Education Stimulus

Though fiscal year 2011 – the year most education funds from the American Recovery and Reinvestment Act (ARRA) of 2009 were set to expire – has come and gone, some states are still clinging to their ARRA Title I funds. These funds are intended to provide additional services for low-income students and are distributed by formula among states and school districts. In an effort to give states the opportunity to use all of their Title I funds from the stimulus bill, last September the Department of Education gave states permission to apply for waivers that would allow them to obligate any remaining ARRA Title I funds through the end of fiscal year 2012. Previously, those states have to obligate the funds September 30^th, 2011 and spend them by January 3^rd, 2012.

This was a significant development for several states that initially faced obstacles in distributing their ARRA Title I funds to districts. In some cases, states had tens of millions of dollars remaining on October 1st, 2011. But it appears that the vast majority of states had at least some money lingering in their ARRA accounts at the end of the 2011 fiscal year. Where do those states stand today? 

According to Department of Education spreadsheets on outlaid and remaining ARRA Title I funds, only six states had used every single one of their ARRA Title I dollars as of January 13, 2012. Those states are Hawaii, Iowa, Kentucky, Missouri, South Carolina, and Vermont, an interesting collection of states with widely varied budget deficits during the economic downturn.

Most states have somewhere between 0.1 percent and 2.0 percent of their funds remaining, meaning they have about 8 months to spend anywhere from a few thousand dollars (Connecticut and Alaska, for example) and several million (Ohio, Texas, and California, among others). In total, over $175 million is still unspent, 1.8 percent of the total $10 billion made available.

But a few states have really lagged in getting their funds out the door. Puerto Rico is the biggest offender – it has $70.0 million in funds remaining, 17.3 percent of its original allocation under ARRA Title I. Nebraska comes in second with 14.2 percent, or $6.8 million in remaining funds. North Dakota, the District of Columbia, and New Jersey round out the top five, each with over 5.0 percent of their funds remaining.

It is likely that the states with relatively small proportions of their funds remaining will have little trouble obligating and spending their ARRA Title I funds between now and September 30^th, 2012. But the states with significant remaining balances will have to engage in some thorough and thoughtful planning to make sure they don’t lose any of these funds at the end of the year.

To download a table containing these data for all 50 states, Puerto Rico, and the District of Columbia, click here.

Yesterday, the Department of Education released the details for the third round of the Race to the Top competition. The first two rounds of Race to the Top (RttT) were created by the American Recovery and Reinvestment Act of 2009 to help spur systemic education reform in states. Though RttT did not receive any funding in the regular 2010 appropriations, this third round is made possible by $698 million in hard-won funding for the program from fiscal year 2011 appropriations. While the majority of that $698 million will go towards a separate $500 million early learning competition, $198 million will be available to the nine states that applied for the second round of the competition but did not win a grant.

This means that only Arizona, California, Colorado, Illinois, Kentucky, Louisiana, New Jersey, Pennsylvania, and South Carolina are even eligible for the funds. Essentially, the third round of the competition will allow each state to select certain aspects of their Round 2 RttT proposal to fund with this pot with a particular emphasis on activities to improve science, technology, engineering, and math (STEM) education.

However, each state is not automatically entitled to their share of the $198 million. Congress required that the funds be divided amongst the states based on their proportional share of the school-age population, and each state then must meet the following requirements:

1. Submit signatures of support from the governor, chief state school officer, and president of the state board of education;

2. Provide performance measures for any activities selected for funding with round three funds that were not specified in the round two application;

3. Be in compliance with Education Jobs Fund maintenance of effort requirements;

4. Be in compliance with an aspect of the State Fiscal Stabilization Fund Phase Two application relating to state longitudinal data systems;

5. Not have any legal barriers between linking student achievement data to teacher or principal effectiveness (commonly known as the student-teacher data firewall);

6. Be participating in an effort to improve the quality of state assessments through a consortium of states (like the consortiums currently funded by the Race to the Top Assessments competition).

Additionally, the law requires that each state “maintain, at a minimum, the conditions for reform described in its Race to the Top Phase 2 application.” This basically means that each state cannot backtrack on any of the reform efforts underway at the time of their round two applications like participation in the Common Core State Standards or plans to work with struggling schools.

