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ARRA Funding Cliff: States Cling to Cash as Deadlines Loom

On the economic-stimulus front, all eyes had been on Sept. 30 of this year, when states officially were supposed to fall off the "funding cliff." That's the deadline when the big pots of money from the 2009 American Recovery and Reinvestment Act—the $48.6 billion State Fiscal Stabilization Fund, the $10 billion in additional Title I aid and the $11.3 billion in additional special education funds—were supposed to be spent.

Well, Sept. 30 isn't technically the drop-dead deadline. In fact, the U.S. Department of Education is offering states an extra year to use any leftover Title I stimulus funds.

And that's a good thing, because there are a lot of states with big balances in those three funds as of Sept. 30, according to the most recent spending reports compiled by the Education Department. That includes big states like New York ($283 million left) and Texas ($210 million left), but also smaller states like Indiana ($72 million, the 7th biggest balance), and Arkansas ($69.6 million, the 8th largest balance). Compared with those balances, South Dakota, Connecticut, and Iowa, with the lowest balances, have what amounts to pocket change left in theirs.

Together, the states have $2.28 billion left to draw down between those three funds—a total that doesn't include smaller special education programs, such as the one for infants, Title I School Improvement Grants, and Race to the Top, which have a longer spending timeline.

Sept. 30 was the deadline by which states needed to have "obligated" their money. To overly simplify, that means that states need either to have spent the money, or entered into a contract to spend the money. States have until Jan. 3, 2012 to "liquidate" their money (or, essentially, send in their receipts for reimbursement). And, if states need more time to liquidate, they can request an extension until March 30 from the U.S. Department of Education.

What's more, nine days before the Sept. 30 deadline, the department quietly invited states to take an extra year to spend their Title I money. The latest data shows states have about $718 million of that money left, although it's unknown how much is really unspent, versus just unclaimed. The department is using its waiver authority under something called the "Tydings Amendment," which allows them to give states and districts an extra year to spend federal education money if needed. The waivers only apply to Title I funds, and not special education or stabilization funds.

Clearly, as the Obama administration works to convince Congress to spend more money on another jobs package, having a lot of leftover money wouldn't be a good thing. Any unused stimulus money goes back to the U.S. Treasury.

In a letter inviting states to seek extra time, acting assistant secretary for elementary and secondary education Michael Yudin explained:

Although I believe it is important that each State educational agency (SEA) and its sub-recipients local educational agency (LEA) ensure that Federal funds are obligated in a timely manner, I am acutely aware of the enormous need to provide continued support for meaningful education reform across the nation and the need to offer flexibility to SEAs and LEAs to give them further time to make spending decisions wisely. For example, it would be unfortunate if grant recipients or sub-recipients terminate employees or postpone hiring when there are FY 2009 funds that could be used to keep personnel employed.

Liz Utrup, an Education Department spokeswoman, said the department offered the waivers in response to requests for flexibility from a few states. She said that, relatively speaking, there appears to be little money truly left over, as a majority of it has likely already been spent on contracts and jobs—with just the paperwork left to be completed before the expenses can be reimbursed.

The department provides a very wonky explanation of the stimulus close-out procedures here.

It's important to note that just because spending is winding down, that doesn't mean the Education Department is severing the strings that came with the money. With the stabilization fund, in particular, the Education Department will spend next year monitoring how states are doing in collecting and reporting a slew of new data points, such as the number of teachers rated at each performance level in state evaluation systems and the number of charter schools that have made progress on state math and reading tests.

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