Expiration of Federal K-12 Emergency Funds Could Pose Challenges for States

The final round of federal Elementary and Secondary School Emergency Relief (ESSER) funds is set to end soon: states must commit the funds by September 2024. ESSER funds account for a significant share of current education dollars, which puts schools at risk of shortfalls when these funds lapse. Furthermore, some school districts^[1] have not yet tapped all available funds and risk losing any unused funds in September. If funds are obligated by the end of September, they can still be spent through the end of December or through March 2026 if an extension is granted.^[2]

The financial impact of the expiration of ESSER funds for states and school districts will be exacerbated by several factors: costly state tax cuts, the diversion of resources to school vouchers, inadequate school funding formulas, elevated costs, and an uncertain revenue outlook.

In combination with these factors, the loss of ESSER funds could have severe implications for students, including risking teacher layoffs, school closures, and the loss of crucial student programming. These risks are especially great in low-income districts, though the impact will be nationwide.

As lawmakers take up education funding during this year’s state legislative sessions, the damage that the loss of ESSER funds will cause should be top of mind. To prevent harm, state lawmakers will need to resist calls for further tax cuts and instead look for opportunities to raise revenues to keep investments in education steady.

ESSER Provided a Historic Infusion of Education Funding

Federal lawmakers provided significant new resources for K-12 schools during the pandemic through the Elementary and Secondary School Emergency Relief (ESSER) Fund. ESSER funds were appropriated in three federal laws: the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 (ESSER I, $13.23 billion); the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (ESSER II, $54.31 billion); and the American Rescue Plan of 2021 (ESSER III, $121.97 billion).

In total, schools received nearly $200 billion in increased federal education dollars over the course of the pandemic. ESSER I and II funds have already lapsed, while the third and largest round of funding, ESSER III, must be obligated by the end of September 2024.

ESSER funds provided historic infusions of cash into schools to address the challenges of reopening schools, helping students with mental health needs, and recovering from pandemic learning loss.^[3] Funds were distributed through the same formula as federal Title I education funding, which allocates more resources to districts with a high proportion of low-income families than to wealthier districts.^[4]

ESSER funding has accounted for a significant portion of total K-12 education revenue for states in recent years. If ESSER III funds were spread evenly across the three years they were available, the funds awarded would represent 5 percent of 2020-2021 total state education budgets (the most recent data on education budgets available). ESSER funds constitute a particularly large portion of Southern state budgets, due to the region’s high proportion of low-income districts and relatively lower state spending on schools. In Mississippi, for example, ESSER III funds accounted for nearly 11 percent of education revenue. (See Table 1.) However, ESSER funds have been important across the country.

The expiration of these resources will create a fiscal cliff for school districts, which will need to figure out how to make up for the lost dollars or significantly reduce services. In addition, while most school districts are on pace to spend their ESSER money, some have spent less than 10 percent of their funds. (See Table 3.) If school districts fail to obligate their ESSER III funds by the end of September, they will lose them entirely. As of January, 50 percent or more of ESSER III funds remained unspent in 13 states and the District of Columbia. (See Table 3.) Education leaders have cited staff vacancies, hiring challenges, and supply chain delays for capital projects as impediments to spending the one-time funds.^[5]

States Have Used ESSER Funds to Hire School Staff, Raise Wages, and Meet Student Needs

ESSER III funds have come with broad flexibility. While the federal government advised against using the funds to take on large construction projects or to address other recurring expenses such as hiring new permanent staff, schools were not explicitly barred from doing so.^[6] The national data on how districts spent their money are limited, but some states have collected more detailed information.^[7]

In states that reported data, nearly 50 percent of ESSER III funds have gone to labor costs. This includes hiring teachers, counselors, administrative staff, and reading and math specialists as well as providing salary increases. Those newly hired staff are now at risk of being laid off if states don’t increase funding from other sources.^[8] Given that the education workforce has diversified dramatically in recent years, there is a risk that new staff of color will be more likely to be let go in school districts with layoffs, which typically target the newest hires.^[9]

Schools also hired counselors to support student mental health, implemented social and emotional learning curricula, addressed learning loss by lengthening the school day or adding days to the school year, and invested in professional development, technology, and curriculum training.^[10]

Pulling back on these investments could lead to deeply negative impacts on student achievement and equity, particularly in low-income communities where there are fewer alternatives to school-based supports.^[11]