These requirements already spell trouble for a couple of states.

South Carolina, which could very likely be uninterested in the funds to begin with, does not meet the Education Jobs Fund maintenance of effort provisions. California, which recently lost its State Longitudinal Data Systems grant, does not currently have the ability to link student data to teachers in its state data system – a requirement of the SFSF Phase 2 application. Other states could also be at risk if they have begun to undermine any reform efforts linked with their Race to the Top applications. But the Department should not be faulted for placing these restrictions on the funds – they could go a long way in ensuring that this third round of funding will go to the states most dedicated to implementing real reforms.

Overall, the greatest surprise hidden in the Department’s Race to the Top announcement was the focus on STEM education. Though the Department isn’t requiring that states use the third round of funding exclusively for STEM-focused efforts, each state will have to “allocate a meaningful share of its Phase 3 award to advance STEM education.” Though the announcement does not specify what a “meaningful share” constitutes, it appears that the Department has decided that investing these RttT funds in STEM education will give them the most bang for their reform buck.

UPDATE: A powerpoint presentation available from the Department of Education defines "meaningful share" as "sufficient funding for selected activities that are likely to result in measurable improvement in one or more STEM outcomes related to each activity. For example, a $2 million investment in expanding the number of teachers qualified to teach Advanced Placement (AP) Calculus would be considered meaningful if the State could demonstrate that this level of funding would lead to a significant percent increase in the number of students in high-poverty schools taking AP Calculus over a 3-year period."

Luckily for those nine states, each one received 100 percent of the possible 15 points available in the STEM competitive priority in their round two applications. This means each state theoretically has a detailed plan for STEM education already in their RttT proposals. Assumedly, each state will prioritize these efforts when they select parts of the proposals to support with the round three funds. But each state is also able to invest their share of the round three RttT funds in other areas of their application, if they have funds remaining. The efforts they select for the remaining funds will reveal each state’s reform priorities outside of the Department’s focus on STEM.

States interested in applying for the round three funds have until November 22^nd to provide the initial assurances described above, a pretty short timeline. Once they are deemed eligible for the funds, they have until December 16^th to submit a plan that identifies what aspects of their previous application they will be funding, a budget for these activities, and performance measures. Check back with Ed Money Watch for continued coverage of the competition.

What is the ideal cost per student for an innovative education project?   At this point, no one can really say for sure; we don’t have enough evidence on successful reforms. Hopefully, that will soon change.

Today, the Department of Education announced the 23 highest-rated applicants for the second round of the Investing in Innovation fund (i3) grant competition. i3 is helping to grow local, mostly untested innovative reform efforts and collecting data on their effectiveness. As a result, the i3 grantees should make a big contribution to our knowledge about what education reforms work, how they can be replicated elsewhere, and which ones get the most bang for the buck.

This round of the i3 program, which was originally created by the American Recovery and Reinvestment Act of 2009, will provide $150 million in competitive grants to school districts and partnerships between non-profits and districts to support innovative reform efforts. These finalists must find matching grant support of between 5 and 15 percent before they are officially awarded the federal funds. Much like the first round of i3 grants awarded in 2010, the finalists for this round vary widely in scope, focus, and location. Only one finalist applied for a scale-up grant, which are grants intended to support projects that already have rigorous evidence of success. Five finalists are validation applications, meaning they have moderate evidence of success. Finally, 17 finalists applied for development grants to support promising but untested efforts.

Each applicant had to apply under an “absolute priority” defined in the i3 guidance. Surprisingly, the 23 finalists are reasonably equally distributed among the five priority groups. See the table below for the breakdown.

This was not the case for the “competitive preference priority,” a secondary set of priorities that applicants could identify under for additional points. Specifically, a greater concentration of applicants applied under the “college access” and “students with disabilities and limited English proficiency” categories than the other four. See table below for the complete breakdown.

The finalists are located in 14 different states representing all regions of the country. However, 4 are located in California and 4 are located in New York, an unsurprising development given the large populations in both states. Kentucky, Maryland, and Texas each house two finalists. Unfortunately, there is not data available at this time on whether applicants are located in rural, urban, or suburban areas except that we know that five applicants applied under the “rural” priority.

