This paper analyzes the distribution of $39 billion in federal stimulus funds for education known as the “state fiscal stabilization funds” in 11 states, and the impact of SFSF funds on the states’ K-12 school funding formulas. The SFSF funds are part of the American Recovery and Reinvestment Act of 2009, which has the following objectives:

• to give money to states to maintain and restore state aid through designated “primary” funding formulas to FY2008 or FY2009 levels, whichever is greater;
• implement any previously planned increases, or equity or adequacy adjustments, in those funding formulas;
• maintain overall state support for K-12 education above 2006 levels.

This research attempted to determine the extent to which states met the objectives set by Congress for SFSF program funds. It also sought to shed light on several related, and often asked, policy questions:

• Did states use SFSF funds to address shortfalls in non-education programs in the overall state budget?
• What impact, if any, did SFSF program funds have on the fairness of school funding in the states, especially in districts with high concentrations of student poverty?
• To what extent did the U.S. Department of Education ensure states met the ARRA benchmarks and objectives for SFSF program funds?

• What lessons can be learned for future Congressional efforts to use federal funds to maintain and improve state support for K-12 education through state funding formulas?

Main Findings

• Several states did not restore K-12 formula aid to FY2008 or FY2009 levels. Mid-year cuts may put more states below this level.
• Four states had planned formula increases, but only two partially funded those increases. Further, in most states, SFSF program funds did not improve the fairness of the school funding formulas.
• While states may have initially maintained K-12 support above the FY2006 maintenance floor, mid-year aid cuts may drop states below that level, and below those in approved SFSF applications.
• The state-designated “primary” formulas represent only a portion of total state support for K-12 education, masking the underlying condition of the school funding in the states.
• Although funds from one-time SFSF grants were supposed to last for two years, most states used almost 70% of the total SFSF allocation in FY2010. This raises serious concern about state compliance with ARRA objectives and benchmarks in FY2011.
• The absence of a complete and reliable data source on state school funding formulas seriously hindered effective review of the states’ SFSF submissions to ensure compliance with ARRA objectives.
• Federal oversight of the SFSF program had serious shortcomings, resulting in a lack of assurance that states used SFSF funds to achieve the objectives and benchmarks in the ARRA statute.

Conclusions

• States experienced various levels of overall budget and revenue declines, but Congress established a specific allocation of SFSF funds to each state, and the federal Education Department did not deny the application of any state.
• The fairness of underlying school funding formulas varies widely among states. “Progressive” funding formulas provide a systematically higher level of state and local revenues per pupil to higher poverty districts. “Regressive” formulas provide less revenue to higher poverty districts. “Neutral” formulas provide about the funding levels to low and high poverty districts.
• These data underscore a critical factor regarding school funding:  “Restoration” or “maintenance” of K-12 aid levels have a very different meaning across states, given the wide disparity in the fairness of the underlying funding formulas.

This paper analyzes the distribution of $39 billion in federal stimulus funds for education known as the “state fiscal stabilization funds” in 11 states, and the impact of SFSF funds on the states’ K-12 school funding formulas. The SFSF funds are part of the American Recovery and Reinvestment Act of 2009, which has the following objectives:

• to give money to states to maintain and restore state aid through designated “primary” funding formulas to FY2008 or FY2009 levels, whichever is greater;
• implement any previously planned increases, or equity or adequacy adjustments, in those funding formulas;
• maintain overall state support for K-12 education above 2006 levels.

This research attempted to determine the extent to which states met the objectives set by Congress for SFSF program funds. It also sought to shed light on several related, and often asked, policy questions:

• Did states use SFSF funds to address shortfalls in non-education programs in the overall state budget?
• What impact, if any, did SFSF program funds have on the fairness of school funding in the states, especially in districts with high concentrations of student poverty?
• To what extent did the U.S. Department of Education ensure states met the ARRA benchmarks and objectives for SFSF program funds?

• What lessons can be learned for future Congressional efforts to use federal funds to maintain and improve state support for K-12 education through state funding formulas?