The loss of ESSER funds will have particularly acute effects in low-income schools, which received larger allocations. These are typically schools with greater shares of students of color and other marginalized students. And unlike higher-income school districts, low-income districts often do not have the flexibility to rebound from lost funding because it is more difficult for them to generate property tax revenue.^[12]

School Budgets Will Be Further Strained by Recent State Tax Cuts, the Diversion of Resources to School Vouchers, Inadequate Funding Formulas, Elevated Costs, and an Uncertain Revenue Outlook

In addition to losing ESSER funds, five factors will further strain school budgets in the coming years:

• Recent state tax cuts. Many states have used strong economic growth and an influx of federal dollars as cover to push harmful tax cuts in recent years. By 2028, these cuts will total $111 billion in lost revenue.^[13] These tax cuts have shrunk the funding available to address the upcoming decline in federal education dollars. Historic rainy day fund deposits that states made during the pandemic could be used to help fill in the loss of funding. Still, many states will need to undo tax cuts to address education funding shortfalls in the long run, and lawmakers in states that have not cut taxes should continue making critical investments in their states’ futures and look for opportunities to raise revenue.^[14]
• Diversion of resources to school voucher programs. Across the country, states are considering or have implemented universal or near-universal school voucher programs that siphon money away from public schools.^[15] While state programs vary in design, the impact is clear: voucher programs either explicitly divert public funds from public schools, as in Florida, or shrink the available pool of state revenue available to public schools. Ultimately, voucher programs inflict the greatest harm on students in low-income families and low-income districts. Students in low-income families are typically unable to take advantage of voucher programs because private school tuition exceeds voucher amounts. Evidence suggests most families receiving vouchers have incomes above $200,000.^[16] Meanwhile, low-income districts struggle to meet students’ needs when state funding falls.
• Inadequate funding formulas. Several states use funding formulas that fail to provide appropriate aid to their highest-need schools, making the loss of ESSER funds even more burdensome for those districts.^[17] Additionally, many funding formulas emphasize student enrollment without sufficiently accounting for fixed costs like building maintenance and school buses. The combination of the ESSER cliff and inadequate funding formulas will result in inequitable school closures, layoffs, and program cuts to districts with high proportions of students living in poverty.^[18]
• Elevated costs due to inflation. Persistent inflation over the past two years in the overall economy has affected the education sector as well. School districts have had to cope with unexpected cost spikes in fuel, food, cleaning products, and construction.^[19] While inflation has come down, overall prices remain well above the levels of several years ago, which will continue to put pressure on already strapped school budgets.^[20]
• Uncertain revenue outlook. Because of strong federal intervention and robust fiscal measures, many states experienced unexpected revenue surpluses during the pandemic, despite the weakened economy. However, in 2022 and 2023, revenue growth fell dramatically. Total state tax revenue declined by 11 percent in real, inflation-adjusted terms in fiscal year 2023 — which ended in June in most states — as compared to fiscal year 2022.^[21] Although economic growth has improved in recent months, state tax revenues were still down by 0.8 percent in real terms for the period between July and December 2023 compared to the same period the year before.^[22]

Research Is Clear That Increased Education Spending Leads to Improved Student Performance

While it is too soon to quantify the impact of ESSER funds on student performance,^[23] the broader literature on the effects of education spending is clear. Increased funding positively affects academic performance, graduation rates, and future earnings, especially for students in families with low incomes and for students of color.

Research findings include:

• Robust education funding sustained over time maximizes returns. The strongest improvements for K-12 education come if students previously participated in a well-funded early childhood education program like Head Start. Similarly, the benefits from Head Start are larger when followed by well-funded K-12 education.^[24]
• The best interventions cost money. In general, when per-pupil spending is higher, outcomes improve.^[25] More costly interventions, such as increasing teacher salaries and reducing class sizes, have a positive impact on students and produce better results than less costly substitutes, such as teacher evaluation programs.^[26]
• Funding improves outcomes most for marginalized students. The biggest improvements happen when states make equity a priority — for example, by designing funding formulas that provide a larger share of funds to low-income school districts with greater needs.^[27] Even when the overall effects of an educational investment appear moderate, students in families with low incomes consistently see the most benefit. This makes funding critical to addressing inequality.^[28]

States should make every possible effort to prevent the upcoming drop in education funding that low-income districts are likely to face. This kind of fiscal cliff could mean layoffs, school closures, and programming cuts, all of which will negatively impact students. Public education funding — not tax cuts or school vouchers — must be the priority. Lawmakers should undo costly tax cuts where relevant and instead look for opportunities to raise revenue to buffer against the loss of federal funds.

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