The most interesting distinction among the finalists, however, is the so called “bang for your buck” for each project. That is, how much do these reforms cost per student? We calculated those very figures using data from the Department of Education on the estimated number of students each finalist will serve and the amount of funds they each requested for their grant.

Unsurprisingly, cost per student varies widely among the finalists with a low of $69 per student for the Kentucky Valley Educational Cooperative’s Career and College Readiness Transformations program and a high of $4,641 for KnowledgeWorks’ Creating a Corridor of Innovation program. Del Norte Unified School District’s Responding Effective to Assessments with Curriculum and Teaching (REACT) program comes in at the median at $771 per student. In total, nine finalists have costs per student of $1,000 or more while another nine have costs per student of below $300. Click here to download a spreadsheet containing these data.

This variation is somewhat concerning at both ends of the spectrum – while it seems unlikely that $69 per student will make much of a difference for reform efforts, $4,641 per student seems like a potentially ineffective use of federal funds. While it does not appear that the Department of Education took cost per student into account as it scored each i3 applicant, it seems impossible to ignore this important factor in awarding grants.

As we said earlier, though, no one really knows what the ideal cost per student for an innovative project is.  Hopefully, the evaluations and data collected from the i3 grantees will help us better understand what successful reforms cost per student. With this information, the federal government will be better able to determine what costs are reasonable and realistic and local schools and districts will be able to budget appropriately as they attempt to undergo similar efforts.

Assuming the 23 finalists for the second round of i3 grants are able to secure matching funding, they will join the previous 49 winners in one of the Department of Education’s first efforts to rigorously support and evaluate local innovative programs. Check back with Ed Money Watch as we follow their progress.

The State Fiscal Stabilization Fund, a program created by the American Recovery and Reinvestment Act of 2009 to help states maintain state spending for education and other services, provided $39 billion in Education Stabilization funds specifically to support education spending. While most media reports focus on how the funds were used to support K-12 education, little is known about how states used the funds to support higher education.

Today, the Federal Education Budget Project (FEBP), Ed Money Watch’s parent initiative, released a policy paper, The State Fiscal Stabilization and Higher Education Spending: Part 3. This report sheds some light on how states actually used the Education Stabilization funds to support higher education and what will happen to these institutions' budgets in fiscal year 2012 when the funds are no longer available. Findings are based case studies of eight states including Colorado, Louisiana, Massachusetts, Montana, Nevada, North Carolina, Ohio, and Wyoming.

While it is hard to generalize about how states used the funds, we can draw some general conclusions about how the ARRA funds actually affected higher education and what is likely to happen once the funds are no longer available. For example, every state interpreted Department of Education guidance on the funds differently, likely the result of two inherently conflicting priorities outlined in the guidance: institutions were to use the funds to both save and create jobs and to avoid ongoing expenditures.

The State Fiscal Stabilization Fund, a program created by the American Recovery and Reinvestment Act of 2009 to help states maintain state spending for education and other services, provided $39 billion in Education Stabilization funds specifically to support education spending. While most media reports focus on how the funds were used to support K-12 education, little is known about how states used the funds to support higher education.

Today, the Federal Education Budget Project (FEBP), Ed Money Watch’s parent initiative, released a policy paper, The State Fiscal Stabilization and Higher Education Spending: Part 3. This report sheds some light on how states actually used the Education Stabilization funds to support higher education and what will happen to these institutions' budgets in fiscal year 2012 when the funds are no longer available. Findings are based case studies of eight states including Colorado, Louisiana, Massachusetts, Montana, Nevada, North Carolina, Ohio, and Wyoming.

While it is hard to generalize about how states used the funds, we can draw some general conclusions about how the ARRA funds actually affected higher education and what is likely to happen once the funds are no longer available. For example, every state interpreted Department of Education guidance on the funds differently, likely the result of two inherently conflicting priorities outlined in the guidance: institutions were to use the funds to both save and create jobs and to avoid ongoing expenditures.

