American Recovery and Reinvestment Act (ARRA)
Revised Guidance on ARRA State Fiscal Stabilization Funds (SFSF)
Superintendents, Charter School Leaders and School Committee Members
Mitchell D. Chester, Ed.D., Commissioner
April 17, 2009
This memorandum provides revised guidance to local and regional school districts on the receipt and use of state fiscal stabilization funds (SFSF) funded through the American Recovery and Reinvestment Act (ARRA) of 2009. This guidance supersedes all previous guidance regarding SFSF issued by the Department of Elementary and Secondary Education (ESE). Earlier guidance provided on the use of ARRA Title I and IDEA funds remain in effect.
Part I: Guidance on the Use of SFSF Funds
In general, SFSF funds may be used for any educational expenditures that would be eligible under the Elementary and Secondary Education Act (ESEA), the Individuals with Disabilities Education Act (IDEA), the Adult Education and Family Literacy Act (AEFLA), or the Carl D. Perkins Career and Technical Education Act (Perkins Act).
The ARRA legislation specifically prohibits the use of SFSF funds for:
- Payment of maintenance costs;
- Stadiums or other facilities primarily used for athletic contests or exhibitions or other events for which admission is charged to the general public;
- Purchase or upgrade of vehicles;
- Improvement of stand-alone facilities whose purpose is not the education of children, including central office administration or operations or logistical support facilities.
In addition to school operating expenses, SFSF funds may be used for the construction, modernization, and repair of school facilities. Districts intending to use SFSF funds for such projects are advised to consult with their legal counsel to ensure that their design and construction contracts fully comply with all federal construction contracting requirements.
In planning for the use of SFSF funds, I expect superintendents and school committees to engage in a thoughtful process that goes beyond simply plugging gaps in the district's operating budget. I am urging districts to accomplish program improvements with these funds that will provide enhanced educational opportunities and/or cost savings that will extend beyond the limited two-year life of this unprecedented grant program. ESE will continue to provide advice and assistance on the many opportunities to leverage these funds to achieve real educational gains.
If, because of extenuating circumstances, you believe it would not be prudent to split SFSF funds between saving jobs and strategic investment, I am willing to consider applications that propose a different division of the funds.
Four major principles guide our use of ARRA education funds, and districts need to find an appropriate balance among these competing needs:
- Spend funds quickly to save and create jobs.
- Improve student achievement through school improvement and reform.
- Ensure transparency and accountability and report publicly on the use of funds.
- Invest one-time ARRA funds thoughtfully to minimize the "funding cliff" when the funds go away after two years.
Every local and state official can count on tremendous scrutiny of the use of these funds. The USED intends to collect and publish on a quarterly basis data on the use and impact of SFSF funds. Further, the USED will require states to document, as part of the process for applying for the second installment of SFSF funds, the progress they are making toward promoting college- and career-readiness for all students, effective teaching, turnaround of low-performing schools, and data-driven decision making.
Districts will be asked in their SFSF grant application funds to document the planned uses and benefits of the funds. In particular, districts will be required to address these two particular areas:
- Any district that is not using all of its SFSF funds for net school spending purposes will need to document whether it will be able to meet its foundation budget target using other sources of funds. If a school committee chooses to set an operating budget lower than its foundation budget target, it will need to document the reasons for that decision and how it proposes to ensure that all students receive an adequate level of services.
- Districts will be required to document the strategic investments that will be funded by the SFSF grant.
We all know the difficult challenges we face in closing the achievement gap and preparing students for college and careers in the 21st century, and every one of us has, at some time or another, argued for additional resources to help meet those challenges. We have been given an incredible opportunity to capitalize on the largest single infusion of funds in public education in the history of our country. If all we do with these funds is maintain the status quo, and if after two years we cannot point to significant and lasting improvements in our schools and districts, we will have squandered an opportunity and reduced the likelihood of future increases in federal funding for elementary and secondary education.
I am confident that, working together, we will be able to take advantage of the federal funding opportunity that has been handed to us.
Part II: Grant Administration
Preliminary allocations: The SFSF allocations posted on our website are preliminary. As discussed below, they are based on the Chapter 70 assumptions included in the Governor's FY10 House 1 budget proposal. Districts may use these preliminary numbers in developing their own FY10 budgets, but should be aware that any changes to the Chapter 70 funding made by the Legislature during the state budget process may require recalculation of the SFSF allocations. Final allocations will be calculated after the enactment of either the final state budget or an earlier local aid resolution.