Main Findings

• Several states did not restore K-12 formula aid to FY2008 or FY2009 levels. Mid-year cuts may put more states below this level.
• Four states had planned formula increases, but only two partially funded those increases. Further, in most states, SFSF program funds did not improve the fairness of the school funding formulas.
• While states may have initially maintained K-12 support above the FY2006 maintenance floor, mid-year aid cuts may drop states below that level, and below those in approved SFSF applications.
• The state-designated “primary” formulas represent only a portion of total state support for K-12 education, masking the underlying condition of the school funding in the states.
• Although funds from one-time SFSF grants were supposed to last for two years, most states used almost 70% of the total SFSF allocation in FY2010. This raises serious concern about state compliance with ARRA objectives and benchmarks in FY2011.
• The absence of a complete and reliable data source on state school funding formulas seriously hindered effective review of the states’ SFSF submissions to ensure compliance with ARRA objectives.
• Federal oversight of the SFSF program had serious shortcomings, resulting in a lack of assurance that states used SFSF funds to achieve the objectives and benchmarks in the ARRA statute.

Conclusions

• States experienced various levels of overall budget and revenue declines, but Congress established a specific allocation of SFSF funds to each state, and the federal Education Department did not deny the application of any state.
• The fairness of underlying school funding formulas varies widely among states. “Progressive” funding formulas provide a systematically higher level of state and local revenues per pupil to higher poverty districts. “Regressive” formulas provide less revenue to higher poverty districts. “Neutral” formulas provide about the funding levels to low and high poverty districts.
• These data underscore a critical factor regarding school funding:  “Restoration” or “maintenance” of K-12 aid levels have a very different meaning across states, given the wide disparity in the fairness of the underlying funding formulas.

The American Recovery and Reinvestment Act of 2009 (ARRA), represents an unprecedented infusion of federal dollars into the nation’s public education system – about $100 billion over two years, more than double the fiscal year 2009 budget for the entire U.S. Department of Education.

States are supposed to use the funds to stave off teacher layoffs, stabilize declining state and local education budgets, and blunt other negative effects of the economic downturn for schools. The grants are also meant to encourage reforms in schooling that will improve student achievement. States must assure in their applications for ARRA funds that they will make progress in four areas of education reforms:

The Center on Education Policy surveyed education officials in 44 states and the District of Columbia (which is counted as a state in this report) to find out how they planned to utilize the money. At the time of the survey, states had applied for and received the first rounds of stimulus money for elementary and secondary education, and these funds had just begun trickling down to districts and schools.

Several findings emerged from this initial phase of CEP’s research on ARRA, including:

A year ago, when the stimulus program was first announced, many observers expected that both the job creation and the equity goals of the Act would be amply met. Researchers predicted that ARRA funding would allow more than half the states both to fund their established education finance formulae fully and have significant resources available to promote the four types of reform initiatives to which their governors had committed. USDOE similarly expected that “A State facing a large deficit can avoid reductions in total education funding while a State with a stronger budget situation can increase total education spending to work toward the education reforms.

Given these high expectations, the Campaign for Educational Equity at Teachers College, Columbia University, initiated a project last summer to examine how states were actually spending their stimulus funds during the first year of the Act’s implementation. The particular emphasis of our inquiry was to determine the extent to which the states were implementing the adequacy and equity provisions of the law and were achieving the progress toward improving educational opportunities for economically and otherwise disadvantaged students that both Congress and USDOE had anticipated.

The methodology focused on the following 20 states, chosen to represent the nation’s diversity in terms of location, size, urbanization, and equity in funding: Alabama, Arizona, Colorado, Connecticut, Georgia, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Texas, Vermont, and Washington. In order to obtain a rapid, but penetrating, understanding of how ARRA funds were actually being used in the state, the Campaign studied official federal and state reports, budget documents, websites, newspaper articles, and other documents, and they also spoke in each state with a number of people involved in the process from a variety of perspectives: advocates, government officials, school officials and administrators, think tank analysts, and academics.

