Fiscal Shocks, Budgetary Pressures, and Public Education Expenditure Stabilization

Abstract

Fiscal shocks exert budgetary pressures on school districts and constrain their ability to provide public education. An emerging literature examines the role of fiscal reserves to mitigate expenditure cuts in school districts. In the U.S. context, this article provides evidence that Kentucky school districts from school years 2001–2002 to 2013–2014 drained fiscal reserves and cut expenditures in response to revenue decreases. Further, school districts drained fiscal reserves to stabilize non-instructional expenditures, which have fixed costs. Collectively, the findings presented in this article build evidence that school districts strategically respond to budgetary pressures.