Education Budget

Federal Funding Update: A Stop-Gap Measure for 2013 And Looming Cuts from Sequestration

September 17, 2012

The Senate is expected to vote this week on a continuing resolution (CR), already passed by the House of Representatives, that will continue to fund the government through March 2013. That means that, beginning with the start of the fiscal year on October 1, 2012, all education and early childhood programs will be funded at the same levels they received last year, plus a marginal 0.612 percent across-the-board increase.

Sequestration Will Mean Significant Cuts for Needy School Districts

September 14, 2012

Last Friday, the Office of Management and Budget at the White House released a sequestration report, confirming the impact of the automatic, across-the-board funding cuts scheduled for January 2013. Sequestration resulted from the “supercommittee’s” failure to find $1.2 trillion in 10-year cuts to federal spending (or tax increases) last year. According to the report, the majority of Department of Education spending programs will face an 8.2 percent cut as a result of the sequester. Unless Congress and the President agree to turn off the sequester, school districts across the country will face some difficult budget decisions starting in January and continuing into the 2013-14 school year.

To get a better idea of what these cuts will mean for schools, Ed Money Watch used Census data on school districts’ total annual revenue and federal revenue for the 2009-10 school year to calculate the percent of each district’s revenue made up of federal funds, as well as how much each district stands to lose under a 8.2 percent cut. (We did a similar analysis recently looking at the impact of Congressman Ryan’ proposed 20 percent cut.)

It is important to note that not all cuts will happen at the same time. Specifically, cuts to Title I and Individuals with Disabilities Education Act spending will not take effect until next school year because the programs are mostly forward funded (due to something called “advance appropriations”). Other programs, such as Impact Aid, will face immediate cuts in January 2013. School nutrition programs, however, are exempt from the sequester. Unfortunately, the Census data do not disaggregate by funding source, so it is not possible to include this exemption in our calculations.  

Unsurprisingly, the districts that rely the most on federal funds for their annual revenue will take the greatest hit due to a 8.2 percent cut as a proportion of their total revenue. For example, Shannon County School District in South Dakota relied on the federal government for 67.9 percent of its annual revenue in 2010. If that funding were to be cut by 8.2 percent, Shannon County would lose $1.5 million, or 5.6 percent of its $18.1 million in annual revenue. Shannon County serves over 1,100 students, 98 percent of whom participate in Free and Reduced Price Lunch and 99 percent of whom identify as American Indian.  The district receives nearly $5 million in Title I funding for disadvantaged students and over $8 million in Impact Aid funding to replace revenue lost from the lack of property taxes derived from Bureau of Indian Affairs land.

Similar stories can be told for numerous districts with high proportions of low-income, American Indian, English Language Learner, or other high-needs students.

But even districts that do not rely on federal funding for large portions of their annual revenue stand to lose significant funding. Forty-eight districts stand to lose more than $10 million should the 8.2 percent cut become a reality. These large districts include New York City Public Schools, which would lose about $168 million, Los Angeles Unified School District, which would lose $111 million, and Chicago Public Schools, which would lose $100 million.

But it also includes many lesser-known districts like Gwinnett County School District outside of Atlanta, GA, which would lose over $16 million, or Cypress-Fairbanks School Districts outside of Houston, TX, which would lose over $10.5 million. Though these figures represent less than 2 percent of each of these district’s budgets, finding savings to accommodate these cuts will surely be a challenge.

The 8.2 percent cut from the sequester will also have a dramatic impact on districts that serve particularly fragile communities like students with the most challenging special education needs or districts that have recently experienced natural disasters. For example, the Los Angeles County Office of Education, which serves nearly 9,000 students with severe special needs, would lose nearly $37 million, 3.6 percent of its annual revenue. The Recovery School District in New Orleans would lose nearly $12 million, 4.0 percent of its revenue.

Sequestration is a blunt instrument that prevents Congress from targeting spending cuts to the programs that are best equipped to face such cuts. Limiting federal spending may be a worthy goal in this austere time, but the current method stands to hurt the school districts and students that need the extra funding support the most. This is not an argument for increasing federal spending, but rather an argument for ensuring that any decisions to cut such spending are done thoughtfully and with an eye towards equity.

