September 2026: AESA State Examiner

At the recent AESA Advocacy in Action State Advocacy Pre-Conference, representatives from the National Association of State Budget Officers (NASBO) and the Education Commission of the States (ECS) described a changing fiscal and policy landscape for K–12 education. States are managing slower revenue growth, competing budget demands, enrollment shifts, and rising service costs while also considering changes to funding formulas, targeted student supports, and school-choice programs. This article examines how those pressures are reshaping the next school-finance debate—and how districts and educational service agencies can use local data this fall to prepare for the next legislative and budget cycle.

Public education is entering a fiscal reset. School budgets are tight in many places, but the larger issue is structural. Student counts are falling or shifting. Attendance is less stable than before the pandemic. Costs for compensation, special education, transportation, utilities, and contracted services continue to climb. Temporary federal support has largely expired. At the same time, states face slower revenue growth and new demands on their budgets.

For districts and educational service agencies (ESAs), the question is not whether every community faces the same problem. They do not. The question is whether current finance systems recognize the changing cost of serving students. That is likely to be one of the central education debates of the 2027 legislative cycle.

A broad finance reform agenda

School finance is not a narrow policy issue. ECS tracks state legislation in funding formulas, targeted funding for specific student groups, school-choice funding, adequacy and core cost, district finance, state budgets and expenditures, taxes and revenues, facilities, and resource efficiency. Its public tracker does not provide a single real-time national total for every 2026 finance bill, but its earlier review identified 39 enacted K–12 funding-formula bills in 2023 and 22 more through late 2024. The volume and range of state activity show that formula design is under review in many parts of the country.

The National Conference of State Legislatures (NCSL) also maintains a 50-state pre-K–12 legislation database that tracks finance among more than 50 policy issues. Together, these resources show that school-finance debates now reach beyond a base per-pupil amount. They include special education, transportation, student weights, property tax capacity, enrollment protections, school choice, literacy, staffing, mental health, and early childhood investments.

A structural mismatch is emerging

Most states allocate a large share of school funding through a per-pupil formula. Enrollment remains a reasonable starting point: it measures the students a district serves. But enrollment-based revenue can fall faster than a district can reduce its fixed costs. A district cannot quickly eliminate a bus route, close a building, reduce debt service, or stop providing services required by an individualized education program (IEP) because a small number of students leave. This is a reality that state policymakers must keep in mind.

The national pattern is clear but uneven. Public-school enrollment fell from nearly 50.8 million students in 2019 to almost 49.4 million in 2024, and 40 states recorded declines over that period. In rural and small districts, fixed costs are spread across fewer students, and local revenue options may be limited.

Attendance adds another layer. In states that use average daily attendance (ADA) or a similar count, a student can be enrolled but generate less formula aid when attendance drops. Chronic absenteeism is first an academic and student-support concern. But it can also become a fiscal concern when funding counts do not reflect the cost of keeping staff, routes, classrooms, and support systems in place for enrolled students.

Costs are not adjusting downward

The cost side of the ledger has not become easier. District leaders report pressure from compensation, health benefits, utilities, insurance, facilities, food, transportation, and purchased services. A 2026 RAND survey found that declining enrollment was a growing concern, especially for rural leaders. Superintendents also cited inflation in transportation, facilities, utilities, and other daily operating costs. These cost pressures may provide an opportunity for conversations around targeted relief, paying for results and greater use of shared services and related back office operational efficiencies.

Special education is central to this debate. District obligations do not fall simply because overall enrollment declines. Needs may become more intensive, while shortages in related-service providers, specialized transportation, out-of-district placements, and state/federal compliance demands raise costs. ESAs often help through shared specialists, regional programs, coordinated recruitment, professional learning, and cooperative purchasing. These strategies reduce duplication, but they do not remove the underlying cost of serving students.

Transportation has the same challenge. Fewer students do not always mean fewer miles, fewer routes, fewer drivers, or fewer buses.

A tighter state budget context

State budgets are not in crisis, but they are becoming more constrained. NASBO’s Spring 2026 Fiscal Survey projected 2.5 percent general-fund revenue growth in FY 2027. The same survey showed governors increasingly relying on targeted reductions, hiring freezes, vacant-position eliminations, transfers, prior-year balances, and rainy-day funds to manage pressure.

State reserves remain well above historical norms, but they are not a recurring revenue source. NASBO reports that states are spending down prior balances as spending exceeds revenue in some budgets. That distinction matters: reserves can help manage a transition or absorb a one-time shock, but they cannot permanently finance recurring salaries, special education services, or formula obligations without a sustainable revenue plan.

K–12 education remains one of the largest state commitments. NASBO estimates that it represented 18.2 percent of total state expenditures and 33.9 percent of general-fund expenditures in FY 2025. State K–12 spending grew from $409 billion in FY 2019 to $586 billion in FY 2025, while the federal share declined from its pandemic-era peak.

