Reports
State Policy, Local Impact: How Policy Choices Will Shape the
Financial Future of Pennsylvania School Districts
A recent report from the Public Policy Lab, “State Policy, Local Impact: How Policy Choices Will Shape the Financial Future of Pennsylvania School Districts,” forecasts the fiscal future for all 500 school districts in PA for the period 2019-20 through 2025-26. The report reviews the impacts of the pandemic on school districts' finances and highlights key policy choices available to state policymakers. Across a wide range of possible policy choices, the report predicts a majority of districts will face persistent fiscal stress in the next five years; however, policy choices at the state level to balance state subsidies and mandates, including a controlled growth of charter school tuition increases, could help mitigate this outcome.
Given the variety of policy choices available, projections were calculated under five different scenarios. In Version 1, we simply assume pre-COVID fiscal trends continue, with no drop in local revenues, no new federal aid, and continued increases in state funding and district payments to charter schools. In Version 2, we add the hit to local revenues induced by the pandemic, still assuming continued increases in state funding and district charter payments. In Version 3, we add new federal aid from various pandemic relief packages passed by Congress, and we assume, crucially, that the state legislature decides not to provide any state funding increases. In Version 4, we assume state aid is instead significantly increased. Finally, in Version 5 we make all the assumptions as in Version 4, but assume the legislature caps the annual growth in district payments to charters at 5%.
Above we present the annual number of districts with shortfalls under each scenario. In Version 1, the number of negative districts increases as inflationary expenditures grow at a faster rate than fixed state and trending level local revenues. After an initial increase due to districts dealing with the onset of the pandemic, Version 2 shows a pattern similar to Version 1. Version 3 has an elevated pattern of shortfall districts due to the elimination of additional state funds from 2021-22 through 2024-25 alongside annually increasing charter school tuition payment growth. Version 4, with higher levels of state revenues beginning in 2022-23, initially reduces the number of negative districts, but this eventually increases as expenditures grow at a faster rate than the fixed state aid amounts. Version 5 has the best outcomes of any version, with the lowest number of shortfall districts achieved by higher state revenues and moderate limits on charter school tuition growth. However, the number of shortfall districts still eventually increases as expenditures exceed revenues, even with lower charter school tuition increases. Even in this most positive scenario, Version 5 projects that 61% of districts will remain in lasting shortfall conditions.
The key tradeoff for future fiscal stability for school districts is the balance that state policymakers establish between state subsidies and state mandates in the coming years. Currently, it is severely out of balance: it is projected to increase, and this imbalance is the root cause of many districts’ fiscal problems and a danger to their future performance, both educationally and financially. Comparing the 7 year totals of all versions, an acute imbalance emerges between current and projected state funding streams and state mandated expenditures. Within each version, statewide shortages occur nearly every year and the 7 year totals range from $400 million to $1.7 billion.
The crux of the fiscal crisis facing education in the next few years for Pennsylvania lies in the funding policy decisions made by the legislators and the governor regarding amounts for state aid, the shape and level of charter school funding reform, and any changes made to pension funding. Comparatively, the policy levers available to local school districts – raising local taxes or cutting educational programs – do little to ameliorate the underlying fiscal challenges they face. The interaction of subsidies and mandates will largely dictate school district budget decisions and the quality and equity of education in the state. Importantly, these are not decisions that school districts have any control over: they remain the province of the state policymakers.
The maps below allows viewing the report data by 5-year projected shortfalls and surpluses as a percent of major expenditures, for all five scenarios. Surplus districts are shown in black and shortfall districts in red.