To download these data for every school district in the country, click here. 

Romney Education Plan Would Face Significant Political Hurdles

September 14, 2012

Several months ago, the Romney campaign released a document titled “A Chance for Every Child” that outlined the candidate’s education platform. Buried in the document is a proposal to “voucherize” the two largest federal programs for K-12 education: Title I and Individuals with Disabilities Education Act (IDEA) state grants. The proposal would allow eligible students to take that funding with them to the public or private school or district of their choice. While such student-based funding is gaining popularity, can a student really just show up at a school with federal vouchers in hand and demand to be educated? No. It’s not that simple.

For one, federal funds do not come close to covering the cost of that child’s education. To solve that roadblock, Romney’s plan is predicated on another, related concept – open enrollment. Open enrollment ideally gives students an opportunity to seek out the highest-quality educational opportunities, a worthy goal especially when targeted at low-income and high need students. The platform states that under a Romney administration, the U.S. Department of Education would ensure that every state has an open enrollment system.

Though the Romney proposal is short on details, existing open enrollment states can give us some sense of how it could work. While most states have open enrollment laws, which allow students to apply to attend school in another district, many of them are voluntary, allowing districts to opt not to participate. Others are open only to students at certain schools or at certain income levels. Assumedly, Romney’s plan would require states and districts to adopt open enrollment for all students, requiring districts to accept transfers.*

Such programs typically work like this: If both the resident (the student’s home district) and non-resident (the district the student wants to transfer to) approve a student’s transfer application, the state transfers a payment from the resident district to the non-resident district (usually a portion of the annual per pupil funding). The resident district usually gets to keep some portion of the per pupil funding for “fixed costs.” It is important to note that the per pupil amount typically includes both state and local funds.

But federal funds, particularly Title I funds, can’t easily be made portable because of how they are distributed. Currently, states distribute Title I funds they receive from the federal government to districts based on four formulas that account for Census estimates of both the proportion and number of students living in poverty. However, districts distribute those Title I funds to schools based on enrollment in the free and reduced price lunch program. Theoretically, these funds can be tied to specific students based on their family income levels. But, districts can opt to use Title I dollars for students only in certain grade levels. And schools with poverty rates over a certain level are able to use their Title I funds for “whole school” use, rather than targeting that spending to specific eligible students.

That means most of the federal dollars do not follow specific students but instead are pooled in areas where district or school leaders think they will have the greatest impact. This existing system is often inequitable and leaves many students – particularly high schoolers – at a disadvantage. But it also allows district and school leaders more flexibility in how they use the funds.

Under Romney’s plan states will likely have to distribute Title I funds directly to students based on their enrollment in free and reduced price lunch or some other indicator of poverty (like Medicaid or Temporary Assistance for Needy Families). This will take the district and school out of the equation, eliminating a district’s ability to target the funds to certain grade levels or create “whole school” Title I programs. The dollars could then truly follow the student.

This would involve significant structural changes to Title I, including likely rehashing the current funding formulas and redefining how schools can use the funds to serve specific students. That will be a serious challenge – no one likes to lose funding and under Romney’s proposal it would be inevitable.

And any sort of voucherized Title I or IDEA system would necessitate mandatory open enrollment to cover the remaining cost of educating transfer students.  This would require significant legislative action at the state level and heavy bureaucratic lifts in federal, state, and local government.

Romney gets extra points for thinking out of the box with this education proposal. It speaks to every parent’s desire to have more control over his or her child’s education and would certainly cause a stir among the education bureaucracy. But at the same time, it undermines local control of schools, a concept many conservatives hold dear. Not only would states be required to implement open enrollment systems and transfer funds among districts, but districts and schools could no longer target their Title I funds to the schools or grades of their choosing.

If candidate Romney becomes President Romney, we predict a long and tough road ahead for his education proposals, likely with resistance from both sides of the aisle.   

*Such systems often allow districts to reject a transfer in cases of extreme financial hardship – where a resident district would lose too much funding or a non-resident district would be unable to support the additional cost of educating a transferring student.

