On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. Of the Act’s more than $787 billion in appropriations, tax benefits, and other funding opportunities, approximately $100 billion is directed toward education, and a substantial portion of this amount is for elementary and secondary education programs. This update provides an initial overview of distribution of funds under the new law to school districts, the permitted and prohibited uses of such funds, and other programs and initiatives established by the Act. The U.S. Department of Education is expected to issue guidance on implementation of these provisions soon. The Act may present opportunities for companies that provide goods and services to school districts and investors in such companies.  

What Funds Does the Act Provide for Elementary and Secondary Education?  

The Act provides funds for elementary and secondary education through various programs, notably: see table

Nearly half of the money to be spent on education is appropriated through the State Fiscal Stabilization Fund (SFSF). Through SFSF the Act directs $53.6 billion to elementary, secondary, and postsecondary schools to reduce budget shortfalls, to support government programs and initiatives, including the repair and modernization of public school facilities, and to provide for innovation and incentive grants.  

How Will SFSF Funds Reach School Districts?  

A state must submit an application to the U.S. secretary of education to receive SFSF funds. The application must provide a description and assurances as to the state’s intended use of the funds, including an assurance that the state will fund education at least at the level that it funded education for the 2006 fiscal year. Once the state receives the money, it must:  

  • Use 81.8 percent to maintain support at fiscal year 2008 or 2009 levels (whichever is greater) for school districts and public institutions of higher education. The state must distribute money to school districts using existing state formulas. The funding is available for the 2009, 2010, and 2011 fiscal years.  
  • Use 18.2 percent to support “government services,” such as public safety programs and modernization, renovation, and repair of public school facilities.  

How May School Districts Spend SFSF Funds?  

Schools districts may use SFSF funds in a variety of ways. These include:  

  • To support all programs and services authorized under the No Child Left Behind Act of 2001 (NCLB);  
  • To support special education, as required under the Individuals with Disabilities Education Act (IDEA);  
  • To support adult and family literacy programs, and career and technical education;  
  • To maintain fiscal effort under any program, including the maintenance of fiscal effort requirements of IDEA and NCLB. Prior approval of the secretary is required to use funds for this purpose; and  
  • To modernize, renovate, or repair existing public school facilities.  

A school district, however, may not use the funds:  

  • To pay maintenance costs;
  • To construct or renovate stadiums or facilities primarily used for athletic contests or exhibitions;
  • To purchase or upgrade vehicles; or  
  • To improve stand-alone facilities used for purposes other than the education of children, such as central office buildings.

For What Other Programs Can These Funds Be Used?  

  • Innovation Fund: The secretary may set aside $650 million to make grants to school districts that have used innovative strategies to:  
  • Make significant gains toward closing the achievement gap;
  • Exceed the state’s annual measurable objectives for 2 or more consecutive years or increase academic access for all groups of students;
  • Improve in other areas, such as graduation rates or increased recruitment and placement of high quality teachers; and
  • Establish partnerships with the private sector, provided that such partnerships likely will result in matching funds from the private sector.
  • State Incentive Grants: The secretary may make grants to states that have made “significant progress” in achieving more equitable teacher distribution, developing and implementing better data collection systems and improved standards and assessments, and providing support for struggling schools. States that are awarded such grants must use at least 50 percent of these grants to make sub-grants to Title I schools.