The Truth about Funding Cliffs and the ARRA

As soon as the Department of Education released American Recovery and Reinvestment Act (ARRA) funds for the State Fiscal Stabilization Fund (SFSF), Title I, and the Individuals with Disabilities Education Act (IDEA), they urged states and school districts to use the funds for one-time investments in education like professional development and instructional materials. Recurring or on-going expenses, like teacher salaries, would create “funding cliffs” or expenses the states and school districts would be unable to cover after the ARRA funding ran out. At the same time, however, the Department of Education encouraged the states and school districts to use the funds to quickly save or create jobs – a difficult task if expenditures cannot be recurring.

So, what did school districts decide to do with the dramatic increase in federal funds provided through the ARRA? A recent Government Accountability Office (GAO) report suggests that a large percentage of school districts plan to use 50 percent or more of their ARRA funds, particularly SFSF funds, to save or create jobs.

Specifically, the report found that two-thirds of school districts that responded to a GAO survey planned to use 50 percent or more of their SFSF monies to save or create jobs. This is not surprising, however, because SFSF monies are the least restricted of all the ARRA funds and can be used for most operating expenses. A significant portion of school districts plan to use half or more of their Title I and IDEA funds to save or create jobs as well.

The percent of school districts expecting to spend ARRA funds to save and create jobs varied by state as well. For example, more than 80 percent of districts in Georgia, Michigan, and Florida reported spending half or more of their SFSF monies on jobs. In contrast, fewer than 20 percent expected to do the same in Florida. Similarly, more than 40 percent of districts in North Carolina and Iowa expected to spend half or more of their Title I ARRA funds on jobs, while less than 10 percent did in Mississippi.

These findings suggest that a significant number of school districts, particularly those in states like Georgia, Michigan, and Florida, chose to spend their ARRA funds on recurring expenses like teacher salaries rather than one-time activities like professional development. These expenditures create unavoidable funding cliffs that could spell trouble for these districts when ARRA funds run out in 2010 or 2011. The districts will likely be forced to make difficult staffing decisions or find money from other sources to cover these on-going costs.

However, the possibility of a second federal stimulus package, aimed directly at education jobs, is not out of the question. The Jobs for Main Street Act, passed by the House in December, provides $23 billion for just that purpose. Should it pass the Senate, it could be the saving grace for these school districts and others just beginning to struggle with difficult staffing decisions.