Kentucky School Advocate
By Brenna R. Kelly
School board members are required by law to attend finance training each year – this year that training will be put to good use.
A confluence of financial realities means that Kentucky’s 171 school boards may soon have to make some hard decisions about their finances.
“Districts weathered the storm of the pandemic thanks to federal COVID relief funding and stabilized state funding based on frozen average daily attendance (ADA) numbers,” said Eric Kennedy, KSBA director of Advocacy, “but now federal COVID funding is ending and we have returned to normal SEEK funding based on actual ADA, which has been reduced in most districts. That means we are back at a time of difficult budget decisions for local boards.”Kentucky’s education funding formula, Support Education Excellence in Kentucky (SEEK) is based on attendance – fewer students mean less money. Since the pandemic, most Kentucky school districts have seen declines in both enrollment and the attendance rate.
That means in July when districts began receiving SEEK payments based on attendance data from the 2022-23 school year instead of on the pre-pandemic attendance levels – most districts got less money.
At the same time, districts need to finish spending their remaining federal COVID relief funds. The final round of that funding, $2 billion from ARP ESSER, must be spent by September 2024.
“I think with the declines (in ADA), it’s like everything else, districts have to adjust their budgets,” said Chay Ritter, director of the Division of District Support at the Kentucky Department of Education (KDE). “It’s good to have ESSER but, at the same time, it’s going away. I hate this analogy, but the hangover’s coming, we just have to prepare.”Fewer students, less money
When Kentucky schools returned to in-person learning, not all students came back. Enrollment this past school year was down about 2% from pre-pandemic levels, according to data from KDE.
KSBA, in its survey of board members and superintendents conducted in May, asked why they believe enrollment declined – was it due to a loss in population or growth in home-school or private school? About 43 percent of respondents said it was all three.
Population loss may be the driving factor for many eastern and western Kentucky districts. In December 2021, tornadoes left destruction across 11 counties in western Kentucky and in July 2022 floods impacted 25 school districts in eastern Kentucky.
In addition to the enrollment decline, students who are enrolled are coming to school less consistently – that factor results in even lower SEEK payments for many districts.
“Typically, pre-COVID, we were pretty used to seeing 94, 95% (ADA) across the board,” Ritter said. “And then we noticed a lot of sub-90s. And that’s really, really concerning.”
For the 2022-23 school year, 24 districts had ADA below 90%. Only four districts had an ADA of 95% or above.
“One thing I’ve heard multiple times is kids that weren’t really engaged before, really lost engagement during COVID,” Ritter said.
When the pandemic hit, the General Assembly allowed districts to choose to freeze attendance using the 2018-19 or the 2019-20 school year. The decline from those frozen levels to the 2022-23 school year is steep for many districts.
Thirty-four districts saw a double-digit decline in ADA, according to KDE data. Another 56 districts had between a 5% and 9% drop and 43 districts saw between a 1% and 4% drop.
Shelby County Schools Chief Financial Officer Susan Barkley said districts have known for several years that the return to using actual ADA was coming.“They should have been preparing for that all along, knowing that the hold harmless is going to come to an end and we were going to have to face the music,” said Barkley, who is also vice president of the Kentucky Association of School Business Officials.
In her district, several positions including teachers and cafeteria monitors were eliminated before the new school year. This was no surprise to her board members.
“I've told them every year (since COVID), at every phase of the budget, that we are on hold harmless ADA,” she said.
Daviess County Schools finance director Sara Harley explained to her board in May that despite the legislature increasing the base SEEK funding amount per student, the district would lose $3.5 million due to its decrease in enrollment and ADA.
In addition to losing 300 students after the pandemic, the district’s ADA had gone from 95.5% to 92.5%, Harley explained according to the Messenger-Inquirer.
While less funding for fewer students is expected, reducing staff to make up the difference can only go so far.
“Every building has a level of fixed costs no matter how many students are in the building,” she said. “And that’s something that the formula doesn’t really take into account.”
That could be a big problem for small districts, she said.
While reducing staff can help, districts are also faced with increasing salaries in order to retain and attract teachers, bus drivers, cafeteria workers and custodians, Barkley said.
“When districts around you can offer higher salaries, it makes it even more difficult for you to compete,” she said. “And there’s no provision to maintain any sort of equity from the highest salary to the lowest salary in the state.”Safety net for ADA declines
A provision in law provides help for districts with drastic declines in ADA. Under KRS 157.360(10), any district that loses 10% or more in ADA can get two thirds of the loss restored to its funding. If the district’s ADA declines or stays the same the following year, the ADA would be adjusted to reflect the addition of one-third of the loss.