Findings:

• ARRA was highly successful in achieving its goal of assisting states to maintain or even increase their pre-recessionary levels of basic educational funding, at least for FY 2009 and FY 2010, the first two years of the economic downturn. Seventeen of the 20 states were able to maintain their FY 2008 funding levels throughout this two year period, and 12 of these states maintained their higher 2009 funding level during 2010. Only three states were unable to maintain their FY 2008 funding level through FY 2010. It is questionable whether states will be able to continue to maintain these funding levels with dwindling stimulus dollars and mounting deficits in 2011.
  
• No states distributed ESF funds to school districts to “take action” in the four reform areas identified in the ARRA statute. Moreover, the data indicated that all of the states explicitly or implicitly “backfilled,” that is, they adjusted their level of state support and their allocation of ESF funds in a manner that would allow them to reach prior year funding levels or continued implementation of the state’s funding formulae, but without leaving any surplus for subgrants to local educational agencies. At this time, the small declines in local revenue sources did not appear to be creating major problems for school districts.
  
  In light of Congress’s stated concern for the continued “equity and adequacy adjustments” in state funding formulae, we also considered the impact of ESF funding on funding on inequities in the state’s primary K-12 funding formulae. Of the eight states in our sample that we believe were covered by this provision, six used ESF funds to continue implementing equity adjustments in whole or in part, and two made no continuing equity adjustments.

• The huge increases that ARRA has provided districts for Title I and IDEA funding have led in many areas to important new program initiatives and infrastructure investments, as well as an extension of service to thousands of disadvantaged students. However, in both of these program areas the pressures of “facing the cliff” of a sudden termination of these large funding allocations after 2011 is placing major constraints on efficient and effective use of the funds. In addition, unintended loopholes in both the Title I and IDEA statutes are allowing large portions of these funds to be used to maintain positions and programs in general education rather than to initiate new programs or expand or improve services for disadvantaged and disabled students.

The analysis of these findings emphasized first the significance of ARRA’s largely successful effort (at least through the current fiscal year) to assist states in maintaining adequate levels of educational expenditures during times of fiscal constraint. Congress’s intent to maintain or increase  pre-recessionary levels of spending on education during these times of severe economic downturn complemented and bolstered state court constitutional rulings that that children’s educational rights should not be tied to the ebb and flow of economic cycles.

In regard to the equity goals of the Act, the stark fact that no state in the sample reserved any of its ESF funding for new initiatives in the four priority reform areas, despite substantial jawboning from USDOE, demonstrates that states are not going to set aside scarce funds to support new initiatives for equity if they are not backed up by mandatory directives or strong maintenance of effort requirements. On the other hand, the fact that six of eight states continued to phase in equity and adequacy adjustments, even if mainly on a partial basis, suggests that where local constituencies and state court rulings are pressing for continuation of existing commitments to equitable reform, federal encouragement of these efforts can be significant.

Congress’s huge equity commitment in driving major new resources to Title I and IDEA programs for disadvantaged students and students with disabilities is of enormous significance, especially since these disadvantaged populations are usually among those who are most detrimentally affected by recessions and attendant budget cuts. Even with these earmarked equity grants, however, the pressures to maintain existing positions and programs has induced states and local districts to use these funds to maintain the status quo or to find ways to divert these funds to general uses.

The need to spend these funds quickly has also led districts to add large numbers of temporary staff positions or to concentrate their efforts on technology purchases and short-term professional development programs, rather than invest in teacher recruitment and retention, ongoing, high quality professional development, and other enduring capacity-building efforts that would have more lasting reform impact. In addition, a number of districts, especially in large urban areas, have used their Title I funds to expand the number of students being served, a practice that may create great difficulties if services have to be denied to these students, or the concentration and possibly the quality of programming have to be reduced, when the extra ARRA funding terminates in two years.

In light of these findings and analysis, the Campaign recommends that in the near term USDOE issue regulations defining “primary educational formulae” in order to ensure consistency in state reporting of their use of ARRA funds. They also call upon Congress to close the IDEA loophole that threatens to permanently reduce local school districts’ maintenance of effort requirements for funding of special education programs, and to extend the termination date for exemplary Title I and IDEA programs in order to reduce “face the cliff” pressures.

