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Fiscal Cliff Could Have Severe Effects for Certain School Districts

Published:  December 19, 2012

Rumors swirling around Washington, D.C. suggest President Obama and Speaker of the House John Boehner are close to reaching a deal to head off the expiration of current income tax rates and across-the-board spending cuts scheduled for January 2013. This is the dreaded “fiscal cliff.” But if they can’t reach a deal soon, the effects will be felt at public schools across the country – particularly at so-called “federally impacted” schools. Using data published annually by the National Association of Federally Impacted Schools (NAFIS), we calculated the anticipated effects of the across-the-board cut on those 1,238 school districts. (Click here to download our calculations.)

Before diving into those figures, let’s review how we got to the fiscal cliff. Under the Budget Control Act (BCA), which lawmakers passed in August 2011 as part of a bipartisan deal to increase the federal debt limit, a Congressional supercommittee was charged with developing policies that would reduce the budget deficit by more than $1 trillion over ten years. Predictably, they failed to reach an agreement on what those policies would be. So the BCA’s backup plan was triggered.

The first part of the backup plan reduced annual spending caps for appropriations funding for the next ten years. The caps effectively reset that portion of the federal budget about 2008 levels. And because of a timing quirk (fiscal year 2013 began in October, but the caps aren’t put in place until January 2, 2013), 2013 appropriations are to be reduced retroactively by across-the-board mid-year rescissions, known as sequestration. The Office of Management and Budget estimates that the sequesters will reduce funding by 8.2 percent per domestic discretionary program, compared to prior year funding.  (Pell Grants and school nutrition programs are exempt). For schools, this means an 8.2 percent cut to virtually every federal program (Race to the Top, Title I, special education grants) from which they receive funds. 

Another timing quirk will, however, delay the cuts until early 2014 for most schools. Big federal education programs like Title I grants to school districts for economically disadvantaged students ($14.5 billion in FY2012) and special education state grants ($11.6 billion in FY2012) are mostly funded a year ahead of time through advance appropriations, which means they were allocated their 2013 funds too early for the sequester to rescind them. So the sequester will apply mostly to funds they would use in 2014. That buys school districts extra time to plan for those cuts, or Congress additional time to cancel the cuts before they happen.

Still, some school districts will be harder hit than others because they receive a larger portion of their budgets from federal monies. Some of those districts receive most of their funding from the federal Impact Aid program, which helps districts that lose out on property taxes because of federally advantaged property or personnel within their borders (like military bases or Native American reservations).

The Impact Aid program, funded in fiscal year 2012 at $1.153 billion, will drop to about $1.065 billion post-sequester. At about 75 of the school districts, the cuts to Impact Aid will be more than $500 per pupil. A dozen school districts will receive at least $1 million less in Impact Aid than under the 2013 continuing resolution – and that leaves aside other federal dollars those districts receive, like Title I and special education money.

And the schools seeing these significant, mid-year cuts are among the neediest schools in the nation. Nearly 350 Impact Aid districts have a reported poverty rate of at least 30 percent, according to the Census Bureau. In 2010, 87 percent of the schools had at least 30 percent of their students enrolled in the free- and reduced-price lunch program, a proxy for measuring the concentration of low-income students. More than sixty percent of districts had over half of their students in the program.

The most severely affected school districts, though, are likely to be the twenty percent that received more than a quarter of their revenue from the federal government in 2009.  Eighty-six of those school districts were funded more than half by federal dollars.

The costs of an 8.2 percent cut to every federal program are far more concentrated in schools with significant amounts of federal money at stake. Meanwhile, those schools are some of the most vulnerable in the nation. We anticipate the “fiscal cliff” agreement between Congress and the President will include more spending cuts – but we hope they are targeted to protect the students who most need the extra boost. 

Click here to download these data for every Impact Aid recipient in the country. To view other federal funding, demographic, and achievement data for every school district in the U.S., visit the Federal Education Budget Project’s database.

 

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