The Leading Indicator: State Education Finance Issue Eleven

“When Fuel Prices Spike, School Districts Get the Bill Summer break can’t come soon enough for districts managing a new budgetary hit. Diesel prices are spiking again, and school districts are among those feeling the squeeze. The national average price for on-highway diesel fuel stood at $5.64 per gallon as of the week of May 11 — up from $3.48 per gallon earlier this year on Jan. 5 — an increase of roughly 62% in four months. This second major diesel shock in four years arrives amid tightening state budgets and declining K-12 enrollment in many communities. These compounding pressures leave districts with fewer reserves and fewer options to respond to spiking costs than they had just a few years ago, illustrating the importance of longer-term capital infrastructure planning and responsive state finance systems. The immediate driver is geopolitical: The Iran war has tightened global oil markets, and the Strait of Hormuz remains a source of supply uncertainty. When oil prices surge, diesel prices tend to rise more steeply than gas most drivers see at the regular pump because of the way diesel is refined. Skyrocketing fuel prices have widespread effects across the economy as fuel costs drive inflation generally and more direct, acute effects for districts that still rely on diesel school buses. The vast majority of yellow school buses still run on diesel, although there have been concerted efforts from several states and the Environmental Protection Agency under past administrations to encourage a switch to electric buses or other more fuel-efficient alternatives. And fuel costs account for a substantial portion — in some estimates, more than two-thirds — of a school bus fleet’s annual operating expenses. As a result, diesel price spikes hit school district transportation budgets hard. A survey of Georgia district leaders conducted by the Georgia Budget and Policy Institute found that transportation fuel and utilities ranked as the most significant inflation-related concern among respondents, above employee healthcare benefits and salaries. Examples from rural and urban areas across the country underscore the challenge: California (Poway Unified School District) : Diesel rose from $3.50 to $6.50 per gallon — a nearly 86% increase — within the 2025-26 school year (SY), requiring the predominantly suburban district to find nearly $500,000 to cover the additional diesel fuel costs and finish the year . Colorado (Denver Public Schools) : Citing a 44% increase in diesel prices , the urban district incurred roughly $375,000* in increased, unanticipated fuel costs beyond its typical annual school bus fuel spending of about $1.2 million. *Author’s calculation. Wisconsin ( Gilman School District ) : This small, rural district serving 300 students across four counties faces more than $33,000 in additional fuel costs this school year. Rural districts already often face outsized transportation costs due to the need to transport fewer students over larger geographic areas, which increases fuel consumption and vehicle wear and tear relative to urban and suburban districts. In Bellwether’s decade of work on school transportation and our Splitting the Bill series , we explore how transportation funding plays a key role in K-12 finance. Even before this spike in fuel prices, school transportation had been a point of budgetary tension for many districts in recent years, with rising costs of fuel and equipment, a competitive labor market for skilled drivers, and additional route complexity with expanding school choice . Transportation costs for public school students rose 33% between 2008 and 2018 , reaching an average of $1,152 per student transported. What’s more, concurrent with the last major diesel spike in 2022 related to Russia’s invasion of Ukraine, student transportation expenditures jumped 14.5% in a single year . The problem isn’t simply states underinvesting in transportation. Too many states use outdated funding mechanisms that make getting students to school an afterthought, push risk onto local districts when fuel costs spike, and don’t do enough to encourage school bus fleet upgrades that would reduce exposure to diesel, both in budgets and in students’ lungs. Some states design their policies to account for this. Fuel price adjustment factors, reserve funds, and periodic formula resets tied to market indices all exist in various state approaches. And states such as California , Maryland , New York , and Washington have all introduced dedicated programs to support a switch to non-diesel, fuel-efficient school buses – New York even has a mandate to go all electric within the next 10 years . But these states are the exception rather than the rule. —Bonnie O’Keefe and Jennifer O’Neal Schiess Declining enrollment and budget pressures are forcing districts across the country to grapple with the difficult decision to close or consolidate schools. Join Bellwether’s upcoming LinkedIn Live on May 28 at 12 p.m. ET for a conversation with district leaders, practitioners, and researchers who’ve been directly involved with closure efforts. State Education Finance Newsletter Sign Up The Big Picture: Trends We’re Watching A new publication from the National Association of State Budget Officers (NASBO), “ Summaries of Fiscal Year 2027 Proposed Budgets ,” tracks spending trends and fiscal priorities captured in proposed budgets from 41 governors across the country. The report finds evidence of widespread fiscal belt-tightening, including slowing revenue growth and spending plateaus. It also contains detailed profiles on proposed state budgets and key fiscal indicators. Some of the education-specific trends we’re watching in this valuable dataset include: Sustained or increased education spending, with caveats : Thirty-one governors have proposed flat (5) or increasing (26) K-12 education budgets. In addition to a few states