As a result, many states used their funds to support salaries and benefits in the effort to save and create jobs. Some states, like North Carolina, even required their institutions to use these funds in this manner, while others allowed their institutions to choose to do so. These states clearly prioritized saving and creating jobs over avoiding ongoing expenditures. States like Wyoming, on the other hand, dedicated a significant portion of their Education Stabilization Funds to one-time expenses like improvements to instructional facilities. These states seemed more concerned with creating a funding cliff once the Education Stabilization funds ran out than using the funds to support directly support salaries and benefits.

Regardless of how states and institutions chose to spend the funds, however, it is clear that the Education Stabilization funds played an important role in keeping higher education institutions financially stable in 2009, 2010, and 2011. The funds helped delay or lessen the impact of tuition increases in each of the years and kept many state higher education employees in their jobs. But most states are not out of the woods yet – many institutions will continue to face budgetary challenges in 2012 and beyond.

Institutions in some states, like those in Montana, will face little-to-no budget cuts in 2012, leaving them on stable financial footing. But institutions in other states, including Colorado, North Carolina, and Nevada will be forced to increase tuition and make additional cuts in the face of continuing low tax revenues. The Education Stabilization funds, which at least slowed the impact of these cuts, did provide some institutions with the opportunity to plan for the long term through spending reductions, flexibility and autonomy, and tuition and fee increases.

Now that the Education Stabilization funds have expired and any additional federal funds to support state education budgets, like the Education Jobs Fund, are not available for higher education, public institutions will have to rely solely on state funds and tuition revenue for support. Though the Education Stabilization funds did delay this reality, these institutions will have to shift the burden heavily on to students through tuition increases as state tax revenues are still insufficient to cover costs.

To read the full report, including in-depth case studies of all eight states, click here.

This report is the third in a three-part series analyzing higher education funding under the SFSF.  Part 1 in the series examined fluctuations in state spending on higher education during the implementation of the SFSF, and Part 2 focused on states' division of SFSF monies between K-12 and higher education in each year.

By late 2008, the United States was in the midst of its most severe economic recession since the 1930s, brought on by a collapse in real estate prices and exacerbated by the failure of many large banks and financial institutions. Heeding calls from economists, Congress and the Obama administration passed an historic law in early 2009 to stimulate the economy with $862 billion in new spending and tax cuts.

The American Recovery and Reinvestment Act (ARRA) of 2009 represented an unprecedented federal investment in education, with nearly $100 billion provided to states and local school districts from 2009 to 2011, mostly through the State Fiscal Stabilization Fund. Given the magnitude of this funding (the regular annual appropriation for the U.S. Department of Education is about $68 billion) Congress and the Obama Administration have subjected states and local school districts to an unusual amount of scrutiny.  A report released by the Government Accountability Office (GAO) this month offers an update on local educational agencies’ (LEAs) uses of funds intended for education in the American Recovery and Reinvestment Act (ARRA). The report examines how states used the funds and the degree to which LEA reporting on those funds was effective.

The GAO focuses on the ARRA’s three biggest sources of education funding: the State Fiscal Stabilization Fund (SFSF), $48.6 billion; Title I, Part A grants to local school districts, $10 billion; and Individuals with Disabilities Education Act (IDEA) Part B grants to school districts, $11.7 billion. Collectively those programs totaled $70.3 billion available in fiscal years 2009, 2010 and 2011.  GAO conducted a survey of LEAs from March through May of 2011 and found that LEAs have obligated nearly all of the ARRA funds available to states.  Only 4 percent remain available for expenditure, and those funds must be obligated by September 30, 2012 (a one-year extension from the original date, announced this month by the Department of Education), to be used.

Of the funds that LEAs have used, most were used to create new jobs and retain existing ones, which was one goal policymakers wrote into the Recovery Act. More than three quarters of LEAs spent over half of their SFSF funds to maintain employee salaries.  LEAs used the remainder for one-time expenses that wouldn’t precipitate a funding cliff and require the state to provide additional annual spending once the money dried up.

