The School Budget Crisis Engulfing America: Federal Dismantling, State Deficits, and 50 Million Students Caught in the Middle

Something is breaking inside American public education right now — and it is happening at every level of the system simultaneously. At the federal level, the Department of Education has been halved in staff, reorganized, and stripped of its ability to efficiently oversee billions in grants. At the state level, budget crunches driven by expiring COVID-era funding, declining enrollment, and inflation are forcing districts from California to Maryland to New Hampshire to cut teachers, aides, counselors, and programs. In the nation's largest school district by budget, Chicago, a $732 million deficit is compelling cuts to the very interventionist positions that were added after the pandemic to help students recover academically. And in Washington, Democrats on the Senate Appropriations Committee fired off a letter just three days ago — on May 16 — accusing the Department of Education of creating "chaos" in schools by withholding funding information that districts need to plan their budgets.

America's schools are trending for the most alarming reason imaginable: they are running out of money, and the institutions that are supposed to help them are in the middle of their own structural crisis. This is the full story.

The Federal Foundation Cracks: Dismantling the Department of Education

The most structurally significant development in American school funding in a generation has been playing out at the U.S. Department of Education since March 2025, when the department sent layoff notices to 1,400 of its roughly 4,000 employees — cutting its workforce nearly in half, from approximately 4,000 to 2,000 employees. The downsizing was carried out through a combination of DOGE-directed strategies: layoffs, voluntary buyouts, deferred resignations, and early retirement offers. By the end of 2025, the department's workforce had been reduced by approximately 50%.

The Trump administration framed this as a necessary and overdue efficiency exercise. Education Secretary Linda McMahon described the restructuring as breaking up the "federal education bureaucracy" to improve efficiency. And there is a credible argument that a department which does not run schools, write curricula, or employ teachers did not need 4,000 employees to manage money, write regulations, and monitor rules. The department's 2025 operational performance — including fixing the long-troubled FAFSA free student aid application and getting Impact Aid funds to school districts — was, by most accounts, functionally adequate.

But the deeper consequence of the restructuring is not about headcount. It is about the fragmentation of a system that thousands of school districts depend on for consistent, expert-led administration of over $50 billion in annual federal grants. The Trump administration has begun moving the department's programs to other federal agencies — most significantly to the Department of Labor, which will oversee major K-12 formula grant programs including those that fund schools serving low-income communities. Critics, including Senate Democrats, describe this migration as swapping a highly efficient single-agency system for a chaotic, underfunded system spread across agencies with no institutional knowledge or capacity to handle the work. "These changes swap a highly efficient system for a chaotic, underfunded one spread across multiple agencies," said Randi Gittleman, a former Education Department employee who was among those laid off, in a statement on the one-year anniversary of the mass layoffs in March 2026.

On May 16, 2026 — just three days ago — Democratic leaders on the three congressional appropriations committees sent a formal letter to Secretary McMahon chiding the department for what they described as delays in providing states and school districts with information about expected formula funding for the coming year. "We implore the Department to reverse course, stop creating chaos, provide states and school districts with information about the resources Congress provided in the 2025 appropriations law and begin to support states and their school districts in the effective implementation of federal law," the letter read.

The Big Beautiful Bill and What Congress Actually Passed

The legislative backdrop to the school funding story is a critical counterweight to the most alarming narratives. Despite the Trump administration's proposed FY2026 budget calling for a $12 billion, or 15.3%, cut to the Department of Education — and the House Appropriations Committee separately proposing a 27% cut to Title I, the foundational grant program for disadvantaged students — Congress has not enacted those cuts.

In February 2026, Congress passed a budget bill that maintained K-12 education funding for FY2026 at essentially the same levels as FY2025. Title I — which directs funding to districts based on their proportion of low-income students — was $18.4 billion under Biden in FY2024 and remains $18.4 billion in FY2026. The special education budget was $15.5 billion in FY2024 and is $15.5 billion in FY2026. The Office for Civil Rights, which the White House budget had targeted for deep cuts, was level-funded at $140 million. The school lunch program, which the Trump administration proposed funding at $17.2 billion for FY2026, is actually higher than the $16.6 billion Biden-era level.

