Navigating the Rocky Road of School Improvement Funding

As the number of schools identified for school improvement, corrective action, and restructuring under the No Child Left Behind Act continues to increase, states are under increasing pressure to improve student performance in these schools. Yet a new report from the Government Accountability Office finds that a little-known funding provision in NCLB is undermining state efforts to turn around low-performing schools.

The 4% Set-Aside vs. the Hold Harmless Provision

Under NCLB, schools that fail to meet state achievement benchmarks—otherwise known as Adequate Yearly Progress or AYP—for two consecutive years enter “school improvement” status. NCLB requires states to set aside four percent of their Title I funds to support school improvement activities—such as professional development, new curriculum, extended learning time, or full-scale restructuring—in these schools.

Yet many states are not able to reserve the full four percent of their Title I funds for school improvement, because a separate provision of the law prevents them from doing so. NCLB includes a “hold-harmless” provision that prevents states from reducing a school district’s Title I funding more than 5 to 15 percent below the previous year’s level as a result of the set-aside. States have to fulfill this obligation before reserving any funding for school improvement.

Title I funds are allocated to school districts through a formula that is based primarily on the number of poor children they enroll. The hold-harmless provision protects school districts from Title I funding cuts if their proportionate share of poor children declines. In practice, that means giving more money to such districts than the Title I formulas would allocate otherwise. After meeting hold-harmless requirements, some states have less than four percent of Title I funds left over to support school improvement.

The Result: Less, Unpredictable School Improvement Funding

According to a new report by the Government Accountability Office, 22 states have not been able to spend the full four percent of their annual Title I allocations on improvement activities for at least one year since 2002. A separate, earlier report by the Center for Education Policy found that 29 states would be unable to meet the four percent set-aside in 2007-08.

In theory, states should spend four percent of their Title I funds—a total of about $500 million out of the $12.8 Title I appropriation for fiscal year 2007—on school improvement. But the Center for Education Policy estimates that $192 million of that $500 million will be lost because of the hold-harmless provision.

Moreover, the amount of money states have to spend to satisfy hold-harmless requirements is unpredictable from year to year, depending on the amount of money that Congress appropriates for Title I and demographic changes across and within states. This instability makes it difficult for low-performing schools to implement coherent, long-term school reforms, as the amount of money they receive to support these efforts often fluctuates each year. Some states have compensated by finding other funding sources for school improvement activities. For example, states have used federal funds from the Comprehensive School Reform program, Reading First, and Improving Teacher Quality State Grants to support school improvement efforts. In addition, 17 states have used their own funds to help sustain improvement activities in low-performing schools.

Eliminating the Hold Harmless Provision

The Department of Education has recognized these problems with the four percent set-aside. The administration’s 2007 budget request proposed eliminating the hold-harmless provision so that federal school improvement funding would stabilize at four percent of overall Title I funding.

As the GAO report points out, there has been little analysis of how the hold harmless provision affects different types of school districts. The Department claims that the provision is keeping too much federal money in lower-poverty school districts, and harming high-poverty, low-performing districts by leaving less money for them and for school improvement activities.

But this is all hypothesis. For years hold harmless provisions in Title II of NCLB protected districts throughout Mississippi from experiencing dramatic funding declines, whereas low-poverty but high-growth districts in California were slated for increases. GAO recommends that the Department of Education “develop an analysis comparing the characteristics of districts that contribute to the set-aside with those protected by the hold-harmless provision.” The Department agreed with this recommendation. Congress will need to address this issue when it resumes reauthorization of NCLB legislation—and the Department must ensure it has the facts and data to make informed decisions about these policies.

A Separate School Improvement Funding Stream

The fiscal year 2007 budget also provided funding to support “School Improvement Grants” to states to supplement the four percent set-aside. Although NCLB authorized these grants, the Bush administration did not request funding for them until fiscal year 2007. Congress funded the program in fiscal year 2007 at $125 million and increased funding to $491 million in the current fiscal year. In order to receive the grants, which are distributed in proportion to each state’s Title I allocation, states must submit an application and meet some additional reporting and accountability requirements.

As the four percent set-aside shrinks in many states, School Improvement Grants are an important source of additional federal funding needed to sustain school improvement activities in low-performing schools. The Bush administration has requested level-funding for this program in fiscal year 2009—even as the number of schools in school improvement status rises (8,400 in 2004-05 to 10,700 in 2006-07). In the near term, Congress must continue to fund, and possibly even expand, the School Improvement Grants program. It must also make sustained funding to support school turnaround efforts a key priority in the NCLB reauthorization.