Navigating Funding Trade-offs of Enrollment Decline

Amid ongoing declines in K-12 student enrollment across the country, many school districts had largely managed to keep the same number of schools while increasing budgets and staff. Now, the picture is changing, and the collision course between enrollment trends and school funding is emerging as a nationwide reality. A recent Chalkbeat analysis found that more than half of the country’s 50 largest school districts are forecasting budget cuts heading into the 2026-27 school year (SY), with nearly 30 of those 50 districts citing declining enrollment as a driver.

This phenomenon should come as no surprise — birth rate trends have forecasted enrollment decline for years, which has only accelerated since 2020 with shifts to private and home-schooling, declining immigration, and other economic and demographic shifts. What’s more, states have less capacity to fill the gap in funding created by declining enrollment and expiring federal COVID-19 relief funds. After years of steady upward trajectories in state revenues, in fiscal year (FY) 2026, eight states projected flat or declining funds, 35 states saw minimal or flat growth, and 24 states projected general fund spending declines.

But the fiscal reality of enrollment decline is not easy to address, even if it’s predictable. As our colleague Carrie Hahnel recently told The Advocate in Louisiana, “The challenge for school districts is that their costs don’t decline at the same rate as they lose students.” Lower enrollment typically means less federal and state funding, but a class with fewer students still needs a teacher, a building, a school bus, and a principal. Labor contracts constrain staffing decisions; maintaining under-enrolled buildings can mean fewer services and programs for students; and closing schools carries its own costs and community repercussions. At a recent Bellwether event on school closures, district leaders and researchers discussed the extensive technical, financial, and emotional work that goes into shrinking a school district.

Districts across the country are running out of fiscal room to avoid hard decisions such as school closures and staff reductions:

• In Philadelphia, the district struck a last-minute agreement with the city council to avoid cuts to 340 school-based positions by redirecting $48 million in local funds — a short-term fix with no guarantee in future years. The district is still moving forward with a plan to close 17 schools and modernize 169 others, despite community pushback.
• New York City has spent more than $1.6 billion to hold individual school budgets harmless from enrollment-related cuts, despite losing nearly 10% of student enrollment. This is a striking commitment, but it comes with real trade-offs for other potential uses for those funds.
• Louisiana’s education workforce grew 20% over the past decade even as enrollment fell in nearly every school district. Now, the governor is proposing to cut $170 million in state funding for school districts to pay for teacher stipends — a clash of misaligned funding incentives.

But coping with the fiscal and operational impacts of declining enrollment is not a purely local responsibility. What is the role of states in addressing the fiscal and community impacts of enrollment decline?

When enrollment declines, the most politically expedient funding response may be a hold harmless policy — a guarantee that no one will lose funding. Unless carefully designed, however, these policies can cause real harm. A hold harmless guarantee without an expiration date is very hard to walk back. Over time, these policies can replace funding formulas as the de facto method of state aid — crowding out capacity to invest in current student needs and high-quality instructional programs. Longstanding hold harmless policies also enable local leaders to defer hard conversations about consolidations, staffing, and restructuring until budget deficits become an unavoidable emergency.

The better path is harder, but more honest: temporary hold harmless policies or adjustment mechanisms with predictable phase-out periods, paired with proactive state support and tools to help local leaders make thoughtful decisions about restructuring. States that lean in now to help districts plan, engage with their communities, and weigh trade-offs will be better positioned to support their students in the years to come.

This problem isn’t going away. We’ll have more on declining enrollment this summer, including an update to our enrollment decline in 10 charts analysis.  Sign up for Bellwether’s newsletter to get these updates in your inbox.

—Bonnie O’Keefe and Jennifer O’Neal Schiess

The Big Picture: Trends We’re Watching

K-12 education finance is largely siloed from funding conversations in early childhood education and higher education. K-12 school funding formulas are designed, debated, and funded through entirely different mechanisms than state support for childcare and pre-K or for colleges and universities. The budget processes often unfold in separate legislative tracks, on separate timelines, with different political coalitions, and different state oversight structures.

This hasn’t yet reached the level of a national trend, but given widespread enrollment declines in both K-12 and postsecondary institutions, federal funding instability, and state-level budget pressures, there might be a growing appetite for a more unified, coherent approach to how states invest in educational success across student populations. States that look at each age group or specific funding stream in isolation may make choices that seem rational but aren’t as effective for the education pipeline as a whole. “P-20” coordinating councils were one way states attempted to align goals, investments, and initiatives across the education ecosystem, but they aren’t as prevalent as they once were. A policy brief by Education Strategy Group found that among nearly 40 P-20 entities that existed in 2008, more than half had gone dormant by 2023.

Spotlight on States: Notable News From Statehouses

We’re at the tail end of most states’ budget and legislative sessions, with many state budgets confirmed for the year ahead.

• Maine will adjust its school funding system starting in SY27-28, weighting student poverty more heavily in the allocation of state aid, and changing the metrics for regional cost adjustments. The bill won unanimous support in the state Senate and a strong majority of the state House after an earlier iteration of the bill, which also changed special education funding, was dropped.

A few states noted in past issues of this newsletter are still deliberating substantial school funding formula reforms:

• Delaware’s bills to simplify its current school funding system and add greater emphasis to student-based elements passed the state Senate and are under consideration in the state House, with a June 30 deadline looming.
• Rhode Island’s school funding reform bill stalled, largely due to concerns about its feasibility and potential costs. Legislators instead created a legislative study commission to examine the recommendations of the previous Blue Ribbon commission.
• Michigan lawmakers remain divided over whether to consolidate base funding and the Opportunity Index grants for at-risk and English learner students into a unified, weighted student funding system. A unified approach that sets increases for the next 15 years passed in the state Senate, but the state House only passed a base funding increase. A state budget deficit extended the debate, but a June 23rd broad “budget framework” agreement between the House, Senate, and Governor should mean a decision before the state’s July 1 statutory budget deadline.

On the state revenue side, a few attempts to limit or eliminate property tax via constitutional amendments failed to advance to the November general election ballot: Ohio organizers’ effort to ban property tax did not achieve enough voter signatures, and a Kansas initiative to cap property tax growth failed a legislative threshold. Meanwhile, Florida will put a proposed constitutional amendment to voters to allow for much greater property tax exemptions, and North Carolina voters will have the opportunity to approve caps to both state income tax and property tax.

Follow the Money: What We’re Reading

• Bellwether released a 50-state landscape review examining what’s happening to undocumented students’ right to attend K-12 public schools.
• The National Center for Education Statistics released its annual, congressionally mandated Report on the Condition of Education 2026, which is less comprehensive than in past years due to recent federal layoffs. However, the report highlights trends in enrollment, expenditures, and revenue from the most recent federal data, and spans the education continuum from early childhood to postsecondary.
• Urban Institute released a new resource on the costs of district secessions.