Is ESSER Money Being Spent or Not?
Our guest author today is Jess Gartner, CEO and Founder of Allovue, an education finance technology company.
As part of a series of federal pandemic-relief stimulus packages, K-12 schools received three rounds of funds through the Elementary and Secondary School Emergency Relief Fund (ESSER I, II, and III), totaling nearly $200 billion. Almost immediately, headlines across the nation probed how (or if) schools were spending these dollars. Nearly three years after the initial round of funding ($13 billion) was granted by the CARES Act in March 2020, questions linger about the pace and necessity of spending. Why is it so hard to get a straight answer?
For two years, the prevailing theme in the headlines had been that school districts were sitting on stacks of cash, whereas more recent (and far less breathless) stories say the money is now on track to be spent. Why all the confusion? The complex multi-year process of receiving, planning, spending, and reporting ESSER dollars is more complicated and drawn out than a single soundbyte can convey (I’ve tried!). Let’s take a quick look at a few key issues to bear in mind when thinking (or reading) about ESSER funds, and then a couple of conclusions as to what’s really going on.
Finance reporting infrastructure
Before we dig into the nuances of ESSER spending, it’s worth pointing out the pre-COVID expectations for K-12 financial reporting. Every year, the U.S. Census Bureau conducts the Annual Survey of School System Finances. This data is collected after the school year ends and is published nearly two years later. For example, when COVID struck in March 2020, that was near the end of Fiscal Year 2020 (the 2019-2020 school year). The Census data for this school year was officially released in May 2022.
Why does this matter? Historically, there has been little demand for near-real-time school financial data reporting, so national processes for collecting, organizing, and reporting this type of data on a faster timeline simply did not exist pre-2020.
In contrast, calls for detailed public accounting of ESSER dollars started popping up mere months after relief dollars were awarded via legislation. The lion’s share of ESSER funds were awarded in March 2021 through the American Rescue Plan ($122 billion), prompting eager requests for spending reports many months before state departments of education approved districts’ ESSER spending plans and gave districts the green light to start spending the funds.
State and federal financial data reporting mechanisms were quickly modified to share more timely updates on ESSER spending, but even these reporting systems often published data with a 6-12 month lag that in reality was due to the mechanics of reimbursement and/or accounting processes.
Perhaps the greatest source of confusion is that public finance reporting has been limited to the final step of “checks cut,” which is an incomplete measure of “spending” that fails to account for dollars that are in any earlier step of the budgeting or expenditure process (like hiring or procurement), or attached to multi-year installment payments like annual licenses or new staff who will be paid bi-weekly over the course of several years.
Multiyear spending timelines
There were atypical parameters for ESSER funds that have made tracking and reporting these dollars even more complicated than is usually the case with grant reporting. The vast majority of education funds are allocated on an annual basis (with the notable exception of funds for capital projects). If, for example, a district receives $25 million in annual funding for Special Education services, those dollars must be spent within the fiscal year in which they are granted. ESSER grants, in contrast, were eligible for spending over several years: ESSER I ($13 billion) through September 30, 2022, ESSER II ($54 billion) through September 30, 2023, ESSER III ($122 billion) and September 30, 2024. While the tallying for FY 2022 is still being finalized, interim spending reports indicated that ESSER I was on track to be spent by the deadline.
Divide by X
Let’s do some quick math. There are two denominators that make the amounts of ESSER funds tricky to put into context: number of students and number of years of the grant term. These dollars were granted to support a system of about 50 million K-12 public school students. To state the obvious, if you multiply or divide anything by 50 million, that number gets much bigger or much smaller very quickly: $190 billion divided by 50 million is $3,800 per pupil– a much less impressive number. Remember: these funds are eligible for spending over four and a half years. Spreading $3,800 across the grant period averages just $845 per pupil per year– about a 5-6 percent supplement to regular annual K-12 spending.
ESSER dollars were allocated in proportion to the Title I formula to concentrate stimulus funds in districts with the highest need student populations, so while some districts received much more than $3,800 per student, others received far fewer dollars. It’s important to remember that the ESSER funding scenario varies dramatically from one district to another based on their size and level of student need. Understanding this local context is critical for evaluating the availability and use of ESSER funds relative to the most pressing needs of each district.
Pace of spending
The last thing that has made it especially difficult to monitor ESSER spending is that the pace of spending was not expected to be evenly distributed because the funds were not available all at once. In a scenario where districts believed they had $13 billion (ESSER I) to spend over 2.5 years, that would average about $5 billion of spending per year over the term of the grant. Once the total grant amount jumped to $67.5 billion with ESSER II, that rate of spending could increase to about $19 billion per year over 3.5 years. It wasn’t until the award of ESSER III that districts could ramp up spending to a rate of $42 billion per year or more.
$190 billion—the total of all three ESSER grants—was the dollar amount being widely publicized while early spending reports reflected a time during which districts were operating from the assumption that they only had a fraction of that amount to spend. Applying this logic to the pace of spending, one would expect that an average pace of spending in FY 20 would be $0.4 billion/month, adjusting up to $2 billion/month halfway through FY21, and finally increasing to about $5 billion/month in FY22. Spoiler alert: this is almost exactly how spending rates increased over that time period.
Using the same pacing guide, I would expect to see ESSER spending at peak rates in the beginning of FY23 before starting to decline post ESSER II deadline, and finally tapering off to the tail end of the grant period in September 2024, as in the figure below:
Since the Education Department recently released updated guidance that districts could spend ESSER dollars on multi-year technology licenses covering services beyond the obligation deadline, it’s conceivable that $10-25 billion of spending could take place in the beginning of FY25 (the start of the 2024-2025 school year).
While it may have initially seemed like ESSER dollars were not being spent with urgency, the spending data today confirms that districts have been spending at a pace that corresponds with the availability of funds over the time period of grant eligibility. From a practical standpoint, this suggests that districts are spending in a way that stretches the dollars for maximum utilization over the lifetime of the grant while also smoothing out the ramp up and tapering off of supplemental funding. This rate of spending allows districts to adapt to change at a sustainable rate as well as to avoid or mitigate a dramatic fiscal cliff with the reduction of resources at the end of the grant lifecycle.
$190 billion is a lot of money in absolute terms, but a rather modest supplement to annual K-12 spending in the context of the huge challenges school districts are facing. Contrary to early skepticism, the moderate pace of spending indicates that districts are taking a measured, strategic approach to planning and spending stimulus dollars for maximum effectiveness. Stretching dollars over the full grant term should not be confused with a lack of urgency. The steady pace of spending reflects a collective understanding among district leaders: the pandemic’s impact on students has been profound, with far-reaching consequences that will require years of sustained recovery efforts. Taking time up front to solicit community feedback and thoughtfully evaluate budget strategies only increases the likelihood that school districts will implement learning interventions and school facility improvement with success, thereby ensuring the highest return on this $190 billion investment.