Most LEAs said that, thanks to the ARRA funds, they were able to maintain or even increase the level of service provided to students.  But with ARRA money running out at the end of this year, and state and local fiscal situations hardly improved, they say the quality of education will likely decrease.  LEAs with a high-poverty student population were particularly hard hit by the economic downturn, and saw more severe budget cuts in their state and local funding, and will bear the brunt of the ARRA funding cliff come 2012. Other LEAs that responded to the survey said that the Education Jobs Fund, which Congress enacted in 2010 to help states and LEAs avoid teacher layoffs, may be enough to compensate for anticipated budget cuts at the state and local level. About half of survey respondents planned to use the bulk of their Education Jobs funds in the 2012 school year, rather than in 2011.

In some cases, though, state and local budget cuts have already had a severe impact on the quality of education, particularly on special education, despite the availability of ARRA funds.  A nuance in IDEA maintenance of effort requirements allows LEAs to reduce local special education funding if their federal IDEA Part B grant is higher than the previous year. The LEA can reduce its own funding then by 50 percent of the increase in federal funding. 

Historically, annual increases in IDEA funding have been small, meaning the maintenance of effort nuance could only have a small effect on an LEA’s special education budget. Given the large increases in IDEA funding under ARRA, the nuance has become more important. In fact, over 25 percent of LEAs have taken advantage of the option to reduce their special education spending since ARRA funds were made. LEAs that took advantage of that funding rule, however, will experience larger funding cliffs when the ARRA funding runs out in 2011 and 2012. The GAO found that fifteen percent of LEAs in that category, and 10 percent of all LEAs, anticipate struggling to meet the IDEA maintenance of effort standard in the 2011 and 2012 school years.  Seven states applied to the Department of Education for a total of 11 waivers of the requirement in state fiscal years 2010 and 2011 in the name of “declining fiscal resources;” five have been granted, and another five declined, with one still under consideration.

In addition to promising to save and create jobs, in enacting the Recovery Act, Congress and the Obama Administration trumpeted a new era of transparency and accountability in government funding.  The GAO examined this claim, looking at reporting requirements for states and LEAs, as well as the accountability measures put in place by the Department of Education. Those measures include audits, reviews of the fund recipients’ financial management practices, and testing of the data’s integrity.  While the accountability measures are fairly comprehensive, the GAO did find some room for improvement.

The Department of Education promised states that they would provide them with technical assistance on the front end, before the Department issued its reports on the states’ financial practices, so that LEAs could work out any kinks in the data collection and reporting system. But a breakdown in communication from the Department meant that states did not all receive that benefit.  The Department conducted the reviews as planned, but follow-up communication between the states and the Department varied greatly. Whereas some states went back and forth with Department staff as many as 10 times, fine-tuning their records-keeping processes, others received only an initial evaluation from the Department and no follow-up. Additionally, while the Department has completed 48 of the SFSF 2010-2011 reviews, it has made only 3 site visit reports and 12 desk review reports available to the public and to state officials.

States did acknowledge, though, that the Department of Education has made reporting requirements more routine and therefore less burdensome over time.  While the original reporting requirements presented a challenge to the states, they have since grown accustomed to the requirements and have developed systems that leave them saddled with fewer time-consuming data collection responsibilities.

The GAO report shows that, while states would benefit from additional assistance from Department officials in providing data back to the Department, the programs generally provided a stop-gap measure to fill major budget shortfalls. LEAs did use the ARRA funds available to them to save or create jobs, an explicit goal of the program; and those funds maintained a quality of education that would otherwise have been sacrificed as a result of states’ financial straits throughout the recession.  But without the continued availability of federal funds, and with state and local tax revenues still far from pre-recession levels, states are struggling to meet their obligations, let alone to invest in expanded capacity and innovative reforms.

A couple weeks ago, President Obama announced the American Jobs Act, a mix of tax cuts and new spending totaling $447 billion over ten years, intended to stimulate job creation in the country. Unsurprisingly, the bill includes a sizeable chunk of money - $30 billion – to help pay the salaries and benefits of K-12 teachers and prevent layoffs throughout the nation’s school districts. But the president’s proposed Teacher Stabilization fund isn’t the first time the Obama administration has supported providing a big pot of funding to help support state education budgets.

