School districts receive funding from a variety of sources, including local, state, and federal governments. Title I funds, received by more than 90 percent of the nation’s school districts and more than 55 percent of all public schools, make up a small portion of most districts’ overall funding. Specifically, in fiscal year 2008, the most recent year for which data were available, about 8 percent of districts’ funding came from federal programs and about 2 percent of districts’ funding came from Title I, which is generally the largest of the federal funding sources for kindergarten through grade 12. In individual districts, the share of funding from Title I ranged from zero to 36 percent in 2008. Generally, Title I allocations to districts are based on the district’s size and percentage of students from low-income families, as well as the population of the district’s state and how much that state spends per pupil on education. The National Center for Education Statistics reports information about school district expenditures based on data collected by the U.S. Census Bureau. These data include information on how much districts spend for particular activities, such as instruction, administration, and instructional support. They also include information on the types of goods and services purchased, such as salaries, benefits, and equipment. However, they do not indicate which funding sources (such as Title I) these expenditures are made from. According to data reported by the National Center for Education Statistics for 2007–2008, 61 percent of total school district expenditures (from all revenue sources) were for instruction. Title I funds are awarded to states, which distribute the vast majority of them for use by school districts, and Title I does not describe allowable uses of funds for specific goods or services. To provide for local flexibility in determining how to use funds, ESEA requires districts to measure academic outcomes and achieve benchmarks, but does not generally dictate how funds are to be spent. Title I funds are intended for instruction and other supportive services for disadvantaged children so that they can master challenging curricula and meet state standards in core academic subjects. Title I does not include a definition of costs related to instruction, or costs unrelated to instruction that school districts must use. While Education has issued guidance on Title I, it has not prescribed specific uses of Title I funds. According to Education officials, the agency is reluctant to endorse spending on any particular good or service, as Education wants to allow schools to spend the money to meet their unique needs and to be free to spend the money creatively. Schools may run two types of Title I programs—targeted and schoolwide. Schools where more than 40 percent of students are from low-income families may operate schoolwide programs, enabling them to serve all children at the school with Title I funds. In targeted-assistance schools, Title I funds may only be used to benefit children who are determined to be eligible by being identified as failing, or most at risk of failing, to meet the state’s student academic achievement standards. Schoolwide programs offer schools more flexibility than targeted programs in using Title I funds because they may use these funds to support all students, regardless of students’ Title I eligibility, and to fund a comprehensive school plan to upgrade all the instruction in a school. Schoolwide programs also offer additional fiscal flexibility when schools combine separate program resources into a single accounting fund. The schoolwide model has become the dominant model as schools have opted to take advantage of the flexibility to serve all students. However, schools and districts are still responsible for maintaining appropriate internal controls over all federal education funds. While Title I is a flexible funding source, ESEA contains some provisions requiring a minimum percentage or limiting the maximum percentage of funds that can be used for specific purposes. For example, the law requires that, generally, a state spend no more than 1 percent on administration. States are required to reserve 4 percent of Title I funds to provide school districts with funds for school improvement activities, unless this amount would reduce school districts’ Title I grant below the amount received in the prior year. States may also reserve up to 5 percent of Title I funds in excess of the state’s previous year allocation for academic achievement awards to schools. Similarly, the law requires that school districts in need of improvement reserve at least 10 percent of Title I funds for teacher professional development. School districts with schools in need of improvement must also spend specific percentages of Title I funds to provide student transportation to support public school choice and supplemental educational services to students in those schools. Among other provisions, the law also contains several fiscal requirements, including a maintenance of effort requirement that districts’ state and local funding levels not decrease by more than 10 percent in any year; a stipulation that Title I funds be used to supplement, not supplant, state and local funds; and a requirement that state and local funds be used to provide comparable services to schools receiving funds and those not receiving funds. While ESEA limits the percentage of Title I funds that states may use for administrative purposes, it does not limit the amount that school districts may use. We noted in our 2003 report that there is no specific definition of administrative activities for Title I and that Education’s