Romney Education Plan Would Face Significant Political Hurdles

September 14, 2012

By Jennifer Cohen Kabaker

This post originally appeared on Ed Money Watch.

Several months ago, the Romney campaign released a document titled “A Chance for Every Child” that outlined the candidate’s education platform. Buried in the document is a proposal to “voucherize” the two largest federal programs for K-12 education: Title I and Individuals with Disabilities Education Act (IDEA) state grants. The proposal would allow eligible students to take that funding with them to the public or private school or district of their choice. While such student-based funding is gaining popularity, can a student really just show up at a school with federal vouchers in hand and demand to be educated? No. It’s not that simple.

For one, federal funds do not come close to covering the cost of that child’s education. To solve that roadblock, Romney’s plan is predicated on another, related concept – open enrollment. Open enrollment ideally gives students an opportunity to seek out the highest-quality educational opportunities, a worthy goal especially when targeted at low-income and high need students. The platform states that under a Romney administration, the U.S. Department of Education would ensure that every state has an open enrollment system.

Fiscal Year 2013 Continuing Resolution Neglects to Address Sequestration

September 11, 2012

With fewer than two weeks left before Congress leaves Washington for a pre-election recess, lawmakers appear to have reached a deal to avoid a government shutdown that would have occurred October 1st absent a temporary funding bill.

Fiscal year 2013 begins on October 1, 2012, but Congress has so far failed to pass any of the dozen annual appropriations bills that will fund discretionary programs. In response, lawmakers appear set to adopt a six-month continuing resolution (CR) that will maintain virtually all discretionary spending at fiscal year 2012 funding levels, plus a 0.612 percent across-the-board increase. The House is expected to vote on the bill as soon as Thursday, with a Senate vote anticipated soon after.

The CR will provide federal education programs with the same appropriations levels they received in fiscal year 2012, plus a marginal increase. In 2012, the Department of Education received $68.3 billion in appropriations dollars. Under the CR, that will increase to about $68.5 billion. A new Congress will be responsible for passing the final fiscal year 2013 Labor, Health & Human Services, Education appropriations bill before the CR expires on March 27, unless lawmakers adopt a spending bill when they return in November for a lame duck session.

However, a separate dynamic in the federal budget process this year – sequestration – confuses the issue. The Budget Control Act of 2011, which set discretionary spending limits for fiscal years 2012 through 2021, also included a mechanism to automatically cut spending by $1.2 trillion over ten years if (and inevitably, when) the Congressional supercommittee established by the law failed to agree on cuts to current spending that exceeded that amount.

That mechanism, sequestration, requires the Office of Management and Budget to rescind about $39 billion of fiscal year 2013 funding across all non-defense discretionary spending programs in January 2013. Those cuts are supposed to happen in January 2013, at least two months before the CR expires. On the mandatory side of the budget (programs not subject to annual appropriations), about $11 billion in Medicare cuts and $5 billion in other cuts, including increases in origination fees for student loans, will also take effect. Pell Grants, some welfare programs, tax credits, and Social Security are exempt from these cuts.

Now that Congress has assigned funding levels to discretionary programs for fiscal year 2013, budget analysts will be able to make a more accurate prediction of the impact of sequestration on education and other programs. Current estimates from the Congressional Budget Office anticipate the cuts will be close to about 8 percent across-the-board for non-exempt programs in 2013.

Still, this is not the end of the line. Congress has until the New Year to pass legislation cancelling the sequester, or to at least postpone it. This could happen when members return to Capitol Hill after the November elections for a lame duck session.

But the CR doesn’t entirely ignore the impending sequestration. The bill states that each of the departments and agencies covered by the CR must submit to the House and Senate Appropriations Committee two reports. The first, within 30 days of enactment of the CR, will show program-level funding under the CR appropriations levels; the second, within 30 days of sequestration orders being issued (so, the end of January), detailing the changes to program-level funding as a result of the sequesters.

And on an incongruous note, the Secretary of Education is specifically named in the CR. Under the law, he will have to submit a report by the end of the 2013 calendar year to the Senate HELP and House Education and Workforce Committees. That report will list the proportions of students with disabilities, English language learners, rural students, and economically disadvantaged students taught by “highly-qualified teachers” as defined by the No Child Left Behind Act. The topic has been a controversial one in the Elementary and Secondary Education Act reauthorization negotiations, so the report may have been ordered to inform those debates.

