House Committee on Federalism and Fiscal Responsibility: Sequestration

The following text is the March 6, 2013 testimony of Cory Green, Chief Grants Administrator, to the House Committee on Federalistm and Fiscal Responsibility.  The testimony outlines the fiscal impact sequestration will have on local education agencies (LEAs) receiving grant money from the US Department of Education.

General Information

The American Taxpayer Relief Act of 2012, reached at the beginning of the year to avoid the “fiscal cliff,” postponed the sequestration action of the Budget Control Act of 2011 from January 2, 2013, to March 1, 2013.  Due to the postponement, the total amount of the budget cuts in fiscal year 2013 was reduced by $24 billion, from $109 billion to $85 billion.

Based on the President signing an order putting the sequester into effect on March 1, 2013, the budget reductions will be implemented across most federal education programs with the next state education allocations on July 1, 2013.  However, some local educational agencies (LEAs) receiving direct grants from USDE, such as Impact Aid programs, will start seeing federal reductions as quickly as USDE is able to calculate the reductions to grantees.

Most federal education programs are forward- or advance-funded, meaning the state receives the majority of the federal fiscal year funding on July 1, at the end of the federal fiscal year for use primarily in the following fiscal year.  USDE has reported that forward-funded programs will not be retroactively cut back to the October 1 beginning of the federal fiscal year, but will take the full reduction from the July 1 allocation.  What this means for LEAs is that their school year (SY) 2012-2013 entitlements will not be reduced mid-year, but rather the full reduction will be taken from their SY 2013-2014 entitlement amounts. 

Many education groups following the sequestration process are calculating the estimated potential impact of the reductions.  USDE has used an estimated impact of 5%.  Other groups have calculated reductions of 5.1% to 5.3%, which due to the two month postponement is less than prior estimates of 8.2% reductions.

Since Congress has not yet completed work on appropriations for fiscal year 2013, groups can only model data based on federal fiscal year 2012 appropriation data.  Actual reductions will differ slightly once federal fiscal year 2013 appropriations are finalized by the Office of Management and Budget (OMB), which has responsibility at the federal level for determining the actual percentage of the reductions.  This process is expected to take at least 30 days.

While Congress and the Administration continue to discuss the sequestration process, some groups believe that the sequester could be addressed in the federal fiscal year 2013 appropriations due by
March 27, 2013, when either an appropriations bill or another continuing resolution must be passed.  Others suggest that Congress will not risk shutting down the federal government with this issue.

Potential Impact

For discussion purposes, the state’s largest federal programs demonstrate the potential impact on LEAs.  Based on updated information received today, USDE has estimated the following impact for the state in selected education programs.  I would also note that some of these estimates have significantly changed from information released last week from the White House.

  • The ESEA, Title I, Part A allocation could be reduced by $65.4 million which USDE equates to a potential impact of services to approximately 275 schools, 166,448 students, and 899 staff. 
  • The Individuals with Disabilities Education Act (IDEA, Part B) allocation is expected to be reduced by approximately $51 million.  This reduction potentially could require the state to find other resources to provide a free appropriate public education (FAPE) to students with disabilities.
  • The ESEA, Title II, Part A—Teacher Quality Grants allocation is expected to be reduced by $11.8 million.
  • The ESEA, Title III, Part A--English Language Acquisition allocation is expected to be reduced by approximately $2.8 million
  • The Perkins Career and Technical Education allocation is expected to be reduced by approximately $7.8 million.

One of the largest concerns for LEAs (school districts and open-enrollment charter schools) is the need for more information to be able to plan for next year’s staffing, services, and program budgets.  In general, LEAs would be required to reduce their services to students served by each program.  This may be accomplished by across the board reductions to staffing, professional development, direct services to students, and LEA administration.  However, generally it appears most LEAs would likely first take the reductions in professional development related costs and direct services to students not provided by grant funded staff as a preference to reducing grant funded staff and the related direct services provided by those staff.

Regardless of reduced state administrative funds, TEA is still required to meet federal requirements for compliance and reporting, and all associated submission deadlines.  The vast majority of federal grants are formula, or entitlement, awards to the LEAs and the amount of work required to administer and implement the federal programs would not change.

For discretionary type grants, TEA would likely provide less assistance to grantee LEAs, have slower grant response and processing/approval time, and could potentially eliminate some smaller grant programs or contracts in order to maintain funding for other higher priority projects.

Also of concern to states and LEAs is the impact on the sequestration reductions on federal maintenance of effort (MOE) and supplement, not supplant requirements at both the state and/or local levels.

Currently, TEA has only modeled a 10% reduction (based on earlier projected reductions).  However, for some programs with hold-harmless provisions, such as Title I, Part A, in the statutory formula this 10% model suggests the “worst case” scenario.  In Title I, Part A statute, the hold-harmless provision applies to state appropriations as well as LEA entitlement calculations.  The LEAs that by the data are at or below the hold-harmless amounts must be guaranteed the hold-harmless amount while the LEAs above their hold-harmless amount actually have the sequester reductions taken from their allocations.  All LEA hold-harmless calculations in the country are aggregated up to the state level; meaning Texas’ overall state allocation could be reduced more than the estimated 5--5.3% by the statutory formula.  Perkins CTE also has a hold harmless provision in the statutory formula.

Once the state receives more detailed information from USDE, TEA Grants Administration staff will model the reductions and make planning amounts available to LEAs.  It is estimated that the entitlement/planning amount calculations will take 3 weeks to complete once data are received.

Page last modified on 3/7/2013 01:38:57 PM.