With the nation hunkered down for what looks to be lengthy bad times, American public schools, grappling with the most severe budget cuts in more than three decades, are reducing educational services to millions of children.

This past fall California laid off 20,000 teachers, resulting in average class sizes in Los Angeles high schools of 42.5. Teachers in Hawaii were “furloughed” and classes cancelled for 17 straight Fridays, In Illinois, 30,000 children lost preschool services, bilingual education was cut 25 percent and teacher recruitment in hard-to-staff schools was substantially reduced. Georgia cut $112 million intended to help close the gap between wealthier and poorer districts.

And there’s worse to come. Even after plugging budget holes with money from the American Recovery and Reinvestment Act (ARRA) – originally intended to stimulate innovation and create opportunities for low-income students -- 39 states are now reporting midyear shortfalls and projecting additional large gaps for FY2011. In New York, Governor David Paterson has proposed cutting the base budget by $1.4 billion next year. And with health care, social security, national debt, aging infrastructure, and extensive unfunded pension obligations competing nationally for increasingly scarce resources, the education economist James Guthrie has warned school districts to prepare for “a fiscal tsunami.”

The American boom-and-bust approach to educational opportunity has drastic consequences. Children cannot learn in over-sized classes, especially in needy schools with the least experienced teachers. Furloughs shorten the school calendar at a time when research increasingly argues for longer school days and years -- especially for low-performing students. And the persistence of such conditions permanently damages the life chances of entire generations of children.   

But cutting education services in this manner is not only unconscionable – it’s unconstitutional.

In recent years, the highest courts in 21 states have held that state constitutions guarantee the right of all public school students to an “adequate,” a “thorough and efficient,” or a “sound, basic education.” The courts in these “adequacy” cases have consistently emphasized that children are entitled to meaningful educational services that will prepare them for the competitive global marketplace and to function as capable citizens in a democratic society.  And, in most instances, they have ordered states to substantially increase education spending in poorer districts. 

The courts that have specifically considered the issue of the impact of budget cuts on constitutional rights to an adequate education have also agreed – in every single instance -- that the constitutional right to a quality education is not conditional and should not evaporate during times of recession. In Washington State, the Superior Court ruled that “the duty of the state to fully fund the common school program is not suspended in any part during period of fiscal crisis, even where the existing tax revenue is not sufficient to fund programs that the Legislature believes are necessary to meet the needs of the people of this state.” High courts in New Hampshire and New Jersey have issued similar rulings. 

Many budget cutting actions states are currently taking are violating these constitutional precepts. A case study analysis indicates that serious constitutional issues are raised by New York State’s past decisions to freeze current year foundation funding at last year’s levels, to extend the phase-in of increases resulting from the CFE litigation well beyond the four year period identified by the courts, and by the governor’s recent proposal not only to continue the freeze, but to actually reduce foundation funding by $1.4 billion for the next fiscal year.

Does that mean school spending is completely untouchable, even in times of economic crisis? No – but it does mean that when vital educational services are at issue, the burden is on the state to show how necessary services for all students will be maintained, despite a reduction in appropriations.  All feasible steps to do so must be taken, including assiduously pursuing additional revenue sources and minimizing the actual costs of constitutional compliance.

To fulfill these requirements, courts and legislatures must undertake cost analyses that relate to the essential outcomes of public education and that identify the resources needed to attain these outcomes, especially in regard to low-income students and other disadvantaged children. State education finance systems should establish a basic foundation funding amount that corresponds to the funding levels needed to provide the core sound basic educational services. Additional categorical funding mechanisms must supplement, not supplant, the constitutional foundation

When cost reductions must be made, states should be required to devise specific policies that save money without affecting the constitutional core of educational opportunity. These might include:

Zero-based budgeting. During flush times, most states simply layer new education initiatives over old ones, even when the latter haven’t proved their worth. Often the motivation for this is to avoid fights over “sacred cow” programs that are the darlings of advocacy groups. A zero-based approach would require managers to reconsider and justify every item in the district’s budget.

