Title I Funding: Poor Children Benefit Though Funding Per Poor Child Differs
Published: 2002-01-15T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Title I program spends $8 billion each year on elementary and secondary education. Although state and local funds account for more than 90 percent of national education expenditures, Title I has been an important source of funding for many poor school districts and schools since 1965. In the 1999-2000 school year, Title I funds were targeted on the basis of numbers and percentages of poor children, but the complex allocation process resulted in differences in actual funding per poor child. When the numbers of children from low-income families shift among states, Title I allocations adjust, but not completely, and a state whose share of the nation's poor children changed from year to year would not necessarily see a corresponding change in its Title I allocation amount. The following two factors account for this: lack of current poverty data and various hold-harmless provisions. GAO found no monetary, statutory, or regulatory incentives for states to target their own funds to children from low-income families. Several policy options could increase Title I funds allocated to states and school districts with high numbers and percentages of poor children. These options include changing the appropriations hold-harmless provisions, funding the targeted grant, using an alternative cost factor, and raising the basic grant eligibility threshold.

section_title: Letter
paragraphs: Title I is the largest federal program supporting elementary and secondary  education and with annual expenditures of about $8 billion, accounts for  about 3 percent of total education expenditures nationally. While state  and local funds account for over 90 percent of national education  expenditures, Title I is an important source of funding for many high- poverty districts and schools. Created in 1965 as part of the War on  Poverty, Title I is designed to help educate disadvantaged children—those  with low academic achievement attending schools serving high-poverty  areas.
The amount of funds schools receive is the result of a multistep process  that combines formula calculations and state and district decisions. States  receive funding for their districts from the U.S. Department of Education  (Education), which calculates how much states’ school districts are  entitled to based on their numbers of children from low-income families  (poor children) as measured by Census Bureau data and their state’s per- pupil education expenditures (a proxy intended to reflect cost differences  among states in providing education). When states receive Title I funds,  they make adjustments to the calculated district-level amounts in order to  set aside funds for state administration and account for differences  between their actual school districts, including charter schools, and the  districts appearing in Education’s database. Once districts receive funds  from their states, they have some flexibility in how they allocate funds to  individual schools, but generally must target schools with higher  percentages of poor children. Not all school districts receive Title I funds  because they might not have a minimum number and/or percentage of  poor children to meet eligibility thresholds.
In the past several years, the Congress has been concerned about the  achievement gap between disadvantaged students and their more  advantaged peers and how to improve the performance of children from  low-income families. Some studies have indicated that schools with higher  numbers and percentages of poor children may have higher costs  associated with raising student performance. The Congress has had a  dilemma of wanting to improve the performance of poor children through  increased targeting of poor children while simultaneously protecting  districts whose share of these children has declined from losing a  significant amount of funds. To increase targeting, in 1994 the Congress  added a new formula to the Title I program, which would have provided  more funds to districts with higher numbers and percentages of children  from low-income families, but until fiscal year 2003, no funds were  appropriated for this formula. To protect districts from a significant loss of  funds when their numbers of poor children decline, the Congress has  implemented several “hold-harmless” provisions. The issues of targeting  and hold-harmless provisions were much debated in Congress’ recent  efforts to reauthorize the Title I program.
In light of these issues, the Congress mandated GAO to study Title I  allocations, specifically (1) the extent to which Title I funds are allocated  to states, school districts, and schools with the greatest numbers and  percentages of school-age poor children; (2) the extent to which  allocations of such funds adjust to shifts in the numbers of poor children;  (3) the extent to which the allocation of Title I funds encourages the  targeting of state funds to school-age poor children; and (4) what options  might improve targeting of funds, especially to states and school districts  with higher numbers and percentages of poor children, to more effectively  serve those children.
In doing our work, we performed extensive analysis of data collected from  a number of federal, state, and local sources. We obtained data on Title I  formula allocations for school years 1999-2000, 2000-01, and 2001-02 from  Education and obtained the actual allocations received by school districts  in the 1999-2000 school year from state officials. We interviewed every  state Title I director, surveyed a nationally representative sample of school  district administrators, and interviewed representatives of relevant federal  agencies and national organizations. We conducted our work from  December 2000 through December 2001 in accordance with generally  accepted government auditing standards. Appendix I provides a more  detailed discussion of our methodology.
subsections: section_title: Background
paragraphs: Title I grants are intended to help elementary and secondary schools  establish and maintain programs that will improve the educational  opportunities of low-income and disadvantaged children. Title I funds are  intended to provide instruction and instructional support for these  disadvantaged children so that they can master challenging curricula and  meet state standards in core academic subjects. The law does not stipulate  exactly how Title I funds are to be spent. Instead, Title I is an example of  flexible funding that local and state educational agencies may use as they  deem best.
Title I funds are directed toward states and school districts with greater  numbers and percentages of poor children regardless of the level of  funding they receive from state and local sources. Although the amounts  that states and localities spend on education vary due to differing resource  bases and funding priorities, Title I funds are not intended to compensate  for this variation.
Federal Allocation Process
 The U.S. Department of Education each year determines the distribution  of Title I funds according to the mandates of the law. The authorizing  legislation in effect through the 2001-02 school year provided for four  different kinds of Title I grants:  Basic Grants are the primary vehicle for Title I funding and are the easiest  grants for which school districts can qualify. Districts are eligible for basic  grants if they have at least 10 poor children and the number of poor  children is more than 2 percent of the district’s school-age children.Nationally, about 92 percent of school districts (containing over 99 percent  of poor children) receive basic grants, which accounted for about 85  percent of the Title I funds distributed in fiscal year 1999.
Concentration Grants are somewhat more directed to poor districts than  basic grants because district eligibility criteria for concentration grants are  stricter than those for basic grants. Districts are eligible for concentration  grants if they have more than 6,500 poor children or the number of poor  children is more than 15 percent of the district’s school-age children.  Nationally, about 60 percent of school districts (containing about 85  percent of poor children) receive concentration grants, which accounted  for about 15 percent of the Title I funds distributed in fiscal year 1999.
Targeted Grants were not funded until fiscal year 2003. Targeted grants  would be directed more to high-poverty states and districts; as the number  and percentage of poor children in the district increase, the targeted grant  amount would increase both in absolute dollars and proportionally to  other districts. A district would be eligible for targeted grants if it had at  least 10 poor children and these children accounted for at least 5 percent  of its school-age children. In the 2001-02 school year, about 86 percent of  school districts, containing 99 percent of poor children would have been  eligible to receive targeted grants had they been funded.
Incentive Grants were not funded until fiscal year 2003. Incentive grants  would not be distributed on the basis of poverty, but would provide  additional funds to states that demonstrate high state spending relative to  their tax base and states that have less disparity in funding among their  districts.  Under this formula, states would distribute funds to districts in  proportion to the remainder of their Title I allocations.
