The Path of Stimulus Funds to Local Projects

In a Q&A with Quinn Bowman on the NewsHour with Jim Lehrer, Russ Whitehurst explains how the stimulus funds will make their way to local projects, particularly for school programs.

President Obama said that one of the main goals of the stimulus bill was to provide or save jobs. How does money from the federal government provide or save jobs?

In the context of the stimulus plan one of the principal functions is to save jobs. There is a state stabilization fund of 50 billion-plus dollars. States are to use that first to backfill reductions in their own state budgets.

If revenues are down, as they are in every state, and states are required by their constitution to have a balanced budget, the state has to cut from local school districts and local districts with funding cuts have to lay off teachers

And so one of the very clear anti-recessionary affects of the stimulus bill is through a state stabilization fund so that states can revive their revenues for schools can get the same money they got the previous year.

That’s a way of saving jobs?

An additional portion of the stimulus in education is to increase [the] current level of funding for programs like education for the disadvantaged, so large urban districts with lots of poor families get a lot of money from the federal government. And some of those will see their funding double. So how do you spend that?

You have to spend it on people – they have to hire people to do things. And so that’s how it creates jobs.

How does the money go from the federal level to where it is used on the local or state level?

There are two avenues and one avenue is the formula funded avenue and the second avenue is the discretionary grant avenue.

An example of formula funding is federal funding for education of the economically disadvantaged. So, you take census information about the number of low income families in a particular school district and federal funds flow to schools in that district in direct proportion of the number of low income families they serve.

There are billions of dollars in the stimulus plan for that kind of formula funding. All the Department of Education has to do – which would be the same thing the Department of Transportation or Health and Human Services has to do – is allocate the funds they’ve gotten to those formulas.

New York State will get billions of dollars more allocated to it than it got in the previous year. So that can happen relatively quickly.

The Department of Education will be able to allocate these formula funds, if they haven’t done it already, within the next few weeks.

How is formula funding money spent?

There is a real distinction between allocating the money and the states and localities actually spending it.

Allocation is what the federal government does. It says “New York State, you have another 6 billion dollars to work with.” But of course the federal government hasn’t spent the money nor has the state government spent it at that point. And it’s drawn down by the federal government on a bi-weekly basis as it is actually obligated to be spent at the local level.

So when you go to federal Web sites, or you look at some announcements that have been made by the administration touting the fact that they’ve already allocated a large amount of money, you do have to keep in mind that that money hasn’t been spent yet. New York State has gotten a credit in their bank account that they can draw against. But they have to engage in whatever processes they need to get the money spent.

Can you explain the discretionary grant avenue?

The discretionary grant money is going to flow much more slowly. Discretionary grants involve competitions in which individual entities – sometimes it will be states, sometimes it will be, in the case of education, local school districts, have to apply to the federal government and compete for money.

Local school districts can apply for innovation funds to further their own work if they are doing something that’s deemed to be important and innovative. Those processes involve the federal government having to design announcements about what they are going to compete over, what the rules are, so they can have those applications reviewed in some transparent way and that involves making decisions about who is the winner and who is the loser.

Those processes can take months and months to carry out.

In the formula funding area, you have all this influx of money to areas that already get money. Who gets to decide how that is used? Does it depend on the type of project?

In the case of schools, it would depend on the district itself making that decision subject of whatever restrictions exists on the expenditure of that kind of money in existing law, so if its title 1 money, that’s education for the disadvantaged the district would be able to have a lot of flexibility in how it spent as long as it was spending it on schools that served a sufficiently large number of low-income families

A school district could decide to buy ceiling tiles, could decide to buy professional development for teachers, it could decide to buy after school programs, so that flexibility is almost entirely at school board and district superintendent level.

Some of the other funds flow to states themselves so the governor’s office is going to have a fair amount of discretion with the state stabilization funds as to how that money is directed.

Read the full interview »