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A Blog from New America's Federal Education Budget Project

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Happy Holidays from Ed Money Watch

December 22, 2009
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In honor of the holiday season, Ed Money Watch will be taking a break for the next to weeks. We'll be back on January 5th with more coverage of education finance issues.

Friday News Roundup: Week of December 14-18

December 18, 2009

At Ed Money Watch, we discuss and analyze major issues affecting education funding. In our Friday News Roundup, we try to highlight interesting stories that might otherwise get overlooked. These stories emphasize how federal and state policy changes can affect local schools and districts.

Mississippi School Districts Prepare for Funding Cuts

Ohio Legislators Pass Budget Repair Legislation

Indiana Education Board to Give Districts Options on Budget Cuts

Kansas Governor Says Education Funds Will Not Be Cut Further


Mississippi School Districts Prepare for Funding Cuts
Mississippi school districts are likely to face an additional 3 percent in budget cuts on top of the 5 percent in cuts made earlier this year for 2010 and another 1 percent in 2011. Luckily, district superintendents have been expecting these additional cuts and making efforts to limit their impact like increasing efficiency in transportation, and travel services and preparing teachers for reductions in salaries or days worked. The state’s joint budget committee has also recommended that districts be provided additional flexibility in the face of these additional cuts. This would enable superintendents to divide state funds among services as they see fit and employ innovative solutions to funding problems like increasing reliance on contract services. More here…

Ohio Legislators Pass Budget Repair Legislation
Ohio state legislators passed a budget repair bill on Thursday that fills the $851 million hole in education funding created after plans to install slow machines at race tracks collapsed. The bill delays a 4.2 percent cut in state income tax and begins a pilot program to reduce the cost of state construction projects at colleges and universities. Without this emergency legislation, Ohio would have likely become ineligible for State Fiscal Stabilization Funds as awarded through the American Recovery and Reinvestment Act. The bill also makes it easier for districts to get waivers for the state’s full-day kindergarten requirement and earmarks $34 million for parochial schools. More here…

Indiana Education Board to Give Districts Options on Budget Cuts
The Indiana Board of Education announced that it will give school districts a list of options for ways they can eliminate a minimum of $300 million in state education spending. Specifically, the board wants to ensure that these spending cuts do not require districts to lay off teachers. Potential options include wage freezes, district consolidation, hiring suspensions, and increased local income taxes. The board also recommends that cuts begin in January, rather than in April as the state Department of Education requested. More here…

Kansas Governor Says Education Funds Will Not Be Cut Further
Kansas Governor Mark Parkinson said on Thursday that further cuts to education programs will hurt the quality of education in Kansas schools and that he will not approve any further cuts to K-12 or higher education. Thus far, K-12 has lost $300 million in state funding and higher education has lost $106 million. However, without further cuts, the state will face a deficit of $300 million going into 2010. Among other plans, Governor Parkinson is considering an increase in the cigarette tax to make up the difference. More here…

Briefly Noted

    Alabama institutions of higher education unlikely to receive the $358 million to bring state spending back to 2008 levels.


The House's Education Jobs Fund: State Fiscal Stabilization Fund 2.0?

December 17, 2009

Yesterday, the House of Representatives passed the Jobs for Main Street Act, a bill that repurposes already appropriated TARP funds for jobs programs. Although the Senate is unlikely to begin considering the bill until January 2010, some are already calling it the second stimulus. Much like the American Recovery and Reinvestment Act (ARRA), the Jobs for Main Street Act includes additional funding for school construction bonds and college work study grants. The biggest education program, however, is a $23 billion “education jobs fund” which sounds suspiciously similar to the ARRA’s $48.6 billion State Fiscal Stabilization Fund (SFSF). However, a few key differences in the new program are likely to ensure that the funds are disbursed and spent more quickly than the current stimulus funds.

According to the new legislation, the education jobs fund is to be administered similarly to the State Fiscal Stabilization Fund (SFSF), a program created by the ARRA that seeks to fill budget gaps in state education spending created by the economic downturn. The $48.6 billion in SFSF are distributed to states based on share of school age and total population. These funds are then distributed to local education agencies (LEAs) and institutions of higher education in each state in proportion to each sectors’ share of reductions in state spending. These distributions must be determined via each state’s primary education funding formulas. On all of these counts, the $23 billion for the education jobs fund is just like the SFSF.[1]

However, unlike the SFSF, education jobs funds can only be used for salaries, benefits, and other related costs associated with employment. In contrast, the SFSF can be used for nearly all education operating expenses including instructional materials and capital, as well as salaries and benefits. This new requirement ensures that these funds will only be used to save or create jobs in education, not for other expenses like instructional materials and capital. This change also eliminates the Department of Education’s warning about creating “funding cliffs” – using stimulus funds for on-going expenses that LEAs and institutions of higher education will not be able to afford when stimulus funds run out – that often appears in ARRA guidance. By giving LEAs and institutions of higher education free reign to use these new federal funds to support salaries, which are inherently on-going expenses, the House is telling them not to worry about funding cliffs.

