OIG Concerned about the Maintenance of Effort Provision of the SFSF

At the end of every year, the Office of the Inspector General (OIG) at the U.S. Department of Education releases a publication that details expected management challenges for the coming year. For fiscal year 2011, the OIG anticipated several challenges for the Department of Education (ED), many of which focused on the continued implementation and oversight of the American Recovery and Reinvestment Act of 2009 (ARRA). Of particular interest to Ed Money Watch were the OIG’s concerns over the maintenance of effort provision of the State Fiscal Stabilization Fund, a new program to help stabilize state education funding created by the ARRA.

The maintenance of effort provision requires states to maintain 2006 levels of state funding for both K-12 and higher education in fiscal years 2009, 2010 and 2011. States can then use State Fiscal Stabilization Funds to fill the gaps between 2006 funding levels and the greater of 2008 or 2009 funding levels. Theoretically, the maintenance of effort provision ensures a stable level of funding for K-12 and higher education during the economic downturn by preventing states from cutting their funding too significantly. However, the OIG has concluded in past reports that flexibility in the maintenance of effort provision has allowed some states to reduce overall funding for public education.

The OIG’s management challenges report suggests that ED has done little to address this issue since OIG released the alert memorandum about the maintenance of effort provision several months ago. Additionally, the report states that ED did not do much due diligence to ensure that the maintenance of effort data each state provided in its application was reliable. To correct these problems, the OIG recommends that ED track actual state funding for public education to ensure that each state complies with the maintenance of effort provision.

But tracking state spending on K-12 and higher education is easier said than done. Currently, the reporting provision of the ARRA requires states to report to the federal government on how sub-recipients (like school districts and institutions of higher education) are using the federal funds. This new process has placed significant strain on state agencies that have not had to track and report on the expenditure of federal funds as closely in the past. By asking the federal government to track the expenditure of state funds, the OIG adds another layer to an already complicated reporting system.

According to the OIG report, ED officials believe that current staffing levels are insufficient to properly track and verify state maintenance of effort data. As a result, ED has contracted with an outside organization to assist in monitoring states as they implement the maintenance of effort provision.

It is unclear what this increased monitoring means for education funding moving forward. The Education Jobs Fund of 2010 provides an additional $10 billion in funding for K-12 education and comes with a slightly tweaked maintenance of effort provision. While this new provision is stronger, it will still likely allow some states to reduce overall funding levels for public education. The real question is whether ED will penalize these states for doing so.