GAO Releases Report on State Uses of Stimulus Funds

Earlier this month, the Government Accountability Office (GAO) released a new study, “Recovery Act: States’ and Localities’ Current and Planned Uses of Funds While Facing Fiscal Stresses,” examining how 16 states[1] and the District of Columbia have spent and plan to spend American Recovery and Reinvestment Act (ARRA) funds provided under a variety of programs. The study is a follow-up to two earlier reports on the subject, released in April and July. This post discusses the findings in the latest GAO report.

State Fiscal Stabilization Fund
The State Fiscal Stabilization Fund (SFSF) is a new $48.6 billion program designed to minimize state budget cuts for education and other government services.

Despite guidance from the Department of Education (ED) that the money is to be used for innovation and reform, most local education agencies (LEAs) plan to use the funds to offset state budget cuts to existing programs. LEA officials interviewed noted that pressing issues presented by budget shortfalls and the limited amount of time they have to plan for spending make it difficult to use the money for reforms. In addition, LEA officials stated that they have not received sufficient guidance from their respective state education officials on how they may and may not spend SFSF money. Most IHEs plan to spend the money on faculty and staff salaries and to offset tuition and fee increases.

ARRA Funds for Title I, Part A
The Recovery Act includes $10 billion for LEAs that serve disadvantaged youth through Title I, Part A of the Elementary and Secondary Education Act (ESEA). The funds are in addition to the regular 2009 appropriation of $14.5 billion. The first half of the $10.0 billion was made available on April 1^st, and over $3.0 billion of that money was allocated to the 16 states and the District of Columbia examined in this report. According to the GAO, only seven of those states had drawn down some of the funds by June 26^th because internal state application processes have slowed the movement of money from the state to the school district level.

The GAO also found that most states plan to use ARRA Title I money for professional development, high school programs, and pre-K programs, but states and LEAs are asking for more guidance from ED before finalizing their budgets. Specifically, state officials have requested more information on waiver provisions in the law (such as maintenance of effort and carryover waivers), while LEA officials are seeking guidance on reporting requirements and allowable uses for Title I funds that are compatible with the goals of ARRA.

ARRA Funds for the Individuals with Disabilities Education Act, Parts B and C
The GAO report shows that states and LEAs seem even more reticent to draw down ARRA funds for the Individuals with Disabilities Education Act (IDEA) Parts B and C. Only 8 percent of allocated funds for this program had been drawn down by seven states between April 1^st and June 26^th.

For the most part, LEAs plan to use the IDEA Part B Recovery Act funding for professional development, technology, improving transitions for students with disabilities (both from pre-K to K-12 and from secondary school to employment), and improving data tracking. In contrast to Part B, far fewer restrictions on spending exist for funds provided for IDEA Part C Recovery Act funds.

States and LEAs have also requested clarification on approved expenses for IDEA Part B Recovery Act funds, especially whether and how they can be used to cover construction costs and buses for students with disabilities.

Conclusion
It appears that states and LEAs remain on uncertain ground when it comes to spending ARRA funds. The GAO confirms that states and school districts are indeed struggling to find a balance between heeding ED’s advice to spend money quickly and ensuring that funds are spent in ways that align with the intent of ARRA. Because future rounds of ARRA funding depend on states’ compliance with the guidance issued on these early rounds of funding, it’s no surprise that states are wary of spending hastily.

It has become apparent that states’ hesitancy to spend funds improperly is, in most cases, outweighing the desire to get money into the hands of LEAs. Since the GAO report was published, additional ARRA funds have been obligated to states, significantly decreasing the percent of available funds that have actually been drawn down for spending. Specific guidance is needed to enable states and LEAs to spend funds with fewer concerns about their fate in future rounds of funding. We’ll be watching as states and LEAs continue to work to reconcile the need to spend quickly and smartly, and to fill budget holes while fostering reform.

[1] The 16 states are Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas.