Federal aid rules could be good for towns, bad for state budget

Connecticut’s school districts could be in line for a major economic boost this fiscal year, thanks to the new extension of federal stimulus funding – and a political miscalculation by the General Assembly and Gov. M. Jodi Rell.

The $109 million in potential good fortune for local schools also could be part of a new $156 million hole in the state budget.

The problem stems from a controversial decision reached by the Republican governor and the Democrat-controlled legislature  in early May when they approved a $19.01 billion budget for the 2010-11 fiscal year.

Though Congress hadn’t reached any final decision on extending emergency federal stimulus grants, state officials assumed it would. So while state officials kept overall funding for the 2010-11 Education Cost Sharing grant program for school districts at $1.9 billion – the same level allocated in the prior year – they increased assumptions about how much federal aid would support it, from $271 million to $370 million on the budget’s revenue schedule.

What state officials didn’t count on is that the Education Jobs and Medicaid Assistance Act signed Tuesday by President Obama would assign $109 million to Connecticut – but also restrict its use.

Specifically, the act stipulates the additional aid cannot “supplant state funds in a manner that has the effect of establishing, restoring or supplementing a Rainy Day Fund” – the latter being a term typically used to refer to a state’s budget reserve.

“The only way it’s going to have any effect is to get it directly to the school districts so they can use it to rehire the teachers they laid off,” said Joseph Cirasuolo, executive director of the Connecticut Association of Public School Superintendents. “If that $109 million isn’t used to rehire teachers, then the federal government is just wasting a lot of money.”

Gov. M. Jodi Rell’s office only would say Friday that it still is analyzing the rules tied to the additional federal stimulus aid.

But state House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Friday that the governor told him by telephone that morning that a significant portion, or all of the money, would have to be given to school districts as an additional appropriation. Rell’s office declined to comment on Cafero’s statement.

So if Connecticut – which already began its 2010-11 fiscal year on July 1 – pledged to spend $1.9 billion on its schools, does it now have to spend $109 million more?

“Connecticut’s share has to go directly to the school districts,” James Finley, executive director of the Connecticut Conference of Municipalities, said Friday. “The state can’t hold onto it to balance the budget.”

The Connecticut Conference of Municipalities isn’t the only group saying “yes.”

“Our belief is that it’s not to supplant [ECS] money,” said Mark Waxenberg, director of government relations for the Connecticut Education Association, the state’s largest teachers’ union, representing about 42,000 classroom teachers. “It’s money specifically for the purpose of jobs,” he said. “Our understanding is it’s on top of [ECS] rather than supplanting it. . . . It’s a separate grant. I don’t see how the state could see this as money to fill out ECS.”

Nevertheless, Waxenberg said the distribution of the money “could be a sticking point. I’m hearing the drumbeat that there could be a problem. . . . . It’s one of the issues that needs to be addressed by the federal government.”

The new federal law gives the governor sole authority to determine how the funds would be distributed, and basically sets forth two options:

Use the state’s primary elementary and secondary education funding formula. In Connecticut’s case, this means the ECS system.

Or distribute the money with an emphasis on poorer communities following federal poverty guidelines.

State Education Commissioner Mark McQuillan said Friday he has notified local school superintendents that he is reviewing federal guidelines but does not yet have an answer as to how the money will be distributed. “We’re studying the problem,” he said.

Rep. Cameron C. Staples, D-New Haven, co-chairman of the legislature’s Finance, Revenue and Bonding Committee, said, “In the plain language of the legislation it appears the money needs to be transferred to the cities and towns.” But Staples quickly added he still is awaiting analyses of the stimulus extension both from the Rell administration and from the legislature’s nonpartisan Office of Fiscal Analysis. “I think we’re all awaiting some more information from the federal government before we can finalize this.”

Robert Rader, executive director of the Connecticut Association of Boards of Education, said, “As to whether [the emergency aid] is on top of ECS or not, we haven’t heard anything. . . .School districts would be quite disappointed if it were just used to supplant ECS.”

So if Connecticut has to spend an extra $109 million on school districts, it would leave a $99 million hole in its budget, reflecting the federal education aid state officials assumed would be available just to keep ECS grants at last year’s levels.

Further complicating matters, Connecticut also was counting on $266 million in additional Medicaid and child welfare grants from the stimulus extension measure. And while it can use those funds to help balance the current budget, the state received just $199 million, or $57 million less than expected, in the actual legislation.

Combined with the potential $99 million education funding shortfall, that problem could leave Connecticut’s budget with a $156 million hole less than seven weeks into the new fiscal year.

“I think something like that’s always a concern, especially at this early point in the fiscal year, but it is a modest amount,” Staples said, adding the primary concern remains whether projected state tax revenues meet expectations later this summer and fall.