Special Report

Rush to Pump Out Stimulus Cash Highlights Disparities in Funding

By Michele McNeil — February 23, 2009 10 min read
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The gusher of new federal education spending in the economic-stimulus bill signed into law last week will be piped to states and school districts with little or no regard for how badly they need the money. The measure could leave some states without enough money to restore all K-12 funding cuts, while others see a cash windfall.

That twist, which some education advocates say could reinforce current funding anomalies, stems from the recession-driven imperative of pumping new funds out fast. Congress used existing federal formulas that tend to reward large districts and states with high per-pupil spending.

As a result, some states and districts are likely to benefit disproportionately from the two-year flood of new federal money. As governors and local school officials gear up to spend the aid, some of the big winners are beginning to emerge—and not all of them are among those hardest hit by the economic crisis.

Winners include states such as Alaska, Texas, and Wyoming that haven’t been forced to cut K-12 funding but will still get their share of $39.5 billion set aside for education in the stimulus package’s state fiscal-stabilization fund.

Also benefiting will be districts in high-education-spending states with large pockets of poverty, such as New York state, that already benefit from the formula for Title I, the federal program for disadvantaged students that is getting a $13 billion stimulus shot.

Vice President Joseph R. Biden Jr. stands witness as President Barack Obama signs the economic-stimulus bill on Feb. 17 during a ceremony at the Museum of Nature and Science in Denver.

Rural districts, meanwhile, because of their small enrollment numbers, may not get a big enough chunk of money to make significant education changes, some school advocates warn. And for school districts in some of the most economically troubled states, such as California and Florida, the money from the stimulus package may not even come close to filling gaps created by state budget cuts.

“If we increase spending for one group of children while other groups suffer, this money won’t be as effective,” said Lawrence O. Picus, a school finance expert with the University of Southern California’s Rossier School of Education.

But many education advocates—including those who point out flaws in existing funding formulas—agree that Congress had no choice but to use existing formulas to distribute the new funding, given how fast the stimulus legislation moved.

Slicing the Stimulus


SOURCE: Education Week

“That would have been an extremely complicated formula to develop so quickly; it’s really hard to quantify economic need,” said Michael P. Griffith, the school finance analyst with the Denver-based Education Commission of the States.

Impact of Formulas

Overall, new federal aid to education totals some $115 billion under the $787 billion American Recovery and Reinvestment Act, which President Barack Obama signed into law Feb. 17. The measure is part of a massive federal effort to jolt of the country out of a worsening economic slump.

Not all of that education aid will come in the form of direct spending—large chunks are set aside for higher education tuition grants and tax credits. Another $200 million will go for states to establish teacher-incentive grants or to continue pay-for-performance programs.

Still, nearly $80 billion of the aid will be funneled directly to states and districts to shore up precollegiate education. Most of that money will flow in through three main streams: the $53.6 billion state stabilization fund, aimed at preventing layoffs and program cuts in education and other areas; $12.2 billion for special education; and $13 billion in additional Title I money for disadvantaged students. Those amounts will be allocated over two years.

And it’s here, in the details of how that direct aid will be distributed, that the quirks in federal education funding show up most starkly.

More than half the education stimulus money will go out through formulas that have long been used by the federal government. The new special education funding, for example, will be disbursed through the formula that guides current funding under the Individuals with Disabilities Education Act.

The additional Title I money will flow through the existing program formula, which is based on concentrations of poverty within schools and the amount of money a particular state spends per student.

But Title I, in particular, can magnify funding disparities. The formula favors districts with large numbers of low-income children—not just a high percentage of such children—and that factor benefits bigger districts, even if they are relatively affluent. And the formula gives more money to states with high per-student spending on education, which would favor a high-spending state like Massachusetts over a low-spending state like Arizona.

In Historic Package, Hefty New Funding For Pre-K, Beyond

The $787 billion economic-stimulus package signed into law Feb. 17 by President Barack Obama makes some $115 billion in aid available for precollegiate and higher education. Formally the American Recovery and Reinvestment Act of 2009, it will funnel about $100 billion to states and school districts, about half of it through existing federal education funding formulas.

The largest single element is a $53.6 billion state fiscal-stabilization fund, much of which is intended to help avoid or reverse layoffs and make up for budget cuts in education and other programs. School modernization and repairs are an allowed—but not guaranteed—use of stabilization funds.

The stabilization money has strings attached. States will have to follow strict “maintenance of effort” rules and keep up their own education funding commitments. After backfilling for layoffs or budget cuts to K-12 and higher education, states will distribute any remaining money to school districts, using the Title I formula.

Most of the aid will flow through the U.S. Department of Education, including a $5 billion discretionary fund to be administered by the education secretary. Some aid will be administered by other agencies, such as the U.S. Department of Health and Human Services, which oversees Head Start.

Stimulus Breakdown:


*Rural broadband is not specifically an education program, but is expected to benefit schools in rural areas.

SOURCE: Education Week

In addition, the Title I formula will also be used in allocating $22 billion in school bonding money. (“Congress Revisits Construction Tiff,” Feb. 25, 2009) And the formula will be used to direct $650 million in educational technology money—and even how some of the state stabilization fund is distributed to districts.

Formulas such as these, which emphasize sheer numbers of students, often mean that rural school districts don’t get enough money to undertake a very expensive project, education analysts say.

In Louisiana, the state board of education was so worried that the stimulus money might benefit large urban districts such as New Orleans at the expense of the state’s small, rural districts that members called an emergency meeting earlier this month to talk about the issue.