Perhaps most importantly, the education jobs fund is explicitly not subject to any of the education reform goals outlined in the SFSF. These goals, which governors were required to sign off on to receive SFSF monies, include improving state data systems, standards and assessments, teacher distribution, and support for struggling schools. As a result of this change, states will not have to promise to further those goals in order to receive the new funds. Similarly, LEAs and institutions of higher education will be able to use the education jobs funds to support salaries and benefits for any staff member, not just those tied to the implementation of those goals.

Some have posited that the House’s choice to remove the reform goals from the new education jobs fund suggests that members do not support the Department of Education’s direction with these priorities. However, we believe that the move is a deliberate reaction to the speed with which the current SFSF and other stimulus funds have been disbursed. As we have discussed before, education stimulus funds have not been disbursed at particularly high rates. As of December 11th, less than 46 percent of SFSF monies and 41 percent of all ARRA funds had been disbursed by states for spending. It is likely that the House removed these restrictions on spending to ensure that these new education jobs funds go out as quickly as possible.

Evidence suggests that restrictions on spending, including the reform goals and concerns about funding cliffs, have slowed spending at the LEA and institution level. For example, many states required LEAs to submit applications for SFSF monies including detailed budgets and spending plans to ensure that the funds would be spent in keeping with these restrictions. This process, coupled with bureaucratic obstacles at the local level, has prevented some LEAs from receiving and expending funds quickly.

This new education jobs fund is closer to traditional revenue sharing than the State Fiscal Stabilization Fund. It carries fewer restrictions, suggesting the funds may be distributed more quickly than current ARRA monies and increasing their overall impact on the education jobs market. However, this new jobs bill is not close to finished. The Senate has yet to discuss it and likely wont until after January 1st. If it’s anything like the SFSF, the final version will be quite different from this initial House bill. Regardless, it appears that state education systems will continue to receive significant federal support during troubling economic times.

Check back with Ed Money Watch in the New Year for continuing coverage.


[1] However, 5 percent of each state’s allocation of the education jobs fund can be used for administrative purposes.

Fiscal Year 2010 Education Funding Finalized

December 15, 2009

This past weekend the Senate passed the fiscal year 2010 omnibus appropriations bill, setting out spending levels for the majority of Department of Education programs for the spending period that began October 1st, 2009. The House of Representatives passed the same bill last Thursday and the president is expected to sign it into law shortly. Today, the Federal Education Budget Project published its “2010 Education Appropriations Guide,” a helpful tool for interpreting the otherwise complex appropriations process.

Unsurprisingly, the now finalized fiscal year 2010 appropriations for Department of Education programs do not represent drastic changes in spending levels from the 2009 levels. In fact, both Title I Part A and Individuals with Disabilities Education Act (IDEA) Part B were flat funded at 2009 levels. Pell Grants, the largest federal education program, received a slight increase in funding – $207 million – for a total of $17.5 billion.

However, some significant changes did occur. The 2010 appropriations bill eliminates the Early Reading First program, which currently provides funding for early literacy and language centers. The program with likely be replaced by an expanded version of the Striving Readers program, which received an increase of nearly $215 million. Similarly, the bill zeroes out funding for Safe and Drug Free Schools State Grants, but increases funding for National Grants under the same program. Finally, the omnibus provides $50 million in funding for a new High School Graduation Initiative, a program requested by the president.

The “2010 Education Appropriations Guide,” including full descriptions, tables, and analyses of these changes and other notable appropriations can be downloaded here.

Friday News Roundup: Week of December 7-11

December 11, 2009

At Ed Money Watch, we discuss and analyze major issues affecting education funding. In our Friday News Roundup, we try to highlight interesting stories that might otherwise get overlooked. These stories emphasize how federal and state policy changes can affect local schools and districts.

