School districts are flush with federal cash, but struggling with long-term costs

With the help of federal funds, Wisconsin’s two largest school districts have been able to pay for programs and facility updates that were out of reach three years ago.

The Madison Metropolitan School District received about $71.1 million in federal pandemic aid. The first influx was spent on immediate needs like personal protective equipment, air filtration and internet hotspots.

Now, Madison school officials are turning to large-scale projects like updates to heating and ventilation systems in the Sherman, Shabazz and Anana elementary schools and a new phonics-based reading curriculum.

Milwaukee Public Schools, which was allocated about $800 million in federal relief funds, followed a similar path. Officials focused on immediate needs and then improvements to facilities. It’s also planning to funnel about 20 percent of its federal dollars allocated for health and wellness into student mental health services.

Despite the federal windfall, the long-term financial health of Milwaukee and Madison schools — and, likely, of many other school districts — is uncertain, according to a new report from the Wisconsin Policy Forum.

“The last couple of years have not been usual for anyone,” said Milwaukee Superintendent Keith Posley at a May 5 school board budget committee meeting. “We are living during unique times that impact the school district as a whole – our students, our staff, our teachers, our families.”

The state Legislature didn’t raise schools’ per-pupil aid in the most recent budget nor did it increase school districts’ revenue limits, which is the amount of money they can take in through a combination of state aid and local property tax.

But with schools’ everyday costs on everything from food to toilet paper to office supplies increasing because of inflation, districts are unable to cover as many of their needs with their state and local revenue.

“This is one of the most egregious budgets I think I’ve seen,” Madison Superintendent Carlton Jenkins said at Monday’s school board meeting. “(Legislators are) making us make decisions between what’s right and what’s right.”

Schools did see a nearly $50 million increase in special education aid in the latest budget, and Gov. Tony Evers directed $110 million in additional federal funding their way. However, because the federal funds have some strings attached in how they can be used and, more importantly, because they need to be used within the next few years, schools don’t want to use them to cover long-term needs like staff pay or new permanent programming.

Under state law, teachers’ base pay is also tied to the consumer price index, which means inflation is hitting school districts twice – once in the costs of goods to the districts themselves, and again in the need to raise salaries to keep up with the costs of goods to staff.

Some school districts have been able to weather rising costs better than others because they were able to pass operational referendums in recent years, which raise local property taxes and spending. At least 60 percent of referendums on the ballot in each of the last seven years have passed, including operational referendums in both Madison and Milwaukee.

However, because of the state’s complicated school funding formula, the additional $6 million in funding Madison raised through its referendum is weakened by a $3.8 million drop in its state funding, while Milwaukee’s state funding increases as it brings in more money through its referendum.

“Our revenues this year have been unusual due to the various funding drivers, and how that influences areas we’re able to invest,” said Christina Gomez Schmidt, a Madison school board member, at Monday’s board meeting. “Due to declining enrollment, a zero increase in per-pupil revenue limit and a zero increase in per-pupil aid from the state, the increase in revenue this year has been from the taxpayer-approved 2020 operations referendum. In addition, we’ve been received one-time federal relief funds.”

Even if schools were receiving more in per-pupil income, dropping enrollment around the state means they have fewer pupils in the classroom. Enrollment dropped nearly 3 percent in fall 2020 — an unusually large dip — and a much more modest 0.1 percent in fall 2021. Milwaukee and Madison both lost an even higher percentage of students. Enrollment has been on a steady decline in Wisconsin since fall 2013, so some of the drop was expected, but the pandemic accelerated that trend and forced some districts to cut back on staff.

“Enrollment has been decreasing over many years — school enrollment in Wisconsin and other parts of the country have been on the decline since the late ’90s,” said Martha Kreitzman, chief financial officer of Milwaukee Public Schools. “It is important that MPS maintains and grows its student enrollment.”

Other Madison Metropolitan School District takeaways from the WPF report:

• Madison uses property tax to fund just over two-thirds of its budget because it receives relatively little state aid despite having substantial numbers of low-income students
• The district’s operating budget for 2023 is about $490 million, up from $469 million, but that includes one-time federal funds that must be spent by the end of 2024
• The district’s reserves, the amount of money in its general fund that isn’t assigned to be spent, will remain flat at $71.7 million, or about 14 percent of its total budget
• Madison’s property tax levy is increasing by a projected 2.2 percent
• Despite projections that it would gain back 74 students in this year’s enrollment count, Madison lost 482 students, with the majority moving elsewhere in the state
• The proposed budget would increase average pay for employees by 4 percent, including a 2 percent increase in base wages and a 2 percent increase providing higher wages to those with more experience and education. That’s below the 4.7 percent increase in base wages allowed in union contracts, and well short of the current rate of inflation, which was 8.3 percent in April
• Madison will start renovation on the district’s four main high schools this summer, after a $317 million referendum to fund the project was approved in 2020

Other Milwaukee Public Schools takeaways from the WPF report:

• Milwaukee didn’t include its federal relief funds in its budget document for 2023, but instead broke those funds out into a separate document, which means the budget shows a bleak picture of the school district’s finances compared to last year when it did include federal relief funds in its regular budget
• Milwaukee’s enrollment has been declining at higher than the state rate, dropping the district from about 100,000 students in the early 2000s to 68,404 in fall 2021. The state budget formula and its “hold harmless” aid has been insulating the district to some degree, but it will start feeling the financial costs of its enrollment decreases
• It’s expecting to lose another 4,000 students by fall 2026
• Milwaukee’s long list of building construction and repair needs has long outpaced its funding for those projects, but the influx of federal relief dollars will help address some of those long-standing needs
• The proposed budget includes a 4.7 percent cost of living adjustment for staff
• Milwaukee is able to offset its cost of living adjustment and other pay increases because it has a high number of vacancies, and is projecting those jobs will still be open through 2023
• The district has been able to shore up its reserves, which had been running precariously low, thanks to its staff vacancies and federal funds

Editor’s note: A previous version of this story incorrectly identified how much money Milwaukee schools put toward mental health services. It was 20 percent of its federal allocation for health and wellness.