Title I funds are distributed from the federal government to the states,  based on data that are measured at the school district and state levels.  Since school year 1999-2000, for each school district meeting eligibility  requirements based on numbers and/or percentages of poor children,  Education has based its formula calculations on the number of poor  children in the district.  (Prior to that time, formula calculations were  based on counties rather than school districts. The change occurred, in  part, due to concern that poor school districts in otherwise wealthy  counties were not receiving the Title I funds they needed.) The funding  formula for basic and concentration grants principally involves multiplying  the number of poor children in a school district area, as measured by  Census and other data sources, by the state’s average per-pupil  expenditure, although these amounts are subject to hold-harmless  provisions and a “small state minimum” provision. These key elements of  the funding formula for basic and concentration grants are described  below:
Poverty: the number of poor children in the school district area, as  estimated by decennial Census data and updated by the Census using  statistical modeling techniques. (The poverty threshold for the 2000-01  school year for a family of four was an annual income of $17,050.)
Expenditures: forty percent of the state’s average per-pupil expenditure,  limited to a minimum of 80 percent and a maximum of 120 percent of the  national average expenditure. This measure is included as a proxy for  education costs.
Small state minimum: Each state is guaranteed a minimum level of  funding, which is the smaller of either one-quarter of 1 percent of the  overall appropriation, or the average of one-quarter of 1 percent of the  overall appropriation and the state’s number of eligible students multiplied  by 150 percent of the national average per-pupil payment.
Hold-harmless provisions: guarantee each state and district a minimum  level of funding based on past allocations. That is, the allotment cannot be  less than a specified percentage of the preceding year’s allotment. Such  provisions are intended to moderate the effects of any large year-to-year  shifts in program funding, numbers of eligible children, or state education  spending. The hold-harmless provisions protect states with declining  numbers of poor children from reductions in their allocations, but in the  absence of increased overall funding, this leaves fewer funds available for  states and districts with growing numbers of poor children. Specific hold- harmless rules have changed over time. In the authorizing statute, the  hold-harmless level for the basic and targeted grants is set at 85, 90, or 95  percent of the prior year’s allocation, depending on the percentage of  children in the district who are eligible under the formula (formula  children). (The concentration grant does not have a hold-harmless  provision in the authorizing statute.) However, for the 1998-99, 1999-2000,  and 2000-01 school years, provisions in the appropriations legislation set  the hold-harmless level at 100 percent of the past year’s allocation. This  100-percent rule was modified for school year 2001-02. Under this new  rule, rather than being guaranteed 100 percent of their prior year’s funding  amount, districts were guaranteed the larger of either their previous year’s  allotment or the amount they would have received had the authorizing  statute’s hold-harmless rules been in effect.
The Title I program was reauthorized in January 2002, with some  significant changes.  See appendix III for details.
subsections: section_title: State Role in the Allocation Process
paragraphs: A state’s allocation is the sum of the district allocations determined by  Education. These allocations, however, are not the final amounts that a  district will receive. The state must adjust the allocations determined by  Education to  reserve funds for state administration (up to 1 percent of the amount  allocated to the state) and for school improvement activities (no more  than 0.5 percent of the amount allocated to the state but no less than  $200,000) and account for changes in district boundaries, district consolidations, and the  creation or existence of special districts, such as charter schools or  regional vocational/technical schools, that are eligible for Title I funds but  may not be reflected in Education’s allocations.
In the case of special districts that meet the basic and concentration grant  eligibility criteria, the state must ensure that those districts receive the  Title I funds to which they are entitled. This may involve reducing the  allocations of districts from which these special districts draw children.
In addition, the statute gives states the flexibility to use alternative poverty  data, which Education must approve, to redistribute Education- determined basic and concentration grant allocations and re-determine  eligibility for “small” districts serving areas with fewer than 20,000 total  residents. This provision arose out of concerns about the quality of Census  poverty estimates for small districts. Roughly 79 percent of all school  districts nationally have a total resident population of less than 20,000.  Currently, nine states use alternative data to redistribute allocations  determined by Education among their small districts. Most of these states  use free and/or reduced-price lunch data either exclusively or in  combination with Census poverty data.
section_title: Within District Allocation Process
paragraphs: Once funds have been allocated to the district level, districts can in turn  allocate funds to the schools. Districts have considerable discretion—  more so than states—in how they allocate Title I funds. Districts may use  Title I funds for district-level activities—including professional  development, preschool programs, school improvement initiatives,  program administration, and parental involvement efforts. Districts then  generally allocate the remaining Title I dollars to the schools. In  distributing these dollars, districts are subject to several key restrictions.  For example, a district must serve eligible schools or attendance areas in  rank order according to their poverty percentage. A district must serve  those areas or schools above 75 percent poverty, including any middle or  high schools, before it serves any with a poverty percentage below 75  percent. Once all of the schools and areas with a percentage above 75  percent have been served, the district may serve lower-poverty areas and  schools either by continuing with the districtwide ranking or by ranking its  schools below 75 percent poverty according to grade-span groupings (i.e.,  K-6, 7-9, 10-12). If a district ranks by grade-span, it can compare the  school’s poverty percentage to either the districtwide poverty average or  the poverty average for the respective grade-span grouping.
Districts are not required to allocate the same per-pupil amount to each  school, but if they choose not to, they must allocate higher per-pupil  amounts to poorer schools than they allocate to schools with lower  concentrations of poverty. In addition, districts may apply for and receive  waivers of any of these allocation rules. The Title I statute also requires  that school districts provide eligible private school children with Title I  educational services or other benefits that are “equitable” to those  provided to eligible public school children. The school district provides  these services directly to the private school children rather than giving  funds to the private school itself. Within the rules, districts may allocate  funds to schools as they like.
section_title: Distribution of School Districts by Size and Percentage of Poor Children
paragraphs: School districts differ in the size of their enrollment and their percentages  of poor children, as shown in figure 1. For example, there are about 7,000  school districts with no more than 1,000 children enrolled and about 300  districts with more than 20,000 children enrolled. Among districts with less  than 1,000 children, about half of those districts have more than 35 percent  of their children eligible for free or reduced-price lunch, while the other  half have fewer children eligible for free or reduced-price lunch.
section_title: Allocations Based on Poverty, but Complex Allocation Process Results in Different Allocations Per Poor Child Among States, Districts, and Schools
paragraphs: On the whole, total Title I grants were allocated to states and school  districts on the basis of their numbers of children from low-income  families in the 1999-2000 school year, but individual states and school  districts received different grant amounts for each poor child. Generally, a  state’s share of poor children was roughly proportional to its share of  funds; however, even small differences between the two resulted in  substantial differences in funding per poor child. School districts, like  states, as a whole received Title I allocations that were in accordance with  the numbers of poor children they had enrolled, but actual funding per  poor child varied among individual school districts with similar numbers  of poor children. The pattern of Title I grant distributions in terms of  numbers of poor children among urban and rural school districts is to  some extent dependent upon the measure of poverty that is used. When  school districts allocated funds to individual schools, they used the  flexibility of the Title I program to distribute funds where they believed  the need was greatest. Even with this flexibility, most school districts  allocated the majority of funds to schools in which at least half of the  children were classified as poor.
subsections: section_title: Title I Allocations Per Poor Child Differ Across States
paragraphs: Generally, states with higher numbers of poor children received higher  amounts of Title I basic grant funds, and states with lower numbers of  poor children received lower amounts of Title I basic grant funds.However, even small differences between a state’s share of poor children  and its share of funds resulted in substantial differences in funding per  poor child. For example, in the 1999-2000 school year, Texas had about 10  percent of the nation’s Census poor children and received about 9 percent  of the Title I basic grant dollars while Minnesota had about 1 percent of  the poor children and 1.2 percent of the dollars. However, Texas’s share of  the basic grants was about 14 percent less than its share of the poor  children while Minnesota’s share of the basic grants was about 16 percent  more than its share of the children. As a result, Texas’s basic grants  amounted to $581 per poor child while Minnesota’s basic grants amounted  to $793 per poor child. Table 1 displays for each state and the District of  Columbia its share of Census poor children, share of basic grant dollars,  the percentage difference between these shares, and the resulting basic  grant amount per poor child.
The shares of basic grant dollars that states received differed from their  shares of poor children due to the factors in addition to the number of  poor children that are included in the federal funding formula: state per- pupil expenditures, the small state minimum provision and the hold- harmless provision. For example, Vermont, Wyoming, New Hampshire,  and Alaska, which each received much larger basic grants per poor child  than the rest of the states, are each also among the small-population states  that benefited from the small state minimum provision in the 1999-2000  school year. Another of the formula factors — the state per-pupil  expenditures factor — also had an important impact on the distribution of  Title I dollars to states. States with higher percentages of poor children  would be expected, all else being equal, to have lower tax bases and tend  to have lower state education expenditures. As a result, states with higher  percentages of poor children tended to receive smaller basic grant  amounts per poor child because Title I allocations are based, in part, on  the amount a state spends on education. We found that of the 17 states  with more than 20 percent of their children living in poverty in 1997, all but  4 had basic grant dollars per poor child below the national average in the  1999-2000 school year.
section_title: Title I Allocations Were Made in Accordance With Numbers of Poor Children, But Amounts Per Poor Child Differed Across School Districts
paragraphs: An examination of the allocations that states reported making to their  school districts in the 1999-2000 school year shows that school districts,  like states, as a whole received Title I allocations that were in accordance  with the numbers of poor children they had enrolled, but that actual  funding per poor child varied considerably among individual school  districts with similar numbers of poor children. For example, among  districts with between 101 and 250 children eligible for free or reduced- price lunch, the median basic grant funding per poor child was $370, but  ranged from $0 to $2,573. Concentration grants among school districts  with similar numbers of poor children also varied. For example, among  districts receiving concentration grants with between 101 and 250 children  eligible for free or reduced-price lunch, the median concentration grant  funding per poor child was $63, but ranged from $1 to $3,547. Figures 2  and 3 illustrate these findings. The variation illustrated for the national  level in figures 2 and 3 is similar to the type of variation that occurs within  states as well. In other words, within states, individual districts with  similar numbers of children received different allocation amounts.
Not only did districts with similar numbers of poor children receive  different allocations per poor child, but also in some cases, school districts  with larger numbers of poor children received less funding per poor child  than districts with smaller numbers of poor children. For example, in  California, one school district with 961 poor children received a basic  grant of $363 per poor child, while a school district with 13 poor children  received $1,656 per poor child.Concentration grants for these two  districts varied similarly and similar examples of variation occurred in  most states. Differences in Title I funding per poor child among school  districts is due, in part, to hold-harmless provisions.
section_title: Allocations Among Urban and Rural School Districts Vary Slightly From Their Numbers of Census Poor Children
paragraphs: The pattern of Title I grant distributions in terms of numbers of poor  children among urban and rural school districts in the 1999-2000 school  year is to some extent dependent upon the measure of poverty that is  used, as shown in table 2. When Census data are used as the measure of  poverty, both urban and rural school districts as a whole received shares  of both basic and concentration grants roughly proportional to their share  of poor children, with some small differences. However, when eligibility  for free or reduced-price lunch is used as the measure of poverty, urban  districts received shares of both basic and concentration grants that were  greater than their share of poor children.
Even small differences between shares of grants and shares of poor  children resulted in per child dollar differences between urban and rural  districts. For example, when Census data are used as the measure of  poverty, rural districts overall had a higher median basic grant amount per  poor child ($705) than did urban districts ($610). This resulted, in part,  because the share of basic grants that rural districts received was 1  percentage point greater than their share of poor children while the share  of basic grants that urban districts received was equivalent to their share  of children. Because the pattern of Title I grant distributions among urban  and rural school districts is dependent on the measure of poverty used, it  is worth noting that currently all states base their allocations on Census  data for areas with populations greater than 20,000 residents, and the  overwhelming majority of states (41) base their allocations on Census data  rather than subsidized lunch for areas with populations smaller than  20,000 residents.
section_title: Funding Per Poor Child for Charter Schools Is Less Than That for Other Districts Comparable in Size
paragraphs: Title I allocations to charter schools that are independent school districts  are lower than per-pupil allocations to other similarly sized school  districts. Charter schools are not included in Education’s Title I formula  calculations, but are guaranteed funding on an equal basis with other  school districts. Consequently, those states with independent charter  schools must reallocate resources from other school districts to these  schools. In the 1999-2000 school year, 14 states and the District of  Columbia had operating charter schools that were considered independent  school districts; 533 of these 734 charter schools received basic grants. In  these states combined, charter school districts that received Title I grants  had almost 6 percent of the children receiving free or reduced-price lunch  and received less than 5 percent of the basic grant funding that was  distributed to districts with fewer than 2,500 students. Average basic grant  funding per poor child in the charter school districts was $365 and was  $481 in the other school districts.
section_title: School Districts Use the Flexibility of the Title I Program When Allocating Funds to Eligible Schools, and the Majority of Title I Funds go to High-Poverty Schools
paragraphs: When school districts allocate funds to individual schools, they use the  flexibility of the Title I program to distribute funds where they believe the  need is greatest and in ways that they believe best provides needed  activities efficiently and consistently. Unlike school district allocations,  which are based on numbers of poor children, allocations to individual  schools are required by law to be based on the percentages of poor  children within grade span or within the district as a whole. From our  national survey of school districts, we estimate that a majority of school  districts (63 percent) prioritized Title I funding to eligible primary or  elementary grades before funding other grade spans, while an estimated 23  percent of school districts prioritized funds to schools with higher  percentages of poor children, regardless of grade span. (See fig. 4.) A  similar pattern was found among rural districts, of which an estimated 67  percent targeted funds to needy primary schools. In contrast, equal  percentages of urban school districts targeted funds to primary schools  (an estimated 42 percent) and to schools with higher percentages of poor  children (an estimated 42 percent).
In addition to distributing funds to individual schools, we estimate that  over half the districts (58 percent) reserve at least some of their Title I  grant, typically no more than 10 percent, for administration or other  district activities. An estimated 61 percent of districts that reserve funds  for such purposes do so because they believe it is more efficient or  promotes consistency across schools in the district. Districts use the  reserved funds for such activities as professional development for  teachers, parental involvement programs, preschool and summer school  programs, and before and after school enrichment activities.
In addition to the flexibility districts are allowed under the Title I  regulations, a district may apply for a waiver from the regulations if a  district finds that it cannot use Title I funds to best serve the needs of its  schools within the existing regulations. Waivers are used most commonly  to allow districts to (1) serve schools of the same grade span without  regard for their rank order in terms of poverty or (2) allow lower-poverty  schools to use Title I funds in schoolwide programs rather than for  specific students, a practice otherwise allowed only in schools with  greater than 50 percent of their children living in poverty.
Because districts have flexibility in making Title I allocations to schools,  and not all schools with poor children receive funds from their districts,  the amount of Title I funds that individual schools receive per poor child  differs among schools. Only three states, California, Mississippi, and  Georgia, were able to provide us with electronic information on  enrollment, free and reduced-price lunch eligibility, and Title I dollar  amounts allocated to individual schools. Analyses of these three states’  data show that in the 1999-2000 school year, among the schools receiving  Title I funds, schools with higher percentages of poor children received a  larger percentage of the funds than schools with lower percentages of  poor children, as shown in table 3. Although these findings are based on  one year of data from only three states, they are consistent with  Education’s findings that in the 1997-98 school year, nationally 66 percent  of schools receiving Title I funds had more than 50 percent of their  children eligible for free or reduced-price lunch, and 35 percent of schools  receiving Title I funds had at least 75 percent of their children eligible for  free or reduced-price lunch.
section_title: Allocations Do Not Fully Adjust to Geographic Shifts in the Number of Children From Low- Income Families
paragraphs: When the number of poor children from low-income families shifts  between states, Title I allocations do not fully adjust in response. More  frequent updates of Census poverty data over the past decade have  provided Education the data it needs to adjust Title I formula calculations  to shifts in poverty more quickly than it could in the past. However, recent  appropriations hold-harmless provisions and the small state minimum  provision in the formula have limited the extent to which Title I  allocations can shift at all, even when Education has data indicating that  shifts in poverty have occurred. Even if these rules were changed, allowing  formula calculations to be based more completely on poverty, the  remaining lags in Census poverty data would continue to prevent Title I  formula calculations from fully adjusting to shifts in poverty.
subsections: section_title: When Poverty Has Shifted Among States, Allocations Have Not Fully Adjusted
paragraphs: To the extent that the number of poor children among the states has  shifted, Title I funding has not completely adjusted in response. For  example, in 1980, California had 9 percent of the nation’s poor children  and received 10 percent of all Title I dollars. By 1997, California had 16  percent of the nation’s poor children, but received just 12 percent of all  Title I dollars. This type of disparity has occurred in a number of states. In  1997, 33 states received Title I allocations that differed from their shares of  poor children by more than 10 percent.
section_title: Census Is Updating Poverty Data More Frequently
paragraphs: A lack of updated poverty data contributed to the mismatch between  poverty and funding over the last two decades. Education relied on 1980  decennial Census data to make allocations from 1984 to 1993, at which  point Education began using 1990 decennial Census data to adjust  allocations. As shown in table 4, since 1990, the lag in poverty data has  decreased. This decrease occurred, in part, because in 1994, the Congress  authorized the Census Bureau to update the data more frequently.
section_title: Hold-Harmless and Small State Minimum Provisions Limit Shifts in Title I Allocations Despite Updated Data
paragraphs: Although the Census updates provided Education with more timely  poverty estimates, the hold-harmless and small state minimum provisions  limited the extent to which Title I formula allocations could change in  response. These provisions limit the extent to which Title I grants are reduced for districts and small-population states with declining numbers of poor children. As a result, funds are not sufficient to provide “full”  formula amounts to districts and states with increasing numbers of poor  children. Because of the effects of the hold-harmless and small state  minimum provisions, between school years 2000-01 and 2001-02, holding  other things constant, most states with increased numbers of poor  children would have received a decreased Title I allocation per poor child,  while most states with decreased numbers of poor children would have  received an increased Title I allocation per poor child. States with  increased numbers of poor children would have lost an average of $25 per  poor child under the basic grant and $10 per poor child under the  concentration grant. States with decreasing numbers of poor children  between these 2 years would have gained $23 per poor child under the  basic grant and $4 per child under the concentration grant.
While the hold-harmless and, to a lesser extent, small state minimum  provisions create imbalances between poverty and funding, in the absence  of these provisions, unavoidable lags in poverty data would prevent  Education from fully adjusting Title I allocations to shifts in poverty.
section_title: Allocations Do Not Encourage States To Target Their Own Funds To Children From Low-Income Families
paragraphs: Title I allocations do not encourage states to target their own funds to  children from low-income families. Our review of the Title I statute and  regulations found no formal monetary, statutory, or regulatory incentives  for states to target their funds in this way. In our interviews with Title I  directors in each of the 50 states, only four reported that they have  programs for disadvantaged children that model their eligibility criteria on  the Title I program. Furthermore, our study based on 1991-92 school year  data found large differences in the extent to which state funding was  targeted to school districts on the basis of poverty criteria, indicating that  states were not systematically following the allocation model of the Title I  program.
The incentive grant, if funded, could provide an incentive for states to  spend more of their own dollars. However, the grant would not encourage  states to target their own funds to children from low-income families. In  addition, the amount of money that could be provided through an  incentive grant is not likely to be sufficient to create changes in states’  behaviors.
section_title: Using Less Restrictive Hold-Harmless Provisions, Revising Grant Formulas, or Raising Eligibility Threshold Could Shift Funds Toward Poorer Districts and/or Reduce Funding Variations Among Districts
paragraphs: A number of policy options could affect the extent to which Title I funds  are allocated to states and school districts with greater numbers and  percentages of children from low-income families. First, using a less  restrictive hold-harmless provision would reduce the variation in funding  among school districts with similar numbers and similar percentages of  poor children and allocate more funding to states with more rapidly  growing numbers of poor children. Second, funding targeted grants and  raising the basic grant eligibility thresholds would each shift funding  toward districts with higher percentages of poor children and away from  districts with lower percentages of poor children. Third, replacing the  measure of state per-pupil expenditures with an alternative cost indicator  would also have the effect of shifting funding to districts with higher  percentages of poor children and reducing the variation in funding among  districts with similar percentages of poor children. The effect of such  changes would depend on the appropriations provisions. The effect of the  changes would also depend on adjustments to the formula-calculated  amounts made by state officials. Each policy option involves trade-offs  between the competing goals of providing similar funding amounts to  districts with similar numbers and percentages of poor children and  providing stable funding to districts with rapidly declining numbers and  percentages of poor children. Without increases in total funding, each  change also would increase funds for some districts while decreasing  funds for others.
subsections: section_title: Using Less Restrictive Hold-Harmless Rules Would Decrease the Variation in Funding Among Districts With Similar Numbers and Percentages of Poor Children
paragraphs: Different hold-harmless rules affect the extent to which Title I funding is  allocated on the basis of numbers of poor children. The less restrictive the  hold-harmless rules are, all else equal, the more Title I funding would be  allocated on the basis of numbers of poor children. We considered four  possible hold-harmless rules. In order from most to least restrictive, they  were a 100-percent hold-harmless rule (districts receive 100 percent of their  previous year’s allocation);  the school year 2001-02 hold-harmless rule (districts guaranteed the larger  of either their previous year’s allocation or the amount they would have  received had the authorizing statute’s hold-harmless rule been in effect);  the authorizing statute’s hold-harmless rule (districts receive 85, 90, or 95  percent of the previous year’s allocation, depending on the percentage of  children in the district who are eligible under the Title I formula); and no hold-harmless rule (districts receive allocations based on current  application of the Title I formula with no regard to the previous year’s  allocation).