Back in 2009, Congress included $39.7 billion in the State Fiscal Stabilization Fund of the American Recovery and Reinvestment Act specifically to support state education spending. And in 2010, the president signed the Education Jobs Fund, which provided an additional $10 billion for K-12 teacher salaries and benefits. While the details of these programs are all slightly different, lawmakers designed them to do the same thing – keep teachers and other education employees in their jobs by providing states with support to make up for lagging tax revenues.

If Congress does pass the president’s American Jobs Act with $30 billion for the Teacher Stabilization fund, total cumulative emergency funding to support education jobs since 2009 will reach $79.7 billion. That’s more than the Department of Education’s annual budget (though the jobs money has been spread out over fiscal years 2009 through 2013). Each program distributes the funds among states in the same manner – 60 percent according to each state’s share of the school-age population and 40 percent according to each state’s share of the total population. To see state allocations under each program and their share of total emergency spending for education jobs, click here.

But each program does differ slightly. As a refresher, let’s briefly run through the details of each program:

The 2009 Education Stabilization fund of the State Fiscal Stabilization Fund provided $39.7 billion to help support state K-12 and higher education budgets in fiscal years 2009, 2010, and 2011. Most states used the majority of their funds in 2010 to support K-12 education. The funds could be used for any K-12 purposes authorized in the No Child Left Behind Act, the Individuals with Disabilities Education Act, the Perkins Career and Vocational Act, or the Adult and Family Literacy Act, for early education purposes, or for higher education purposes including education, general expenditures and efforts to delay tuition increases. The funds could not be used for construction, renovation, or modernization purposes. While the funds could be used for nearly any purpose, reporting suggests that most of it was used for salaries and benefits. The maintenance of effort provision allowed states to cut state support for education down to 2006 levels and use the Education Stabilization funds to fill the gap between that level and the higher of 2008 or 2009 levels.

The 2010 Education Jobs Fund provides $10 billion in fiscal years 2011 and 2012 specifically to help support teacher and other education staff salaries and benefits. As of earlier this month, states had drawn down 61.4 percent of these funds, meaning that the majority of them have been used in fiscal year 2011. The maintenance of effort provision in the Education Jobs Fund legislation is different from that for the State Fiscal Stabilization Fund. States that receive Education Jobs Funds must (1) maintain K-12 and higher education spending at 2009 spending levels; (2) maintain K-12 and higher education spending levels at the same proportion of state spending as they did in 2010; or (3) if state tax revenues in 2009 were lower than in 2006, maintain K-12 and higher education spending levels at either 2006 levels or in the same proportion of state spending as they did in 2006. This change to the maintenance of effort provision was intended to prevent states from overly manipulating their budgets to make room for the Education Jobs Funds.

Much like the Education Jobs Fund, the Teacher Stabilization Fund would provide support to states for teacher and other education staff salaries and benefits and other employment expenses. The $30 billion in funds would be available in fiscal years 2012 and 2013. And the maintenance of effort provision has changed slightly to require states to maintain spending at 2011 levels or above: The proposed bill states that in fiscal year 2012, governors must maintain early education, K-12, and higher education spending at or above 2011 levels or at the same proportion of total state spending as in 2011; in 2013, governors must maintain early education, K-12, and higher education spending at or above 2012 levels or at the same proportion of total state spending as in 2012.

The Teacher Stabilization Fund is the most recent addition to a series of grant aid programs to support state education budgets and save jobs. If enacted, it would mark five years of large-scale, emergency federal support for state K-12 budgets. There is no doubt that many states are still facing difficult financial situations and the Teacher Stabilization funds will certainly help these states keep teachers in their jobs and keep class sizes from growing. But it is also possible that this continued federal support for state education budgets – if Congress passes the $30 billion Teacher Stabilization Fund – is further delaying inevitable difficult decisions states and districts will have to make about how they structure their budgets and pay their teachers.

