Navigating Uncertainty and �Preparing for the Fiscal Cliff

“The Fiscal Cliff” – The 4 E’s

2

Today

2024+

ESSER

A

Economy

B

Enrollment

C

Employees

D

Congress appropriated $190B in relief funding that must be allocated by Sep 2024.

​

One-time funds must be used strategically now to avoid painful decisions in the future.

Inflation, supply chain issues, and rising interest rates have increased expenses

​

A potential economic slowdown or recession could put pressure on public revenues.

Student enrollment has not recovered from the shock of the COVID-19 pandemic.

​

Enrollment will continue to decline due to historically low birth rates and other trends.

Educator talent is more difficult than ever to find and competitively compensate.

​

Shortages in key roles are putting pressure on school models and budgets.

Unprecedented Student Needs

You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.

THE STOCKDALE PARADOX

The Potential Fiscal Cliff

4

“The Fiscal Cliff” – The 4 E’s

5

Today

2024+

ESSER

A

Economy

B

Enrollment

C

Employees

D

Congress appropriated $190B in relief funding that must be allocated by Sep 2024.

​

One-time funds must be used strategically now to avoid painful decisions in the future.

Inflation, supply chain issues, and rising interest rates have increased expenses

​

A potential economic slowdown or recession could put pressure on public revenues.

Student enrollment has not recovered from the shock of the COVID-19 pandemic.

​

Enrollment will continue to decline due to historically low birth rates and other trends.

Educator talent is more difficult than ever to find and competitively compensate.

​

Shortages in key roles are putting pressure on school models and budgets.

Unprecedented Student Needs

ESSER has provided significant resources to school systems across the country

6

CARES Act

ESSER I

$13B

$54B

$123B

ESSER has added a total of $190B in federal revenues

$3,850

Per Pupil²

Source: 1.) Reason Foundation, 2.) Allovue

State and local revenue (adjusted for inflation) have consistently grown YoY following the Great Recession¹

One time funding presents significant opportunities, but schools have limited time remaining to strategically spend ESSER funds

7

Source: 1.) CRPE, 2.) DoE Education Stabilization Fund, FutureEd

Key recovery strategies stand out

in systems’ spending plans¹

States are overall on track to meet obligation deadlines, but vary in pace of spending²

ESSER is unique relative to previous one-time aid

Revenue Shortfalls

Unlike the Great Recession, major revenue shortfalls did not materialize

No “Supplement Not Supplant”

ESSER does not carry the requirement that federal funds be used to augment the regular education program

“The Fiscal Cliff” – The 4 E’s

8

Today

2024+

ESSER

A

Economy

B

Enrollment

C

Employees

D

Congress appropriated $190B in relief funding that must be allocated by Sep 2024.

​

One-time funds must be used strategically now to avoid painful decisions in the future.

Inflation, supply chain issues, and rising interest rates have increased expenses

​

A potential economic slowdown or recession could put pressure on public revenues.

Student enrollment has not recovered from the shock of the COVID-19 pandemic.

​

Enrollment will continue to decline due to historically low birth rates and other trends.

Educator talent is more difficult than ever to find and competitively compensate.

​

Shortages in key roles are putting pressure on school models and budgets

Unprecedented Student Needs

High levels of inflation have prompted an aggressive central bank response

9

1/20

1/2

Core inflation appears to have peaked in June 2022, but services prices have continued to escalate¹

All Items

The Federal Reserve has continued to raise interest rates to combat inflation²

Sources: 1.) Bureau of Labor Statistics, 2.) Macrotrends

June

2018

Mar

2020

Mar

2022

Mar

2023

Mar

2021

The threat of a recession still looms despite seemingly strong economic and jobs data in recent quarters

10

The recent failures of SVB & Signature Bank have prompted fears of a credit crunch

US Bank Failures (Since 2000)¹

Prominent economists and leaders, including the Fed itself, continue to forecast a recession

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year with a recovery over the subsequent two years.”²