Using a less restrictive hold-harmless rule would not noticeably  redistribute funding between school districts with large and small  numbers of poor (formula) children. However, less restrictive hold- harmless rules would substantially reduce the funding variation among the  smallest districts with similar numbers of poor children. Disparities in  funding are greatest under the 100-percent hold-harmless rule, less under  the 2001-02 rule, further reduced under the authorizing statute and would  be the least if there were no hold-harmless, as shown in table 5 for both  small and large districts, in terms of their numbers of formula children.
Using a less restrictive hold-harmless rule would also have the effect of  reducing variation among districts with similar percentages of poor  children. (See fig. 5.)
Using a less restrictive hold-harmless provision distributes more funds to  high-growth school districts and accordingly to high-growth states. The  effect of using a less restrictive hold-harmless rule would be to increase  the responsiveness of Title I funding to the growth in numbers of poor  children in states. In figure 6, states are rank-ordered based on the growth  in the number of formula-eligible children between school years 2000-01  and 2001-02. Figure 6 shows the percent change in funding that would  have resulted had no hold-harmless rule been in effect. Under the no hold- harmless scenario, 12 of the 15 states with the highest growth in low- income children would have received more funding and 13 of the 15  slowest growth states would have received less.Appendix II shows the  data on which figure 6 is based.
section_title: Distributing Funds Through the Targeted Grants Would Increase the Extent to Which Title I Funds Are Allocated to Areas With High Numbers and Percentages of Poor Children
paragraphs: Funding targeted grants instead of concentration grants would provide  noticeably more Title I funds to districts with both higher numbers and  percentages of poor children and reduce funding for districts with lower  numbers and percentages of poor children. Districts are eligible for  concentration grants if they have more than 6,500 poor children or the  number of poor children is more than 15 percent of the district’s school- age children. Concentration grants are allocated to eligible districts based  on their numbers of poor children. In contrast, districts would be eligible  for targeted grants if they had at least 10 poor children and these children  accounted for at least 5 percent of their school-age children. As the  number and percentage of poor children in the district increase, the  targeted grant amount would increase both in absolute dollars and  proportionally to other districts  In the 2001-02 school year, districts with the highest percentages of poor  children received $864 per poor child compared with $758 per poor child  in districts with the lowest percentages of poor children. If targeted grants  had been funded instead of concentration grants, the funding for districts  with the highest percentages of poor children would have increased by 5.5  percent, to $912 per poor child, while the funding for districts with the  lowest percentages of poor children would have decreased by 5.7 percent,  to $714, as shown in table 6. Table 6 also shows that funding targeted  grants would have a similar effect on districts with larger and smaller  numbers of poor children.
section_title: Alternative Cost Indicator Would Direct More Funding to Districts With Higher Percentages of Poor Children and Reduce Funding Disparities Among These Districts
paragraphs: The per-pupil expenditure factor was originally included in the Title I  formulas to take into account cross-state differences in the cost of  providing education services. While per-pupil expenditures reflect the cost  of providing education services to some extent, expenditures are also  explained by other factors not related to costs. For example, states with  high-income taxpayers may spend more on education than those whose  taxpayers have lower incomes. In addition, spending differences may  result from differences in the “willingness” of a state’s taxpayers to fund  public education.
One alternative cost measure is a geographical cost-of-education index  developed for the Department of Education’s Office of Educational  Research and Improvement. The purpose of this experimental cost index  is to make cost comparisons based on the cost of teachers, non-teaching  school personnel, and other factors that may affect costs, but which are  beyond the ability of local officials to control. The index includes cost  factors for both states and school districts, unlike earlier experimental  measures that had only cross-state cost factors. We use these cost factors  for illustrative purposes only and do not necessarily endorse any  particular measure.
The intent of replacing state per-pupil expenditures with either a state or  district-level cost-of-education factor is to more accurately reflect  educational costs; however, as a by-product, doing so would shift funding  somewhat toward districts with higher percentages of poor children. If the  state per-pupil expenditure factor had been replaced with a cost factor in  the 2001-02 school year, districts with the highest percentages of poor  children would have seen an increase in funding of approximately 3  percent, while districts with the lowest percentages of poor children  would have seen a decrease in funding of 2 to 3 percent (see table 7). If in  addition, the authorizing statute’s hold-harmless rules had been adopted,  funding to districts with the highest percentages of poor children would  have increased by about 5 percent while funding in districts with the  lowest percentages of poor children would have decreased by about 5  percent.
The more substantial effect of replacing the state per-pupil expenditure  factor, however, would be to reduce the variation in funding among  districts with higher percentages of poor children (see figure 7). With the  educational cost factor, the variation in funding among districts with  higher percentages of poor children would be reduced from 19 percent to  13 percent, a reduction of 30 percent. In contrast, the variation in funding  among districts with low percentages of poor children would be largely  unaffected. However, if the current hold-harmless rules were also replaced  with the authorizing statutes rules, very substantial reductions in funding  disparities would result among all school districts. Funding variations  would be cut by more than half between the highest and lowest poverty  districts.
section_title: Raising the Poverty Threshold for Eligibility to Qualify for Basic Grants Would Potentially Affect Large Numbers of Districts With Low Percentages of Poor Children
paragraphs: Title I grants have sometimes been criticized because the poverty  threshold for basic grant eligibility is so low and that nearly all districts  can participate in the program. It is often noted that by funding nearly all  districts, less funding is available for high-poverty districts. One policy  option is to raise the basic grant eligibility threshold, making fewer  districts eligible. With fewer districts eligible, the remaining districts  would receive more funds per poor child, if total funding were to remain  constant. Table 8 shows how increasing the current 2 percent poverty  threshold to poverty thresholds of 5 and 10 percent, respectively, would  have this effect. For example, a 10 percent threshold would result in 26  percent of all districts, which contain 7.7 percent of all formula children,  becoming ineligible. This would allow funding per child in the remaining  districts to increase by 8.3 percent or $57. The effects of these thresholds  are shown on a state-by-state basis in table 9.
section_title: Most States Alter Formula- Calculated Amounts When Allocating Funds to Their School Districts
paragraphs: Changes to the Title I allocation formulas will change the amount of funds  states receive and also would be expected to result in changes in the  amounts districts receive; however, there are limits on how precisely  changes in the formula can be expected to affect school districts because  states alter the formula-calculated amounts. In the aggregate, relatively  few poor children and Title I funds were associated with districts whose  allocations differed widely from their formula-calculated amounts in the  1999-2000 school year. As a result, state adjustments did not appear to  alter the overall extent to which available funding was allocated on the  basis of the number of poor children. However, for some individual states  and school districts, state adjustments were substantial.
