The House’s Education Jobs Fund: State Fiscal Stabilization Fund 2.0?

Yesterday, the House of Representatives passed the Jobs for Main Street Act, a bill that repurposes already appropriated TARP funds for jobs programs. Although the Senate is unlikely to begin considering the bill until January 2010, some are already calling it the second stimulus. Much like the American Recovery and Reinvestment Act (ARRA), the Jobs for Main Street Act includes additional funding for school construction bonds and college work study grants. The biggest education program, however, is a $23 billion “education jobs fund” which sounds suspiciously similar to the ARRA’s $48.6 billion State Fiscal Stabilization Fund (SFSF). However, a few key differences in the new program are likely to ensure that the funds are disbursed and spent more quickly than the current stimulus funds.

According to the new legislation, the education jobs fund is to be administered similarly to the State Fiscal Stabilization Fund (SFSF), a program created by the ARRA that seeks to fill budget gaps in state education spending created by the economic downturn. The $48.6 billion in SFSF are distributed to states based on share of school age and total population. These funds are then distributed to local education agencies (LEAs) and institutions of higher education in each state in proportion to each sectors’ share of reductions in state spending. These distributions must be determined via each state’s primary education funding formulas. On all of these counts, the $23 billion for the education jobs fund is just like the SFSF.[1]

However, unlike the SFSF, education jobs funds can only be used for salaries, benefits, and other related costs associated with employment. In contrast, the SFSF can be used for nearly all education operating expenses including instructional materials and capital, as well as salaries and benefits. This new requirement ensures that these funds will only be used to save or create jobs in education, not for other expenses like instructional materials and capital. This change also eliminates the Department of Education’s warning about creating “funding cliffs” – using stimulus funds for on-going expenses that LEAs and institutions of higher education will not be able to afford when stimulus funds run out – that often appears in ARRA guidance. By giving LEAs and institutions of higher education free reign to use these new federal funds to support salaries, which are inherently on-going expenses, the House is telling them not to worry about funding cliffs.

Perhaps most importantly, the education jobs fund is explicitly not subject to any of the education reform goals outlined in the SFSF. These goals, which governors were required to sign off on to receive SFSF monies, include improving state data systems, standards and assessments, teacher distribution, and support for struggling schools. As a result of this change, states will not have to promise to further those goals in order to receive the new funds. Similarly, LEAs and institutions of higher education will be able to use the education jobs funds to support salaries and benefits for any staff member, not just those tied to the implementation of those goals.

Some have posited that the House’s choice to remove the reform goals from the new education jobs fund suggests that members do not support the Department of Education’s direction with these priorities. However, we believe that the move is a deliberate reaction to the speed with which the current SFSF and other stimulus funds have been disbursed. As we have discussed before, education stimulus funds have not been disbursed at particularly high rates. As of December 11^th, less than 46 percent of SFSF monies and 41 percent of all ARRA funds had been disbursed by states for spending. It is likely that the House removed these restrictions on spending to ensure that these new education jobs funds go out as quickly as possible.

Evidence suggests that restrictions on spending, including the reform goals and concerns about funding cliffs, have slowed spending at the LEA and institution level. For example, many states required LEAs to submit applications for SFSF monies including detailed budgets and spending plans to ensure that the funds would be spent in keeping with these restrictions. This process, coupled with bureaucratic obstacles at the local level, has prevented some LEAs from receiving and expending funds quickly.

This new education jobs fund is closer to traditional revenue sharing than the State Fiscal Stabilization Fund. It carries fewer restrictions, suggesting the funds may be distributed more quickly than current ARRA monies and increasing their overall impact on the education jobs market. However, this new jobs bill is not close to finished. The Senate has yet to discuss it and likely wont until after January 1^st. If it’s anything like the SFSF, the final version will be quite different from this initial House bill. Regardless, it appears that state education systems will continue to receive significant federal support during troubling economic times.

Check back with Ed Money Watch in the New Year for continuing coverage.

[1] However, 5 percent of each state’s allocation of the education jobs fund can be used for administrative purposes.