Across the country, school districts—particularly large, urban districts—are reporting drops in enrollment, as families opt for alternatives like homeschooling, choose to delay the start of kindergarten, or struggle to access or navigate virtual learning. These enrollment declines have raised important concerns about how and whether the students missing from school rolls are learning, but they could also have implications for school funding.

Most of the money for K–12 education comes from state and local sources. Though local funding is based primarily on property taxes, state funding is typically allocated through a formula that considers, among other factors, the number of students enrolled in each district (and the education needs of those students). States often use a district’s prior-year enrollment to allocate funding, which means allocations for the 2021–22 school year, when enrollment patterns might be closer to a typical year, will be based on the numbers districts record this fall.

The consequences of declining enrollment for district funding levels will depend on which students are not in class. It’s possible, for example, that low-income students who have left school to work or care for a younger sibling, don’t have access to the technology needed to enroll in and attend virtual school or that their families fear the health effects (PDF) of attending school in person. It’s also possible that some higher-income students are not enrolled this year because their families are opting for homeschooling, “learning pods,” or private school. What’s not clear yet is whether the majority of unenrolled students are low-income or high-income and how this varies by district.

Whether unenrolled students are low or high income matters for two reasons. First, larger enrollment or attendance declines in high-poverty districts means that aggregate funding could decline more for these districts. Second, many states allocate additional funding per student to districts based on district shares of low-income students. If mostly low-income students have not enrolled, the poverty rates in those districts may be artificially low, and districts could receive less per student funding. Should unenrolled students return for the 2021–22 school year, districts could find they lack the resources to adequately serve their populations of students. This pattern could exacerbate inequities between low-income and high-income districts and thwart states’ attempts to make school funding progressive.

If higher-income students are more likely to disenroll this year, the effect may be more muddled. Higher-income districts will have lower fall 2020 enrollment but might also appear to have higher poverty rates.

For some states, such as California, New York, and Texas, district funding allocations will be even more complex because these states rely on a measure of average daily attendance in their formulas. Attendance has become difficult to accurately and equitably measure, as students return to school virtually or in hybrid models. If states that rely on attendance measures for funding don’t adjust their metrics, they’re likely to undercount students—particularly low-income students and students of color, who are less likely to have access to computers and stable or consistent internet and who are more likely to face barriers to virtual learning.

All this comes at a time when state budgets are tightening and broad cuts to K–12 education funding are on the table. In a previous post, we suggested that states looking to maintain funding progressivity consider targeted budget changes that prioritize high-poverty districts. But as enrollment and attendance fluctuate, accurately targeting those cuts may prove difficult.

State policymakers will need to consider different ways of assessing enrollment and attendance levels this year to equitably distribute school funding next year. In upcoming research, we will model how different potential policies could mitigate the effects of temporary changes in enrollment, attendance, and poverty rates. To help close the gaps the pandemic has exacerbated, it will be critical that policymakers have the tools to equitably distribute funding.