely to reduce funding for schools due to a loss of sales tax revenue and increased funding needs in other areas such as public health and Medicaid. In addition to reductions in state funding, school districts may face increased expenditures due to lower teacher turnover, increased student needs, and increased enrollment. • Districts can use a return on investment (ROI) model to align expenditures with student achievement. In this model, districts identify a targeted annual return for each district-funded program and use empirical benchmarks to measure progress towards this return. Programs whose returns fail to justify expenditures should be eliminated. • For many districts, staffing reductions will likely be unavoidable. Although districts typically seek to avoid staffing reductions wherever possible, data collected in the aftermath of the 2007-2009 recession suggest that most districts experiencing substantial funding reductions are forced to reduce staffing. Because human resources make up an average of 80 percent of district expenditures, realizing cost savings substantial enough to address major funding reductions without reducing human resources expenditures may be difficult. • Districts should take steps in both the short term and long term to mitigate potential staffing reductions. In the near term, districts should immediately freeze hiring and promotions. In the longer term, districts can consider strategies that limit the need for involuntary layoffs, such as changes to benefits, taking advantage of natural attrition, and reforming salary structures. • Districts can reduce recurring costs by improving efficiency in operational areas such as transportation and facilities maintenance. For example, Carroll County Public Schools in Maryland realized annual cost savings of $1.4 million by reducing the number of bus runs. Some districts have already realized cost savings in areas such as utilities and transportation as a result of the Covid-19 pandemic, which they can carry forward into the following year's budget to mitigate the impact of budget cuts.

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