When allocating the funds they receive from the federal government,  states adjust for changes in school district boundaries and the creation of  charter schools. In our work, we found that among the school districts  operating in the 1999-2000 school year, there were more than 900 school  districts, containing about 126,000 children eligible for free or reduced- price lunch and receiving about $79 million in Title I funds, that were not  included in Education’s formula calculations. In addition, states alter the  formula-calculated amounts to adjust for the poverty measure used for  school districts in small areas, as well as to fund statewide activities and  program administration. States are allowed to withhold up to 1.5 percent  of their Title I funds for statewide activities and program administration,  so this much variation from the formula-calculated allocations is expected.
Considering only the districts that were included in Education’s  calculations, we found that during the 1999-2000 school year 49 percent of  the districts received total Title I grants that differed by more than 1.5  percent from the formula-calculated allocation; 16 percent of districts’  allocations differed by more than 10 percent. Among the districts included  in Education’s calculations, over half of the Title I funds were allocated to  districts whose allocation amounts differed from their formula  calculations by no more than 1.5 percent. These districts also contained  just over half of the poor children. Only about 5 percent of the funds were  allocated to districts whose actual allocations differed from their formula  calculations by more than 10 percent. These districts also contained about  5 percent of the poor children. (See table 10.)
The variation between actual allocations and the formula calculations is  greater in some states than in others. There are some states, for example,  Georgia, Louisiana, and South Dakota, where actual allocations to school  districts are very close to the formula calculations. (See table 11.)
However, these states are the exception, as most states, including  Delaware, North Dakota, and Maine, had many districts receiving very  different allocations than the formula calculations. (See table 12.)
However, states do not appear to alter the overall extent to which  available funding is allocated on the basis of the number of poor children.  Table 13 shows for each state the percentage of its districts whose total  Title I grants differed from their formula calculations by less than 1.5  percent, between 1.5 and 10 percent, and by more than 10 percent.
section_title: Concluding Observations
paragraphs: Although Title I funding generally reflects the distribution of poor  children, there are many instances of states, districts, and schools with  either similar numbers or similar percentages of poor children receiving  widely differing amounts of funding per poor child. These differences  result, in part, from formula provisions that attempt to balance several,  sometimes competing, goals. These goals include allocating funds based  on the distribution of poor children, ensuring that states and districts are  provided funding stability even in light of declining numbers of poor  children, and addressing differences across school districts and states in  the costs of providing educational services. Choosing among the policy  options discussed in this report will entail, in part, weighing the goal of  increased targeting with other goals. Enacting any of the policy options—  using less restrictive hold-harmless provisions, funding targeted grants,  using an alternative cost factor, or raising the eligibility threshold—would  result in changes for many states and school districts in terms of their  formula calculations. In addition, under any of these policy options, states  and school districts would still have flexibility in making allocation  decisions—flexibility that allows states and school districts to use these  funds in a manner that they believe best meets the needs of disadvantaged  children.
section_title: Agency Comments
paragraphs: In written comments on our draft report, the Department of Education  generally agreed with the findings presented in the report.  Education  suggested that our report be updated to reflect the passage of the “No  Child Left Behind Act of 2001” and the fiscal 2002 appropriations act.  Appendix III describes the impact of this legislation on the aspects of Title  I discussed in the report.  Education’s written comments are printed in  appendix IV.
In written comments on our draft report, the U.S. Department of  Agriculture (USDA) said that the Food and Nutrition Service (FNS) has  become increasingly aware of the limitations of free and reduced-price  lunch data as a measure of low-income status, which could have  implications for the targeting of Title I funds.  As described in the report,  we recognize that there are limitations of these data as a measure of  poverty.  Despite these limitations, however, we chose to use subsidized  lunch data as one of our measures of poverty for several reasons.  We used  these data as a poverty measure at the school level because the  Department of Education has found these data to be the best available  source of poverty data at the school level.  We used these data as a poverty  measure at the school district level because subsidized lunch data are  available at the school, district, and state levels, and thus provide a  consistent measure across all three levels.  Also, subsidized lunch data are  available for nearly all school districts, including charter schools, whereas  Census poverty estimates are available only for the somewhat limited  number of school districts included in Education’s database.  While  recognizing the limitations of subsidized lunch data, we believe the use of  it, along with Census poverty estimates, strengthens our report findings.  USDA’s written comments are printed in appendix V.
We are sending copies of this report to the Secretaries of Education and  Agriculture and interested congressional committees.  We will also make  copies available to others upon request.  If you have any questions  concerning this report, please contact me on (202) 512-7215. Other GAO  contacts and staff acknowledgments are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: As mandated by the Congress (Public Law 106-554 Sec. 305), we designed  our study to provide information on (1) the extent to which Title I funds  are allocated to states, school districts and schools with the greatest  numbers and percentages of school-age children from low-income  families; (2) the extent to which allocations of such funds adjust to shifts  in numbers of children from low-income families; (3) the extent to which  the allocation of Title I funds encourages the targeting of state funds to  school-age children from low-income families; and (4) what options might  improve targeting of funds, especially to states and school districts with  higher numbers and percentages of poor children, to more effectively  serve those children. To determine the extent to which Title I funds are  targeted to poor children, we used two measures of poverty and two types  of allocation data. We used the Census Bureau’s updated decennial  poverty data for one measure. Census poverty data are used by the U.S.  Department of Education to calculate Title I formula allocation amounts.  For the second measure of poverty, we used eligibility for free or reduced- price lunches through the National School Lunch Program, a federal food  assistance program administered by the U.S. Department of Agriculture  for children from low-income families. The subsidized lunch program  provides the best source of data on low-income students at the school- level, according to the Department of Education, and these data are also  available for the district and state levels.
We determined how states actually allocated Title I funds to each of their  school districts by collecting 1999-2000 allocation information directly  from state Title I officials in every state and the District of Columbia. In  this report, we refer to these data as “actual allocations” or simply  “allocations.” We compared the actual allocations with the amounts  generated by the Title I formula calculations for the 1999-2000 school year,  which we obtained from the Department of Education. In this report, we  refer to these data as “formula calculations.” Formula calculations are the  data typically used in analyses of the Title I program. The formula  calculations accurately reflect the amount of funds allocated to each state,  but these data do not reflect changes that states subsequently make to the  formula-calculated amounts when allocating the funds to their school  districts. We also interviewed state Title I directors in each of the 50 states  and the District of Columbia about their experiences and perceptions of  the Title I program. We examined school district policies for allocating  Title I funds to schools by surveying a nationally representative, stratified  sample of school districts. In addition, we reviewed school-level allocation  data from the few states that were able to provide it.
We examined the responsiveness of state-level Title I allocations to shifts  in poverty by analyzing Census data and Title I allocation data from the  Department of Education for the period of 1980 to the present. We  analyzed the relevant statutory provisions and reviewed our previous  reports to identify incentives for states to target their own funds. Finally,  we determined the consequences of various policy options by examining  the Title I formulas and running simulations of Education’s formula  calculation process for states and school districts for the 2001-02 school  year. We conducted our work from December 2000 to December 2001 in  accordance with generally accepted government auditing standards.
