Education Budget

At Ed Money Watch we talk a lot about funding formulas for various federal grant programs. We’ve written about proposed changes to the ESEA Title II funding formula in the House Students Success Act, the need for improvements to the Title I formula, and even idiosyncrasies in the Individuals with Disabilities Education Act formula. Congress has designed each of these formulas to account for factors such as population size and poverty rates or numbers when distributing federal funds to states and school districts. But another factor – something known as “small state minimums” – always seems to run roughshod over the intended target populations.

Small state minimums are intended to ensure that small states receive a basic level of funding under each federal grant. Often, the formula sets the minimum at a certain percentage of the total appropriation that Congress provides that year – like the 0.5 percent minimum in the Title II formula. The idea behind small state minimums has merit: just because some students live in small states doesn’t mean they are less deserving of equitable shares of federal funding. But do small state minimums always work as lawmakers intended? Or do they overcompensate and provide small states with disproportionate amounts of funding per student?

To answer this question, we compiled data on total student enrollment and total state Title I, IDEA, and Improving Teacher Quality State Grant allocations in 2010. We then computed the allocation per pupil for each state and ranked them. This analysis suggests that existing federal funding formulas for those programs do disproportionately benefit small states, though some formulas do so more than others.

The ten smallest states in the nation are the District of Columbia, Wyoming, Vermont, North Dakota, South Dakota, Delaware, Alaska, Montana, Rhode Island, and Hawaii, in that order. Their total enrollments range from a little over 69,000 to just over 180,000 in 2010. As expected, many of these states receive more in federal funding on a per pupil basis than their larger peers.

This is most consistently the case with Title II Improving Teacher Quality State Grants where the first nine smallest states receive nine largest allocations per pupil, in exact order of enrollment. This is because the formula ensures each state 0.5 percent of the total allocation, or just over $14 million in 2010. If the formula did not include small state minimums, each of these states would have received closer to $3 or $4 million under the program.  In fact, each of the small states receive dramatically more than the average allocation per pupil of $60. The District of Columbia received $202 per pupil, almost four times the national average.

Small states also fare well under the Title I formula, which should theoretically be driven by student poverty. DC, Wyoming, Vermont, North Dakota, South Dakota, and Rhode Island all rank in the top 10 in terms of Title I allocation per pupil. Of these states, only DC has a particularly high particularly high census poverty rate at 30.8 percent. The rest all fall in the bottom half of states in terms of poverty rates. These states received over $348 per pupil in Title I, and as much as $686, compared to the national average of $294.

IDEA Part B allocations are least influenced by the small state minimum provisions, but some effect is not all-together absent either. Wyoming, Vermont, North Dakota, Alaska, and Rhode Island each rank in the top 10 in allocations per pupil. Rhode Island has the highest rate of students participating in special education at 18.1 percent, so the high allocation it receives may be justifiable. But the rest of the states don’t fall among the top ten states with special education participants, even though they receive nearly $300 per pupil or more in IDEA funds compared to the national average of $233. Interestingly, DC, which is a small state and has a high percentage of special education students (16.3 percent) ranks only 21st in terms of IDEA Part B allocation.   

Clearly, small state minimums have a significant influence over how federal education funds are allocated to each state to the point where these small states are disproportionately benefiting from federal funds. This is not to say that Congress should eliminate the minimums entirely. But this analysis suggests that Congress should consider the implications of the minimums and perhaps readjust the formulas produce a more equitable distribution of funds. Just as students in small states deserve their fair share, so do students in large states.

Click here to view these data for all 50 states and the District of Columbia.

Editor's note: This entry was originally posted on Ed Money Watch a blog from the New America Foundation's Federal Education Budget Project.

When the federal government distributes education funding via formulas, it typically takes several things into account. Chief among the data typically used are state- and school district-level poverty rates as determined through the Small Area Income and Poverty Estimates the Census Bureau conducts annually. These poverty rate estimates show the percentage of children age 5-17 living in families with total income below the poverty rate. Recently, the Census Bureau made those estimates available for 2010, providing a unique look into how poverty rates have shifted as a result of the economic recession. Those data are now available on the Federal Education Budget Project’s website (Ed Money Watch’s parent initiative). Users can compare poverty rates over time and view them in tandem with data on federal funding, student achievement, and other demographics.

When the federal government distributes education funding via formulas, it typically takes several things into account. Chief among the data typically used are state- and school district-level poverty rates as determined through the Small Area Income and Poverty Estimates the Census Bureau conducts annually. These poverty rate estimates show the percentage of children age 5-17 living in families with total income below the poverty rate. Recently, the Census Bureau made those estimates available for 2010, providing a unique look into how poverty rates have shifted as a result of the economic recession. Those data are now available on the Federal Education Budget Project’s website (Ed Money Watch’s parent initiative), http://febp.newamerica.net. Users can compare poverty rates over time and view them in tandem with data on federal funding, student achievement, and other demographics.

