Calm Before the Budget Storm: The Uncertain Outlook for City Schools
Unexpected sudden ups, and even sharper long-term downs, in student enrollment. The melting away of Covid-era Federal help. State-mandated caps on classroom size. Projected rounds of deep budget cuts.
This week, Urban Matters launches "NYC Schools: Financing the Future." It will be an occasional series examining the powerful cross-currents that will shape the budget decisions the nation’s largest school system will face over the coming months and years.
Let’s begin, paradoxically, by looking at the surprisingly smooth sailing encountered in the current school year – made so by Federal, State and local decisions that have, so far, helped City schools delay some of the shocks they’re likely soon to experience.
To understand both the current calm and the impending storm, a little background is in order.
The City budget provides $38.4 billion in support of the Department of Education (DOE), $31.5 billion in the department’s budget and another $6.9 billion in other accounts covering fringe and pension benefits for staff and debt service on capital investments. That amounts to the biggest single chunk – about 35 percent – of the City’s planned spending in the current Fiscal Year 2024, which began July 1st.
City tax dollars and State and Federal aid all contribute support to DOE’s budget. As the chart below shows, with the exception of 2022, the City portion has trended up over most of the past 20 years, while State and Federal aid has fluctuated.
DOE’s budget has grown only slightly in Fiscal Years 2023 and 2024 – but that comes after a growth spurt that has left the current budget almost 13 percent larger than it was in Fiscal Year 2019.
Fueling that growth: a big influx of emergency Covid-19 Federal funding and strong local tax revenues, particularly in Fiscal Year 2022. In the pre-pandemic Fiscal Year 2019, Federal dollars accounted for only about 5.8 percent of DOE’s budget; today, they make up almost 11 percent. The Federal share declined in Fiscal Year 2023 and is expected to continue falling until emergency pandemic relief runs out in 2024-2025 – a point we’ll return to shortly.
State aid for the DOE has also increased markedly, beginning in Fiscal Year 2022. That’s primarily the result of a long-deferred redress of an historic inequity in aid to local school districts. Decades ago, a class action lawsuit under the “Campaign for Fiscal Equity” (CFE) banner charged that the State was not doing enough to ensure students in every district received the resources necessary to provide the “sound, basic education” promised by the State Constitution. The consequences, the suit argued, were felt most severely in districts – including New York City – with large numbers of low-income students.
Eventually, the State Court of Appeals found in CFE’s favor. In 2007, a new “foundation aid” formula for school aid was devised by the legislature to provide the additional funding called for in the Court’s ruling. It accounts for about two-thirds of all State school aid each year, and, initially, the State budget covered the full cost under the formula.
But when tax revenues fell after the 2008-2009 Great Recession, the State froze the formula amount. It remained underfunded until 2021, when the State committed to achieve full funding over three years. This year’s State budget included the third and final step in that process. New York City’s year-to-year increase in Foundation Aid was $434 million, bringing Foundation Aid this year to $9.4 billion. Total State aid for City schools increased by $636 million to $13.1 billion.
Another factor that has helped calm the financial seas DOE sails was the department’s acceptance of changes to how it apportions its biggest chunk of money going directly to individual school budgets. The changes emerged when in 2022 the largely mayorally appointed and normally rather quiescent Panel for Education Policy rejected DOE’s longstanding method of allocating these funds using a process known as Fair Student Funding (FSF).
FSF funds are distributed based on a formula that assigns weights to each student in a school based on their characteristics and needs. A longstanding critique has been that the formula didn’t include large enough weights for high-needs students. A working group of parents, advocates, fiscal experts, and others appointed by Schools Chancellor David Banks recommended giving more weight to schools with students living in temporary housing (in shelters or doubled-up with other families), and those living with the concentrated effects of poverty, homelessness, being disabled, and learning English. The Chancellor agreed with recommendations to address these problems, and the new FSF formula went into effect this school year.
While not part of what motivated these revisions, the changes will likely have the unintended benefit of driving more money towards schools most affected by the rapid influx of some 20,000 children whose asylum-seeking families have arrived in New York over the past 18 months. What is not clear at the moment is whether DOE will speed up allocations to schools impacted by large numbers of migrant students enrolling at the last minute, or if schools will be expected to wait for adjustments that typically occur in the winter.
Other significant questions loom, too. The most immediate is also tied to the migrant influx to New York City. Citing the additional burdens it has placed on the City budget – burdens the administration anticipates will grow – last month Mayor Eric Adams directed all City agencies, including the DOE, to prepare to reduce spending by 15 percent by next spring. That must start with a plan to cut spending by five percent in November.
In addition, the City must decide the fate of DOE programs funded from the pool of Federal Covid relief dollars now drying up. It must also meet the projected steep additional costs associated with a State law mandating smaller classroom sizes as it begins to be phased in over five years. And – especially in light of the fact that, despite the asylee influx, total enrollment in the system is down by tens of thousands of students from pre-pandemic levels – it must address the thorny funding issues schools with falling numbers of students face.
Urban Matters will look at these and other challenges over the next few months.
George Sweeting is a Senior Fellow at the Center for New York City Affairs at The New School. For more than two decades he managed research, analysis, and economic forecasts at New York City’s Independent Budget Office, ending his tenure earlier this year as IBO’s acting director.
Photo by: InsideSchools