March FOMC Minutes (released 4/12)

“Our base projection is for a recession to occur in the US economy beginning in the third quarter of 2023, occur through the fourth quarter of 2023 and into the first quarter of 2024.”³

Brian Moynihan (Bank of America CEO)

“There will be real and lasting economic repercussions from [these bank failures], even if the dust settles well. I would raise the probability of a recession given what’s happened.”⁴

Jay Bryson (Wells Fargo Chief Economist)

Source: 1.) Data Stories by Pranshu, 2.) Federal Reserve, 3.) Reuters, 4.) NY Times

We know from past recessions that some states are more at risk than others for per-pupil revenue volatility due to reliance on certain revenue streams

11

Sales Tax

Income Tax

Revenue Source (as a % of Total State/Local Tax Collection)¹

Source: 1.) Tax Foundation – Sales Tax, Income Tax

Every state budget is funded through different revenue sources. It’s important for leaders to know and understand the key drivers of your states’ budgets. The more your state relies on sales and income taxes, the greater the risk of volatility and potential impact in a recession.

“The Fiscal Cliff” – The 4 E’s

12

Today

2024+

ESSER

A

Economy

B

Enrollment

C

Employees

D

Congress appropriated $190B in relief funding that must be allocated by Sep 2024.

​

One-time funds must be used strategically now to avoid painful decisions in the future.

Inflation, supply chain issues, and rising interest rates have increased expenses

​

A potential economic slowdown or recession could put pressure on public revenues.

Student enrollment has not recovered from the shock of the COVID-19 pandemic.

​

Enrollment will continue to decline due to historically low birth rates and other trends.

Educator talent is more difficult than ever to find and competitively compensate.

​

Shortages in key roles are putting pressure on school models and budgets

Unprecedented Student Needs

Almost every CSGF portfolio state has experienced significant public-school enrollment declines for two consecutive school years

13

Source: Return2Learn Tracker (AEI)

Several theories attribute declining enrollment to temporary changes in family/student behavior, implying that “lost students” can be found and reengaged

14

Frustration with schools’ decision to stay remote and not return in-person sooner

Families exercising school choice, including the decision to home school

Declining Enrollment Hypotheses/Theories:

Pandemic migration patterns, including moves from urban to more suburban and rural areas

Each of these shifts is likely contributing to declining enrollment. However, the COVID-19 pandemic also exacerbated and accelerated long-standing trends impacting student enrollment.

AEI analysis claims “Mostly Remote” districts lost 4.4% of their students between 2020 and 2022, compared to 2.3% for “Average Remote & In-Person” and 1.2% for “Mostly In-Person” districts.¹

US Census Bureau surveys indicate homeschooling effectively doubled (5.4% to 11.1%) from the 19-20 to 20-21 school years. Black/African American households, the only demographic group with a statistically significant result, registered a 5X increase.²

Between 2020 and 2021, large urban areas experienced a 3.7% decline in children aged 5-11 and a 1.1% dip in children aged 5-17. High cost of living areas lost substantial numbers of children under 5: LA County (-5.6%), Cook County (-5.3%), and Manhattan (-9.5%)³

Sources: 1.) Return2Learn Tracker (AEI), 2.) US Census Bureau, 3.) Chalkbeat

We are at a key inflection point with demographic trends impacting student population across the United States

15

Source: Brian Eschbacher analysis

​

​

​

16%

Decline in births since 2007.

​

Historic Lows

Births on a rate basis are the lowest in the country’s history, mirroring trends in nearly all developed countries.

1,000,000

fewer people under 18 living in the US in 2020 versus 2010, while the adult population increased 24,000,000, highlighting that immigration is not able to off-set fewer births.

3,500,000

Decline in public school enrollment by 2030 from the 2019 peak, as projected by NCES; the first decline since the Baby Boomers. This decline is more than the full enrollment of Florida.

Historically low birth rates indicate that there are fewer students entering the public school system in the coming years as older cohorts age out

16

Births have declined 700,000, or 16%, since 2007 pre-Recession peaks.

