Funding anxiety hits schools as Covid relief runs out

District and charter schools spent just about half of Covid relief allocation in FY2022, with the bulk of spent funds and planned spending for FY2023 going toward employing and maintaining staff, according to an updated report from the Arizona Auditor General’s Office.

The report found most schools are prepared to eliminate or phase out any reliance on ephemeral funds. But anxiety still runs high throughout public education as the cut-off of relief dollars coincides with a dwindling general fund.

Meghan Hieger, director of the Accountability Services Division, prepared the report. She said schools and districts that plan for the end of money can reduce the negative impact when the relief dollars are cut off, especially as it relates to staffing.

“There are some districts and charters that do not have plans or have not evaluated all maintaining operations spending to determine how they will support operations when relief monies expire,” Hieger said. “Those districts and charters may have to make difficult and ill-timed decisions, such as eliminating classroom or non-classroom staff positions to continue operating with available revenues.”

The auditor general issued an initial spending report in January and updated the findings in July.

District and charter schools spent about $2.2 billion of the $4.6 billion through June 30, 2022, with about 54%, or $1.2 billion, going toward maintaining operations, the bulk of which was staffing costs.

About $753.5 million went toward classroom salaries and benefits while $186.1 million went toward non-classroom staff funding. Schools then prioritized technology, new programs and curriculum, food service and facility repair.

In planned future spending, the focus stays on staffing costs, with 45%, or about $979 million, anticipated to go toward maintaining operations with a focus on classroom salaries and benefits.

And the 2023 outlook shows a similar breakdown with a focus on new programs and technology, but with increased allotment toward school facilities.

They also note about $224.3 million, or 23% of future ongoing funds allocated to maintain operations and staffing lack an alternative funding source.

About 59% of planned spending is on one-time costs or ongoing costs to be phased out, while the remaining 18% makes up ongoing costs with an identified alternative funding source.

The report also found about 75% of the money spent has been in addition to state funds, not instead of state funds. But the ending fiscal year balances for school districts have continued to increase since 2018, with a $1.44 billion bump in 2020 with pandemic funds.

The Auditor General’s Office released recommendations and advised schools to prepare written plans of how they intend to phase out or supplement ongoing funds for operational needs, noting that less than a third of schools reported having a written plan and many submitted inconsistent or missing information.

Hieger said, “Each district and charter really have their own circumstances to consider,” but she noted schools should consider unsupported ongoing costs.

Hieger also pointed to the Auditor General’s School District Financial Risk Analysis, which identifies the highest risk districts and factors to consider in assuaging any financial ills, namely student populations, changes in budget reserves and balances and potential funds available in the future.

Marisol Garcia, president of the Arizona Education Association, said school districts are particularly worried going into the next year when Covid relief funding ends as the general fund sees further strain.

“This a huge cliff we’re going to hit,” Garcia said. “The schools are very aware of the fact that the general fund is about to be depleted for the next year, there will be little to no money.”

She pointed toward the growing cost of the Empowerment Scholarship Account program, which is estimated to hit nearly a billion dollars by July 2024, as a cause.

Because of the one-time nature of the Covid funds, Garcia said schools will likely have to go out for bonds or overrides to shore up appropriate funding.

Garcia said pandemic relief “was a stabilizing factor. But again, it was a Band-Aid to the larger issue … underfunding of public schools.”