The American Recovery and Reinvestment Act (ARRA) refers to the $787 billion bill intended to stimulate the economy signed into law by President Obama on February 17th, 2009. Nearly $100 billion of the legislation’s spending was directed towards new and existing federal education programs, more than doubling the U.S. Department of Education’s annual budget in fiscal year 2009.

The American Recovery and Reinvestment Act provided supplemental funding for several large, existing federal education programs including Pell Grants, Title I Part A grants to local education agencies, and Individuals with Disabilities Education Act (IDEA) Part B grants to states. The ARRA also provided supplemental funding to a number of smaller education programs including Educational Technology Grants, the Teacher Incentive Fund, Teacher Quality Partnerships, and Impact Aid. More than half of the $98.2 billion in funding provided through ARRA was used to establish the State Fiscal Stabilization Fund, a new federal program to help state governments fill budget gaps in education and other areas as a result of the economic crisis. The ARRA includes special guidance and stipulations for states and local school districts that receive funding.

American Recovery and Reinvestment Act Education Funding ($ billions)

2009 Budget Authority
ARRA Budget Authority
State Fiscal StabilizationN/A53.6
Pell Grants*17.2917.1
IDEA Part B Special Ed. Grants**11.5111.7
Title I Grants for Local Education Agencies14.4910
Title I School Improvement0.553
McKinney-Vento Homeless Education0.070.07
Vocational Rehabilitation3.070.68
Education Technology Assistance0.270.65
IDEA Infants and Families0.440.5
Statewide Data Systems0.070.25
Teacher Incentive Grants0.10.2
Work Study0.980.2
Impact Aid Construction0.020.1
Teacher Quality Partnerships0.050.1
Student Aid Administration0.750.06
* Includes both discretionary appropriations funding and mandatory funding.
** Includes $11.3 billion in grants to LEAs and $0.4 billion for preschool grants.


Title I Education for the Disadvantaged

The ARRA allocated $10 billion for Title I Grants to Local Education Agencies (LEAs), a formula-based grant program that provides funds to local school districts to improve the education of disadvantaged students. The initial 50 percent of funds were released on April 1st, 2009 based on states’ existing Title I applications, while the second 50 percent were released on September 1st, 2009 due to the perceived need for the funds. LEAs originally until the end of fiscal year 2011 to spend the funds. However, soon before the funds were set to expire, the Department of Education extended the deadline to September 30, 2012.

Guidance from the U.S. Department of Education encouraged school districts to use Title I stimulus funds for one-time investments such as instructional materials and professional development rather than long term expenditures like teacher salaries. Regular Title I allocations are typically used primarily to support salaries for teachers and other instructional staff. Additionally, the guidance compelled LEAs to avoid “funding cliffs” when the ARRA funds expire and engage in reform-minded activities. Funding cliffs occur when federal funds are used to pay for on-going expenses like teacher salaries that continue even after the ARRA funds run out. When ARRA funds were no longer available, there would be a drop off in spending or a “cliff” for that particular expenditure.

According to the Government Accountability Office (GAO), 43 percent of school districts reported that they used more than half of their Title I ARRA funding to save or create jobs, creating ongoing expenditures through salaries.

Individuals with Disabilities Education Act (IDEA) Part B Grants to States

The ARRA allocated $11.7 billion for IDEA Part B Grants to States. These funds were intended to support services for students with disabilities as specified by their Individualized Education Plans (IEPs). This could include salaries for special education teachers, specialized instructional materials, and other services for students with IEPs. Like Title I ARRA funds, half of the IDEA funds were released on April 1st, 2009, while the remaining half were released on September 1st, 2009.

The U.S. Department of Education also encouraged states to use IDEA Part B ARRA funds for one-time investments rather than long term expenditures to avoid funding cliffs as described in the previous section. 38 percent of school districts, however, reported that they used 50 percent or more of their IDEA ARRA funds to save or create jobs.

Pell Grants

The ARRA provided $17.1 billion in supplemental Pell Grant funding, increasing the 2009-10 Pell Grant level for which students are eligible to $5,350 from $4,731. Due to the way Pell Grants are distributed, the increase made 800,000 more students eligible for grants than were previously. Pell Grants are distributed to students from low income families to help offset the cost of attendance at an institution of higher education. Unlike other education programs, the ARRA imposed no additional requirements on grant recipients or institutions of higher education.

State Fiscal Stabilization Fund

The State Fiscal Stabilization Fund (SFSF) is a new program created by the American Recovery and Reinvestment Act of 2009 intended to help states fill budget gaps in education and other services as a result of the economic crisis. Though not a pure revenue-sharing program, the SFSF represents a significant shift in how the federal government financially supports education because it provides funding for the majority of general operating expenses. It totaled $53.6 billion to be spent over fiscal years 2009, 2010, and 2011. It consisted of three major funding streams, each administered by the U.S. Department of Education.

American Recovery and Reinvestment Act State Fiscal Stabilization Fund ($ billions)

ARRA Budget Authority
Education Stabilization Funds39.75
Government Services Funds8.85
Race to the Top Fund4.35
Investing in Innovation Fund (i3)0.65
Source: U.S. Department of Education. Chart by New America.