Washington Higher Ed Budget Could See More Cuts

Alabama Schools Spending More Than They Receive

Stalemate in Ohio Legislature Could Mean Deep Cuts to Schools

Minnesota Education Budget to See Cuts in Upcoming Fiscal Year

Washington Higher Ed Budget Could See More Cuts
Washington Governor Chris Gregoire this week submitted a balanced budget proposal for the 2009-11 biennium that cuts $89.5 million from public higher education. State law requires the governor to submit a supplemental budget proposal that eliminates the state’s current $2.6 billion shortfall without including any new tax revenue, which this one does. However, Governor Gregoire plans to submit an additional budget proposal next week that will close the shortfall using both budget cuts and tax revenue. Cuts to higher education are likely to appear in next week’s version as well due to rules about where budget cuts may come from. More here…

Alabama Schools Spending More Than They Receive
Alabama state education officials this week presented a report to the State Board of Education showing the impact of education budget cuts on schools. The report shows that almost all school districts in Alabama spent more than they received in the fiscal year ending on September 30th. Districts have had to borrow from banks and empty savings accounts in order to cover employee salaries and benefits, which were locked in for the school year before Governor Bob Riley cut the K-12 education budget by 7.5 percent due to tax revenue shortfalls. The state school board submitted a request for $3.8 billion for public schools in the 2010-11 school year, up from $3.5 billion this year, but the proposal is likely to be contentious in the state legislature. More here…

Stalemate in Ohio Legislature Could Mean Deep Cuts to Schools
Ohio education officials are urging legislatures to find a compromise in the state’s budget standoff. A hole of $851 million in the state’s budget remains after a plan to place slot machines at the state’s racetracks—money that was earmarked for public K-12 education—fell through. Governor Ted Strickland has proposed to fill the shortfall by delaying this year’s 4.2 percent income-tax cut, a plan passed in the state House and supported by Democrats in the state Senate. Majority Republicans in the Senate say they will vote for the plan, but only if the bill includes provisions changing public-construction law and criminal-sentencing rules. If legislators cannot come to an agreement before December 31st, Governor Strickland’s plan will no longer be viable, and cuts of up to 13 percent will have to be made to the K-12 education budget. More here…

Minnesota Education Budget to See Cuts in Upcoming Fiscal Year
Minnesota state economists this week detailed the state’s projected $1.2 billion budget deficit for the current 2010 fiscal year in front of the University of Minnesota’s Board of Regents. The deficit will force Minnesota lawmakers to make difficult decisions on where to invest money and where to make cuts. State officials will likely feel pressure to focus spending on the health and care of the aging baby boomer population. But these investments would likely come out of K-12 education, infrastructure, and higher education budgets. University President Bob Bruininks argued that the state’s problems could only be fixed by investing in education for its citizens, equipping the upcoming workforce with skills and technology. Governor Tim Pawlenty said he will consider cuts to programs across the board to fill the deficit. More here…

Briefly Noted

Pell Grants: It's Not the Shortfall, It's the Funding

December 10, 2009

There’s buzz around Capitol Hill and within Washington’s education policy community that the Pell Grant program faces serious funding challenges. Much attention has incorrectly fallen on a possible “shortfall” in funding, which occurs when Congress accidentally underfunds the program one year and has to backfill it in the next. A close look at the numbers, however, suggests a shortfall isn’t the main cause for concern. The real funding challenge stems from increased student eligibility, college enrollment trends, and a higher maximum grant that have brought program costs from $14 billion in fiscal year 2008 to a projected $32 billion in 2011. In other words, at this rate Pell Grants will likely account for half of the entire discretionary budget of the U.S. Department of Education in 2011.

How did this come to be?

As part of the America Recovery and Reinvestment Act enacted early this year, Congress increased the maximum Pell Grant from $4,731 to $5,350 for the 2009-10 school year. While that may not look like much from a student’s perspective, the increase required an enormous appropriation of $26.8 billion, and another $2.7 billion in a separate mandatory funding account. (Some of the funding was used to fill in a shortfall from the prior year.)

Right now, Congress is finishing up the 2010 education appropriations bill, including funding for the 2010-11 Pell Grant, and both the president and the Democratic congressional majority want a further increase in the maximum grant to $5,550 in that bill. Doing so requires a 2010 appropriation of $20.6 billion even though actual costs will be about $27 billion. Luckily, $6.5 billion in unspent stimulus funds is waiting in the wings to make up the difference. (Another $4.0 billion in a separate mandatory funding account will also be used.)

This is where the big funding challenges come in. Notice that a maximum Pell Grant of $5,550 requires a fiscal year 2010 appropriation of $20.6 billion. The bill that Congress is about to pass provides only $17.5 billion. That means when Congress begins the 2011 appropriations cycle this coming summer, it will have a $3 billion shortfall to fill in. What’s more, the economic stimulus money will run out at the same time. That means Congress will have to provide $32 billion for Pell Grants in one fell swoop if it wants to keep the maximum grant at $5,550 in the 2011 appropriations bill. (Approximately $5 billion more in a mandatory funding account will also be needed).