There is a bit of a plateau in cohort sizes between 2010 an 2016 births, which are roughly 1^st through 7^th graders this fall. Then cohorts will decline again with kinder this year.

2022 kindergartners

2022 10^th graders

2022 5^th graders

Source: Brian Eschbacher analysis, U.S. Census

Students aren’t “lost”; there are simply far fewer school aged children in many places

17

22 largest CSGF markets:

-3% or -283,000

% Change in the Under 18 Population: 2010 to 2020

22 counties serve roughly 75% of CSGF’s 950 school portfolio. These counties cumulatively declined 283,000 children (under 18) between 2010 and 2020. This is equivalent to the combined under 18 populations of Denver and Nashville.

During this same time period, these cities added 4 million adults, a 14% increase.

Source: Brian Eschbacher analysis, U.S. Census

NCES projects a 4.3% decline in national public-school enrollment by 2030 with only 5 states projected to grow their student population

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Source: Source: NCES 2022 Projections through 2030; Note: These projections are from Fall 2019 (peak) to Fall 2030

“The Fiscal Cliff” – The 4 E’s

19

Today

2024+

ESSER

A

Economy

B

Enrollment

C

Employees

D

Congress appropriated $190B in relief funding that must be allocated by Sep 2024.

​

One-time funds must be used strategically now to avoid painful decisions in the future.

Inflation, supply chain issues, and rising interest rates have increased expenses

​

A potential economic slowdown or recession could put pressure on public revenues.

Student enrollment has not recovered from the shock of the COVID-19 pandemic.

​

Enrollment will continue to decline due to historically low birth rates and other trends.

Educator talent is more difficult than ever to find and competitively compensate.

​

Shortages in key roles are putting pressure on school models and budgets

Unprecedented Student Needs

The pandemic and a particularly hot labor market have made it increasingly difficult to fill both teaching and non-teaching positions with qualified candidates

20

How Hard is it to Fill Vacancies with Certified Teachers?¹

Source: 1.) IES School Pulse Panel

53% of public schools reported feeling understaffed entering the 2022-2023 school year

Many school systems are dipping into one-time funds or other temporary sources of revenue to fund additional staffing and compensation costs

21

Sources: 1.) WBEZ, 2.) WBEZ, 3.) LA Times, 4.) Marguerite Roza, 5.) Seattle Times, 6.) Ed-Data.org, 7.) The 74,

• A five-day teacher strike delayed the start of the 2022-2023 school year
• Since 2013-2014, total district staffing has increased by 32% while enrollment has declined by 3%.⁴
• SPS agreed to increase salaries by 7% for both certificated and classified staff this year with additional increases in future years.⁵

• California has a particularly strong state budget this year buoyed by growth in the economy
• Total SDUSD student enrollment has declined by over 10% since 2016-2017.⁴
• Months after spending millions on early retirement buyouts to save costs, the district agreed to a 4% salary increase on top of its step/ladder system, effectively a 7-8% salary increase.⁵

• In 2013, CPS had a total budget of $5.3B or $13,200 per student for ~400K kids.
• The 2023 budget calls for $9.3B in spending or $29,400 per student for ~322K. CPS is spending $4B more to serve for 81K fewer students.¹
• Historical understaffing due to inadequate state funding is a contributing factor, but the district now faces a $628M budget deficit in the 2025-26 school year.²

• Despite declining enrollment, LAUSD has built a ~$5B surplus due to COVID-relief funding and record state tax revenues.³
• A recent three-day strike cost the district $100M in lost funding and led to a ~30% comp increase, including retroactive adjustments, for service workers.
• The teacher's union is now negotiating for a 20% comp increase over two years.

