Special Report
School & District Management

States Stung by Criticism on Use of Federal Aid

By Catherine Gewertz — October 12, 2009 5 min read

Several states are defending their use of federal stimulus money after receiving an official scolding from the U.S. Department of Education’s internal watchdog.

The memorandum issued by the department’s inspector general points to Connecticut, Massachusetts, and Pennsylvania as examples of how states are undermining the school improvement aims of the American Recovery and Reinvestment Act in their use of fiscal-stabilization funds to avert or minimize cuts to their education budgets.

The Sept. 30 memo focuses on the “maintenance of effort” provision of the economic-stimulus law, which makes states promise, as a condition of getting stimulus money, that they will preserve education funding at least at 2006 levels. While that provision was designed to give states budgeting flexibility, the inspector general’s memo said it enabled them to reduce their own support for education, and use the federal money to plug budget holes instead of driving real reform in schools.

“Although this reduction may be allowable under the law, it may adversely impact the achievement of the education reforms of the [fiscal-stabilization] program,” the memo says.

Donna Tommelleo, a spokeswoman for Connecticut Gov. M. Jodi Rell, said that state was fully within its rights to use stabilization money to bolster its education budget.

“Congress did decide this money can be used to stabilize education,” Ms. Tommelleo said. “I mean, hey, it’s called ‘fiscal stabilization.’ ”

Achievement and Jobs

The Education Department has repeatedly said that while stimulus money should save and create jobs, it must also help improve student achievement. Secretary of Education Arne Duncan has warned that substituting stimulus money for state education funding could endanger a state’s chances of getting a share of $4 billion in discretionary grants under the stimulus program’s Race to the Top Fund.

Backfill Backlash

The Education Department’s inspector general has raised warning flags about how states are juggling the requirement to keep up education funding—maintenance of effort—and their desire to use money from the stimulus program’s State Fiscal Stabilization Fund (SFSF) to fill budget holes.

Findings
“The flexibility permitted in the [stimulus law] may be leading to a reduction in state support for public education. Reducing state funding for education and replacing it with SFSF funds, rather than using SFSF to increase support for education, could adversely affect the achievement of the education reform objectives of the program.”

Recommendations
The Education department should:
• Track state support for K-12 and higher education to determine the extent to which state public education funding is being reduced.
• Assure that states have met maintenance-of-effort requirements before awarding additional money through the fiscal-stabilization fund.

SOURCE: U.S. Department of Education, Office of Inspector General

In a statement issued after the inspector general’s memo, Mr. Duncan said: “From the very beginning, we have made it clear that this education stimulus funding is intended to supplement local education dollars, not replace them.”

The memo says that Connecticut revised its proposed biennial fiscal 2010 and 2011 education funding level from $1.9 billion to $1.6 billion for each year of the biennium—the 2006 level—in anticipation of using state stabilization money to restore it to $1.9 billion. The state is expected to receive about $542 million in stabilization money under the recovery act that it can spend within the next two years.

Massachusetts originally proposed a $223 million increase in K-12 funding for fiscal 2009, the inspector general’s report said, but later decided to cut $412 million and replace it with that amount in stabilization aid. The state’s total education budget for fiscal 2009 is $3.9 billion.

In Pennsylvania, some lawmakers fought to use the federal aid to address budget gaps instead of using $part of the state’s “rainy day” fund as Gov. Edward G. Rendell had proposed. State education department spokesman Michael Race said the Democratic governor’s plan harmonized with federal officials’ call for states to use stabilization money to “supplement, not supplant” state support for education.

Ms. Tommelleo, in Connecticut, said that Gov. Rell, a Republican, was “perplexed” by the inspector general’s criticism because the state’s application outlined its plans for its expected $542 million in stabilization funds.

“We’re confident that everything we’ve been doing with the money has been according to the letter of the stimulus law,” Ms. Tommelleo said. “By our estimate, it saved 5,000 teacher jobs. It’s helped school districts big and small keep what they have.”

Tom Murphy, a spokesman for the Connecticut education department, said the department was developing a response to the federal Education Department that would “make certain it is understood that we were in full compliance with the law and expect to be eligible for Race to the Top funding.”

Jonathan Palumbo, a spokesman for Massachusetts Secretary of Education Paul Reville, said a worsening budget picture last spring made it impossible to avoid cuts to education. Without stabilization money, school districts would have suffered cuts late in fiscal 2009, Mr. Palumbo said.

“In an ideal situation, you should be using at least half of this funding to promote innovative practice,” he said. “But the nature of the midyear cuts meant we had to use it to stabilize these districts. Thank goodness they had that.”

The inspector general’s report is not the first to point out that many states are using stimulus money to bolster their finances. An August survey by the American Association of School Administrators and a July study by the Government Accountability Office, the investigative arm of Congress, produced similar findings.

Plugging Holes

Recession-ravaged state budgets make it nearly impossible for most states to use fiscal-stabilization aid for profound education reform, said David Shreve, the federal-affairs counsel for the National Conference of State Legislatures, based in Denver.

“A huge portion of this [stabilization] money is being spent to keep education budgets afloat, which is what it was intended to do,” Mr. Shreve said. “The [federal] department and the [Obama] administration deserve credit for keeping education afloat. But they started to oversell it when they said the money would not only keep education afloat, but would leverage long-term reform.”

Andy Smarick, a visiting fellow at the Thomas B. Fordham Institute, a Washington think tank, said that nothing in the stimulus law, regulations, or guidance prevents states and districts from spending fiscal-stabilization money to preserve their education budgets.

“To come back now and say we’re surprised and disappointed that this happened almost strikes me as saying, ‘I’m shocked that there is drinking going on in this bar,’ ” Mr. Smarick said. The Education Department and Congress “are as much to blame as districts and states are,” he said.

The inspector general recommended that the Education Department track states’ support of education, and set up a process to ensure that they have met their maintenance-of-effort agreements before receiving the second round of stabilization aid. Applications for the second round of funding will be submitted starting this fall, with money available shortly thereafter.

In a written response, Thelma Melendez, the department’s assistant secretary for elementary and secondary education, said the inspector general’s suggestions were reasonable. The department was aware of the potential for reduction in states’ support to education, she said, and “took steps to discourage” such actions.

One such step was including in July’s proposed Race to the Top eligibility rules a requirement that states document any changes in their share of education funding between fiscal years 2008 and 2009. Another was Secretary Duncan’s June letter to Pennsylvania Gov. Rendell, warning that the state might endanger its chances of getting Race to the Top money if it used none of its rainy-day fund and relied instead on stabilization funds to close budget holes.

Coverage of the American Recovery and Reinvestment Act is supported in part by grants from the William and Flora Hewlett Foundation, at www.hewlett.org, and the Charles Stewart Mott Foundation, at www.mott.org.
A version of this article appeared in the October 21, 2009 edition of Education Week

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