The Trump administration has now submitted its FY2027 budget proposal — and for the second year in a row, it has proposed major K-12 cuts that would reshape the federal role in education. For the second year in a row, the Republican-led Congress has the same fundamental question to answer: how much of the administration's vision for a smaller federal education role will it actually accept? Given the razor-thin GOP House majority and a difficult November 2026 midterm environment, most analysts believe Congress will again reject the deepest cuts, as it did in FY2026.

There is, however, one major exception to the funding stability picture. The so-called "Big Beautiful Bill" — the large tax and spending reconciliation package — has made cuts to IDEA services that support disabled students, in addition to proposing the combination and block-granting of IDEA funding with other grants in ways that reduce accountability. The Center for American Progress warned this month that these changes, combined with the layoffs at the Office of Special Education and Rehabilitative Services, are making it materially harder for disabled students to access the free appropriate public education they are legally guaranteed.

The English Learner Program: A Targeted Elimination

One specific elimination has drawn sustained and sharp criticism even from those who broadly accept the argument for federal education efficiency. The Trump administration has, for the second consecutive year, proposed eliminating the $890 million Title III program that funds supplemental services for English language learners — students who are learning English as a non-native language, representing one of the most educationally vulnerable populations in American schools.

Schools use Title III funds for dual-language programs, specialized instruction, and support services for students who would otherwise be navigating English-language classrooms without adequate support. Eliminating the program would remove a dedicated funding stream that no state formula currently replicates. Advocates for English learner education argue this is not a bureaucratic efficiency — it is a direct withdrawal of resources from children who have no other available source of equivalent support. Congress rejected this elimination in FY2026. Whether it does so again in FY2027 is one of the most consequential education funding questions of the year.

Chicago: A $732 Million Hole and the Post-COVID Reckoning

Everything that has gone wrong nationally with school budgets is playing out in acute, concentrated form in Chicago. Chicago Public Schools, the nation's third-largest district with approximately 320,000 students, is confronting a budget deficit of $732.5 million for the 2026-27 school year — a number so large that even aggressive cuts to central office operations cannot come close to closing it.

The structural explanation for the deficit is instructive. Between 2019 and 2024, CPS added nearly 10,000 staff positions — the vast majority of them school-based, funded by the massive infusion of federal COVID Emergency Relief Funds (ESSER) that was Congress's historic investment in keeping schools functioning through the pandemic. Over that same period, enrollment dropped by 45,000 students — a decline driven by falling birth rates, immigration losses, and families choosing charter schools or private options. When federal COVID relief funding expired in late 2024, the district was left with a significantly larger workforce serving a significantly smaller student population, with no new revenue source to fill the gap.

CPS CEO Macquline King has said the district will cap teacher losses at four for elementary schools and six for high schools, and has pledged not to increase class sizes. But positions that are particularly vulnerable include interventionists — specialists who work with struggling students one-on-one or in small groups — and academic coaches, both of which were added with COVID relief money to power post-pandemic academic recovery. Nelson Gerew of the Chicago Public Education Fund, which has closely tracked the crisis, estimates that even after cutting central office costs aggressively, more than $200 million in reductions still needs to come from school budgets. "The anxiety doubles when you have to wait so long," said one Chicago elementary school principal, speaking anonymously about the late May release of campus budgets. The school year ends in early June. Teachers being told they may not have jobs next year are being told weeks before summer.

Montgomery County, Maryland: The $150 Million Deficit and the Property Tax Standoff

In the affluent suburbs of Washington, D.C. — a community that prides itself on its schools and where education funding has historically been a source of local identity — Montgomery County Public Schools is confronting a $150 million budget shortfall that has triggered an unusually public and politically charged confrontation between the school district, the county executive, and the county council.

