K-12 Public Education Sector Update

Public education is a mainstay of local governments, representing a core service, and one of the largest economic drivers, in their communities. The sector represents a majority of spending at both the state and local level, which is why it continues to be a highlight of legislative action and economic trends.  

The last few years have challenged public schools in many ways, including post-pandemic learning loss, funding pressures from state and local entities, new federal policy initiatives, and local governance scrutiny. The year ahead is proving to be yet another tumultuous season in the business of educating the American public and will require continued resilience on the part of K-12 school districts.  

Credit rating agencies analyzing the sector continue to be wary of several factors, including school choice expansion and related funding challenges, inconsistent referenda support among taxpayers, post-pandemic learning loss, local board management, and uncertainty around federal education policy. While public education has historically proved to be a sector of stable credit quality, these pressures are poised to create concern among investors, further pressuring schools’ financial condition.  

Questions remain about President Donald Trump’s administration’s desire to eliminate the federal Department of Education and its grants and programs. Legal challenges to the elimination of the department are moving forward in the judicial system with early success, but the unknown long-term outcome still creates uncertainty and vulnerability to k-12 funding. How would state and local entities cover the shortfalls? Consideration may be given to the elimination of programming or the increase of other revenue sources, if possible. Local school boards will be tasked with evaluating these issues, furthering scrutiny of board governance.

State legislatures continue to explore the expansion of school voucher programs and charter schools. According to the Pew Research Center, enrollment in charter schools grew from about 2.1 million students to 3.7 million in the 10 years between 2011 and 2021. The Brookings Institution notes that "in 2023 alone, seven states passed new school voucher programs and nine expanded existing plans." While public education continues to provide service for the vast majority of K-12 students, this trend will add pressure to local school funding, both on a per-pupil basis and from a capital constraint perspective.

As federal and state initiatives drive changes to the K-12 education sector, local board leadership will be critical in shaping policy and financial directives for districts to maintain stability and positive outcomes for students. Elections of local leaders have intensified since the pandemic and have been subject to reform measures in many states across the country. Grassroots campaigning has come to include more spending and divisiveness along political lines. While most states currently call for nonpartisan local board elections, some are seeking to change that dynamic.

All told, the year ahead will continue to present headwinds for the K-12 public education sector as federal, state and local policy evolves. Schools should continue to engage their legal and financial partners to help plan, evaluate and inform sound decision making at the local level.

Schools have overcome obstacles before. Despite these current challenges, districts all over the country continue to rise to the occasion, providing our young learners an opportunity to grow and develop into productive and successful global citizens.  

Katie Aeschliman, MBA, is a Director at BMO Commercial Bank’s Institutional Markets Team in Indianapolis. In addition to her role at the bank, Katie has served for over four years as a board member and is currently president of the Zionsville (Indiana) Community Schools’ Board of Trustees.