But what about new Pell Grant funding in student loan reform legislation (the Student Aid and Fiscal Responsibility Act, SAFRA) under consideration in Congress? Won’t that funding take some of the pressure off the annual appropriation? Not really. The proposal would indeed provide new funding for Pell Grants and could help fund a rising grant each year. But Congress still needs to provide the foundation for the program through an annual appropriation of around $30 billion, and that figure is likely to grow every year. The funding formula proposed in SAFRA will only supplement that funding by about $2 billion in fiscal year 2011.

So the cause for concern isn’t really a “shortfall.” It is the $30-plus billion annually for Pell Grants as far as the eye can see. Many people will surely cheer such a large funding commitment to the program, but budget hawks will no doubt bristle at these figures, which to them, show a spending program out of control.

States Struggle with Managing Federal Stimulus Funds

December 8, 2009

The federal government made nearly $100 billion available to states and school districts for various education programs through the American Recovery and Reinvestment Act (ARRA.) Since the Department of Education first made the funds available in early April, states have been disbursing ARRA funds to their local education agencies (LEAs) at varying rates and through different processes. While some states have implemented extensive applications and oversight to ensure that the funds are disbursed when they are needed and spent quickly, others have pushed out the funds to LEAs as quickly as possible regardless of LEA need. A recent report published by the Department of Education’s Office of Inspector General discusses some of these practices and the impact they have on state and LEA finances. The report finds that several states are disbursing ARRA funds to LEAs before they can spend them, calling into the question the methods states are using to disburse the funds and triggering financial penalties for the LEAs.

The Office of Inspector General (OIG) has been auditing seven states and Puerto Rico to better examine how these states have been managing the flow of ARRA funds to LEAs. Federal regulations require that state governments disburse funds in a manner that minimizes the time between the transfer of funds to LEAs and when the LEA actually spends the money. In cases in which LEAs do not spend federal funds within three days, they must remit interest payments earned on the unspent funds to the U.S. Treasury at least quarterly.[1] Although Department of Education guidance has reinforced these federal requirements, five of the audited states have engaged in practices that are likely to disburse funds to LEAs before they are able to spend them.

California, for example, pushed out more than $4 billion in ARRA funds to school districts between late May and early July before determining the districts’ need for the funds. In late July, LEAs were still planning how they would use the funds and had actually spent very little. As a result, these LEAs should be remitting interest payments on these funds at least quarterly. However, the OIG has also found that California LEAs have been miscalculating their interest payments or not remitting them at all, likely due to lack of state guidance on these practices.

This OIG report has interesting implications for the use of ARRA funds across the country. If, in fact, many states are disbursing funds before LEAs are actually able to use them, these funds are likely languishing in local coffers, forcing LEAs to remit interest payments that they cannot afford. This means that there is a great disparity between the percent of ARRA funds that have been drawn down for disbursement and the percent of ARRA funds that have actually been spent. As we have mentioned in the past, the data reported by the recipients of ARRA funds does not include actual expenditures by LEAs. In absence of this data, it is impossible to know the extent to which state disbursements of ARRA funds are presenting real problems for LEAs.

Additionally, the ARRA represents a large increase in federal allocations to public education. Given the significant guidance, oversight, and transparency tied to these new funds, it’s no surprise that LEAs are unable to spend them immediately. In fact, the slow speed of expenditure at the local level suggests that these funds are being used thoughtfully as the guidance encourages. Regardless, this report makes a good case for ensuring that state education agencies disburse ARRA funds carefully to ensure they have the greatest positive impact on LEA finances.


[1] Interest payments from the LEAs are necessary because the U.S. Treasury incurs interest costs when it borrows funds to make the federal payments. When a state education agency pushes out federal funds to LEAs too soon, the U.S. Treasury incurs additional costs on those borrowed funds that otherwise should have been drawn down later.

Friday News Roundup: Week of November 30-December 4

December 4, 2009

At Ed Money Watch, we discuss and analyze major issues affecting education funding. In our Friday News Roundup, we try to highlight interesting stories that might otherwise get overlooked. These stories emphasize how federal and state policy changes can affect local schools and districts.

Kentucky Education Department Submits Outline for Potential Cuts

Nevada Governor Preparing for More Budget Cuts, Race to the Top Change

Rhode Island Lawmakers Propose Raise in Charter School Budget

Georgia Lawmakers Consider Increased Fees, Lower Teacher Salaries

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