Federal COVID relief aid pouring into Michigan schools to help students overcome two years of learning loss has helped some school districts emerge from financial difficulties.
Eight years ago, 55 school districts in Michigan operated under some form of state oversight because they ran operating deficits, spending more than they received in revenue. By the end of the 2020-21 school year, after the first batch of federal COVID aid arrived, that number was down to just a handful.
A review of the districts that have faced the longest budget shortfalls showed that several of them used their federal COVID aid, known as ESSER funds, to cover basic operating costs, such as salaries. and staff supplies, and reallocated their general funds to strengthen their reserves and eliminate deficits. The review is part of an ongoing effort by Chalkbeat Detroit, Bridge Michigan and Detroit Free Press to track the impacts of an unprecedented injection of federal funds into Michigan schools.
Take, for example, the neighborhood of Benton Harbor, which the state threatened to close in 2019 due to persistent deficits and academic struggles. The neighborhood had closed its library and has staffed nearly half of its classrooms with underqualified long-term replacements, but it struggled to eliminate his deficit as enrollment dwindled. During the last years, less than 10% of seniors in the district have met college readiness criteria in reading and math.
But with the help of federal aid, the district’s general fund balance went from a deficit from $3.7 million in 2018-2019 to a surplus $3.2 million in 2020-2021. And for the first time in nearly two decades, it is no longer under state control.
“It’s just good decision making,” said Andrae Townsel, who was superintendent of schools in the Benton Harbor area until last month. “You could, by law, use those funds for certain day-to-day expenses.”
Suddenly freed from an era of enforced belt-tightening, Benton Harbor and other districts now find themselves in the same position families might be in when paying off credit card balances or student loans: thinking about possibilities. For school officials, the newfound financial freedom could be an opportunity to refocus on neglected educational priorities, such as improving academics and teacher compensation, or reviving exhausted elective programs such as art and the music.
At the same time, districts are under pressure to ensure the intended uses of COVID aid, including tutoring and mental health support for students, are not harmed in the quest for balanced budgets – and that balance can be maintained once the federal dollars run out.
Along with Benton Harbour, the school districts of Pontiac, Pinckney, Vanderbilt and South Lake – all of which had been under state oversight at some point in recent years – swung to a positive fund balance during the fiscal year. 2020-21. Additionally, Flint Community Schools, which still had a deficit, emerged from state oversight by using its $156 million in COVID aid to create a temporary reserve.
School fund balances grew statewide this yearsuggesting that financially stable districts also used COVID dollars to boost their reserves.
Why districts are incentivized to tackle deficits
Federal funds weren’t solely responsible for improving finances, said Chad Urchike, a financial specialist with the Michigan Department of Education. Even before the pandemic, increases in the state education budget were helping more districts improve their financial health. Measures designed to reduce the financial impact of pandemic-related enrollment losses have also helped.
But superintendents say federal aid over the past year has provided enough leeway for several perpetually struggling districts to go black and clear a crucial hurdle: escaping state surveillance.
After the Great Recession hit the state’s economy more than a decade ago, Michigan moved aggressively to avoid municipal-level tax emergencies that threatened to leave the state liable for unpaid debts.
Laws passed since then have greatly expanded state oversight of local school district finances, making it easier for the state to assume control of struggling districts, said Mike Addonizio, a professor of education and finance. at Wayne State University.
In 2015, “an early warning system” promulgated by the then government. Rick Snyder created a set of financial reporting requirements for school districts operating with a deficit, including filing a deficit elimination plan that satisfies the state Treasury Department. The legislation also gave the department more power to recommend an emergency manager to take control of a district’s finances and operations.
Deficit elimination plans can force a district to make spending cuts such as building closures, staff reductions and wage concessions — changes that risked contributing to declining enrollment. If a district hasn’t made enough changes, a state-appointed emergency officer could overrule the elected school board to impose cuts, as happened in Detroit and Highland Park.
“When a district is trying to eliminate its deficit, it really needs to look carefully at those staffing expenses, the cuts to its academic program options, and think about things like band, art, foreign language, those electives “said Addonizio.
