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How States Plan to Spend Their State Fiscal Stabilization Funds

UPDATE: Updates on State Fiscal Stabilization Applications can be viewed here.

The State Fiscal Stabilization Fund (SFSF) is the largest source of education funds from the American Recovery and Reinvestment Act (ARRA). This fund is intended to help states fill the gaps in both their K-12 and higher education budgets caused by the recent economic climate. Although most states are in the process of submitting or waiting for approval of their State Fiscal Stabilization Fund applications, 13 states have already started to receive funds. Below we discuss the applications that these states submitted for how they intend to use the SFSF funds they have been allocated.

In the application, each state is required to present how much of the Education Stabilization funds (81.8 percent of the total SFSF allocation) it will use in fiscal years 2009 and 2010 for K-12 and higher education separately and how much money will remain for use in 2011. Additionally, states are required to describe how they will spend their Government Services funds (18.2 percent of the SFSF allocation).

Four of the 13 states intend to use more than 50 percent of their Education Stabilization funds on K-12 education in 2009 alone. Unsurprisingly, three of these states-Illinois, California, and Florida-are facing significant budget deficits (estimated at 15.1 percent, 13.6 percent, and 9.0 percent of total state spending, respectively by the Center for Budget and Policy Priorities). Oregon, the fourth state, plans to use 60.4 percent of its funds on K-12 in the first year even though it is facing a relatively smaller deficit of 6.6 percent.

Only two states plan not to spend any Education Stabilization funds on K-12 in 2009 - Minnesota and New York. Both of these states face low budget deficits compared to other states, 3.8 percent and 4.5 percent respectively.

Oregon intends to use the largest proportion of its Education Stabilization funds on higher education in 2009, 23.1 percent. Georgia, which faces a 10.3 percent budget deficit in 2009, intends to spend the second highest proportion, 19.3 percent. Utah and Florida, which both face relatively high budget deficits in 2009, will spend the third and fourth highest proportions of their funds on higher education in 2009.

Four states, however, do not plan to use any funds for higher education in 2009.  Three of these states, Nevada, New York, and Wisconsin, will have budget deficits below 8 percent in 2009. Illinois, however, faces the largest deficit of all 13 states.

According to the applications filed with the Department of Education a few states have decided to focus most of their Education Stabilization spending in 2010 instead of 2009. New York, Maine, and Minnesota all plan to spend more than 50 percent of their Education Stabilization funds on K-12 in 2010. After South Dakota, these three states have the lowest budget deficits as a percent of overall state spending.

Only six of the 13 states expect to have education funds remaining after fiscal year 2010. Mississippi will have 51.9 percent of its funds remaining, South Dakota will have 32.7 percent, and Wisconsin will have 21.9 percent, while the other three states will have significantly less. All states with funds remaining after 2010 are facing budget deficits below 10 percent in 2009.

State SFSF applications suggest that Government Services funds, which can be used for education as well as other services, will be used for a wide variety of purposes. The most common, however, is public safety. California, South Dakota, and Georgia all plan to use 100 percent of their Government Services funds on public safety. Wisconsin will also use 40 percent of its funds for public safety.

Four states, however, have not yet determined how they will use any of their Government Services funds - Maine, Oregon, Florida, and Nevada. Utah and Wisconsin have also not determined how some percentage of their funds will be used.

Several states plan to use their Government Services funds for education-related purposes. Illinois, Minnesota, New York and Wisconsin will all use some proportion of their funds for K-12 purposes while Illinois, Minnesota, Mississippi and New York will use funds for higher education purposes. Only Minnesota plans to use the funds for both K-12 and higher education modernization purposes.

These state applications provide an interesting window into how the SFSF funds will be allocated. Some states, like South Dakota and Utah, have tried to evenly space out the use of funds between years and programs. But others, like California and Illinois, have front-loaded the spending most likely in response to intense budget pressures. However, these applications only tell us in which sectors the money will be spent, not how the funds will actually be used.  This will be almost entirely up to the local education agencies and, to a lesser degree, the institutes of higher education that receive them.