Big-City Districts Are Beset by Financial Dysfunction — and Kids Pay the Price

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Updated Nov. 7

Financial dysfunction is plaguing many city school districts.

Chicago is the most concerning. The district’s current $300 million budget gap is set to triple next year, which isn’t surprising since enrollment dropped 10% over six years as the district added staff. Now, it won’t close schools, won’t reduce the workforce and is being told by the mayor to give in to union demands for big raises. How would the math work? The mayor wants the district to take out a short-term, high-interest loan. Oh, and the city and district still need to work out how to make this year’s pension payment.

Seattle is a close second. Two years ago, leaders agreed to a costly labor agreement that they admitted would require major cuts. But then they didn’t make those cuts. Instead, leaders exhausted all reserves and are borrowing money they’ll have to pay back by 2026. What’s the plan for the $100 million budget deficit? None yet. 

Why are financial crises suddenly common among large urban districts? Federal relief funds are part of the issue. Despite warnings that the money was temporary, many city districts used those one-time funds for salary raises and new staff hires.  

Some never had a plan for what would happen next. For example, when the federal relief funds ended, leaders in Cleveland seemed surprised by a glaring $143 million hole in their budget forecast.

Of course, it’s never easy to cut labor. But avoidance makes it worse over time. In a recent hostage-like negotiation, the Providence superintendent demanded $10 million from the city within 24 hours or the district would start issuing pink slips.

Falling birth rates are another factor. Over the long term, fewer kids means fewer dollars and a need for fewer schools. Closing schools is tough work, and many city districts especially aren’t up for it. In Minneapolis, schools are down to 63% capacity. After pressing pause on its school closures, San Francisco now has until Dec. 15 to come up with an alternative or face a potential state takeover.

Sometimes it’s basic financial mismanagement. For months, Durham, North Carolina, inadvertently overpaid its staff, which, not surprisingly, has created a drain on the budget.

Milwaukee got behind on filing its financial reports and ended up with a state-imposed “corrective action plan” that involved repayment of $43 million. After the state imposed an external financial audit, the district has since missed even more reporting deadlines.

In Clark County, Nevada, where Las Vegas is located, “miscalculations” keep shifting the budget gap by tens of millions. And because New Orleans dragged its feet on surfacing a $20 million miscalculation of local tax revenue, each of its schools must cut some six or more staff midyear.

In St. Louis, the issue appears to be an unwarranted spending spree by a newly hired — and now fired — superintendent.

All these financial messes are leaving kids in the lurch. The dysfunction destabilizes the district, often leaving little time to make consequential decisions like staffing cuts or school closures. Employees are demoralized. Trust in the system erodes. Families with means pursue other options. Most of all, the financial upheaval takes all eyes off the district’s primary responsibility: student learning.

What is it about city school systems that predisposes them to such financial dysfunction? One obvious factor is that leaders are underprepared to manage complex financial operations that can involve upward of a billion dollars — or more — in public funds. Coming off a decade of revenue growth that outpaced inflation, few of today’s leaders have any experience with making hard budget tradeoffs. As forecasts change, leaders ignore the signs, stall or, in the case of Des Moines, pass off major budget-cutting to a task force of 40 volunteers.  

Another reality is the intense, unbalanced political dynamics common in today’s urban centers. Powerful labor groups make unaffordable demands. Vocal parents resist program reductions or school closures. Some elected board members reverse planned cuts, imagining they’re defending constituents from the heartless bean counters in the district’s finance office. The good finance leaders flee the turmoil. Eventually, the district runs out of beans.

Strong district leadership should be an antidote. Leaders need to be honest about the district’s financial outlook, sharing options and explaining financial tradeoffs. They need to make hard choices, laser-focused on what’s best for students. They need to safeguard their schools’ financial integrity, ensuring that today’s decisions don’t erode the education of tomorrow’s students.

Missing in action are states. Typically, legislatures throw up their hands and bemoan local control. Many are wary of state takeover policies in part because of their mixed record of impacts on students.

But there are other options. Requiring multi-year budget forecasts and minimum levels of fiscal reserves are a start. States can then adopt policies that get triggered when districts overspend and deplete those reserves, each with the goal of helping the district get back on track. With some 80% to 90% of expenses going to personnel, states could mandate that labor contracts be reopened for renegotiation. They could appoint a financial auditor to communicate honestly about district finances. Also triggered could be a requirement that the board and leaders undergo finance training and hold more frequent meetings until budget gaps are addressed.

Standing by while finances erode further in these urban districts is unfair to the many students who depend on their leaders to manage the billions being deployed for their education. Continuing to look the other way will make things worse. City kids need the adults to figure this out.

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