general administrative regulations and guidance address the issue of how grantees should identify administrative costs. Education’s general administrative regulations state that “administrative requirements mean those matters common to grants in general, such as financial management, kinds and frequency of reports, and retention of records.” In 1998, Education issued a report entitled The Use of Federal Education Funds for Administrative Costs, which discussed various definitions of administrative costs and activities in common use. Guidance issued by Education on what constitutes administrative costs states that “he costs of administration are those portions of reasonable, necessary and allowable costs associated with the overall project management and administration. These costs can be both personnel and nonpersonnel costs and both direct and indirect.” The guidance provides a list of examples of direct administrative costs such as the salaries, benefits, and other expenses of staff that perform overall program management, program coordination, and office management functions. Indirect costs represent the expenses that are not readily identified with a particular grant function or activity, but are necessary for the general operation of the district and the conduct of activities it performs. An indirect cost rate is a mechanism for determining what proportions of a district’s overall administration costs each program should bear and is expressed as a percentage of some or all of the direct cost items in the district’s budget. For example, the costs involved with providing office space, financial services, or general payroll services to officials who administer Title I grants cannot be directly allocated to the grant because these services are provided to a large number of people. The indirect cost rate, which is approved by the state, accounts for these types of expenses. The 12 selected school districts we visited used Title I funds for activities intended to improve academic outcomes for low-income students, primarily in elementary school, through a variety of initiatives, such as reducing class sizes and expanding instructional hours. As seen in figure 2, these funds represented a relatively small proportion of total revenues in our selected districts, from less than 1 to more than 8 percent. However, Title I funds may be used in conjunction with local, state, or other federal funding sources to support larger initiatives than Title I funds alone could support. For example, Title I funds could be used along with ESEA Title II (Improving Teacher Quality State Grants) funds to support a literacy program or to support a supplemental component, such as small group instruction, of a larger state-funded or locally funded literacy initiative. In this case, the Title II funds might be used to provide professional development to teachers in the literacy program, and Title I might be used to hire teachers for small group instruction. Given the relatively small proportion of funding they received from Title I, 8 of the 12 districts we visited chose to target Title I funds at the elementary grade levels, where officials said they believed the funds would provide the greatest improvements in academic achievement. This strategy is consistent with the findings of a study of a nationally representative sample of 300 school districts nationwide on targeting and uses of federal education funds, which found that elementary schools received 76 percent of Title I funds allocated to schools, considerably more than their share of the nation’s low-income students (57 percent). While most Title I funds are directed to elementary schools, two urban districts that we visited provided funds to all schools in the district. In one district, officials said that they began using Title I funds for high schools only after state funding for high poverty schools became unavailable. Nearly all of the schools in the 12 districts we visited used Title I funds for schoolwide programs, rather than for targeted assistance programs. Schoolwide programs offer flexibility by allowing schools to fund a comprehensive schoolwide plan to upgrade all instruction in a high poverty school without distinguishing between eligible and ineligible children and also make it easier for schools to coordinate the use of Title I and other funds. While schoolwide programs offer additional fiscal flexibility when schools combine separate program resources into a single accounting fund, the school districts we selected for review continued to track the Title I dollars to individual eligible activities, even as they took advantage of the flexibility to serve all children. In our selected districts, the remaining 6 percent of schools with targeted assistance programs tended to have lower poverty levels below or only slightly above the 40 percent threshold required for a schoolwide program. The districts we visited used Title I funds in support of a variety of initiatives. Funds were used to reduce teacher/student ratios and extend instructional time. Our reviews of Title I grant applications and interviews with district officials indicated that 10 districts used funds to pay for additional teachers and teachers’ aides or assistants (paraprofessionals) during the regular school day as a way to reduce class sizes in Title I schoolwide programs, provide supplemental instruction to small groups of Title I eligible students in targeted assistance schools, or provide additional attention to students within a classroom, among other things. Furthermore, eight districts used Title I funds to extend the time that students spend in the classroom through after school and summer school programs.