Last week, the Obama administration released its American Jobs Act of 2011, a set of proposals it wants Congress to enact to spur more job creation. A big part of proposal is $25 billion in new federal grant aid to fund K-12 school construction, renovation, and modernization throughout the country. There’s little doubt that many school districts are in need of funding for construction and maintenance, but before Congress moves to enact the president’s $25 billion proposal, the Obama administration needs to show lawmakers (and the public) how schools are using $22 billion in federally subsidized school construction bonds issued under the American Recovery and Reinvestment Act (ARRA).

In fact, that program – the Qualified School Construction Bond program – is one the largest federal efforts to support school facilities to date. But hardly a shred of centralized information is available on how the program is working, which districts got funding, and what they are doing with it. All this despite the Obama administration’s claims that the American Recovery and Reinvestment Act would be the most transparent federal spending ever enacted.

Here is some background on how the program works.

The QSCB program allowed school districts to issue bonds to finance construction projects in 2009 and 2010, totaling $22 billion. Entities that purchased the bonds receive federal income tax credits in lieu of interest payments, which is a roundabout way of the federal government paying the school districts’ interest costs on loans they issue to build or renovate a schools. In 2010, Congress expanded the program under the Hiring Incentives to Restore Employment (HIRE) Act so that the federal government could make direct payments to school districts to cover most of interest on the bonds instead of giving the bond holder a tax credit.  

The law allocated sixty percent of the bonds to states according to federal Title I grant formulas while the remaining 40 percent were allocated to the 100 school districts with the largest impoverished populations. Each state conducted its own competitive application process to determine which schools and districts could issue the interest-free bonds.

So what do we know about how the program is working and what sort of projects it supports?

First, we know that the program got off to a slow start. Unfortunately, when the program first started in 2009, many districts had trouble finding bond buyers because the terms were not very attractive – mainly would-be bond investors didn’t think the tax-credit-in-lieu-of-interest was an appealing arrangement. However, the 2010 expansion of the program to include direct interest made the terms of the bonds more attractive to potential buyers and school districts had more success in financing projects. Of course, the 2010 expansion significantly increased the cost of the program for the federal government.

According to a table buried in the President’s fiscal year 2012 budget request (page 243), the federal government pays about $1.5 billion each year (in tax credits and direct payments) to cover the interest on the bonds issued by school districts.  About a third of the cost is in direct interest subsidies to school districts.

We also know that each state held its own competition to determine which school districts would get to issue the federally subsidized bonds and for how much, but  that information isn’t available from the federal government in any meaningful format. While it is possible to track down information issued by state governments on their bond allocations, this is a tedious process and doesn’t shed much light on the status of the school construction projects themselves. Similarly, the U.S. Treasury Department doesn’t make publicly available any information on how much a project financed with the bonds costs.

Sadly, it appears that the only source of such information on this massive federal education program is a trade publication for the municipal bond investment industry, called BondBuyer.com. The publication provides a spreadsheet on its website that shows the value of federally subsidized bonds issued by agency (district or state) in calendar years 2010 and 2011 through September 9, 2011. BondBuyer.com does not provide any information on the source of these data or what exactly they include. While these data do not include any bonds that may have been issued in the 2009 calendar year, it appears to be the most comprehensive source of information on bonds actually sold under the QSCB program. (We have reformatted the data for readability and aggregated it by state. Click here to download district level data and here to download state level data.)

According to the BondBuyer.com data, 727 QSCBs were issued in calendar years 2010 and 2011. The combined face value of these bonds is nearly $10.6 billion. The largest bond went to the Puerto Rico Public Buildings Authority for $756.4 million while the smallest bonds went to Cherry County (Valentine) Regional High School District No. 6 and Valley County (Arcadia) School District No. 21, both in Nebraska for $100,000. It is important to note that the BondBuyer.com data doesn’t include any information on the size or cost of the federal subsidy provided for these school construction projects.

When we aggregate the data by state, we see that several states are very close to issuing the entirety of their bond allocations. Delaware, Nevada, and Puerto Rico have all issued 100 percent or more of their allocations (percentages shown in the table over 100 are likely due to rounding). Connecticut has issued 97 percent of its $210.2 million in bonds. These states likely have a high need for school construction and renovation and the necessary political capital and infrastructure to get these projects started.