How the allocations were calculated: Under the ARRA, the Governor is required to use the state's primary funding formula for K-12 education, which in Massachusetts is the Chapter 70 formula. The Governor has proposed level funding Chapter 70 state aid, and using the SFSF funds to ensure that all districts receive sufficient funding to reach their foundation budget targets mandated by Chapter 70. The SFSF calculation spreadsheet shows how the combination of Chapter 70 aid and SFSF dollars brings all districts to their foundation budget target. Additional information on the Chapter 70 formula, including an explanation of how the foundation budget is calculated for each district, can be found on the ESE school finance webpage.
Other SFSF allocations: Massachusetts is receiving $994 million in SFSF funds, of which 81.8% must be used for education and the remaining 18.2% may be used for a variety of governmental purposes at the discretion of the Governor. The funds earmarked for education will be used for public institutions of higher education and early childhood programs, in addition to elementary and secondary education. The Governor has also indicated his intent to reserve a substantial portion of the state's SFSF funding for use in FY11.
FY11 allocations: No final decisions have been made on the amount or distribution of SFSF funds in FY11. It is likely that any such allocations will be based on the FY11 Chapter 70 calculations, which will be released in January 2010. These calculations will in turn be based on updated enrollment data and municipal finance data. Districts receiving SFSF allocations in FY10 should not assume that they will be eligible for similar amounts in FY11.
Grant award process: SFSF funds will be awarded to districts in the form of a federal grant. The ESE will make available the application forms for the FY10 grants later this spring, and districts may submit their applications for approval as soon as the final allocations are known. Because this may depend on the enactment of the state budget, it is unlikely that grant awards will be made prior to July 1. SFSF grant funds may be expended at the discretion of the school committee without the need for appropriation. SFSF grant funds may not be commingled with other federal grants or other district funds.
Fiscal year carryover: Districts will be permitted to carry over unspent FY10 SFSF funds into FY11. We have not yet determined if this will be an automatic carryover or if the district will need to submit an application for this purpose.
Chapter 70 net school spending requirements: Districts' net school spending requirements will continue to be based on the sum of the municipality's minimum required contribution and the district's state-funded Chapter 70 aid. As in the past, only general fund spending on net school spending items will count toward meeting the statutory net school spending requirement. The amount of SFSF funds will not increase the net school spending requirement, nor will spending from SFSF funds count toward meeting those requirements. In other words, SFSF funds cannot be used to supplant the local required contributions.
Coordination of SFSF funds with charter school tuition rate calculations: SFSF funds used for net school spending purposes will be included in the above foundation component of the district's charter tuition rate calculations.
Maintenance of effort: SFSF funds may be treated as state and local funds for the purposes of meeting maintenance of effort requirements for any other federal educational program. SFSF funds may also supplant the portion of local educational spending, if any, that exceeds the state's net school spending requirements.
Pension contributions: Under current law, educator salaries paid through SFSF funds are subject to the mandatory 9% chargeback for contributions to the state teachers' retirement system. Any relief from this requirement will require legislative action, which cannot be assumed at this point.
Charge-backs for other indirect costs: As with other federal grants, districts can recover some overhead costs by charging grants for indirect costs. ESE is calculating a new set of restricted indirect cost rates for use in FY10 for all federal grants, and these will be published later this spring. Districts may then apply this published rate to their total grant expenditures (with the exception of capital expenditures.) Charge-backs for indirect costs are at the discretion of the district and are not mandatory. Any such charge-backs should be treated as general fund revenue to the city, town, or regional school district.
Reporting: In addition to the normal federal financial reports required for all federal grants, the U.S. Department of Education (USED) will be requiring extensive programmatic reporting to document the use of all ARRA funds. USED is still discussing the specific data to be collected, but all SFSF recipients will be expected to comply with these data reporting requirements. Districts receiving SFSF funds should anticipate that they will be required to report separately and in some detail regarding the use and impact of these funds.
Further information: Districts receiving SFSF funds are advised to read the detailed program guidance provided by USED. For further information regarding SFSF grants to Massachusetts school districts, please contact Associate Commissioner Jeff Wulfson at firstname.lastname@example.org or 781-338-6500.