The State and District Dilemma of the Stimulus Package –Supplanting Language will be Critical

Leaks about the content of the House version of the stimulus package surfaced publically this morning (2009%20Stimulus%20Executive%20Summary.pdf). State and school district budgets are clearly facing difficult times, and an infusion of federal funds will be a welcomed event. Education related, the package includes $79 billion for general state fiscal relief, ($39 billion of which is for K12 schools and higher ed) plus Title I ($13 billion), special education ($13 billion), school modernization ($14 billion), technology ($1 billion) and several other smaller investments. But, will states and districts be able to use these new funds without violating “supplement not supplant” provisions that typically accompany federal funding for schools? The details here will be critical. Generally when the federal government provides funding to states it includes boilerplate language requiring that states and school districts supplement the state and local funding provided for a specific purpose for example serving Title I students, and not supplant these funds (use federal funds to reduce the state and local funds provided). The purpose for this language is clear. The federal government wants the investment that it makes actually get to the students that it is trying to serve – in this case Title I students. Absent this language, states would quickly thank the federal government for their investment in Title I, reduce the state and local investment in economically disadvantaged students, and use the freed up funds to redirect to whatever priority the state thought was important like balancing their state budget, or creating some new state initiative like expanding the gifted and talented program. To stop this redirection of funds from happening supplement not supplant language is added. Those violating the requirement must return the funding to the federal government. There is a complex auditing process that accompanies this whole thing.

Of course in the current budget situation, supplanting may be exactly what is intended. State budgets are a disaster. For example in California where they face an over $40 billion budget hole, the current proposal on the table would cut funding for the 2008-09 school year by $2.1 billion and defer $2.8 billion in funding until the 2009-10 school year (here). There would be additional cuts in the 2009-10 school year. And since states can’t print money, states must either cut programs or raise taxes – both of which are bad for the overall economy (think Hoover’s cuts at the start of the Great Depression). So it completely makes sense for the federal government to provide funding to states, and Congress may not have as much concern if a school district uses its new Title I funds to keep from eliminating its arts and music programs and other such actions. But since this is not an allowable use of Title I funds, the district’s business officer will need to do some fancy accounting to launder the Title I funds to free up some funds that can be used for arts and music. Then two years from now the business officer will need to convince the auditors that the laundering did not violate federal law. Then the federal governments will send out their auditors to check the district auditors. Looks like lots of work for the bureaucrats. Keep an eye on the supplement/supplant language in the stimulus package as it moves forward because this is an area where details matter.