Multiyear budgeting. Stable funding can promote cost savings by, for example, eliminating hasty purchasing at the end of the year to avoid losing an appropriation or the scrapping of new programs simply because of heavy start-up costs.  It could also enable many schools to forego the current common practice of proactively laying off teachers in the spring to cover a range of possible budgetary scenarios in the fall. The costs of recruiting, hiring and training a single replacement teacher have estimated between $10,000 and $20,000.

School district consolidation. The potential savings of this approach are enormous: One study found that doubling enrollment reduces costs by 61.7 percent for a 300-pupil district and 14.4 percent for a 1,500 pupil district. Bigger districts can offer a wider range of courses, academic and curricular supports, technological resources and effective teachers.

Pension reform. Teacher retirement constitutes one of the largest components of state public employee retirement systems, and now the stock market collapse has created a crisis in pension obligations for school districts. California’s teacher pension alone has lost $56 billion. In New York City, pension fund contributions in fiscal 2008 were $5.7 billion, or approximately 10 percent of the entire budget. Chicago is saddled with similar costs. Reducing pension payments for newer teachers offers some respite, but real savings will come only from scaling back promised benefits for older teachers. With life expectancy now nearing 80, many states still allow teachers to retire with full benefits at 55 – and many of these “retirees” engage in double-dipping, continuing to work for the school system or for private employers.

Finally, all states must put practical mechanisms in place to avoid periodic funding crises whenever downturns and recessions occur. The basic mechanism needed is quite simple: states need to follow the biblical example of Joseph in Egypt and store surplus during the good years so that resources will be available to maintain stable service in the bad years that will inevitably follow. Most states have stabilization or rainy day funds, but the funds are capped at levels far below what’s necessary. Many funds also require rapid replenishment, limiting their usefulness. States should eliminate caps and establish dedicated revenue sources, such as a substantial percentage of sales or income taxes, for education and education stabilization funds.  

This paper analyzes the distribution of $39 billion in federal stimulus funds for education known as the “state fiscal stabilization funds” in 11 states, and the impact of SFSF funds on the states’ K-12 school funding formulas. The SFSF funds are part of the American Recovery and Reinvestment Act of 2009, which has the following objectives:

• to give money to states to maintain and restore state aid through designated “primary” funding formulas to FY2008 or FY2009 levels, whichever is greater;
• implement any previously planned increases, or equity or adequacy adjustments, in those funding formulas;
• maintain overall state support for K-12 education above 2006 levels.

This research attempted to determine the extent to which states met the objectives set by Congress for SFSF program funds. It also sought to shed light on several related, and often asked, policy questions:

• Did states use SFSF funds to address shortfalls in non-education programs in the overall state budget?
• What impact, if any, did SFSF program funds have on the fairness of school funding in the states, especially in districts with high concentrations of student poverty?
• To what extent did the U.S. Department of Education ensure states met the ARRA benchmarks and objectives for SFSF program funds?

• What lessons can be learned for future Congressional efforts to use federal funds to maintain and improve state support for K-12 education through state funding formulas?

Main Findings

• Several states did not restore K-12 formula aid to FY2008 or FY2009 levels. Mid-year cuts may put more states below this level.
• Four states had planned formula increases, but only two partially funded those increases. Further, in most states, SFSF program funds did not improve the fairness of the school funding formulas.
• While states may have initially maintained K-12 support above the FY2006 maintenance floor, mid-year aid cuts may drop states below that level, and below those in approved SFSF applications.
• The state-designated “primary” formulas represent only a portion of total state support for K-12 education, masking the underlying condition of the school funding in the states.
• Although funds from one-time SFSF grants were supposed to last for two years, most states used almost 70% of the total SFSF allocation in FY2010. This raises serious concern about state compliance with ARRA objectives and benchmarks in FY2011.
• The absence of a complete and reliable data source on state school funding formulas seriously hindered effective review of the states’ SFSF submissions to ensure compliance with ARRA objectives.
• Federal oversight of the SFSF program had serious shortcomings, resulting in a lack of assurance that states used SFSF funds to achieve the objectives and benchmarks in the ARRA statute.