Check back with Ed Money Watch for additional details on the 2013 budget process and sequestration.

Ryan Proposed Budget Cuts Could Mean Millions Lost for Some Districts

September 5, 2012

Paul Ryan’s proposal to cut federal spending by 20 percent has been impossible to ignore – especially what that might mean for education programs. Federal spending currently makes up about 10 percent of annual spending for education, so a 20 percent cut to that spending would only translate to 2 percent of total spending, on average. But what about the impact on non-average school districts?  As it turns out, more than 1,500 districts rely on federal funds for 20 percent or more of their annual revenue, and those districts would take a big hit.

Last week, Ed Media Commons showcased data from the Federal Education Budget Project, Ed Money Watch’s parent initiative, to reveal that these cuts could mean much more for districts that rely more heavily on federal funds. Using Census data on school districts’ total annual revenue and federal revenue for the 2009-10 school year, we calculated the percent of each district’s revenue made up of federal funds, as well as how much each district stands to lose under a 20 percent cut.

Of the more than 1,500 districts that rely on federal funds for 20 percent or more of their annual revenue, seventy-seven would lose more than 10 percent of their annual revenue if Congress were to cut federal spending by 20 percent. Those districts tend to be smaller, with enrollments mostly between 100 and 2,000.

These districts’ reliance on federal revenue can mostly be explained by high proportions of American Indian students. Many districts receive funds under Impact Aid, a federal program that provides funds to school districts with high proportions of “federally impacted” students like American Indians. Because those districts do not benefit from property tax revenue from people living on Indian reservations, the federal government makes up for that lost revenue. For example, Sanders Unified School District in Arizona had an enrollment of 1,049 in 2010 and nearly 97 percent of those students identified as American Indian. Of that district’s approximately $15 million in annual revenue, just over $9 million comes from federal sources. If Congress were to cut spending by 20 percent, Sanders Unified could lose as much as $1.8 million, 12 percent of its annual revenue.

Many large districts would also be disproportionately affected by big cuts to federal education funding. Los Angeles Unified School District, Chicago Public Schools, and Miami-Dade School District, the second-, third-, and fourth-largest school districts in the country, each rely on federal funds for more than 16 percent of their annual revenue. Chicago receives nearly 24 percent, or $1.2 billion, of its annual $5.1 billion in total revenue from federal sources. That federal funding comes from several federal programs aimed at low-income students such as Title I (about $300 million) and Free and Reduced Price Meals (about $140 million), as well as special education (about $90 million). A 20 percent cut to federal funding would mean a loss of $244 million for Chicago.

Of course, some districts rely very little on the federal government for education funding. Over 2,100 districts get 5 percent or less of their annual revenues from federal sources. These districts also tend to be smaller – only 248 have enrollments over 5,000 – and tend to serve wealthier and less diverse populations. Cheshire School District in Connecticut, for example, had an enrollment of 4,950 in 2010 and an annual revenue of over $71 million, only 4.5 percent of which came from federal sources. The district has a student poverty rate of only 3.1 percent, very few English language learners, and is made up of nearly 87 percent white students. This means the district receives very little federal funding under programs like Title I or Free and Reduced Price Meals. If federal spending were cut by 20 percent, Cheshire would only lose $637,000 in revenue.

While a 20 percent cut would be devastating for many school districts, others would lose only the aforementioned 2 percent or even less. These austere times mean that cuts to federal spending are likely. We hope that Congress is able to target those cuts in such a way that protects the most vulnerable students that benefit directly from federal spending. While Title I and Individuals with Disabilities Education Act special education spending are often the most discussed, it is important that programs like Impact Aid also factor heavily into negotiations. For many of these districts, such a cut could mean millions of dollars or a substantial portion of their annual revenue.

Click here to download these data for every school district in the nation. To view programmatic and demographic data, please visit febp.newamerica.net/k12.