Federal Funding Formulas	 From the Title I statute, we obtained the formulas that Education is  required to use to calculate Title I grant amounts. We met with Education  officials to discuss their procedures for using the formulas and data to  calculate grant amounts. We used these procedures to replicate  Education’s formula calculations for the 1999-2000 and 2000-01 school  years and as the basis for computer simulations of various changes that  could be made to the formulas.
subsections: section_title: Education’s Title I Formula Calculations
paragraphs: From the Department of Education, we obtained the grant amounts  calculated for school districts for the 1999-2000, 2000-01, and 2001-02  school years, which Education generated using the federal funding  formulas included in the Title I statute. The school districts for which  Education calculated grant amounts in the 1999-2000, 2000-01 school years  were those known to Education in the 1995-96 school year. The school  districts for which Education calculated grant amounts in the 2001-02  school year were those known to Education in the 1997-98 school year. At  no time have the calculations included charter schools. The data set from  Education also included 1995 Census data on the characteristics of these  school districts, such as numbers of school-age poor children, total  numbers of school-age children, and total resident populations, which  Education used in calculating grant amounts. The formula calculations  were used to examine their relationship to poverty and other  characteristics of school districts and to compare the formula calculations  to the actual allocations that school districts received.
section_title: Actual Allocations to School Districts
paragraphs: We collected data from state Title I program directors on the dollar  amounts of Title I funds, if any, that they disbursed to each of their school  districts in the 1999-2000 school year. We collected allocation data on  basic and concentration grants to 14,682 school districts in all 50 states  and the District of Columbia, including data on charter schools that are  independent school districts, as they existed in the 1999-2000 school year.  Where possible, we matched the school district data provided by the states  with the school district data provided by Education. Where the lists of  school districts differed, we called state officials to verify the accuracy of  their data. In most cases, state officials clarified that districts had been  created, consolidated, eliminated, or had changed names since  Education’s data were updated in 1995. For those school districts that  were identified both by state officials and Education, we compared the  actual allocations with Education’s formula calculations and examined the  relationships between the actual allocations and Census poverty and other  school district characteristics. We also used the actual allocation data to  examine the relationship between the actual allocations and poverty, as  measured by eligibility for free or reduced-price lunches.
section_title: School-Level Allocation Data
paragraphs: From state Title I directors, we requested data on the dollar amount of  Title I funds that each of their states’ schools received in the 1999-2000  school year, if these data were available in an electronic format. From  state food services officials, we also requested for each school, electronic  data on enrollment and the number of students receiving free or reduced- price lunches. Only three states (California, Georgia, and Mississippi)  could provide us with school-level allocations, enrollment, and school  lunch data in an electronic format for each of their schools.
For each school in these three states, we matched the allocation data to  the enrollment and school lunch data and calculated both the percentages  of children eligible for free or reduced-price lunch and the amount of  funds received per poor child. Because we obtained data on every school  within these three states, there is no estimation or sampling error  associated with our results. However, our findings based on these data are  not generalizable beyond the state or school year for which the data were  collected.
section_title: Free and Reduced-Price Lunch Data
paragraphs: To estimate the numbers and percentages of children in poverty in every  school district, we obtained data from state school food service officials  on both the numbers of children receiving free or reduced-price lunches  through the National School Lunch Program (NLSP) and the total number  of students enrolled in each school district in the 1999-2000 school year.  We also obtained these data at the school level, where available. Children  from families with incomes at or below 130 percent of the poverty level  are eligible for free meals through NSLP; those with incomes between 130  and 185 percent of the poverty level are eligible for reduced-price meals.
We requested NSLP participation data for every school district in every  state, including charter schools that are independent school districts,  where available. These data were combined with school district-level data  on Title I allocations in order to calculate the amount of Title I allocations  per poor child received in each district.
We chose participation in the NSLP as a measure of school district poverty  because it is the measure used most commonly by school districts to  determine allocations to schools and is the best source of poverty data  that is available at the state, district, and school levels. Because  participation in the NSLP is voluntary, there is some concern that  participation rates may reflect, in part, the effort schools make to  encourage participation, and may not consistently reflect actual program  eligibility rates across schools and school districts. There is also concern  that high school students are less likely to participate in the program than  younger students due to the associated stigma. Nonetheless, a National  Research Council panel concluded that NSLP participation is an indicator  of low family income and that the quality of NSLP data are neither  appreciably better nor worse than Census data for measuring poverty,  especially for areas as small as school districts.
section_title: Waivers of Title I Regulations
paragraphs: To obtain information on the number and types of waivers granted to  districts under the Elementary and Secondary Education Act, we reviewed  Education’s annual reports to the Congress for 1998-2001 and met with  program officials. To obtain information on the number and types of  waivers granted by “Ed-Flex” states under the 1994 and 1996 Ed-Flex  Demonstration Project and the Ed-Flex Partnership Act of 1999, we met  with program officials and reviewed states’ Ed-Flex applications on file  with Education. We used this information to determine the most common  types of waivers that were granted overall.
section_title: Interviews With State Title I Directors
paragraphs: To obtain information on both states’ roles in the Title I allocation process  and the opinions of state Title I directors, we conducted telephone  interviews with the directors of the Title I program in every state and the  District of Columbia between December 2000 and May 2001, using a semi- structured interview protocol. We asked the directors to explain exactly  how they generate dollar allocations to school districts once they receive  the information from the Department of Education, including how they  apportion funds to small size districts and districts whose boundaries have  changed, how charter schools are handled in the allocation process, what  data they use, and how recent those data are. Finally, we asked whether  their states had compensatory education programs that target funding to  high-poverty schools and districts and, if so, how allocations for that  program were related to the allocation of Title I dollars.
Survey of School Districts
 We surveyed a stratified nationally representative sample of school district  administrators drawn from the approximately 13,000 school districts  nationwide for which Education had calculated an initial Title I allocation  amount for the 1999-2000 school year. In addition to providing information  on their school districts’ schools and communities, survey respondents  provided information on how they measure poverty in their schools, their  priorities and rationales in distributing funds, and their use of funds for  district-level activities.
The sample was stratified into four categories according to the number of  school-age children living in the school district boundaries, as follows: 2- 500 children; 501-2,500 children; 2501-50,000 children; over 50,000 children.  A random sample was drawn from each of the first three strata; all of the  96 school districts with greater than 50,000 children were included in the  survey. Table 14 provides information on the total numbers of students  and districts, the number of districts sampled, and the response rate for  each of the strata. This sample design allows us to generalize our results to  all school districts of similar sizes, including the very smallest school  districts. The survey was conducted between July and October 2001 and  reflects school district decisions in the 2000-01 school year.