Conclusions

• States experienced various levels of overall budget and revenue declines, but Congress established a specific allocation of SFSF funds to each state, and the federal Education Department did not deny the application of any state.
• The fairness of underlying school funding formulas varies widely among states. “Progressive” funding formulas provide a systematically higher level of state and local revenues per pupil to higher poverty districts. “Regressive” formulas provide less revenue to higher poverty districts. “Neutral” formulas provide about the funding levels to low and high poverty districts.
• These data underscore a critical factor regarding school funding:  “Restoration” or “maintenance” of K-12 aid levels have a very different meaning across states, given the wide disparity in the fairness of the underlying funding formulas.

The U.S. Constitution does not designate education as a federal government responsibility, and the federal government had almost no role in K-12 education until the mid-1960s. Since then, it has been more involved in education, mostly through partnerships with the states at the expense of local school districts. This has not improved students’ academic achievements. “Especially disappointing has been the inability to provide more equal education opportunities for disadvantaged students,” Vinovskis reports.

State and Federal Involvement in K-12 Education before 1960

A year ago, when the stimulus program was first announced, many observers expected that both the job creation and the equity goals of the Act would be amply met. Researchers predicted that ARRA funding would allow more than half the states both to fund their established education finance formulae fully and have significant resources available to promote the four types of reform initiatives to which their governors had committed. USDOE similarly expected that “A State facing a large deficit can avoid reductions in total education funding while a State with a stronger budget situation can increase total education spending to work toward the education reforms.

Given these high expectations, the Campaign for Educational Equity at Teachers College, Columbia University, initiated a project last summer to examine how states were actually spending their stimulus funds during the first year of the Act’s implementation. The particular emphasis of our inquiry was to determine the extent to which the states were implementing the adequacy and equity provisions of the law and were achieving the progress toward improving educational opportunities for economically and otherwise disadvantaged students that both Congress and USDOE had anticipated.

The methodology focused on the following 20 states, chosen to represent the nation’s diversity in terms of location, size, urbanization, and equity in funding: Alabama, Arizona, Colorado, Connecticut, Georgia, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Texas, Vermont, and Washington. In order to obtain a rapid, but penetrating, understanding of how ARRA funds were actually being used in the state, the Campaign studied official federal and state reports, budget documents, websites, newspaper articles, and other documents, and they also spoke in each state with a number of people involved in the process from a variety of perspectives: advocates, government officials, school officials and administrators, think tank analysts, and academics.

Findings:

• ARRA was highly successful in achieving its goal of assisting states to maintain or even increase their pre-recessionary levels of basic educational funding, at least for FY 2009 and FY 2010, the first two years of the economic downturn. Seventeen of the 20 states were able to maintain their FY 2008 funding levels throughout this two year period, and 12 of these states maintained their higher 2009 funding level during 2010. Only three states were unable to maintain their FY 2008 funding level through FY 2010. It is questionable whether states will be able to continue to maintain these funding levels with dwindling stimulus dollars and mounting deficits in 2011.
  
• No states distributed ESF funds to school districts to “take action” in the four reform areas identified in the ARRA statute. Moreover, the data indicated that all of the states explicitly or implicitly “backfilled,” that is, they adjusted their level of state support and their allocation of ESF funds in a manner that would allow them to reach prior year funding levels or continued implementation of the state’s funding formulae, but without leaving any surplus for subgrants to local educational agencies. At this time, the small declines in local revenue sources did not appear to be creating major problems for school districts.
  
  In light of Congress’s stated concern for the continued “equity and adequacy adjustments” in state funding formulae, we also considered the impact of ESF funding on funding on inequities in the state’s primary K-12 funding formulae. Of the eight states in our sample that we believe were covered by this provision, six used ESF funds to continue implementing equity adjustments in whole or in part, and two made no continuing equity adjustments.

• The huge increases that ARRA has provided districts for Title I and IDEA funding have led in many areas to important new program initiatives and infrastructure investments, as well as an extension of service to thousands of disadvantaged students. However, in both of these program areas the pressures of “facing the cliff” of a sudden termination of these large funding allocations after 2011 is placing major constraints on efficient and effective use of the funds. In addition, unintended loopholes in both the Title I and IDEA statutes are allowing large portions of these funds to be used to maintain positions and programs in general education rather than to initiate new programs or expand or improve services for disadvantaged and disabled students.

