Senator Eliot Shapleigh - El Paso, Texas

Eleven Texas Senate Democrats sent a letter Friday April 16, 2009 to Secretary of Education Arne Duncan asking for clarification about the use of State Fiscal Stabilization Funds in the Senate's version of the budget. The letter specifically asks about the $3.25 billion that should go directly to school districts, but instead was used to supplant the state's general revenue.

Printed below is that letter. A copy of the letter as it was mailed, with attachments, may be found by clicking here.

April 16, 2009

The Honorable Arne Duncan

Secretary of Education

U.S. Department of Education

600 Independence Avenue

Washington, D.C. 20597

VIA UNITED STATES MAIL AND FACSIMILE

Re:       Texas' Use of State Fiscal Stabilization Funds

Dear Secretary Duncan:

            We write regarding the use of State Fiscal Stabilization Funds (SFSF) in the budget recently passed by the Texas Senate.  We have significant concerns that the budget utilizes SFSF in a manner not allowed by the American Recovery and Reinvestment Act (ARRA).  We are requesting specific guidance on whether the Senate's decision to supplant general revenue using SFSF is an allowable use under the ARRA. 

            As you know, the SFSF program is a new one-time appropriation of $53.6 billion under the ARRA.  These funds were aimed at helping to stabilize state and local government budgets in order to minimize and avoid reductions in education and other essential public services. Specifically, the program's goal is to help ensure that local educational agencies (LEAs) and public institutions of higher education (IHEs) have the resources to avert cuts and retain teachers and professors.

            Per the ARRA, states must use 81.8 percent of SFSF funds for the support of public elementary, secondary, and higher education, and, as applicable, early childhood education programs and services.  See Enclosure A.  States must use their allocations to help restore for FY 2009, 2010, and 2011 support for public elementary, secondary, and postsecondary education to the greater of the FY 2008 or FY 2009 level.  The funds needed to restore support for elementary and secondary education must be run through the state's primary elementary and secondary education funding formulae. The funds for higher education must go to IHEs.

            If any SFSF funds remain after the state has restored state support for elementary and secondary education and higher education, the state must award the funds to LEAs on the basis of the relative Title I shares but not subject to Title I program requirements.

            Our concern lies with the fact that the SFSF was used to supplant general revenue in the Senate budget, swapping out—dollar for dollar—state funds for federal funds.  Enclosed for your review please find Article XII of the Senate budget.  See Enclosure B.   In the Texas Education Agency section on page XII-3, $2.045 billion in SFSF is used to replace general revenue allocated to pay for the Foundation School Program and the technology allotment.  As further confirmation of the dollar for dollar swap, below please find a transcript of a March 23, 2009 conversation between members of the Senate Finance Committee and the Legislative Budget Board:

Legislative Budget Board: Moving on to the Texas Education Agency at the bottom of page 3, you'll see that they will receive a net funding increase of almost $2.3B, and that is associated with an increase in Title I and IDEA funding.  You'll also see the education stabilization fund, netting out to $2.045B, swapping GR [general revenue] for stimulus funds within the Foundation School Program and the technology allotment.  What you'll also see here is stabilization for other government services, and this is another opportunity to substitute stabilization funds for GR.  And $500M of that is at TEA in this Article.  The rest of that money - $200M of that $700M pot - is at the Higher Education Coordinating Board on the next page.  And you'll see the general revenue in and out there as well.  At the General Academic Institutions, there was an opportunity to switch about $17M of hold harmless funding for institutions, that's associated with a pot of money that tells us to get funding formulas back up to a certain level.  And that's the piece of that we were able to leverage at the General Academics.  Moving down the page to the community colleges, the last bit of that kind of money that you'll see - stabilization funds - this would swap out GR for the $110M that Sen. Deuell introduced to restore the proportionality reduction. 

Senator Ogden: Senator Shapiro.

Senator Shapiro: So if I totaled up all of this that you put under TEA, Coordinating Board, General Academics, and public junior and community colleges, that should have about $3B.  So we've taken the money that's in the stabilization fund and, for lack of a better word, and I know we hate this word, supplanted it for our general revenue.

Legislative Budget Board: Yeah, what that money lets you do is say, is there a level of state support that your current budget cannot maintain due to your constraints.  It lets you spend that money through those funding formulas, and it has to happen through formulas.  So we really had to look for formula opportunities with this money, but yes ma'am, that's what that does.

            Under our calculations, the chart on the following page represents the distribution of the approximately $3.25 billion of SFSF that would have gone to Texas school districts across the state had all of the SFSF gone directly to the LEAs rather than been used to supplant general revenue. 

Approximate Distribution of SFSF to Texas School Districts

            Some may argue that the Senate budget's supplanting of general revenue is an allowable use of SFSF, as the State would have had to tap into its Rainy Day Fund, an economic stabilization fund, to balance the budget.  We disagree with this excuse.  By 2011, the Texas Comptroller is predicting that the Rainy Day Fund will have over $9.1 billion.  Instead of using that funding to pay for needs facing the state education system today, state leaders believe it is instead wiser to park the funding for use as future property tax cuts that primarily benefit the wealthy.

            Two recent letters to your office have raised similar concerns.  A March 25, 2009 letter from members of the Texas Congressional delegation stated requesting "that the Department will issue guidance in the strongest language possible, especially in the case of the State of Texas, that these Stabilization [SFSF] dollars cannot supplant State funding for education, but rather must go to increasing support for our local schools."  See Enclosure C. 

            Additionally, an April 6, 2009 letter from 11 superintendents representing some of Texas' largest school districts stated that they "consider the use of these stabilization funds for any purpose other than the one ARRA intended—the improvement of education for America’s children—to be unacceptable and a violation of the public trust."  Both of these letters are enclosed for your review.  See Enclosure D.

            Again, we urge you to release specific guidance on the use of SFSF by the Texas Senate budget.  Using funding from President Obama to balance the budget on the backs of Texas’ at-risk children is neither the right nor the moral choice.  We trust that the Department will continue to monitor the budget situation very closely.

Very truly yours,