Given that perspective, he said, using federal funds to stabilize budgets made sense for the districts.
“School districts are now incentivized to eliminate budget deficits to essentially keep the state out of their backs or out of their local affairs,” he said.
crisis and opportunity
The Pontiac school district spent five years under state scrutiny as it grappled with a $52 million deficit in 2013, caused in part by declining enrollment and a collapsing tax base city tax after the 2008 financial crisis.
Under a consent decree with the state that ended in 2018, the district froze teacher pay scales, sold vacant buildings and restructured debt with state and community banks, the president said. of the school board, Gill Garrett.
Last year, Pontiac ended with a positive fund balance of $7.9 million, its first surplus in a decade. This year it has grown to $9 million. Garrett said the use of federal pandemic relief money was “a contributing factor.”
Laura Parker, a parent in the district, said she supports the district’s decision to use federal funds to shore up its finances. She thinks the district could do more to help students recover from the pandemic, such as extending summer school by a few weeks. But she says as a mother of five, she knows what it’s like to struggle to pay her bills.
“If I had a lot of money, I would probably pay off my debts first,” she said.
When Rick Todd was hired in 2013 as superintendent of Pinckney Community Schools, the district had a budget of nearly $2 million. deficit.
The decline in listings accelerated after the Great Recession, and listings have more than halved since then thanks to a low density of affordable housing and an aging population.
Pinckney fell into a deficit in 2012–13 and had to submit a series of increasingly aggressive deficit elimination plans to state education officials and the Treasury Department.
The year before the pandemic, the district had begun its deepest cuts yet, laying off 23 teachers, and was still at risk of running into a deficit. When the federal government began sending billions of dollars to schools to deal with the pandemic, Todd says, the district saw a chance to further stabilize its finances.
“Where some schools gave large bonuses and allowances for extra work, we chose not to,” he said. “Anything we could do to offset the costs from our general budget, we took advantage of.”
Pinckney has used COVID relief funds to maintain and upgrade air filtration systems and purchase new technology and software — costs the district would have had to cover on its own without federal assistance. The district maintenance manager became the COVID response manager and his salary was paid using federal funds.
“The pandemic was seen as a very difficult thing for schools, and it was,” Todd said. “I knew from a financial perspective we could use this as an opportunity.”
Better than a bandage?
But the question remains: how long will these troubled neighborhoods be able to maintain a balanced budget? Some observers worry that COVID relief funds only offer a temporary solution.
Federal spending guidelines do not prevent districts from using the money to cover teacher salaries and other recurring costs. But if they do, some worry they could find themselves in trouble again when federal aid runs out in 2026. Indeed, when the first federal COVID dollars arrived in Michigan school coffers, pundits began to warn of an impending “fiscal cliff”.
“For some neighborhoods in difficulty, it is very plausible that [federal aid] will just temporarily mask financial problems,” said Randy Layman, director of S&P Global Ratings, which specializes in credit ratings of U.S. local governments, including school districts.
Many districts have responded to these concerns by focusing their COVID spending on one-time costs, such as upgrades to ventilation systems or temporary extensions to summer programming. As part of their deficit reduction plans, some districts have also reduced operating costs through measures such as teacher layoffs.
And for urban districts, the COVID grants are so significant — in Benton Harbor, it equates to roughly double the district’s pre-pandemic annual expenses — that they could provide a financial cushion well beyond 2026 if managed. conservatively.
Now that Benton Harbor is free from state oversight, it’s up to the district to protect its positive fund balance, said school board member Angel Crayton.
“It’s something to celebrate,” she said said at a meeting in June. “But it’s like being on a basketball court: you can’t party and then allow the other team to score while you’re celebrating.”
Ethan Bakuli is a reporter for Chalkbeat Detroit covering the Detroit Public Schools Community District. Contact Ethan at [email protected]
Koby Levin is a reporter for Chalkbeat Detroit, covering K-12 schools and early childhood education. Contact Koby at [email protected]