Inspector General report raises concerns over states' use of stimulus funds

A recent report released by the U.S. Department of Education’s (USDOE) Office of the Inspector General raises questions regarding states’ compliance with the intent of maintenance of effort (MOE) requirements of the State Fiscal Stabilization Fund (SFSF) component of the American Renewal and Recovery Act (ARRA).

The ARRA statute requires states to provide several assurances, including commitments to fund K-12 and higher education at least at FY 2006 levels and to promote reform in four areas, in order to receive SFSF monies. The report indicates, however, that several states—including Connecticut, Massachusetts and Pennsylvania—have capitalized on the flexibility of MOE requirements to use stimulus funds to supplant rather than supplement education budgets. In Connecticut, for example, the Governor initially proposed flat-funding for FY 2010 and FY 2011. By the time state officials submitted the phase I SFSF application, however, proposed state allocations were reduced to the minimum amount necessary for MOE (i.e. 2006 funding levels), or a 14.27% reduction in education spending to be filled in by SFSF funds.

USDOE contends that it has made an effort to close the MOE loophole by including funding maintenance as a consideration for awarding Race to the Top funds. Equity advocates, however, have argued that this provision does not do enough, as the guidelines focus on proportional levels of funding rather than absolute figures. That is, the regulations leave the door open for states to cut the total budget from year-to-year and remain competitive applicants.