Because our estimates are based on samples, they are subject to sampling  error. Table 15 shows each of our estimates and indicates the extent of  each estimate’s sampling error by showing the 95-percent confidence  interval around that estimate. There is a 95-percent chance that the actual  total falls within the interval.
section_title: Interviews With Federal Officials and Education Experts
paragraphs: During our work, we consulted with representatives from the following  agencies and organizations who have knowledge of the Title I program and  related issues: U.S. Department of Education, U.S. Department of  Agriculture, National Research Council, U.S. Census Bureau’s Small-Area  Income and Poverty Estimates Panel, Congressional Research Service,  Council of Chief State School Officers, Center on Education Policy,  American Association of School Administrators, Council of the Great City  Schools, and the National Association of State Title I Directors.
section_title: Appendix II: Supporting Data
subsections: section_title: Variation in Funding Per Child Under Alternative Hold- Harmless Rules by Poverty Groups
paragraphs: Local school districts were put into one of five groups with each group  containing an equal number of poor children. The groups ranged from the  lowest percentages of poverty to the highest percentages of poverty. Each  group represents approximately 20 percent of all formula eligible  children. For this analysis, we expressed the number of formula-eligible children as a percentage of the number of children ages 5-17. Table 16  shows the average funding per child allotted by formula, formula  allotments under each of the simulations, and percent differences in  funding per child compared to 2001 formula allotments.
Table 17 shows the coefficients of variation for figure 5.
Table 18 shows the data used to construct figure 6.
section_title: Replacing State Per- Pupil Expenditure Factor With a Cost of Education Factor
paragraphs: We analyzed three formula scenarios that replaced the state per-pupil  spending factor with an alternative cost factor developed by the Department of Education: a state-level cost factor, a district-level cost  factor, and a district-level cost factor combined with the hold-harmless  rules described in the authorizing statute. Table 19 reports the average  funding per child in each poverty group and table 20 reports the  coefficients of variation in funding per child within each group that were  reported in figure 7 of the report.
section_title: Appendix III: Selected Provisions of the “No Child Left Behind Act of 2001” and Related Appropriations
paragraphs: On January 8, 2002, President Bush signed into law the “No Child Left  Behind Act of 2001,” reauthorizing Title I and other Elementary and  Secondary Education Act programs, with some significant changes. Two  days later, he signed the related appropriations law. The changes to Title  I relevant to this report are outlined below:  Funding for Targeted Grant Formula:  For the first time, the Congress  appropriated funds for targeted grants.  The 2001 Act requires that the  amounts allocated through basic and concentration grants are to be the  same as they were in fiscal year 2001 and that any additional funds  remaining (i.e., any new funds) are to be allocated through the targeted  grant formula.  As under prior law, a tiered weighting system would  provide proportionately greater funding per poor child to districts with  higher numbers and percentages of poor children.  The new law changed  the cut-points between the tiers slightly, based on updated Census poverty  estimates, so that each tier would continue to contain roughly equal  numbers of poor children.
Funding for Revised Finance Incentive Grant Formula:  Not only was  the finance incentive grant funded for the first time, but the grant formula  and other provisions also were significantly revised.  In prior law, the  incentive grant formula was designed to provide additional funds to states  that demonstrated high state education spending relative to their tax base  and states that had less disparity in funding among districts.  The new law  maintains these provisions and adds several more that give  proportionately more funds to states and districts with higher numbers  and percentages of poor children, as follows:
Allocations will be based on each state’s number of poor children, rather  than its total school-age population.
Districts are required to have at least 10 poor children, making up at least  5 percent of enrollment to qualify for finance incentive funds, whereas  there had been no such enrollment requirement in prior law.
Allocations will be made to school districts on the basis of a tiered  weighting system, like that in the targeted grant formula.  The incentive  grant weighting system provides proportionally more funds not only to  districts with greater numbers and percentages of poor children but also  to districts in states with less funding disparity among districts.
Districts are newly required to allocate finance incentive funds to schools  in the same way that they allocate the other Title I funds (e.g., in rank  order of poverty) and to use finance incentive funds only for Title I  purposes.
In addition, the new formula includes a per-pupil expenditure factor, like  that for the other grants, but more narrowly limited to a minimum of 34  percent and a maximum of 46 percent of the national average per pupil  expenditure, rather than the 32 percent minimum and 48 percent  maximum in the other grant formulas.
Increased Overall Funding for Fiscal Year 2002:  The education  appropriations legislation includes a combined increase of nearly $1.8  billion in funding for Title I basic, concentration, targeted, and finance  incentive grants.  (See table 21.)
Hold-Harmless: The prior authorizing legislation included a hold- harmless provision only for basic grants (districts were guaranteed 85, 90,  or 95 percent of the previous year’s funding, depending on percentage of  poor children in the district).  However, as described in the body of the  report, appropriations language in recent years created more restrictive  hold-harmless provisions, including (1) a 100-percent hold-harmless  provision for basic grants and (2) a hold-harmless provision for  concentration grants that allowed even districts no longer meeting the  concentration grant eligibility criteria to continue receiving concentration  grants.  In contrast, the fiscal year 2002 appropriations language does not  include any provisions that override the authorized hold-harmless  provisions.  However, under the new authorizing legislation, hold-harmless  provisions will apply not only to basic grants but also to concentration  grants and targeted grants.  In addition, under the new authorizing  legislation, districts that become ineligible for concentration grants will  continue to receive concentration grant allocations for up to 4 consecutive  years.
As a result of these changes, operative hold-harmless provisions for basic  grants are somewhat less restrictive than under prior law and, therefore,  will allow basic grant allocations to be more reflective of the number of  poor children in a school district.  Likewise, the newly authorized hold- harmless provisions for concentration grants are somewhat less restrictive  than the hold-harmless provisions previously included in appropriations  law.  In the end, allocations under these grants will be more reflective of  numbers of poor children than in the past, but not as reflective of them as  would have been the case under the prior authorizing legislation alone.
Small State Minimum: The minimum level of funding guaranteed to each  state is increased over prior law.  Previously, each state was guaranteed  the smaller of 0.25 percent of total appropriations for that year, or the  average of that amount and the state’s number of eligible students  multiplied by 150 percent of the national average per-pupil payment.  The  new law uses essentially the same calculation but instead of 0.25 percent  of the total appropriations, the new calculation will use 0.25 percent of the  amount appropriated in 2001, plus 0.35 percent of any subsequent  increases in appropriations over the 2001 level.
States are required to reserve 2 percent of their Title I funds for school  improvement, increasing to 4 percent in fiscal year 2004.  Previously,  states were permitted, but not required, to reserve up to 0.5 percent of  their funds for school improvement.  States must pass at least 95 percent  of these funds directly to school districts.
Districts must continue to reserve at least 1 percent of their Title I  allocations for parental involvement activities, as was required under prior  law, but the new law also requires that they pass 95 percent of these  reserved funds to Title I schools.
Districts may use Title I funds for schoolwide programs, rather than  targeting funds to specific students, in schools where at least 40 percent of  the children in the school or school attendance area are from low-income  families.  Previously, schoolwide programs were allowed only in schools  in which at least 50 percent of the children in the school or school  attendance area were from low-income families.
section_title: Appendix VI: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, the following people made significant  contributions to this report:  Natalie Britton, Karen Brown, Patrick  DiBattista, Robert Dinkelmeyer, Jerry Fastrup, Sarah Glavin, Sonya  Harmeyer, Peter Minarik, and Michael Williams.  Jon Barker, Richard  Burkard, and Robert Parker also provided key technical assistance.