Reconciliation, Rescission, and Revenues
While this is a K-12 state education finance newsletter, questions and concerns about how federal funding shake-ups from the Trump administration will affect schools have dominated state conversations. It’s been a long time since many state advocates and policymakers have had to seriously examine various federal funding programs or consider what might happen if they suddenly went away. Before 2025, the most recent major federal funding shake-ups in K-12 were stimulus bills, not cuts. And even those came with their own difficulties.
Amid a very fluid policy environment, multiple federal funding issues are unfolding quickly, each with potential consequences:
- The fiscal year (FY) 2025 budget reconciliation bill, which passed in early July, doesn’t include direct provisions for pre-K through Grade 12 public education, but does affect children and state budgets via Medicaid and Supplemental Nutrition Assistance Program cuts, and creates a federal tax credit scholarship program for private schools.
- For roughly one month, the Trump administration withheld some $6.9 billion in congressionally appropriated federal funds due to be distributed to states by July 1, 2025. The funds withheld were in line with cuts the administration proposed in its FY26 budget (e.g., funding for English learners and migrant students). After bipartisan pushback and several lawsuits, on July 25, the administration announced funds would be released the following week. Throughout this volatile funding dynamic, rumors of a “rescission” bill to officially eliminate pieces of these currently appropriated funds have abounded. Any funds not fully committed by Sept. 30, money will revert to the U.S. Department of the Treasury.
- As of late June, states with prior approved extensions may spend their remaining COVID relief funds, about $4 billion. The administration had rescinded extensions earlier in the year but changed course after a lawsuit from 16 states and the District of Columbia resulted in a temporary court order allowing spending for just those plaintiff states.
- Proposed FY26 cuts of $12 billion to the U.S. Department of Education included the eliminating of funding for English learner students and migrant students, and consolidation of 18 K-12 funding streams into a smaller “simplified fund.” The Department received approval from the courts to proceed with a roughly 50% reduction in staff, making especially heavy cuts to civil rights enforcement, data, and research functions. The Senate Appropriations Committee made an official response to this budget request in late July, rejecting most proposed cuts. This is still a relatively early step in the budget negotiation process. Congress must pass some version of an FY26 budget or continuing resolution by Oct. 1, 2025, to avoid a government shutdown.
State leaders should immediately work to understand the impact of proposed cuts on districts — especially with some spending for the current fiscal year still in question. Federal funding programs mostly target higher-need schools, districts, and student populations. That’s where cuts will hit hardest. And some state functions and spending formulas rely on federal funding, data, and functions. State leaders should work with their districts on contingency plans to minimize harm to students with greater needs. And if leaders at the local and state levels have concerns about how these cuts will affect educational outcomes and opportunity, there are many ways they can advocate to federal leaders and representatives.
Proactive states that communicate effectively are best positioned to support their students and schools through this period of uncertainty and change. We’re here to talk if you have questions or want to share ideas.
—Jennifer O’Neal Schiess and Bonnie O’Keefe
P.S.: We started this newsletter in February 2025 intending to run monthly through the spring budget season in state legislatures. Thanks to great responses from readers and subscribers, we’ve decided to keep it going on a less frequent schedule through the summer and fall!
The Big Picture: Trends We’re Watching
Special education funding is getting a brighter spotlight as an essential component of school funding adequacy and equity. This year marks the 50th anniversary of the Individuals with Disabilities Education Act (IDEA), the landmark federal bill guaranteeing students access to a free and appropriate public education in the least restrictive environment. The protections and funding linked to IDEA have enabled fairer access to education for generations of students; however, ensuring sufficient funding and consistent processes to live into the law has been a decades-long struggle.
About 7.5 million students ages 3-21 receive services under IDEA, representing roughly 15% of all public school students. The number of students with disabilities has grown in total, and as a share of public education students, especially as total enrollment declines. Research suggests that the increase in identification could relate to more comprehensive screening and support processes. It could also represent a successful reduction in stigma around special education.
Several states are taking a closer look at their funding policies for students with disabilities. Michigan is undergoing a funding review process to look at overhauling its reimbursement-based funding system for special education, and a Blue Ribbon Commission in Rhode Island, one of the few states that doesn’t allocate additional funds for special education, is examining alternatives. Vermont’s recently passed governance and funding reform package includes the creation of a new special education strategic plan. A new Alabama law substantially increases state investment in special education for all eligible students as of the 2025-26 school year, by adding new student-based funding elements to its school finance system.
To learn more, check out Bellwether’s recent resources on funding for special education:
State Spotlights: Notable News From Statehouses
Most state legislatures have adjourned with budgets for FY26 settled. For states actively exploring school finance reform, that means it’s task force season. Many states convene official (legislatively mandated) or unofficial task forces, working groups, advisory committees, legislative commissions, or other stakeholder engagement structures to explore and propose changes in their state school funding formulas. States such as Arkansas, Delaware, Kansas, Missouri, and Nebraska are all digging into education finance at various tables.
Our team has extensive experience supporting and advising these types of groups in several states (e.g., Alabama’s recent Joint Legislative Study Commission) and we’ve observed several factors that contribute to productive and successful task forces:
- Establish clear goals, a scope of inquiry, and agreed-upon guiding principles to make decisions. When everyone comes to the table with a different set of problems and solutions in mind, building consensus can be difficult.
- Include comprehensive and diverse stakeholder perspectives, especially from communities that would be most affected by a proposed reform.
- Build buy-in and participation from the state leaders and decision-makers with the power to change laws and budgets, so participants can have confidence that their recommendations will be heard.
- Engage in and provide access to relevant, detailed data and analysis, so that the conversations can be informed by real numbers and participants can see how various policy choices would influence funding allocation.
Follow the Money: What We’re Reading
- A school- and congressional-district level estimate of federal funds withheld in July, from Zahava Stadler and Jordan Abbott at New America.