“When money is distributed on a per-pupil basis, it’s not going to be much money for some districts,” said Walter C. Lee, the state board’s vice president and the superintendent of the 5,000-student DeSoto Parish district in northwestern Louisiana. “This money isn’t going to have as major an impact on the smaller districts as it has on the larger systems.”

While any money is undoubtedly welcome, “rural school districts are getting slighted,” said Mary Kusler, the assistant director for advocacy and policy for the Arlington, Va.-based American Association of School Administrators. “It’s certainly not an equal playing field.”

Wide State Variations

For the sake of ease, the even bigger state stabilization fund relies primarily on an even simpler formula: state population, with an emphasis on school-age population.

Each state must use its share of the stabilization fund to backfill any cuts to K-12 and higher education based on its state school funding formula; anything left over will flow through the federal Title I formula to districts.

The stabilization fund also includes a separate, $8.8 billion pool that can be used for any public need, including—but not limited to—education. That aid also will be distributed to states on the basis of population, not fiscal need.

“There’s no sensitivity to the economic condition of the state,” said Amy Wilkins, the vice president of government affairs and communications for the Education Trust, a Washington organization that advocates on behalf of low-income students.

For example, North Dakota, which doesn’t have a budget deficit, gets the same share of money—proportionately speaking—as does California, where lawmakers last week approved a plan to close a budget deficit of $42 billion through 2010.

As a practical matter, school districts will have vastly different options in using their stimulus money, depending on where they are located and their states’ budget conditions.

With its rich sources of energy, Alaska isn’t in nearly the same budget trouble as a lot of other states. The latest tally shows the state with nearly $7 billion in a reserve account, even after a $1 billion loss in that fund’s value. But local school officials in the state still are looking forward to their piece of the stimulus pie and say they can put it to good use.

“You bet!” said Norman Wooten, a school board member for Alaska’s 2,800-student Kodiak Island borough district, when asked if his district needs stimulus money. Estimates provided by the U.S. House Education and Labor Committee show that his district stands to get $1 million extra over two years from the Title I and special education money, not to mention additional money from its share of the state stabilization fund.

In that rural district—in which nine of the 15 schools are not connected by roads, but are reached by boat or plane—technology is critical, and the district has already invested in hard-wiring schools. But Mr. Wooten said the district could use the extra stimulus money for upgrades, such as going wireless.

Texas will also get a big windfall—given the state’s large population, it’s slated to get the second-largest amount of education recovery dollars, according to the House education committee’s data, behind only California.

But unlike California, Texas hasn’t had to cut school funding in recent years. In fact, Suzanne Marchman, a spokeswoman for the Texas Education Agency, said the legislature in the current biennial budget gave K-12 education an additional $3 billion above what the TEA sought, for a total of $20 billion.

“Texas education is still stable and healthy,” Ms. Marchman said.

So what might Texas use its extra federal money for? A state endowment that pays for school textbooks has taken a hit because of the downturn in the stock market, so filling that with any unrestricted education dollars might be an option. And Ms. Marchman said districts in the southern part of the state that got hit by Hurricane Ike last year may take advantage of their extra money to do renovations.

Wyoming, meanwhile, is expecting $145 million, according to congressional estimates. And that’s even though it “already has enough money to fund its schools,” said Mr. Picus, the school finance expert, who has worked with Wyoming school and state officials to revamp the state’s school funding system.

The state more than doubled its yearly spending on K-12 education since 1999, and now has one of the highest per-pupil funding rates in the country at $14,126 in 2006, according to the Editorial Projects in Education Research Center.

“If the past is any indication, they’ll use the money to raise salaries,” Mr. Picus said.

Others Less Fortunate

States such as Alaska, Texas, and Wyoming and their school districts “are going to have a lot of extra money to create an awful lot of new programs if they want,” said Mr. Griffith of the ECS.

But they are likely to be the exceptions. Most states will use their stimulus money to fill budget gaps. And for a few, the stabilization-fund formula won’t provide enough money to fill those holes completely.

The 42,599-student Marion County public schools in Ocala, Fla., last week sent layoff notices to 500 teachers in anticipation of budget cuts—jobs that likely won’t be saved by new federal money, officials warn.

“We wouldn’t put [stimulus money] into salaries,” said district spokesman Kevin Christian, who said the new funding is only a one- or two-year fix, while hiring or rehiring a teacher is a long-term investment.

What’s more, the restrictions in the Title I formula mean that the district can only use that money in its elementary schools—it’s only Title I schools—and not to help with cuts affecting its middle or high schools.

To make matters more complicated, the states must still work out details of how they will go about distributing the stimulus money once they receive it.

For example, money from the stabilization fund used to backfill school funding must be given to districts based on the state’s school funding formula. But the federal legislation doesn’t say which school funding formula; state legislators could, theoretically, craft a new one just for the stabilization aid.

And typically, state school funding formulas delegate power to the districts to divvy up the money among their schools. That could result in winners and losers within districts when the stabilization money is distributed, finance experts warn.

Furthermore, school finance experts point out that money is fungible—though it may be earmarked for a certain purpose, it may free up other dollars elsewhere in a state or district budget to spend for other purposes.

Mr. Griffith of the ECS said: “States can be as creative or as noncreative as they want to be.”

A version of this article appeared in the February 25, 2009 edition of Education Week as Rush to Pump Out Stimulus Cash Highlights Disparities in Funding


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