Revisiting Ryan Versus Obama on Pell Grants

August 14, 2012

This post was updated August 18th to reflect possible higher costs for the Ryan Pell proposal

All eyes are back on the Pell Grant proposal in the Ryan budget (the House-passed fiscal year 2013 budget resolution) now that Rep. Paul Ryan (R-WI) will be Governor Mitt Romney’s running mate. It goes unmentioned, however, that when it comes to Pell Grant funding, both Ryan and Obama are making promises that they cannot possibly keep.

The plan Rep. Ryan included in his fiscal 2013 budget resolution would make a series of eligibility changes to the program, end the portion of the program’s budget funded as an entitlement, and cancel the next five years of inflationary increases to the maximum grant. (Click here to view a side-by-side comparison of Ryan's proposed changes.) The plan also assumes that Congress will support a maximum grant of $5,550 each year through the appropriation process.

Based on our estimates, that would require an annual appropriation of about $28 billion (maybe even $30 billion), taking the eligibility changes into account. While that is less than what the program currently costs in total, it is about $6 billion more (or possibly $8 billion more) than what Congress typically provides through the appropriations process. Assuming such a big increase in funding for the Pell Grant program seems like a tall order given that the Ryan plan also assumes reductions in total appropriations spending as compared to the current trajectory.

Now the Obama plan. The president proposes no eligibility changes to the program and would keep the entitlement funding portion intact, along with the inflationary increases in the maximum grant. To do so, the president would temporarily allocate additional funding to the program – but for only one year by cutting funding to other programs (mainly student loans). In 2015 and each year thereafter, President Obama’s plan assumes Congress will support the program with an annual appropriation of $32 billion, or $10 billion more than what Congress typically provides.

That is essentially the same unrealistic proposal that the Ryan plan lays out – both plans hinge on Congress making annual appropriations for the program that are higher than they are today, year after year, meaning that some other program(s) must be cut by the same amount. What should Congress cut to pay for that kind of increase? Neither candidate has said.

Sure, the Obama plan spares students from eligibility changes and includes a small increase in the grant, and the Ryan budget does not. But President Obama’s promised Pell Grant benefits should hardly reassure students, families, and education advocates, given that his plan amounts to little more than a heroic assumption about future funding. Yet these groups seem all too eager to let the president get away with proposing a budgetary near-impossibility, while taking Rep. Paul Ryan to task for proposing effectively the same thing.   

If the president’s supporters think that they are acting in the best interest of soon-to-be Pell Grant recipients by trashing the Ryan budget and touting the Obama plan, they are deluding themselves. The Pell Grant program is headed for a fiscal cliff that lawmakers cannot avoid by assuming more money will materialize. It’s going to take real money, which means advocates and policymakers need to start making real tradeoffs. So far, neither Ryan nor Obama has made those tradeoffs, and Pell Grant supporters shouldn’t give only one of them a free pass.

Republican Vice-Presidential Pick Proposed Spending Cuts in 2013, but Little Mention of Early Learning

August 14, 2012

As Rep. Paul Ryan (R-WI) walked across the stage last week for his first introduction as former Governor Mitt Romney’s (R-MA) running mate, child and student advocates were revisiting Ryan’s more-than-13-year career in the House of Representatives for details about his stances on education issues. One of the biggest indicators may be found in his 10-year budget proposal issued in March 2012.

Education Tax Credits Set to Expire at Year’s End Await Congressional Action

August 2, 2012
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Last week, The New York Times published an article on the Coverdell savings account, calling it controversial because earnings in these accounts are tax-free if used to send students to private or religious K-12 schools. The article also pointed out that the K-12 component of the tax credit expires at the end of this year, making the issue ripe for further debate. We think they may have missed the bigger picture. Some education-related tax benefits have expired already, more will expire soon, and some (maybe all of them) will ultimately be extended at the last minute. So Coverdell accounts are the tip of the iceberg.

The Coverdell account allows families to contribute up to $2,000 annually (in after-tax income) to an investment account (the earnings of which are tax-free, as are any withdrawals) for a child’s K-12 or higher education expenses. There are no data available on what proportion of taxpayers use Coverdell accounts to pay for K-12 costs versus higher education, but in total 644,000 taxpayers contributed $718 million to Coverdell accounts in 2009, the most recent year for which data are available. According to the White House Office of Management and Budget, the tax credit was expected to cost the federal government $80 million in forgone revenue in fiscal year 2013.