During the 2022 Special Session, lawmakers expanded that provision to districts impacted by the December 2021 tornadoes and the 2022 floods. Those districts qualify for this phase-in at the level of a 3% loss in ADA.
In total, 58 districts qualified this school year for the safety net law, due to either a disaster or by losing more than 10% of ADA, Ritter said.
This provision has been on the books for many years though it has rarely had to be used, Kennedy said.
“The idea is to soften the blow for districts that see a sudden reduction in ADA,” he said. “It tries to slowly phase into the actual ADA, meaning districts will still get less but it won’t be as bad as it would without the safety net and you have some time to adjust budgets and staffing.”
Both Ritter and Barkley say they are hopeful that the declines in ADA and enrollment are temporary.“I think this is just sort of a resetting. And I think that’s the part that I am hopeful about is that we get some of these kids back in the seats, attendance goes back to our strong levels,” Ritter said.
In Shelby County some students have returned, Barkley said. The area is also growing. Shelby County’s population is expected to grow 42% between 2020 and 2050, according to the Kentucky State Data Center.
“I think it will for us, because we know we have industry and we have new homes being built,” Barkley said. “I don’t know that other areas of the state are going to see that. Their losses may be long term.”
Ritter also believes the rebound may be uneven. He’s particularly concerned about the counties in eastern and southeastern Kentucky.
“We’ve seen this decline even before the floods, the floods exacerbated the population shifts,” he said. “People tend to go where they have families and jobs.”
Before the floods, the data center estimated that by 2050, Knott and Letcher counties would lose 43% of their population. Those counties were among the hardest hit by the floods.
The data center’s population projections also put Martin, Pike and Magoffin counties in the top 5 in the state for population loss over the next 27 years.ESSER ending
Kentucky received more than $3 billion dollars in federal COVID relief money for education, mostly through three rounds of Elementary and Secondary School Emergency Relief (ESSER) funding.
Two of the three ESSER allocations have now expired, and by this time next year districts will be required to have spent the final and largest portion, $2 billion from ARP ESSER.
As of June 30, KDE had reimbursed about half of that allocation to districts, said Robin Kinney, KDE associate commissioner. Districts are required to spend at least 20% of their allocation on addressing learning loss.
Barkley said districts should have planned to use their ESSER money wisely and not spend it on recurring expenses, such as personnel – and if they did – make sure they did it wisely.“I think a lot of districts did use it for teachers, and we did. We used it for additional support above and beyond our staffing allocations, for a targeted purpose,” she said.
District leaders there made sure that the board, and the employees, knew that those positions were temporary.
She hopes other districts who are using the money for teachers planned for the end of the funding, otherwise they could be in a pinch.
“When ESSER runs out and you are paying for staff, you cannot maintain them,” she said. “So not only did your non-recurring funds end but your ADA has probably gone down.”
In addition to staff, districts will have to consider if other COVID-relief funded initiatives should be maintained.
“If it’s something that you felt was really beneficial, then you may have to make decisions in your budget,” she said.
Barkley warned districts not to tap into their contingency funds to cover recurring expenses – such as salaries.“We try to never use contingency for anything recurring, only for a non-recurring item or a pilot that we can stop at any time,” she said.
Under state law, districts are required to keep at least 2% of their budget in a rainy-day fund. But that’s likely not enough, Barkley said.
“What if there’s some disaster, a big industry leaves your district and there’s a tax revenue loss? There are big things that can happen,” she said.
An ideal contingency fund would be about 10%, she said.
Keeping the board updated on the district’s financial position is important, Barkley said. In Shelby County, Barkley has a budget committee that includes a board member and classified and certified employee representatives.
“It's not only a good opportunity for input, but it's a good education opportunity as well,” she said. “Because the more people understand, then the more support you’re going to have for making the right decisions so that you can stay financially sound.”For more in-depth information on SEEK funding, KSBA offers a self-study webinar “Why did we get less SEEK money? Find it at www.ksba.org/Self-StudyCredit.aspx
Funding increases for growing districts
Not all districts have seen a decline in average daily attendance (ADA). After the pandemic, ADA increased in 35 districts, according to KDE. The gains range from 1% to 26%.
The General Assembly provided additional funding for “growth districts” in the 2023 session. Because those districts had increased ADA but had been funded at 2018-19 levels, without that provision they would not have received funding for those new students.
While passing HB 553 on the Senate floor, with the growth funding provision, Sen. Chris McDaniel, R-Ryland Heights, advised districts to be prepared to return to normal SEEK funding based on actual ADA.
“I do want to be very, very clear that the SEEK formula is due to reset for the next school year,” he said. “It is the intention of the General Assembly that SEEK formula will reset in the next school year, so everybody needs to be making their plans as appropriate for that.”