Stimulus Watch: Front-Loading and Favoritism

Michael Griffith, senior finance analyst at the Education Commission of the States, has authored a fascinating policy brief detailing where states are beginning to invest the State Fiscal Stabilization Funding portion of the federal stimulus money. As of May 8th, the U.S. Department of Education has approved preliminary applications from governors of nine states (CA, IL, ME, MN, MS, OR, SD, UT, WI).

The ECS brief notes that the applications provide assurance that the state will: (1) fund both its K-12 schools and institutions of higher education at or above FY 2005-06 levels, and (2) identify how much of the stabilization funds it will expend in FY 2008-09, FY 2009-10 and FY 2010-11.

Here are the results:

• FRONT-LOADING OF FUNDS - "States are allowed to use their Education Stabilization Funding starting this fiscal year (FY 2008-09) through fall 2011. The expectation was that states would spend some of their funds to finish out this fiscal year but would use the bulk of funds in FY 2009-10 and FY 2010-11. However, these first nine states have greatly front-loaded their spending. On average, the nine states are spending 55.0% of their Educational Stabilization Funds to complete FY 2008-09." The states of California, Illinois, Oregon and Utah will have spent down all of their stabilization funds and will have none remaining by FY 2010-11; on the other end of the spectrum, the state of Mississippi will reserve 52% of its funding for FY 2010-11.

• K-12 FAVORED OVER HIGHER ED - "Over the past three years states have spent an averaged 76.9% of education funding on K-12 programs and 23.1% on higher education. While the average expenditures from the nine states with approved applications hews close to traditional expenditures (80.1% on K-12 and 19.9% to Higher Ed), each of the nine states planned expenditures varies greatly." Wisconsin would spend all of its stabilization funding on K-12, while neighboring Minnesota will spend 38% of its funding on higher education.

The decision most states have made to front-load these funds is no doubt driven by fiscal crises, partially due to the recession but also by poor budgetary choices made by states over time. That K-12 garners most of these dollars reflects existing spending priorities wherein higher education takes a backseat -- perhaps because tuition is seen as an available revenue stream to make up for state stinginess.