Into the unknown

Schools have done an OUTSTANDING job of continuing to provide critical services in a whole new way. School buildings may be closed, but each of your schools are very much open for business. There are new issues that arise every day where we are still figuring out how to best manage our circumstances, making health and safety a priority.

At the same time, schools must use what limited information we have available to plan for the future. You have budgets and tax rates to figure out, hiring decisions to make, and the like. And all of those decisions must be made in light our "new normal" instead of thinking things will return to as they were. This message is intended to provide information as you look ahead into the unknown.

Comptroller Hegar on managing expectations

This morning, Texas Comptroller Glenn Hegar used the phrase "too soon to tell" several times when answering questions about how bad the economic ramifications of the pandemic combined with the war over oil prices will be. He spoke to "managing expectations" though, which is why he isn't holding back on his description of our current economic state as a recession. In other words, it's too soon to tell exactly how bad it's going to be, but we know it's going to be really bad. While his office has attempted to compare our current state to downturns of the past to try to glean some insight, our current circumstances don't compare to anything from the past. We are truly in uncharted territory.

Comptroller Hegar explained that his office is trying to make shallow cuts over a longer period of time (rather than deeper, more hurtful cuts that may otherwise be needed later) by freezing hiring now, providing no salary increases, and putting planned projects on hold. While it is "too soon to tell" how bad things may get, Comptroller Hegar knows these steps are necessary now to prepare for cuts that are sure to come down the road.

In terms of whether he believes that a special session might be necessary for the State to manage this dramatic downturn in the economy, Hegar explained that his office can manage cash flow by relying on the $8.5 billion in the Economic Stabilization Fund (ESF) temporarily until the 87th Regular Legislative Session begins in January. Once the Legislature convenes, lawmakers can pretty immediately pass a supplemental appropriations bill as necessary to make cuts mid-way through FY21. The Comptroller plans to provide state leaders with an idea of what to expect through an adjusted Biennial Revenue Estimate in July 2020, once more accurate data is available. He stated that this revised estimate will likely be adjusted downward by several billion.

In terms of school finance, and whether County Appraisal Districts (CADs) can simply use 2019 property values for 2020, Hegar explained that state law requires the property's value on Janaury 1, 2020 to be used. The Comptroller said he has no authority to waive that legal requirement. He also spoke to concerns raised by CADs, especially those in rural areas, about how to handle the protest process when in-person meetings are not possible. His office is working to help CADs manage this process in a safe manner.

For more info on the fiscal downturn's impact on public school funding, you can refer to the info we previously shared on this topic, available on our website. Also, if you would like to watch the Texas Tribune's full interview with Comptroller Glenn Hegar, you can click here.

What about those federal dollars?

The US Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is the largest economic relief bill in U.S. history and will allocate $2.2 trillion in support to those affected by the pandemic and economic downturn. The CARES Act includes provisions for schools as well, and some of you may be wondering just how much your district might receive in federal aid. Some of you may have some numbers with estimates of how much you may receive.

The CARES Act included a $30.75 billion Education Stabilization Fund. About half of that will go to higher education, another $3 billion goes toward the Governor's Emergency Relief Fund, and then the remaining $13.5 billion is for the Elementary and Secondary School Emergency Relief Fund. About 90% of that Relief Fund is supposed to flow directly to school districts and charter schools in the proportion that the school receives Title I funds. That means that Texas should receive about $300 million from the Governor's Emergency Relief Fund and almost $1.3 billion for funds of which 90% area supposed to flow directly to school districts.

At this point in time, we would advise you to be wary of estimates with exact figures and not spend that money just yet. What is unknown is how quickly the funds will flow and what federal and/or state requirements and guidelines may be applied. Depending on the timeline set by the USDE, the money that flows to districts for relief aid could possibly be offset by an equal reduction in state funding entitlement. We just don't know at this point in time because the details we need from the feds are simply not available yet. We will provide further updates as information becomes available.

A few things to consider...

As you begin thinking about what the future may hold for the next school year and what budget assumptions you should make, here are just a few things to consider:

Your attendance rate could be lower next year. We don't know if all students will return after this home school experiment, and even students who do return may be more likely to stay at home more days due to fear or heath concerns. We don't know that the school year we hope to kick-off in the fall will be a "normal" school year unaffected by COVID-19. This experience raises the policy argument for funding based on enrollment rather than attendance, but that issue can't be resolved until after you plan your budget for next year.

Your tax collection rate may be lower than usual. While the legal standard is that property values be based on the value as of January 1, 2020, it's likely we will see an increase in protests (which can hopefully occur in a safe, legal manner) and an increase of those who can't or won't pay their taxes on schedule. Districts that pay recapture won't be required to pay recapture on taxes they don't collect, but this could still impact your budget planning process and cash flow.

Heed the Comptroller's advice on shallow cuts over a longer period of time. We don't know exactly how bad the economic downturn will be, only that it will be bad. Given that so much of the state's budget is used to fund schools, even if schools are protected as much as possible, it is likely there will be some cuts. A lean budget now that helps to build a healthy fund balance for use during the 2021-22 school year and beyond would be prudent. And yes, we know that due to years of under-funding, your budgets are already lean and your fund balances are depleted.