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Education Funding

How Big Is the Stimulus Funding Cliff?

By Michele McNeil — October 19, 2009 2 min read

$16.5 billion.

That’s the amount of money that 36 states combined will need to find, somewhere, to get back to their 2008 K-12 funding levels after stimulus money runs out. That amounts to about 10 percent of these 36 states’ combined budgets, according to my own calculations of figures presented in a White House report out yesterday on the impact of the stimulus package on education jobs.

This is the funding cliff that states and school districts have been warned about.

States will need to replace this money at a time when the national economy only now is showing glimmers of a recovery, and state tax collections are still tanking by record amounts. Of course, when it comes time for states to write their budgets for fiscal 2011 and beyond, they have the ability to move money around, or rob other programs to help fill in K-12 budget gaps. But will there be enough money to go around? Looking at the size of these gaps, probably not.

Some states have a bigger cliff than others. California wows with its sheer dollar amount. Its fiscal 2010 K-12 state spending is $32.9 billion, or 14 percent less than it was two years ago. ($5 billion in stimulus money filled in that gap.) But proportionately, other states are in just as bad, or worse, shape.

Oregon reduced state funding by half-a-billion dollars in fiscal 2010, or 16 percent below fiscal 2008 levels. Illinois reduced its state contribution to education this fiscal year by nearly $600 million, or 14 percent. Utah reduced its contribution by $300 million, or 13 percent, below 2008 levels. All of those holes were filled, or will be filled, with money from the State Fiscal Stabilization Fund, the largest single chunk of stimulus money available to states for education.

As state policymakers face frightening budget gaps, folks are getting desperate. In Kentucky, state legislators are considering raiding the “rainy day” funds of individual school districts, which includes money raised from local property taxes. That’s unprecedented in the state--and maybe in the country.

A recent report by the Education Department’s inspector general called attention to this problem, maintaining that the real effect of the State Fiscal Stabilization Fund was to reduce a state’s own funding contribution to schools, rather than prod states to invest more in K-12 education. Even the IG, however, acknowledged this was allowable under the law.

In a White House press briefing yesterday, Domestic Policy Council Director Melody Barnes acknowledged the funding cliff. But she had no solution for those states that are quickly approaching a steep funding drop-off. Here’s the relevant Q-and-A.

Q ... When this money, the federal dollars from the Reinvestment and Recovery Act, run out, will it then be up to the states to come up with the revenue to keep these jobs in operation?

MS. BARNES: That’s something that we were quite cognizant of when we were putting the [stimulus law] together. We wanted to make sure that we were stimulating the economy, and at the same time, that we would be able to sustain the increases that were on track. I mean, all of this, remember, is to be put in the context of the economy starting to come back, for states to be able to support these jobs and to support the increases that have been put on the table. So the idea was to provide that shot, as I also mentioned, to start to provide and to incentivize the kinds of reforms that we wanted to see moving forward, but not to fall off a cliff when the two-year period was over.

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