These decisions create unsustainable financial conditions: increased spending at a time that recurring revenues, driven by student enrollment, are rapidly declining

22

Sources: 1.) Philip Vaccaro Analysis

Lessons Learned & Insights

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Developing a Plan

24

Communication

Accountability

1

Invest in What Works

Sustainability

2

Plan Now

Flexibility

3

Prepare for Uncertainty

Engage Stakeholders

Communication: Engage & Empower Stakeholders

25

Accountability: Know What Works

26

Identify

What Works

• Identify aspects of your schools and similar schools that are contributing to positive student experience and value for parents and students
• Develop and implement a plan to organize your school community to gather and analyze this data

Prioritize

• Identify the resource implications – programs, staffing, schedules – of your strategies that are working
• Use your remaining one-time funds to support high impact learning recovery investments and non-recurring commitments that you won’t be able to afford in the future.
• Leverage your stakeholders to identify aspects of your operations that might have to change (levers include school wide schedules, enrollment, fundraising, cohort sizes, transportation, maintenance schedules, ancillary services, refinancing)
• Iterate with your financial planning toward finalizing your operating priorities

Sustainability: Plan Now

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Protect & Grow Revenue

• Focus on enrollment: Invest to ensure family engagement is a top priority and a core competency
• Stay Flexible: To take advantage of opportunities to increase class size when possible

Scenario

Plan

Establish & Reinforce Guardrails

• Understand potential financial impact of recession on state revenues
• Run projections for the years that ESSER funds go away. If you don’t change operations, what is the financial impact on the organization and each school?
• Build plans for up, base, and down scenarios in enrollment and public funding. We recommend running 3% and 5% down scenarios on public funding for the next fiscal year.
• Identify targeted opportunities to reduce expenses in downside scenarios. If you must cut costs, you want to use a scalpel not a meat cleaver

• Clarify your organization’s most important financial guardrails – loan covenants, liquidity needs, financing goals, and authorizer standards
• Communicate with key stakeholders your approach to ensuring long-term health of organization while navigating today’s opportunities and challenges

Flexibility: Prepare for Uncertainty

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Build

Liquidity

• Increase your cash target (we recommend >90 days) to provide flexibility in times of high uncertainty
• Establish or renew a line of credit
• Ensure you’re claiming ESSER funding ASAP and use at least part of it to build liquidity

Monitor Financial Health

• Develop a financial health dashboard and set a cadence for discussion of strengths and risks on at least a quarterly basis.
• Develop rolling 12-18 month cash flow forecast

Stay

Scrappy

• Limit new ongoing commitments. When possible/reasonable, make strategic one-time investments (contractors, bonuses, etc) to avoid paying for recurring expenses with short-term funds.
• Delay Commitments: Consider staging facilities projects, leveraging short-term financing, renting rather than owning to provide financial flexibility
• Budget Conservatively: We recommend budgeting for 3-5% enrollment shortfall and building in 1-2% expense contingency
• Invest in Developing New Teachers: Building competencies in developing newer teachers provides budget flexibility

About Us

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Introductions: Carrie Stewart (Afton Partners)

30

Carrie Stewart

About Me

Finance & funding policy experts in K12 education and early childhood

Charter school finance experience:

• 70+ charter operator fiscal initiatives
• 30+ states

Our work in the charter school sector:

• Aligns resources to values and priorities
• Creates sustainability options
• Informs facility affordability strategy
• Builds and bolsters finance staff capacity
• Strengthens fiscal governance

• Managing Partner & Co-Founder of Afton Partners
• Charter School Board Member
• FOX Fellowship Coach
• Former Charter School Chief Operating & Financial Officer
• Former Restructuring Consultant
• Mom & Sports Know-It-All

Introductions: Structured Finance (SFin) Team

The Structured Finance Team attempts to alleviate finance, facilities, governance, and risk management challenges for CSGF’s portfolio members to support their continued growth and service of students, families, and local communities

Team Leadership

Alex Silverman Busch

Rich

Billings

Regional Leads

Prabhu

Reddy

Sudhanshu Malani

Dan

Greenberg

Team Support

Libby

Kindregan

Peter

Hayward

Reid

Phillips