At the state level, the data show that poverty rates increased from 2009 to 2010 in all but two states – New Hampshire and Missouri. In both of those states, poverty rates decreased slightly. Nevada endured the largest poverty rate increase – 3.4 percentage points – to 19.2 percent in 2010. An additional 15 states saw increases of more than 2.0 percentage points from 2009 to 2010, including several large states such as California, Florida, and Pennsylvania. Nationally, the poverty rate increased from 18.2 percent to 19.8 percent.

At the district level, the data show much greater variability in poverty rates year to year. Of the nearly 14,000 school districts with data, over 9,100 saw increased poverty rates from 2009 to 2010, with an average increase of 3.9 percentage points. But nearly 700 districts saw increases of more than 10 percent from year to year, likely creating a significant increase in the number of students in need of additional services and support. Just over 4,300 districts experienced decreases in their poverty rates and nine districts saw no change at all.

What do these increased poverty rates mean for federal funding? Because most federal funding formulas – including those for Title I, Part A Education for the Disadvantaged Grants, Individuals with Disabilities Education Act grants to states, and Title II Improving Teacher Quality State Grants – take poverty into account, these substantial increases in poverty rates should mean increased allocations for many districts. These numbers are likely to be used to distribute grants for fiscal year 2012 because they provide the most recent data available. Though Congress did appropriate more funding for all three programs for 2012 compared to 2011, it probably won’t be enough to compensate for the demographic changes.  The relatively moderate funding increases may mean that many states and districts will not get sufficient additional federal funds to support the needs of their newly-eligible students, resulting in a tough budget year for the districts that saw large increases in students living in poverty from 2009 to 2010.

Check out the Federal Education Budget Project website to view the new student poverty data as well as new or updated data on state allocations for Title I, Individuals with Disabilities Education Act, and Impact Aid Basic Support Payments for fiscal years 2011 and 2012.

Each January, Early Ed Watch predicts the hot spots for the coming year -- issues that will dominate discussions in early education policy and trigger halleluiahs or handwringing from advocates of better investments in early learning, birth through third grade.

When Congress passed the fiscal year 2012 appropriations for education programs last month, it managed to eke out sufficient funds to maintain the maximum Pell award at $5,550 for the 2012-13 school year. But lawmakers also cut the cost of the program to make their budget task a bit easier. They did so by making a number of changes to the eligibility rules for Pell Grant recipients, starting with the 2012-13 school year. These changes will reduce the grant awards students will receive in the upcoming school year, Ceteris paribus, though some students will not be affected by the changes at all.

The eligibility changes Congress made in the 2012 funding bill – raising eligibility requirements for a minimum Pell award, reducing the number of semesters for which awardees can receive Pell Grants, lowering the income level for a zero expected family contribution, and altering eligibility for non-high school graduates – represent only a portion of the changes (and cost savings) proposed by House lawmakers earlier last year.

But that probably isn’t the last anyone will see of the eligibility changes sought by House lawmakers. As we’ve noted before, Congress has been providing the Pell Grant program with supplemental funding a year or two at a time, and those funds are set to run out by fiscal year 2014.

That’s why we’ve made up the attached side-by-side chart showing Pell Grant eligibility rules. It  compares prior law, eligibility changes proposed by the House Appropriations Committee, one-year and five-year cost savings as projected by the Congressional Budget Office, and the final changes enacted in the fiscal year 2012 omnibus appropriations bill (H.R. 2055).

Congress completed the fiscal year 2012 appropriations process on December 17th, 2011, finalizing annual funding for federal education programs through September 30, 2012 at $68.1 billion, down $233 million from the prior year. It is the first year since 2007 that Congress did not increase total appropriations for education programs.

As 2011 comes to a close, we took a few minutes to review the progress – and pitfalls – of early childhood education news over the year. So before we jump into another year of news and analysis, here’s a look at some of the major stories featured on Early Ed Watch this year. Happy New Year!

The Senate voted on Saturday morning to pass the omnibus year-end spending bill, passed Friday by the House, and the result is good for early education.

Late last night, Congress filed the conference report for the fiscal year 2012 omnibus bill which would provide appropriations funding for all federal agencies including education. The most recent version is currently available on the House Appropriations Committee’s website. Congress will vote on the bill today, as temporary fiscal year 2012 funding expires.