The analysis of these findings emphasized first the significance of ARRA’s largely successful effort (at least through the current fiscal year) to assist states in maintaining adequate levels of educational expenditures during times of fiscal constraint. Congress’s intent to maintain or increase  pre-recessionary levels of spending on education during these times of severe economic downturn complemented and bolstered state court constitutional rulings that that children’s educational rights should not be tied to the ebb and flow of economic cycles.

In regard to the equity goals of the Act, the stark fact that no state in the sample reserved any of its ESF funding for new initiatives in the four priority reform areas, despite substantial jawboning from USDOE, demonstrates that states are not going to set aside scarce funds to support new initiatives for equity if they are not backed up by mandatory directives or strong maintenance of effort requirements. On the other hand, the fact that six of eight states continued to phase in equity and adequacy adjustments, even if mainly on a partial basis, suggests that where local constituencies and state court rulings are pressing for continuation of existing commitments to equitable reform, federal encouragement of these efforts can be significant.

Congress’s huge equity commitment in driving major new resources to Title I and IDEA programs for disadvantaged students and students with disabilities is of enormous significance, especially since these disadvantaged populations are usually among those who are most detrimentally affected by recessions and attendant budget cuts. Even with these earmarked equity grants, however, the pressures to maintain existing positions and programs has induced states and local districts to use these funds to maintain the status quo or to find ways to divert these funds to general uses.

The need to spend these funds quickly has also led districts to add large numbers of temporary staff positions or to concentrate their efforts on technology purchases and short-term professional development programs, rather than invest in teacher recruitment and retention, ongoing, high quality professional development, and other enduring capacity-building efforts that would have more lasting reform impact. In addition, a number of districts, especially in large urban areas, have used their Title I funds to expand the number of students being served, a practice that may create great difficulties if services have to be denied to these students, or the concentration and possibly the quality of programming have to be reduced, when the extra ARRA funding terminates in two years.

In light of these findings and analysis, the Campaign recommends that in the near term USDOE issue regulations defining “primary educational formulae” in order to ensure consistency in state reporting of their use of ARRA funds. They also call upon Congress to close the IDEA loophole that threatens to permanently reduce local school districts’ maintenance of effort requirements for funding of special education programs, and to extend the termination date for exemplary Title I and IDEA programs in order to reduce “face the cliff” pressures.

A year ago, when the stimulus program was first announced, many observers expected that both the job creation and the equity goals of the Act would be amply met. Researchers predicted that ARRA funding would allow more than half the states both to fund their established education finance formulae fully and have significant resources available to promote the four types of reform initiatives to which their governors had committed. USDOE similarly expected that “A State facing a large deficit can avoid reductions in total education funding while a State with a stronger budget situation can increase total education spending to work toward the education reforms.

Given these high expectations, the Campaign for Educational Equity at Teachers College, Columbia University, initiated a project last summer to examine how states were actually spending their stimulus funds during the first year of the Act’s implementation. The particular emphasis of our inquiry was to determine the extent to which the states were implementing the adequacy and equity provisions of the law and were achieving the progress toward improving educational opportunities for economically and otherwise disadvantaged students that both Congress and USDOE had anticipated.

The methodology focused on the following 20 states, chosen to represent the nation’s diversity in terms of location, size, urbanization, and equity in funding: Alabama, Arizona, Colorado, Connecticut, Georgia, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Texas, Vermont, and Washington. In order to obtain a rapid, but penetrating, understanding of how ARRA funds were actually being used in the state, the Campaign studied official federal and state reports, budget documents, websites, newspaper articles, and other documents, and they also spoke in each state with a number of people involved in the process from a variety of perspectives: advocates, government officials, school officials and administrators, think tank analysts, and academics.