The first stream under the State Fiscal Stabilization Fund is made up of two competitive grant programs: Race to the Top and Investing In Innovation (i3).

Race to the Top and Investing In Innovation

The Race to the Top grant program made $4.35 billion in competitive grants available to state governors. To qualify, each state’s governor was required to submit his or her plans to improve the equitable distribution of teachers, the collection and use of data, the quality of standards and assessments, and the support provided for schools identified as in need of improvement under the federal No Child Left Behind Act. These grants were expected to encourage states to implement programs that will improve student achievement through additional targeted funding. Governors must direct at least 50 percent of the Race to the Top funds they receive directly to local education agencies (LEAs).

The second competitive grant program under the State Fiscal Stabilization Fund was Investing In Innovation (i3), $650 million in competitive grants the Secretary of Education can award to LEAs, or partnerships between non-profit organizations and LEAs or consortia of schools. To receive funds, LEAs or partnerships had to be able to demonstrate progress in closing achievement gaps, exceeding state annual objectives, or improving other related indicators such as graduation rates or recruitment of high quality teachers. Funds could be used to expand current work, encourage partnerships with private and philanthropic organizations, and/or identify and document best practices. The Secretary distributed these funds directly to LEAs or partnerships.

The first application period for the Race to the Top fund began in November of 2009 and ended on January 19th, 2010. Several states made legislative changes to increase their likelihood of receiving funds while others have struggled with the political ramifications of such changes. Race to the Top funds were later included by Congress in regular appropriations, including nearly $700 million in fiscal year 2011 and almost $550 million in fiscal year 2012 for further rounds of the state competition and an Early Learning Challenge. The Investing in Innovation fund competition is entering its third year, having been appropriated nearly $150 million each in fiscal years 2011 and 2012.

Education Stabilization Fund

The largest program within the SFSF was the Education Stabilization fund, totaling $39.75 billion. These funds were intended to help states maintain the higher of 2008 or 2009 funding levels for PreK-16 education in 2009 and 2010. However, the funds could also be spent in fiscal year 2011. To receive these funds, states were required to maintain their spending at no lower than 2006 levels over all three years. The funds could be used to fill the gap between 2006 and 2008 or 2009 spending levels. So, if a state spent $200 million on PreK-16 education in 2009 and $160 million on preK-16 education in 2006, the state could use up to $40 million in state fiscal stabilization funds ($200M-$160M) to restore lost funding.

States could also use Education Stabilization funds to increase (rather than maintain) state education funding levels, if a state law requiring such an increase was enacted before October 1, 2008, to improve the equitable and adequate funding of education. In other words, a state could use Stabilization funds to achieve previously planned equity and adequacy goals that went above and beyond 2008 or 2009 funds levels. Any Education Stabilization funds remaining after the end of fiscal year 2010 were distributed directly to LEAs in proportion to the amount of federal Title I funds they received in the most recent year for which data were available.

Education Stabilization funds must be used for K-12 purposes authorized under a variety of federal education programs, including the No Child Left Behind Act, the Individuals with Disabilities Education Act, the Perkins Career and Vocational Act, or the Adult and Family Literacy Act. Funds could also be used for early education purposes, or for higher education purposes including instruction, general expenditures and efforts to delay tuition increases. All funds must be distributed directly to LEAs or institutions of higher education. State governors had no control over how this money is spent; funding was controlled by school districts or institutions of higher education.

States typically spend a larger percent of their total budget on K-12 education than higher education. As a result, the majority of states reported their intent to allocate more Education Stabilization funds to K-12 than higher education purposes. (For more information on state by state allocations of Education Stabilization funds, see here; to read about how states used the funds to support higher education, see here.)

Because Education Stabilization funds could be used for the majority of general operating expenses, they were more likely to be spent on saving or creating jobs. Two-thirds of school districts reported using 50 percent or more of these funds on salaries or other job-related expenses.

Government Services Funds

The third and remaining funding stream under the SFSF provided $8.85 billion through a Government Services fund. These monies could be used for the above mentioned education purposes, public safety and other government services, or school renovation and modernization. State governors determined how the funds were spent.

Distribution and Applications for Funds

Both Education Stabilization and Government Services funds were distributed to states based on a formula that takes into account the 5-24 year old population (61 percent) and the total population (39 percent) within each state. States with larger populations received more funds than states with smaller populations. Similarly, a state with a large school age population would receive more funding than a state with a relatively smaller school age population but the same overall population.

In order to receive these funds, states were required to complete a two step application process. The phase 1 application required states to declare planned state education spending levels for fiscal years 2009 and 2010 based on 2006 spending levels and determine how Education Stabilization funds would be spent in each year on K-12 and higher education separately. The applications also required governors to declare the percentage of Government Services funds that would be spent on each service or program. This application process began April 1st, 2009 and ended July 1st, 2009.

Approval of the phase 1 application allowed states to access the first 67 percent of their Education Stabilization and Government Services funds. Additionally, the U.S. Department of Education made the remaining share of Government Services funds available to states September 1st, 2009. States were not able to access this remaining share of their Education Stabilization funds until after their second phase applications, which were due January 11th, 2009, were approved.