NASBO reports that states continue to prioritize per-pupil funding, compensation, literacy, math, tutoring, special education, mental health, safety, early childhood, and family-affordability measures. Yet, K–12 competes with Medicaid, transportation, corrections, disaster response, housing, and the fiscal effects of federal policy changes. This is why districts should make the case for targeted, practical finance reforms rather than assume that general state revenue growth will solve local structural problems.

What states are doing

Colorado — enacted formula transition and enrollment smoothing.
Colorado’s SB 26-023 revises finance calculations during the transition to the state’s new formula. The state’s FY 2026–27 materials describe a smoothing calculation that uses the greater of current enrollment, 97 percent of prior-year enrollment, or a weighted three-year count, along with a transition hold-harmless provision. Colorado also continues dedicated special education and transportation support.

Pennsylvania — enacted adequacy and special education investment.
Pennsylvania’s enacted 2026–27 budget included more than $623 million in added K–12 support: $565 million through targeted adequacy investment, $58 million in Basic Education Funding Formula support, and $55 million more for special education.

Utah — enacted formula value and local-tax protections.
Utah’s 2026 legislative summary reports a 4.2 percent increase in the Weighted Pupil Unit and a 4.0 percent increase in the Minimum School Program. It also extended a hold-harmless period related to a reduction in a district’s certified tax rate and enacted special education amendments.

Nevada — temporary enrollment protection.
Nevada used emergency action in September to avoid abrupt midyear aid reductions after unexpectedly sharp enrollment losses. The action temporarily retained legislative enrollment projections for monthly payments and preserved more than $13 million in relief for affected schools.

Idaho — enacted high-cost special education support.
Idaho’s SB 1288 creates the Idaho High-Needs Student Fund to reimburse districts for qualifying special education costs above $30,000 per student. ECS highlighted the measure as an example of targeted funding for students with high needs.

Missouri and Wisconsin — developing 2027 finance debates.
Missouri’s School Funding Modernization Task Force must report recommendations by December 1, 2026, while the state debates whether to fully fund the existing formula. In Wisconsin, state leaders are calling for a formula overhaul and higher state reimbursement for special education. Both examples show that the next wave of finance debates will center on adequacy, student need, and the limits of formulas built for an earlier enrollment and cost structure.

What districts and ESAs should do this fall

Fall is the time to move from a general concern to usable evidence. Budgets are adopted, enrollment and attendance patterns are becoming clearer, and governors’ offices are beginning to build the next budget. Districts and ESAs should identify structural pressures before legislative positions harden.

• Build a three-year fiscal picture. Track enrollment, attendance, student needs, staffing, compensation, special education, transportation, utilities, and local revenue together. Show what is changing, what is fixed, and what is likely to continue. Many states requiring fiscal forecasts; leverage this requirement to tell the story to policy makers and the public.
• Separate one-time from recurring costs. Identify which temporary supports ended, which supports remain valuable but unfunded, and which costs are now embedded in the operating budget. This is also time to calculate any recent state required mandates that may not have come with new funding.
• Model formula choices. Calculate the local effect of current-year counts, prior-year counts, attendance-based counts, multi-year averages, weights, and hold-harmless provisions. Explain the service consequence, not only the revenue effect.
• Document regional solutions. ESAs should quantify the value of shared services: specialists provided, vacancies filled, districts participating, miles or costs avoided, purchasing savings, and services a single district could not sustain.
• Make a targeted state ask. The most credible requests define the problem and the response: revise a weight, improve a reimbursement rate, provide a limited transition, change a count rule, protect a high-cost service, or invest in regional service capacity.
• Use the evidence early. Share concise district and regional data with legislators, legislative staff, state education officials, budget staff, and community leaders before an executive budget is introduced. The goal is to shape assumptions, not merely react to final numbers.

Focus on capacity building

The school-finance debate should not be reduced to a choice between protecting every historical funding level and cutting aid the moment enrollment falls. Both choices overlook the practical work of educating students. A sound system should recognize changing enrollment, direct resources toward student need, provide time to adjust, and avoid rewarding inefficiency indefinitely. It should also recognize the real costs facing small, rural, and geographically dispersed districts.

For ESAs, this fiscal reset is an opportunity to show how regional service delivery can protect access, build capacity, and improve efficiency. The work starts now: measure the pressure, explain the local impact, identify the regional response, and carry that evidence into the next state budget and legislative cycle.

Resources

The following sources and links are available for readers seeking additional detail:

• Education Commission of the States, State Education Policy Tracking. https://www.ecs.org/colorado-and-mississippi-make-big-moves-in-k-12-finance-reform/
• National Conference of State Legislatures, Pre-K–12 Education Legislation Database. https://www.ncsl.org/education/pre-k-12-education-legislation-database
• RAND, “Shrinking Budgets, Fewer Students: How District Leaders Are Navigating Financial Challenges” (July 2026). https://www.rand.org/pubs/research_reports/RRA4737-4.html
• National Association of State Budget Officers, Spring 2026 Fiscal Survey of States and State Expenditure Report. https://www.nasbo.org/reports-data/fiscal-survey-of-states | https://www.nasbo.org/reports-data