Still, the Coverdell tax credit in fiscal year 2012 cost less than one-half of one percent (0.35 percent, to be exact) of the costs of all federal tax benefits set to expire, either in full or in part, at the end of this year. For a table describing the changes scheduled to take effect at the end of the year, click here.

The most expensive (and most generous) tax benefit set to expire is the American Opportunity Tax Credit (AOTC). Originally passed as a part of President Obama’s stimulus package in 2009, the AOTC replaced the Hope tax credit for a few years and allowed more taxpayers (incomes up to $80,000, or $160,000 if filing jointly) to receive larger credits. It cost taxpayers $14.3 billion in fiscal year 2012, and is expected to cost another $13.7 billion next year. The credit then reverts to the Hope Tax Credit, which is expected to cost about $5.8 billion annually.  

Also set to expire this December are nearly a half-dozen other tax benefits. The exclusion from taxable income of employer-provided educational assistance will expire completely; that tax benefit cost $750 million in 2012. And several health care-related scholarships – the National Health Service Corps (250 of which were awarded between 2009 and 2011) and F. Edward Herbert Armed Services Health Professionals scholarships – that taxpayers have been able to exclude from their taxable income will no longer be tax-exempt. That provision is expected to cost nearly $3.3 billion in fiscal year 2013.

The parental personal exemption for students over the age of 18 – which allows parents to claim their children as dependents if they are students aged 19-23 – will automatically lower the amount of the exemptions that high-income taxpayers may claim. That would likely lower the cost of the program, though we don’t know by how much. In total, the benefit cost $3.1 billion in 2012. And the student loan interest rate deduction will revert to its previous levels of lower income-phase out levels and a 60-month interest payment limit. That program cost $850 million in 2012.

What that means is that of the $23.0 billion spent on those six tax benefits in 2012, the Coverdell credit – only a portion of which will expire anyway – comprised only $80 million. In spite of their large price tag, tax benefits are often lower-profile because they are not funded by the annual appropriations process that dominates Congressional debate for much of the year, and so they are able to fly below the radar.

This morning, the Senate Finance Committee gathered to mark up a bill that would extend a dozen individual tax benefits, almost all of which expired a year ago in December 2011. The bill would make the tax benefits available to taxpayers for the 2012 tax year. Two of those benefits, the $250 deduction for teachers’ classroom costs and an up-to-$4,000 deduction for tuition and fees payments, are education benefits. Collectively, they cost shy of $900 million in 2011 – still falling well short of the considerable $23.0 billion cost of the six expiring later this year.

The Senate bill to extend deductions that expired in 2011 through the end of the 2013 calendar year will likely not receive much more attention before the November elections. But before Americans file their taxes next year, Congress will be forced to decide – publicly – whether it plans to swallow the costs and extend the 2011- and 2012-expired credits, or whether it is prepared to cut those benefits in favor of fiscal restraint and other priorities.

A First Look at the Department of Education’s Sequestration Plans

July 26, 2012

This January, across-the-board cuts in federal spending could be applied to most fiscal year 2013 appropriations, a process known as sequestration. According to the Department of Education, school programs will experience significant losses if Congress allows sequestration to move forward.

A Senate subcommittee examined the issue in detail this week. Using a Congressional Budget Office estimate that says agencies’ budgets could be cut by 7.8 percent, Secretary of Education Arne Duncan and Chairman of the Subcommittee Tom Harkin (D-IA) each issued post-sequester predictions. (Harkin’s report also includes Health & Human Services programs like Head Start.)

Both agreed the cuts would be dramatic. Title I, the federal government’s main funding stream for the education of poor children, would be awarded $1.1 billion less than in the current fiscal year. There would be $900 million less in special education grants to states. Almost 100,000 children would lose access to Head Start, and another 80,000 would be cut from Child Care and Development Block Grant subsidies. Special education preschool grants would lose nearly $30 million.

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