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Q&A: The Path of Stimulus Funds to Local Projects

BY Admin  March 19, 2009 at 4:58 PM EDT

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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.

What are some of the road blocks that create delays from allocation to spending?

How are we going to spend it? We are going to have some districts that serve a lot of poor families who have the opportunity to spend twice as much over the next two years as they spent in the last two years.

School districts typically spend more than 80 percent of their budgets on personnel. Well, I’m the superintendent how am I going to spend this money? I’ll hire some people. But you can’t hire teachers – certainly in districts where workforce is represented by a union. You have to ramp up spending, but how do you ramp it down? You have to be worried about how you spend this money without creating a long-term commitment, because I have no assurance at all that this federal money will be flowing after 2011.

So it just creates a tremendous challenge and I think districts across the nation would be recipients of this largess are worrying about how they can spend this money productively.

Certain routes that are the routes to spend a lot of money are routes that are effectively closed or uncertain, because you figure you’re only going to have the money for two years.

How soon do you think it will be before we are going to start seeing buildings built or roads refurbished with stimulus money?

The first thing you will see is that state projects that were already underway or starting and were subject to being shut down because the state’s budget has gone in the toilet will now continue. So it will be the saving of jobs through continuing projects that are underway or shortly to get started that would’ve had to have been shut down where you’ll see the effects first.

There are some states who are saying already they’re using the stimulus money to keep projects going. That’s why there was a lot of talk in the political discussion running up to passing the stimulus bill for the need so called “shovel-ready” projects.

If you want to build a new bridge and no one has thought of it yet, you have to contract for architects, got to get environmental permissions and all of that.

It can take two or three years to get a major construction project from concept to a shovel in the ground and I think that’s one of the tremendous challenges here – what can be done quickly that’s going to be productive in the long run?

Vice President Joe Biden has been named as the president’s watchdog on the stimulus money. Do you have any idea what he can be doing to make sure that money from the stimulus is not being wasted?

I think that throwing a lot of sunshine on it is the best that were going to be able to do at the federal level.

I know that there’s, but I have been there and not a lot of information there yet. But you know there’s supportive language in the legislation itself. I think the federal government needs to follow thorough so that at the state and local level, if I want to know how the DC public schools used the stimulus money, I should be able to go and find out.

I think that kind of public availability of the information is going to lessen the likelihood of the worst end of things- fraud and abuse.

It is possible to do harm here, particularly in public education. Lets say that a district decides that spend the money on is lots of field trips. Field trips can cost money so you know it used to be that kids couldn’t go visit civil war site in Pennsylvania. There’s no evidence that field trips enhance education outcomes. A lot of bells and whistles and frills may detract from the underlying educational experience.

I can imagine district superintendents saying, “I can take care of this money with a lot of professional development for teachers. So, let me tell teachers in the district that I will pay all of their tuition for obtaining masters degrees in their subject matter.” That sounds like a good thing, but there’s no evidence that masters degrees enhance the effectiveness of teachers. You just have to be careful to do no harm and ideally you want a productive investment.

I think the best way to deal with this is to have as much information available to the public as possible on how the money is being spent, down to the individual school building level, and that information should be available to the extent possible while decisions are being made.