considering formula increases and teacher raises (referenced in 11 proposals), many are proposing increases through targeted, program-specific approaches. The more common initiatives (proposed by eight or more states) include sustaining or expanding private school choice through education savings accounts (ESAs) or vouchers, literacy instruction, and/or school mental and behavioral health. In related news, fiscal year (FY) 2024 federal data shows that K-12 public education revenue passed the $1 trillion milestone for the first time. Early Childhood investments: Governors in at least ten states are proposing investment in early childhood education, including expansion of pre-K programs for 3- and 4-year-olds and other supports for child care access and quality. Revenue cuts and education investments on a collision course : Eight states’ proposals reflect further phase-in or additional reductions to personal income tax of various shapes and sizes. Ten are looking at property tax reform. That has more states relying on sales tax, which is especially vulnerable to economic downturns. Several budget proposals note the revenue impacts of conforming to provisions in the federal One Big Beautiful Bill Act . We highlighted tax cuts as a limiting factor in state and local revenue for schools last fall, and this trend continues to accelerate in response to rising inflation and cost-of-living concerns. It’s not raining (yet) in most of the country : As state leaders see this tightening environment, more are investing in their rainy day funds rather than dipping into them. Rainy day fund balances remained near record highs at the end of FY26, with the median fund balance at 14.4%. Among the few states referencing withdrawals from rainy-day funds in their proposals, Alaska, Pennsylvania, and Washington stand out for proposing to draw down substantial amounts of their reserve funds to address budgetary shortfalls. In a recent Bellwether LinkedIn Live conversation about state education finance, NASBO’s Kathryn Vesey White discussed how states often use their rainy day funds as a temporary stabilization tool or one-time supplement during a fiscal downturn or crisis. But these funds can’t solve ongoing, structural budget gaps. State Spotlights: Notable News From Statehouses Delaware : After several years of work, a school funding reform bill is moving in the State Senate. SB302 would implement Delaware’s Public Education Funding Commission proposal to consolidate current funding streams and increase allocations based on student needs in SY27-28, then plan to introduce new equalization measures and other weights in SY28-29. However, the unclear longer-term cost of these changes and the transition timeline remain points of debate in initial hearings . Michigan : A version of the education budget that passed the State Senate aims to increase the weight of Michigan’s Opportunity Index, which supports economically disadvantaged students and English learner students, over the next 15 years . A competing proposal in the State House keeps the weights as-is. However, neither proposal addresses the recommendations of a recent report along with the governor’s budget, which would shift special education funding to a weighted, student-based system. Rhode Island : Parallel bills in the State House and State Senate would revise Rhode Island’s funding formula, largely in line with the recommendations of a recent Blue Ribbon Commission convened by the Rhode Island Foundation. The bills would increase base funding and student-focused elements of funding, including weights for economically disadvantaged students and tiered weights for multilingual students and students with disabilities, and revise the state’s approach to local revenue share. Mississippi : The state passed a budget that will increase K-12 public education spending by about $120 million, predominantly in the form of teacher and paraprofessional pay raises. These raises will be allocated to school districts via an increase in the state’s base funding per-pupil amount. Lawmakers also debated, but ultimately did not pass , a large expansion of the state’s ESA program, which is currently restricted to students receiving special education services. West Virginia : The state’s funding formula remains largely unchanged , as a proposal to fully revise the funding system passed the State House but failed in the State Senate. HB 5453 would have replaced the current formula with a per-pupil block grant, plus added funding for certain students with disabilities. The House proposal does not align with the findings of a recent state-commissioned study , which recommended a weighted student funding formula. For more on state-based education finance reform efforts, watch an ongoing webinar series about implementation of the Renewing Alabama’s Investment in Student Excellence (RAISE) Act, presented by Bellwether and A+ Education Partnership. Register for the upcoming events on May 26 and June 2 . Follow the Money: What We’re Reading, Watching, and Listening To Learn more about how Bellwether engages with school leaders and education intermediaries on strategic financial planning at the local level. Watch a new webinar series about implementation of the Renewing Alabama’s Investment in Student Excellence (RAISE) Act, presented by Bellwether and A+ Education Partnership. NCES released new preliminary state and district fiscal data for SY23-24. EdFund’s new Learning Hub includes accessible resources, audio, and video explainers of key issues in school funding. The Urban Institute released a new analysis of Medicaid’s role in K-12 school funding. The Rockefeller Institute of Government has a new study examining disparities in local revenue, tax effort, and wealth among school districts in New York State. The post The Leading Indicator: State Education Finance Issue Eleven appeared first on Bellwether .

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