Though the comparable spending amount for the Department of Education will not be illuminated until the Department releases its congressional action budget table, the legislative text and joint statement provide many of the details. On the whole, it looks like the Senate and the Obama administration got much of what they asked for.

First, both Title I and Individuals with Disabilities Education Act funding will receive slight increases in support over 2011 levels. Though the Senate had previously proposed level funding both programs, the House proposed significant increases.

School Improvement Grants, a favored program of the Obama administration, will be level funded at $535 million, somewhat of a surprise given that the House wanted to defund the program entirely.

In another surprise, both Race to the Top and the Investing in Innovation fund will receive continued funding in 2012 of $550 million and $150 million, respectively. Though these amounts are below the Senate’s proposed levels, it appears that the administration spent significant political capital on ensuring both programs will persist. Interestingly, the bill also includes language that would expand Race to the Top to local education agencies in addition to states.

The Senate also won a victory over the Striving Readers program, which was defunded in 2011. The 2012 omnibus would provide the program with $160 million to support local literacy development programs.

One program that did take a big hit, however, is the Teacher Incentive Fund (TIF). The omnibus bill would fund the program at $300 million, $99 million below 2011 levels. Additionally, the bill also specifies that the competitive grant program must go to support teacher compensation systems that include both measures of student gains and teacher evaluations. Though the Senate did ask for $300 million for TIF, its version of the bill also broadened the scope of the program to include other interventions besides performance-based compensation systems because “rigorous research released over the past year” shows that these systems “had no effect on increasing student achievement.”

The biggest news in the 2012 omnibus, however, involves funding for the Pell Grant program, which includes both eligibility changes and additional funds from a temporary repeal of a portion of the interest-free benefit for subsidized student loans. To learn more about these changes to the Pell Grant program, check out this Ed Money Watch post.

The table below shows some of the details we already know for 2012 education funding.

Congress is finally poised to vote on an omnibus spending bill that covers multiple federal agencies and finalizes fiscal year 2012 funding for the U.S. Department of Education. The bill, which is posted on the House Rules Committee’s website here, is expected to pass. As we wrote earlier this week, the pending omnibus bill funds the Pell Grant program at a maximum grant of $5,550 in part by tweaking  eligibility rules for the program and by reallocating subsidies for student loans.  That latter provision was part of a Senate proposal floated earlier this year and has undergone a rather odd mutation in the final bill.

Specifically, the provision ends the interest-free benefit on Subsidized Stafford loans during an undergraduate borrower’s six-month grace period after leaving school. This change produces savings that the pending bill then reallocates (spends) to Pell Grants in 2012 and subsequent years. The version proposed by Senate Democrats earlier this year would have permanently ended that benefit on all newly issued loans, generating some $2.9 billion in savings over five years and $6.1 billion over ten years. All of those savings would have been allocated to Pell Grants, though not all in 2012. 

The provision in the omnibus appropriations bill Congress is set to vote on also ends the grace period interest benefit, but only for loans issued between July 1, 2012 and July 1, 2014. Loans issued after those dates would again qualify for the benefit. A temporary repeal of the benefit saves only about half as much over five years as a permanent repeal and saves nothing in later years. Subsequently, it allows for less spending to be reallocated to Pell Grants.

From a student’s point of view, the pending change is likely to sow a bit more confusion in an already-confusing set of loan terms and repayment rules. For example, a borrower who begins a four-year program in 2012 and borrows only Subsidized Stafford loans will have some loans that qualify for the 6-month grace period benefit and some that do not.

Some observers will defend the temporary repeal of the interest-free benefit as a way to get just enough savings to shore of the Pell Grant program in the near term without reducing student loan benefits any more than necessary in future years. In other words, the policy is meant to take only what is immediately needed. It’s also likely that the Senate proposed to repeal the interest benefit reluctantly earlier this year, and probably felt it had to pull back from a full repeal after conceding to the House on some Pell Grant eligibility changes in the final omnibus bill.

Regardless of the negotiating strategy, or how the short term funding compromises stacked up, the temporary repeal is bad policy. Congress should either leave it as is, and find savings to support Pell Grants elsewhere, or repeal it permanently. Besides, Congress is going to need all of the savings from a permanent repeal, and then some, when the temporary emergency funding for Pell Grants (including the 2009 stimulus, the 2010 Student Aid and Fiscal Responsibility Act, the repeal of year-round Pell Grants, and the 2011 Budget Control Act) finally comes to an end.

In 2014, Congress will need to appropriate some $31 billion to maintain the maximum Pell grant. That will make this year’s heroic effort to appropriate $22.5 billion feel like a very light lift. Congress should do what it can now to shore up the Pell Grant program for the long term.