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The Bottom Line

    Steering Clear of the Fiscal Cliff

    Since ESSER funds have an expiration date, many districts have chosen to use them for one-time expenses. While ongoing expenses could be supported through ESSER funds for a few years, the bottom will eventually drop out—a phenomenon called the “fiscal cliff.” Learn more about this concept and key considerations for the end of the grant period. 

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    The flexibility that districts have been allowed to exercise over their ESSER funds has allowed them to launch innovative projects to help students recover—socially, emotionally, and academically—from the pandemic, invest in supports for their neediest students, and supplement their educational and enrichment opportunities. However, while districts have a broad set of options on what they can spend ESSER funds on, there are a few issues to consider when deciding what they should spend money on.


    Save the (Expiration) Date for ESSER Funds


    One of the factors that districts are using to determine how to spend their ESSER dollars is the length of the grant period. ESSER I dollars must be fully obligated by September 30 of this year; for ESSER II, the obligation deadline is September 30, 2023, and for ESSER III the obligation deadline is September 30, 2024. Normally, the liquidation deadline comes 180 days after the obligation deadline (the end of the following January for September 30 deadlines). The US Department of Education stated that districts using their ESSER III funds for capital improvement projects can apply for a liquidation deadline extension that would give them up to 18 months rather than 180 days, so that they could have until as late as March 30, 2026 to liquidate ESSER III funds.


    Detour: ESSER Extension


    The USED has issued a statement saying that it will grant liquidation extensions for districts using their ESSER III dollars for facilities projects, like updating HVAC systems. The obligation deadline for these funds is September 30, 2024, and the liquidation deadline is 180 days later, on January 28, 2025. The USED statement says that districts using funds for capital improvement projects can apply for liquidation extensions for up to 18 months after the September 30, 2024 obligation deadline, so that liquidation would need to be complete by March 30, 2026.


    Facilities upgrades are a permitted use for ESSER III (and Governor’s Emergency Education Relief (GEER)) funds, but they take much longer to execute than some of the other potential investments for ESSER funds. (While it is not explicitly clear that facility improvements  are the only purpose for which extensions will be granted, it is heavily implied that this is the intent for these extensions.) According to the School Superintendents’ Association and other groups, continuing disruptions in the supply chain and limited contractor availability have created delays that are making these projects take even longer than usual in many districts. The USED, taking these issues into account, said that SEAs can apply for liquidation extensions up to 18 months. The USED will issue guidance for these applications this summer. A few points of clarification on the ESSER grant period timeline: 

    • The obligation deadline for ESSER III funds is staying the same: September 30, 2024. The original requirement was for districts to liquidate funds within 120 days after the September 30 obligation deadline. Districts approved for the extension will be allowed to take 18 months instead of 120 days to liquidate ESSER III funds.

    • Although districts are spending most ESSER funds, state education agencies (SEAs) will be the ones applying for extensions on behalf of districts, who are considered subgrantees. 

    • SEAs cannot apply for extensions in advance—they must wait until funds expire. This means that they cannot send applications before September 30, 2024.

    • The USED stated that it may approve liquidation extensions longer than 18 months for "extraordinary circumstances.

    • While the USED statement applies to ESSER III funds, the Department will be issuing guidance this summer for SEAs intending to apply for ESSER I liquidation extensions. The ESSER I obligation deadline is at the end of this coming September, and the original liquidation deadline is at the end of January 2023. SEAs will be able to apply to extend the ESSER I liquidation deadline to March 30, 2024.


    Steering Clear of the Fiscal Cliff


    Because ESSER funds have an effective expiration date, many districts are avoiding using them for recurring or ongoing expenses, which they would have to fund out of their regular budgets once the grant period ends. In other words, while these types of expenses could be supported through ESSER funds for a few years, the bottom will eventually drop out—a phenomenon called the “fiscal cliff.” Districts can avoid the fiscal cliff by directing funding toward one-time or temporary expenses such as:

    • Making capital improvements

    • Completing building and system repairs

    • Purchasing instructional materials

    • Shoring up classroom supplies

    • Setting up outdoor learning spaces 


    These investments are strategic ways to use grant funds: they meet important district needs without creating new, ongoing expenses that districts would need to fund out of their regular budgets when the grant period ends. 


    Districts can also put grant funds toward promising or innovative pilot programs that they can choose to build into their regular budgets after ESSER dollars run out. ESSER funds provide an opportunity to pilot new initiatives, and while such programs could create ongoing expenses, districts can be selective about continuing only those programs that provide the most value to students. 


    Prepare for Painful Decisions Ahead


    For districts that were already cash-strapped before the pandemic, it is tempting to use relief funds to plug holes or to delay difficult cuts. Some districts have faced reduced budgets after years of declining enrollment and are putting ESSER dollars toward building maintenance or salaries to avoid closing schools or laying off teachers. Other districts may want to use the money to hire desperately needed teachers or support staff after a year when schools faced such drastic shortages that retired teachers and central office staff were asked to report to schools to cover classes. Many want to find ways to attract teachers and staff to their districts by bolstering salary or benefits packages. 


    ESSER investments like these will culminate in painful decisions once grants run out. Presuming enrollment declines continue in districts that have been losing students, regular budgets will be even lower at the end of the grant period. Closures and cuts may then be inevitable, and districts will have fewer resources for managing such profound and extensive change. New hires whose salaries depend on the continued availability of ESSER dollars will have to be let go or districts will have to mine their budgets for funds to support them. Changes to salaries and benefit packages will lead to similar dilemmas: unless the regular budget can support increases, any salary boosts or additional benefits will have to either be taken away or the district will need to make cuts in other areas to continue funding them. 


    Districts contending with low budgets and staffing shortages may find it necessary to use some ESSER dollars for ongoing expenses. In these cases, planning ahead is key. For example:

    • If declining enrollments will force school closures in the coming years, and ESSER funds are keeping buildings open, use the extra time ESSER funding has bought to prepare the community for the changes to come. 

    • In districts where new hires are paid out of ESSER funds, either plan for how these positions will be funded after the grant period ends or prepare the affected personnel, their colleagues, and their students by being transparent and communicating the funding and timing constraints. 

    • Benefits and salaries may be the trickiest of these conundrums because district budgets usually cannot afford increases. Putting ESSER funds toward this goal is risky because reducing salaries and benefits once the ESSER pot is empty will have a demoralizing effect on teachers and staff. Signing bonuses or rewards for specific achievements do not introduce long-term, structural expenses for district budgets to shoulder once ESSER funds run out, but, similar to additional benefits or salary increases, are ways to show recognition and appreciation for teachers and staff.

    • Districts can also consider what ESSER investments, like technology upgrades, updated textbooks, or new transportation vehicles could help them save money in the coming years. 



    ESSER funds have not only provided much-needed relief to districts that have had to navigate the unprecedented circumstances and unique challenges of the COVID-19 pandemic, they have also given districts opportunities to invest in areas and needs that are often crowded out by other budget priorities and to try new and innovative ways to support their students and teachers. The federal government has, thankfully, given districts wide latitude for how to spend ESSER dollars. But districts should exercise some caution when deciding how to allocate these funds: some choices may provide temporary benefits but will lead to complications and difficulties when the grant period comes to a close. In cases where districts are unable to avoid the types of investments that will introduce such complications, transparency and careful planning are crucial.


    Allovue works with districts and state departments of education across the country to allocate, budget, and manage spending. Allovue's software suite integrates seamlessly with existing accounting systems to make sure every dollar works for every student. Allovue also provides additional services such as chart of accounts and funding formula revisions.