MCPS Superintendent Thomas W. Taylor went public with the deficit on May 13, publishing a video to YouTube in which he told parents and staff bluntly: "Our financial situation is bad." Employees across the district received emails informing them that their positions might be subject to potential reduction in force. Taylor sent the county council a detailed list of reduction options — and said every option on that list eliminated staff and services for children.

The proposed solution from County Executive Marc Elrich — a 6.3% property tax hike — has been rejected by the county council. An alternative plan to eliminate a $692 property tax credit for homeowners is under debate. Council members have raised concerns about using one-time reserves, noting that dipping into the Other Post-Employment Benefits trust fund a second year in a row will only make the following year's gap larger. The county council is scheduled to finalize its budget and vote on May 21 — two days from now. Councilmember Kristen Mink said plainly: "I have not seen a proposal that gets us to a place where the level of cuts to MCPS are anything but still truly devastating."

MCPS is the single largest component of Montgomery County's entire operating budget, consuming approximately 48 cents of every county budget dollar. That scale means school budget cuts in Montgomery County ripple directly into county employment, household income, and the local economy in ways that school board debates rarely make visible.

California: 74,961 Fewer Students and Hundreds of Layoffs Across the State

California, the nation's largest state school system with 5.7 million K-12 public school students, released enrollment data in April 2026 showing the largest single-year decline since the 2021-22 school year — a drop of 74,961 students, or 1.3%, from the prior year. The causes are structural and overlapping: declining birth rates, immigration losses driven partly by federal immigration enforcement, and competition from private and charter schools.

The fiscal consequences are direct and immediate. In California, school funding is tied to enrollment through the Local Control Funding Formula — fewer students means fewer dollars, but the fixed costs of operating a school building, paying administrators, and maintaining facilities do not fall proportionally. Sacramento City Unified, the county's largest district and one of the worst-affected by the enrollment decline, is preparing to eliminate more than 400 positions amid a projected $113 million budget deficit. Los Angeles Unified earlier this year issued 3,200 layoff notices, which officials say will ultimately result in approximately 650 actual job losses after transfers, retirements, and restructurings are accounted for. Sacramento County overall lost 9,744 students — a 3.8% decline — with the largest losses concentrated in Twin Rivers Unified. Sonoma County's Windsor Unified issued layoff notices that drew headlines, though district officials clarified most were structural rather than permanent workforce eliminations.

"That translates directly into budget deficits, staff layoffs, program cuts, and in some cases, school closures," said Kindra Britt, communications director for the California County Superintendents. The immigration dimension is particularly sensitive. The Census Bureau's data shows immigration to California dropped from 312,761 to 109,278 between 2024 and 2025 — a 65% decline in a single year driven by federal immigration enforcement. Hispanic students, who make up 56% of California's student population, recorded the largest total enrollment decline: 48,064 students. School officials describe this as a direct consequence of families either leaving the state, withdrawing children from school out of fear, or reducing engagement with public institutions.

The National Picture: A Perfect Storm

Beyond Chicago, Montgomery County, and California, a pattern of school budget distress is visible in communities across the country. In Sacramento, Manchester, New Hampshire is warning that budget constraints could force 40 to 100 teacher and staff layoffs, larger class sizes, and reduced programs — blaming a combination of local tax caps and insufficient state funding. In New Jersey, Jefferson Township Public Schools faces a multi-million-dollar budget gap, community protests, and warnings that cuts to staff, athletics, and extracurriculars may follow unless the state provides additional aid. District leaders there say years of declining state support tied to the Highlands Act have left schools with few remaining options.