Findings:

• ARRA was highly successful in achieving its goal of assisting states to maintain or even increase their pre-recessionary levels of basic educational funding, at least for FY 2009 and FY 2010, the first two years of the economic downturn. Seventeen of the 20 states were able to maintain their FY 2008 funding levels throughout this two year period, and 12 of these states maintained their higher 2009 funding level during 2010. Only three states were unable to maintain their FY 2008 funding level through FY 2010. It is questionable whether states will be able to continue to maintain these funding levels with dwindling stimulus dollars and mounting deficits in 2011.
  
• No states distributed ESF funds to school districts to “take action” in the four reform areas identified in the ARRA statute. Moreover, the data indicated that all of the states explicitly or implicitly “backfilled,” that is, they adjusted their level of state support and their allocation of ESF funds in a manner that would allow them to reach prior year funding levels or continued implementation of the state’s funding formulae, but without leaving any surplus for subgrants to local educational agencies. At this time, the small declines in local revenue sources did not appear to be creating major problems for school districts.
  
  In light of Congress’s stated concern for the continued “equity and adequacy adjustments” in state funding formulae, we also considered the impact of ESF funding on funding on inequities in the state’s primary K-12 funding formulae. Of the eight states in our sample that we believe were covered by this provision, six used ESF funds to continue implementing equity adjustments in whole or in part, and two made no continuing equity adjustments.

• The huge increases that ARRA has provided districts for Title I and IDEA funding have led in many areas to important new program initiatives and infrastructure investments, as well as an extension of service to thousands of disadvantaged students. However, in both of these program areas the pressures of “facing the cliff” of a sudden termination of these large funding allocations after 2011 is placing major constraints on efficient and effective use of the funds. In addition, unintended loopholes in both the Title I and IDEA statutes are allowing large portions of these funds to be used to maintain positions and programs in general education rather than to initiate new programs or expand or improve services for disadvantaged and disabled students.

The analysis of these findings emphasized first the significance of ARRA’s largely successful effort (at least through the current fiscal year) to assist states in maintaining adequate levels of educational expenditures during times of fiscal constraint. Congress’s intent to maintain or increase  pre-recessionary levels of spending on education during these times of severe economic downturn complemented and bolstered state court constitutional rulings that that children’s educational rights should not be tied to the ebb and flow of economic cycles.

In regard to the equity goals of the Act, the stark fact that no state in the sample reserved any of its ESF funding for new initiatives in the four priority reform areas, despite substantial jawboning from USDOE, demonstrates that states are not going to set aside scarce funds to support new initiatives for equity if they are not backed up by mandatory directives or strong maintenance of effort requirements. On the other hand, the fact that six of eight states continued to phase in equity and adequacy adjustments, even if mainly on a partial basis, suggests that where local constituencies and state court rulings are pressing for continuation of existing commitments to equitable reform, federal encouragement of these efforts can be significant.

Congress’s huge equity commitment in driving major new resources to Title I and IDEA programs for disadvantaged students and students with disabilities is of enormous significance, especially since these disadvantaged populations are usually among those who are most detrimentally affected by recessions and attendant budget cuts. Even with these earmarked equity grants, however, the pressures to maintain existing positions and programs has induced states and local districts to use these funds to maintain the status quo or to find ways to divert these funds to general uses.

The need to spend these funds quickly has also led districts to add large numbers of temporary staff positions or to concentrate their efforts on technology purchases and short-term professional development programs, rather than invest in teacher recruitment and retention, ongoing, high quality professional development, and other enduring capacity-building efforts that would have more lasting reform impact. In addition, a number of districts, especially in large urban areas, have used their Title I funds to expand the number of students being served, a practice that may create great difficulties if services have to be denied to these students, or the concentration and possibly the quality of programming have to be reduced, when the extra ARRA funding terminates in two years.

In light of these findings and analysis, the Campaign recommends that in the near term USDOE issue regulations defining “primary educational formulae” in order to ensure consistency in state reporting of their use of ARRA funds. They also call upon Congress to close the IDEA loophole that threatens to permanently reduce local school districts’ maintenance of effort requirements for funding of special education programs, and to extend the termination date for exemplary Title I and IDEA programs in order to reduce “face the cliff” pressures.