State Fiscal Stabilization Application Update #3

The Department of Education recently approved the State Fiscal Stabilization Fund (SFSF) applications of four more states - Iowa, Maryland, Kansas and Michigan - and Puerto Rico. These states join the 21 that have already begun to receive funds. As of May 29th, nearly $3.4 billion in SFSF monies have been disbursed to states. (Previous posts analyzing the applications of the first 21 states can be found here and here and here.)

These four additional states and one territory make up another $3.3 billion in Education Stabilization funds and $735 million in Government Services funds. Relative to most other states with approved applications, these states are expected to face relatively low 2009 budget deficits as a percent of total state spending. According to the Center for Budget and Policy Priorities, Michigan is expected to face the largest budget deficit- 6.5 percent - while Iowa will experience the smallest - 2.1 percent. Budget deficit information on Puerto Rico is not available.

According to the applications, four of the five states/territories expect to have Education Stabilization funds remaining after 2010.  This is likely due to the relatively small budget deficits they are expected to run, allowing them to use their own funds for education. Michigan, with the highest deficit, does not anticipate having funds left over.

All five of the states/territories also plan to use the majority of their funds in fiscal year 2010 rather than 2009 -- a reflection of their relatively strong fiscal position. In fact, neither Maryland nor Puerto Rico plans to use any Education Stabilization funds in 2009. Kansas will spend only 5.4 percent of its funds on higher education and Iowa will spend 10.4 percent on K-12 in 2009. This pattern is very different from the states who submitted and had their applications approved earlier, like California, Illinois, and Florida. All of these states are expecting large budget deficits and frontloaded their Education Stabilization funds in 2009.

Because states spend the majority of state education funds on K-12 annually, it is not surprising that all five states/territories plan to use the majority of their 2010 Education Stabilization funds on K-12, rather than higher education. Iowa and Puerto Rico will spend over 20 percent of funds on higher ed in 2010, while Maryland will spend none. Only Nevada and Tennessee plan to spend more on higher education than K-12 in 2010.

Government Services funds under the SFSF can be used for education purposes as well as other services like public safety and health care. Each state's governor determines how funds will be used. Like many other states, all but one of the five newly approved states/territories plan to use Government Services funds for Public Safety. Maryland and Iowa will also use funds for higher education, while Puerto Rico will use some for K-12.  Iowa and Puerto Rico will also use some portion of their Government Services funds for ARRA Administration - the first states to declare this usage. Michigan has yet to determine how it will use its Government Services funds.

So far, 25 states and Puerto Rico have submitted and had their SFSF applications approved by the Department of Education.  That leaves an additional 25 states and the District of Columbia as well as other territories. News sources suggest that at least an additional 5 are waiting on application approval while some other states like Pennsylvania and South Carolina are tied up in negotiations over state budgets and control of funds. Ed Money Watch will continue to provide updates on the SFSF applications. Please check back for this coverage.