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Desperate for cash to fill growing budget deficits, state governments are starting to tangle with federal and local officials over a $39.8 billion pot of economic-stimulus money that was designed to prop up the budgets of local school districts, but is increasingly being eyed as a patch for states鈥� own financial woes.
Vague language and loopholes in the American Recovery and Reinvestment Act鈥攖he stimulus package signed into law in February by President Barack Obama鈥攁re sparking questions about how much discretion states have over education stimulus funding. Mayors and school boards in a number of states fear being shortchanged by revenue-hungry governors and legislatures.
U.S. Secretary of 91制片厂视频 Arne Duncan is putting state-level officials on notice that spending the first chunk of stimulus money unwisely could jeopardize aid that his office will distribute later.
To learn from top district leaders about how to use stimulus aid, register now for EdWeek鈥榮 upcoming summit, .
鈥淚f states are doing things that are not in the best interests of children, they are just very simply going to disqualify themselves and take themselves out of the running for billions of dollars,鈥� Mr. Duncan said in an interview last week.
Examples of such power struggles are piling up across the country.
In Rhode Island, Gov. Donald L. Carcieri, a Republican, wants to cut state education funding in the next budget year by about $37 million, free up that money for other purposes, and use federal stimulus money to fill in the education gaps.
View the full edweek.org video interview with Secretary Duncan.
In Kansas, Gov. Kathleen Sebelius, a Democrat who has been tapped to become Mr. Obama鈥檚 secretary of health and human services, is objecting to the legislature鈥檚 pursuit of $26 million in K-12 cuts to help shore up the state鈥檚 $680 million budget deficit, even as Kansas is expecting about $387 million in federal education stimulus aid.
And in Ohio, under a new funding formula proposed by Democratic Gov. Ted Strickland, some districts would get little or no additional money over the next two fiscal years, even though they鈥檙e supposed to get a boost from the stimulus package through the federal Title I and special education programs.
鈥淪tates have big shortfalls in their budgets, and there鈥檚 going to be the temptation to use the stimulus money for that purpose,鈥� said Molly Hunter, the executive director of the New Jersey-based finance-advocacy group 91制片厂视频 Justice. She noted that the practice of 鈥渟upplanting,鈥� or replacing, state funds with federal funds is generally highly restricted by federal guidelines.
鈥淭his is going to be a big concern with the stimulus,鈥� Ms. Hunter said.
Second Round of Aid
It鈥檚 already a concern for Secretary Duncan, who said in a March 24 interview with 91制片厂视频 Week that his office is having conversations daily with a 鈥渘umber of states鈥� over issues involving how the money can be used.
Officials in several states are squabbling over what to do with their share of education stimulus funding, with most of the argument centering on the $39.8 billion state stabilization fund. This pot is designed primarily to prop up education budgets and stave off cuts to school districts.
SOURCE: 91制片厂视频 Week
And he鈥檚 dishing out a warning: 鈥淲e鈥檙e putting out literally billions of dollars. We鈥檙e also holding back billions of dollars. If we see states doing things that don鈥檛 make sense and aren鈥檛 in the spirit of what this [stimulus aid] is about, they would put themselves in jeopardy of receiving the second set of money.鈥�
At stake is a second slice of state economic-stabilization money, worth $13 billion, due to go out after the U.S. Department of 91制片厂视频 approves states鈥� plans for using the money for education reform. The department is holding back that money鈥攁 third of the $39.8 billion in education aid under the state stabilization fund鈥攖o make sure states spend the first portion wisely.
Mr. Duncan also has control over which states share $4.35 billion in incentive-grant money funded in the stimulus package鈥攎oney designed to reward states for progress on initiatives to improve education.
鈥淚t鈥檚 absolutely in states鈥� best interests, in school districts鈥� best interests, and children鈥檚 best interests that people do the right thing,鈥� he said in the interview.
The American Recovery and Reinvestment Act provided some for education, most of it through the federal 91制片厂视频 Department. (鈥淟ocal Educators Prepare to Use One-Time Funds,鈥� Feb. 25, 2009.)
Almost two-thirds of the money is flowing through state governments, either in the form of increases in Title I aid for disadvantaged students, in special education funds, or in state stabilization dollars for local school districts鈥� budgets. For the stabilization fund money, states鈥攁t a minimum鈥攎ust keep financing their schools with state dollars at 2006 levels. The increases in Title I and special education aid, which are separate from the state stabilization fund, are supposed to flow to districts virtually untouched.
But state finances and school funding formulas are complex and vary widely. Although there are supposed to be strings attached to federal stimulus money, it鈥檚 fairly easy to move money around when state budgets are tallied in the billions of dollars.