But many school districts have not been able to find investors for the bonds they were allocated. In fact, according to the data, 10 states have issued less than 25 percent of their total bond allocation. Four states – Hawaii, Mississippi, New Hampshire, and Wyoming – have not issued any of the bonds. This slow distribution of bonds can reflect many factors including a lack of interest in or need for new school construction projects in some states and localities, difficulty in finding investors, or bureaucratic red tape holding back the start of construction and renovation projects. But it also suggests that subsidized bonds, and perhaps school construction in general, may not be the most efficient way for federal lawmakers to support education.

Clearly, the Qualified School Construction Bond program hasn’t been any easy program for school districts to tap. Nor has it been easy for policymakers to track. In fact, it just might be the least transparent federal education program in existence.

As the Obama administration makes the case for another round of school construction funding, the president needs to make good on his promise from the first round – that it would be the most transparent federal spending ever enacted.

Yesterday, several news outlets published articles about President Obama’s forthcoming new jobs proposal. Some sources suggest that, in addition to including tax breaks for companies that hire new employees, the plan will include money for school renovations and possibly more money to keep teachers in their jobs. While it’s impossible to know the details of the president’s proposal, past efforts to achieve similar ends may give some insight.

This isn’t the first time the President has pushed for such education-specific economic stimulus. Of course, the American Recovery and Reinvestment Act of 2009 included nearly $40 billion in the State Fiscal Stabilization Fund specifically to help states maintain their education funding in fiscal years 2009, 2010, and 2011. This money will expire on September 30th of 2011 and most states have used up the vast majority of their funds.

The American Recovery and Reinvestment Act also included funding for school construction and renovation. However, the final version of the bill did not provide outright grants. Instead, it provided $22 billion in federally subsidized bonds, called Qualified School Construction Bonds (QSCBs), for school repair, renovation, and construction over two years. Entities that purchase the bonds receive federal income tax credits in lieu of interest payments on the bonds, ideally making them interest-free loans for the schools or school districts that issue the bonds. The bond issuers must repay the principal of the bond but the interest payments are made by the federal government in the form of tax credits to the bond holder.

Unfortunately, it is difficult to know the status of these bonds because every state distributed and managed them differently. Early reports suggested that many districts were having trouble finding bond purchasers because the federal government set the effective interest rate on the bonds too low. In fact, some newspaper reports suggested that investors were asking schools and districts to provide additional funds to make the bonds more attractive. Additionally, the QSCBs were targeted at “shovel ready” projects. Unfortunately, most of these projects ended up requiring significant additional planning even after the QSCB terms were met, resulting in substantial delays and therefore less-immediate stimulus.

From the minimal information available, it seems that the president’s proposal for school construction may involve actual grants, to the tune of “tens of billions of dollars” for school renovation and modernization. While these grants would not get tied up in the lengthy bond purchasing process experienced with the QSCBs, districts would still have to go through the local approval, planning, and contractor search process involved in any school construction projects. These steps could potentially delay the start date of the projects. While renovating the country’s schools is a noble and necessary goal, it may not be the fastest way to infuse the economy with new jobs.

The Education Jobs Fund of 2010 also provided an additional $10 billion specifically for salaries and benefits for K-12 employees available in fiscal years 2010 and 2011. Though those funds are available through September 30th, 2012, according to Department of Education spreadsheets, only $3.9 billion is still available as of August 12, 2011. Despite the fact that many states have stabilized or even increased tax revenues, these federal funds are still in high demand to help make ends meet at the local level.

Based on the new reports available, it sounds like the president’s proposal may be similar to the Education Jobs Fund – additional funds available only for K-12 salary and benefits expenditures. Though the Education Jobs Fund does require states to maintain spending levels for higher education, it does not provide any funds to support those budgets. While the Education Jobs Fund may keep more teachers in their jobs in the short term, it is likely delaying reform to the way districts hire, retain, and compensate their teachers, something the Obama Administration has also supported.

The details on the president’s plan, which will be announced after Labor Day, are still vague. Hopefully the president will use past experience with the State Fiscal Stabilization Fund, the Qualified School Construction Bonds, and the Education Jobs Fund to inform his plan. Check back with Ed Money Watch for more details as they arise.