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GAO Checks In on ARRA Education Funding

Published:  September 29, 2011

The American Recovery and Reinvestment Act (ARRA) of 2009 represented an unprecedented federal investment in education, with nearly $100 billion provided to states and local school districts from 2009 to 2011, mostly through the State Fiscal Stabilization Fund. Given the magnitude of this funding (the regular annual appropriation for the U.S. Department of Education is about $68 billion) Congress and the Obama Administration have subjected states and local school districts to an unusual amount of scrutiny.  A report released by the Government Accountability Office (GAO) this month offers an update on local educational agencies’ (LEAs) uses of funds intended for education in the American Recovery and Reinvestment Act (ARRA). The report examines how states used the funds and the degree to which LEA reporting on those funds was effective.

The GAO focuses on the ARRA’s three biggest sources of education funding: the State Fiscal Stabilization Fund (SFSF), $48.6 billion; Title I, Part A grants to local school districts, $10 billion; and Individuals with Disabilities Education Act (IDEA) Part B grants to school districts, $11.7 billion. Collectively those programs totaled $70.3 billion available in fiscal years 2009, 2010 and 2011.  GAO conducted a survey of LEAs from March through May of 2011 and found that LEAs have obligated nearly all of the ARRA funds available to states.  Only 4 percent remain available for expenditure, and those funds must be obligated by September 30, 2012 (a one-year extension from the original date, announced this month by the Department of Education), to be used.

Of the funds that LEAs have used, most were used to create new jobs and retain existing ones, which was one goal policymakers wrote into the Recovery Act. More than three quarters of LEAs spent over half of their SFSF funds to maintain employee salaries.  LEAs used the remainder for one-time expenses that wouldn’t precipitate a funding cliff and require the state to provide additional annual spending once the money dried up.

Most LEAs said that, thanks to the ARRA funds, they were able to maintain or even increase the level of service provided to students.  But with ARRA money running out at the end of this year, and state and local fiscal situations hardly improved, they say the quality of education will likely decrease.  LEAs with a high-poverty student population were particularly hard hit by the economic downturn, and saw more severe budget cuts in their state and local funding, and will bear the brunt of the ARRA funding cliff come 2012. Other LEAs that responded to the survey said that the Education Jobs Fund, which Congress enacted in 2010 to help states and LEAs avoid teacher layoffs, may be enough to compensate for anticipated budget cuts at the state and local level. About half of survey respondents planned to use the bulk of their Education Jobs funds in the 2012 school year, rather than in 2011.

GAO Chart ARRA Report_3.png

In some cases, though, state and local budget cuts have already had a severe impact on the quality of education, particularly on special education, despite the availability of ARRA funds.  A nuance in IDEA maintenance of effort requirements allows LEAs to reduce local special education funding if their federal IDEA Part B grant is higher than the previous year. The LEA can reduce its own funding then by 50 percent of the increase in federal funding. 

Historically, annual increases in IDEA funding have been small, meaning the maintenance of effort nuance could only have a small effect on an LEA’s special education budget. Given the large increases in IDEA funding under ARRA, the nuance has become more important. In fact, over 25 percent of LEAs have taken advantage of the option to reduce their special education spending since ARRA funds were made. LEAs that took advantage of that funding rule, however, will experience larger funding cliffs when the ARRA funding runs out in 2011 and 2012. The GAO found that fifteen percent of LEAs in that category, and 10 percent of all LEAs, anticipate struggling to meet the IDEA maintenance of effort standard in the 2011 and 2012 school years.  Seven states applied to the Department of Education for a total of 11 waivers of the requirement in state fiscal years 2010 and 2011 in the name of “declining fiscal resources;” five have been granted, and another five declined, with one still under consideration.

In addition to promising to save and create jobs, in enacting the Recovery Act, Congress and the Obama Administration trumpeted a new era of transparency and accountability in government funding.  The GAO examined this claim, looking at reporting requirements for states and LEAs, as well as the accountability measures put in place by the Department of Education. Those measures include audits, reviews of the fund recipients’ financial management practices, and testing of the data’s integrity.  While the accountability measures are fairly comprehensive, the GAO did find some room for improvement.

The Department of Education promised states that they would provide them with technical assistance on the front end, before the Department issued its reports on the states’ financial practices, so that LEAs could work out any kinks in the data collection and reporting system. But a breakdown in communication from the Department meant that states did not all receive that benefit.  The Department conducted the reviews as planned, but follow-up communication between the states and the Department varied greatly. Whereas some states went back and forth with Department staff as many as 10 times, fine-tuning their records-keeping processes, others received only an initial evaluation from the Department and no follow-up. Additionally, while the Department has completed 48 of the SFSF 2010-2011 reviews, it has made only 3 site visit reports and 12 desk review reports available to the public and to state officials.

States did acknowledge, though, that the Department of Education has made reporting requirements more routine and therefore less burdensome over time.  While the original reporting requirements presented a challenge to the states, they have since grown accustomed to the requirements and have developed systems that leave them saddled with fewer time-consuming data collection responsibilities.

The GAO report shows that, while states would benefit from additional assistance from Department officials in providing data back to the Department, the programs generally provided a stop-gap measure to fill major budget shortfalls. LEAs did use the ARRA funds available to them to save or create jobs, an explicit goal of the program; and those funds maintained a quality of education that would otherwise have been sacrificed as a result of states’ financial straits throughout the recession.  But without the continued availability of federal funds, and with state and local tax revenues still far from pre-recession levels, states are struggling to meet their obligations, let alone to invest in expanded capacity and innovative reforms.

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