Kevin Thompson, CEO of 9i Capital Group, identified the macro pattern for Newsweek with unusual clarity: "The drivers are pretty clear: state budget constraints, enrollment declines, and increased oversight on performance. But zoom out, and there's a bigger shift happening. You're seeing more state intervention in curriculum, teacher certification, and even full takeovers of underperforming schools. At the same time, voucher programs are pulling dollars out of the public system. That creates a ripple effect — less funding, fewer resources, more closures."

Nationwide, K-12 public school enrollment has declined by 2.3%, or 1.18 million students, over the past five years — a structural demographic shift that no policy decision alone can reverse. Birth rates in the United States have been declining for over a decade, and the cohorts of children entering kindergarten today are meaningfully smaller than the cohorts that drove enrollment growth in the 2000s and 2010s. That demographic headwind, combined with the post-COVID funding cliff, the federal restructuring, and state-level budget pressures, has created what education finance analyst Alex Beene described as "the perfect storm of factors to produce layoffs at schools."

What It Means for Students

The consequences of these budget pressures are not abstract. They show up in classroom sizes that grow when a teacher is cut and not replaced. They show up in the interventionist who no longer walks the hallway at Brunson Elementary in Chicago, helping a child with multiplication. They show up in the academic coach at a Sacramento district school who is told in May, weeks before the school year ends, that their position will not exist in September. They show up in the English learner who will navigate a mainstream classroom next year with less dedicated language support. They show up in the disabled student whose school cannot get a timely answer from an understaffed federal civil rights office about whether their IEP is legally adequate.

They also show up in the teachers who are deciding, right now, whether to remain in the profession — and in the prospective teachers who are deciding, right now, whether to enter it. The United States has been managing a teaching shortage for years. Budget-driven layoffs, uncertainty about federal funding streams, and the perception that schools are chronically underfunded do not encourage the next generation of teachers to choose the classroom over more stable, better-compensated career paths.

The FY2027 federal budget debate will unfold through the summer and fall of 2026. State budget decisions are being made right now, this week, in county councils from Montgomery, Maryland, to Sacramento, California. And in hundreds of schools across the country, principals are opening budget letters in May — weeks before summer break — wondering whether they will have the staff they need to open their doors in September.

Fifty million children attend America's public schools. Their education is, in the most fundamental sense, the nation's most important long-term investment. Right now, that investment is under more pressure than it has faced in decades — from multiple directions, at every level of government, all at once. The conversation happening in America's school boardrooms, county councils, and congressional hearing rooms this week is not about ideology. It is about whether the money will be there.

Sources

1. WTTW Chicago News — CPS Schools Facing Staffing Cuts as District's Budget Deficit Tops $730M
2. Chalkbeat Chicago — Chicago Public Schools Braces for School Budget Cuts
3. DC News Now — Montgomery County Public Schools to Possibly Cut Staff Following Budget Shortfall
4. Newsweek — Map Shows States Where Schools May Get Hit With Layoffs
5. EdSource — California Schools Face Budget Cuts as Enrollment Drops by 74,961 Students
6. Federal News Network — A Year After Mass Layoffs, Education Dept Keeps Handing Off Its Programs to Other Agencies
7. Education Week — Congress Has Passed an Education Budget. See How Key Programs Are Affected
8. Education Week (Opinion) — The Trump Administration Has Mostly Dismantled the Ed. Dept. Should You Care?
9. K-12 Dive — Education Department Eyes Program Cuts, Consolidations in FY26 Budget Plan
10. Education Law Center — Trump 2.0: Proposed FY2026 Budget Cuts to K-12 Education
11. Center for American Progress — Department of Education Staff Cuts Will Harm America's Children and Schools
12. Center for American Progress — The Trump Administration's Recent Special Education Layoffs Will Have Major Long-Term Impacts on Disabled Children and Students
13. NAfME — Federal Budget Update: What Proposed FY 2026 Education Cuts Mean for the Arts
14. Southern Education Foundation — What the President's FY 2026 Budget Request Actually Means for Education
15. EdNC / Education Week — What a Dismantled Department of Education Means for Schools