Economic Overview

Both the national economy and New York State’s economy have been dramatically impacted by the COVID-19 crisis and the various mitigation efforts that have been undertaken since March 2020. What is still unknown is the extent to which the impact will improve or worsen, how long it will last, and which sectors of the state economy will be most severely impacted.
It is important to understand the fundamentals of education finance policy in New York State to develop the most responsible—and flexible—budget plans for reopening schools. The economic demographics of school districts across the state vary widely, from some of the wealthiest districts in the country to some of the poorest. The various state aid formulas work to complement that reality, with the wealthiest district receiving less state aid and the districts with less local fiscal capacity receiving more.

New York State government operations are funded through a blend of many revenue sources, including the personal income tax, sales tax, corporate taxes, user fees, and federal grants and entitlements. Each of these sources is impacted in different ways by the changes in economic activity in the state due to COVID-19.

School District Fiscal Preparedness

Another major factor in the fiscal outlook for school districts is the availability of undesignated reserve funds, which districts set aside for times of fiscal hardship. Again, the individual district circumstance can vary widely. According to the most recent data available to the Department, overall unexpended fund balances total 13.83 percent of all school spending outside the big five city school districts, but the level available in individual districts ranged from 0.04 percent to 86.19 percent.

These reserves are approximately two thirds capital, retirement, and employee benefit accrued liability reserve (EBALR) reserves. Unrestricted reserves total approximately 4.5% of total proposed spending, again excluding the five dependent city school districts. Relaxing rules around withdrawals from certain purpose driven reserves would provide districts additional flexibility in budgeting for the upcoming years with a diminished prospect of increases in state aid, but such changes would require enactment of legislation.

When districts consider how much of those reserve funds should be tapped into during any single school year or crisis, they should remember that this situation has the potential to be long-lasting.

2020-21 Enacted State Budget

Governor Cuomo’s Executive Budget proposal in January 2020 initially called for a statewide increase in school aid for the 2020-21 school year of $825 million, or 3 percent. As the COVID-19 crisis emerged prior to the enactment of the final budget, that planned increase did not materialize, resulting in a school aid apportionment that held unrestricted funds flat for districts and maintained reimbursements at statutory levels. A reduction in state-funded aid was partially offset by an increase in emergency federal funds.

Pandemic Adjustment and CARES Act Funds

State Aid was reduced in the 2020-21 school year by a total of $1.13 billion through a “Pandemic Adjustment”, which reduced school district aid allocations at their bottom line, commensurate with the amount of federal Coronavirus Aid, Relief and Economic Security (CARES Act) funds each district was projected to receive. Districts were then allocated an amount of federal funding through the combination of the CARES Act Elementary and Secondary School Emergency Relief Fund (ESSERF) and the Governors Emergency Education Relief Fund (GEERF). As a result, school districts will experience a decrease in state aid payments but will be eligible to apply for an amount from these federal grants. However, it should be noted that the CARES Act requires a portion of the funds to be used to provide equitable services to non-public schools.

Potential Further Aid Reductions

The 2020-21 Enacted Budget also included provisions that will allow the Director of the Budget, subject to amendment by the Legislature, to reduce appropriations across any and all program areas of the state budget should actual revenues come in at levels that are below the assumptions made in the Executive Budget. As of April 2020, this projected total shortfall was $13.3 billion for the 2020-21 state fiscal year. The actions noted above reduced this gap by nearly $1.2 billion.11 Combined with other budget actions, the remaining gap was projected to be $8.2 billion. Absent additional federal support, the Division of Budget has stated that further reductions to school aid, Medicaid, social services, and transportation might be necessary to eliminate that projected budget gap.

180 Day Calendar and Attendance Reporting for State Aid Purposes

School districts report certain enrollment, attendance, and school calendar information through the State Aid Management System (SAMS). While this data submission process differs from other procedures, the underlying data provided should be consistent with all other attendance reporting and requirements.

The minimum annual instructional hour requirement and 180 days of session requirement are also both reported through SAMS. For both the 2019-20 and 2020-21 school years, school districts will be required to continue the same information, based on the schedule provided for the average student, rather than reporting for each individual student. Under regulatory changes adopted as an emergency rule by the Board of Regents on July 13, 2020, school districts may be eligible to apply for a waiver from the minimum instructional hour requirement for both the 2019-20 and 2020-21 school years

Successful application of the waiver will shield school districts from a reduction in aid for failure to meet the minimum instructional hour requirement. However, the 180 days of session requirement is in statute, and for the 2020-21 school year there are currently no statutory provisions that would allow a school district to provide fewer than 180 days of instruction over the course of the full school year.

Impact of Low Attendance on State Aid

School districts have expressed concerns about the impact that students choosing to stay home during the pandemic will have on their state aid calculations. State Aid formulas use multiple attendance counts in the calculation of aid apportionments for school districts. Statewide over 70 percent, largely in Foundation Aid, is based on Average Daily Membership or district enrollment, which is a measure of student registration in the district and does not take attendance into account. These aid formulas should not be impacted by attendance rates. Some formulas use Average Daily Attendance in the calculation of reimbursement rates, and Education Law §3602(1)(d)(2) provides for the commissioner to exclude from that calculation “days on which school attendance was adversely affected because of an epidemic…”. NYSED plans to advance a proposed COVID-specific change to such regulations in September for consideration by the Board of Regents.

Flexibility in Non-NYSED-Governed Activities

While budget and fiscal matters have implications in nearly all operational and instructional program areas, the laws, regulations, and business rules are largely outside of the discretion of the State Education Department. Below are a few areas where recommendations have been made to NYSED staff that deserve further consideration by state policymakers:

Reserve funds: consideration for providing temporary flexibility in the immediate use of designated or restricted reserve funds, and requirements to repay funds over a set period of time;

Transportation issue: as mentioned in the Transportation section of this guidance, providing flexibility on the adoption of contracts with providers and pursuing a streamlined bus driver licensing process with the Department of Motor Vehicles to ease the burden of hiring new bus drivers;
Personal Protective Equipment (PPE) and technology purchases: provide more avenues for shared service agreements and ease burdens on BOCES to expanding service in this area.

Flexibility for Budgetary Transfers

It is anticipated that there may be costs in 2020-21 that districts did not budget for in necessarily the correct account codes. In particular, the need for additional equipment has been noted above. Flexibility for budget transfers in the 2020-21 school year only for additional equipment needed (associated with re-opening and the maintaining of buildings primarily) would help school districts in that position. Historically, school districts have been advised that money cannot be transferred into an equipment account code because equipment is considered a non-contingent expense (generally) and transfers into non-contingent line items are prohibited. This determination appears to be based primarily on Formal Opinion of Counsel No. 213 (www.p12.nysed.gov/mgtserv/budgeting/handbook/appendixg.html).

In addition, school districts are encouraged to maximize their state-aided hardware in order to ensure that all necessary equipment is being purchased.

Tax Collection

School districts that rely on banks or other outside entities, such as a town, to collect school taxes, could face an issue of capacity for in-person collection. Limited staffing or hours may make it more difficult for taxes to be paid in the period without penalty. In addition, at least one instance of a bank not wanting to have citizens coming in to pay taxes and bank staff having to handle all of that paper has resulted in a district needing to have to come up with a new process. Having to change to a collection process that is all in-district may not be feasible, either due to costs or staffing.

Districts should be reviewing their tax collection process to try and anticipate any issues or problems that they may face based on the ability of residents to pay taxes in person and without penalty.