A growing number of states are filling in their budget gaps with stimulus money or, in another strategy, cutting the state share of education funding鈥攖hereby freeing up state dollars for other expenses鈥攁nd filling in education budgets with stimulus aid.
Some education advocates fear states may try to count the increased Title I and special education dollars as part of their own commitment under state school funding formulas, freeing up more state money for other purposes.
School districts in many states, such as California and Florida, won鈥檛 end up getting any increased funding over current-year levels despite the economic-stimulus funding.
Deficit Sinkhole
States are facing a combined $84.3 billion in budget deficits in the 2010 fiscal year alone, according to a January report from the Denver-based National Conference of State Legislatures. And governors, who generally are bound by state constitutional restrictions barring them from taking on debt, must balance those budgets.
That鈥檚 made for some creative thinking when it comes to use of the education stimulus aid.
In Hawaii, Gov. Linda Lingle, a Republican, found out in mid-March that the state had a $90 million shortfall that had to be closed by June 30. Last week, she proposed using $90 million in state stabilization education funds to close that gap. Otherwise, she said, education or other state agencies would have to be cut.
To comply with the letter of the stimulus law, the state is, in effect, slashing education by $90 million and using federal funds to fill the gap.
鈥淭he only ability we have with stimulus funds is to use it to put into education,鈥� Gov. Lingle said at a March 25 press conference. 鈥淪o this makes ... education whole.鈥�
In Idaho, Gov. Butch Otter has drawn criticism for proposing to cut school funding by 5 percent next fiscal year and hang on to the stabilization funding from the federal government until 2011鈥攖he deadline by which states must spend stabilization funds.
鈥淲e simply do not know how much worse this economic downturn will get or how long it will last,鈥� Gov. Otter, a Republican, said in a . 鈥淚t is far better, wiser, and more fiscally responsible in my judgment to continue planning for the worst.鈥�
Talk of a similar strategy has been heard in Connecticut, Illinois, Texas, Michigan, and California.
But local officials are pushing back.
The San Diego Unified School District was so worried that the state would try to hold back some of the stimulus money to plug the budget deficit that it asked the state鈥檚 congressional delegation for clarification, said Bernie Rhinerson, a district spokesman.
California鈥檚 dire budget situation forced $42 million in midyear cuts to the 132,000-student district鈥檚 $1.2 billion general-fund budget, and San Diego Unified faces another $50 million in cuts this year without help from the stimulus package, Mr. Rhinerson said.
The result of the district鈥檚 lobbying was a stern letter on March 17 from 26 of the state鈥檚 U.S. House members to Gov. Arnold Schwarzenegger, a Republican, and other top officials. It read, in part: 鈥淚t has been suggested that the state has some ability to intercept stabilization funds. ... It does not.鈥� The letter鈥檚 endorsers included House 91制片厂视频 and Labor Committee Chairman George Miller, D-Calif.
Local Officials Protest
It鈥檚 not just school districts keeping an eye on stimulus funding.
In Rhode Island, David N. Cicilline, the Democratic mayor of Providence, urging him to intervene in a plan by Gov. Carcieri to cut the state contribution to education funding by $37 million and fill the gap with federal stimulus money.
鈥淭he net result is that most districts would see a small increase, and in Providence, there鈥檚 actually a reduction in the education investment,鈥� Mayor Cicilline said. 鈥淭o take [the money] away from the children and use it to plug a budget gap is absolutely wrong.鈥�
In defending his budget proposal, however, Gov. Carcieri said: 鈥淢y budget uses the federal stimulus money as it was intended鈥攖o preserve and create jobs.鈥�
In Ohio, Gov. Strickland has developed a complex new school funding formula, in part because the current one has been declared unconstitutional several times by the state鈥檚 high court. He鈥檇 use federal education stimulus dollars, in part, to fund the new formula.
The result would be that even though some Ohio districts, by federal estimates, are supposed to get additional money for Title I and special education under the stimulus package, many would get little or no increase over the next couple of years. That has sparked complaints from legislators.
But not everyone is complaining. David Varda, the executive director of the Ohio Association of School Business Officials, acknowledges the governor鈥檚 funding plan may seem to conflict with rules that say federal Title I and special education money must 鈥渟upplement鈥� state funds and not 鈥渟upplant鈥� them.
鈥淏ut we are not in normal times,鈥� Mr. Varda said. 鈥淭he state鈥檚 broke. They鈥檙e pulling all of the ends together to get to a goal of getting all districts to have as much money as [in fiscal year 2009].
鈥淲hat鈥檚 the alternative?鈥� he said. 鈥淭o lay off a bunch of teachers, and then kids don鈥檛 get the services they need?鈥�
