State Budget Support in the American Jobs Act: How it Might Work

President Obama’s 155-page jobs proposal landed on Capitol Hill this week and both parties are rallying their troops for a partisan fight.  Prospects for adoption remain low and support among state leaders will likely divide along party lines.  However, the bill does contain $30 billion in state fiscal relief, in the form of the Teacher Stabilization Fund, which if enacted would have a direct impact on state budget decisions throughout the country.

Subtitle B of the American Jobs Act allocates $30 billion for states and territories for FY2012 and FY2013 to promote the retention and rehiring of teachers by supporting state education budgets.  The method for distributing the funds largely mirrors the State Fiscal Stabilization Fund of the Recovery Act (the “stimulus”), but with a few important differences.

While the formulas used to distribute the Teacher Stabilization Fund are drawn from the stimulus, the mechanism for requesting funds and the maintenance of effort requirements both have significant changes.  In the stimulus, governors were required to request funding, but state legislatures could pass a resolution requesting funds if their governor chose not to do so.  The President’s proposal abandons this legislative override provision and leaves it to the discretion of the U.S. Secretary of Education to provide funding to “another entity or entities within the state” if the governor chooses not to request funds within 30 days after enactment of the legislation. 

Secretary Duncan will also exercise substantial authority in judging state compliance with the bill’s maintenance of effort (MOE) requirements.  The legislative language states that the Secretary shall not allocate funds to any state unless that state agrees for FY2012 that:

“(A)        the State will maintain State support for early childhood, elementary, and secondary education (in the aggregate or on the basis of expenditure per 16 pupils) and for public institutions of higher education (not including support for capital projects or for research and development or tuition and fees paid by students) at not less than the level of such support for each of the two categories for State fiscal year 2011; or

(B)          the State will maintain State support for early childhood, elementary, and secondary education and for public institutions of higher education (not including support for capital projects or for research and development or tuition and fees paid by students) at a percentage of the total revenues available to the State that is equal to or greater than the percentage provided for State fiscal year 2011”

The same language also applies to states receiving funding for FY2013, however, with FY2012 spending levels serving as the base year for maintenance of effort.

The bill also gives the Secretary extensive authority to grant MOE waivers in the event of “exceptional or uncontrollable circumstances, such as a natural disaster; or a precipitous decline in the financial resources of the State”.  The MOE  requirement constrains the ability of the Secretary to allocate funds to a state where the governor refuses to ask for funding as the Secretary is required to certify that information has been received from the state’s education agency assuring the Secretary that the state will be in compliance with MOE spending levels.  As a result, a state where the governor refuses to request funding could conceivably still be allocated funds by the Secretary if the legislature enacts an education budget in line with the MOE requirements or if the state qualifies for a waiver. 

States may use up to 10% of their funding allocation to support early learning education, such as Pre-K programs, and up to 2% to cover administrative costs.  Any funds received by a state must be allocated to local education agencies (LEA’s) within 100 days of enactment and LEA’s are required to spend the funds only “for compensation and benefits and other expenses, such as support services, necessary to retain existing employees, recall or rehire former employees, or hire new employees to provide early childhood, elementary, or secondary educational and related services.” 

States are specifically prohibited from using funds to directly or indirectly: “(1) establish, restore, or supplement a rainy-day fund; (2) supplant  State funds in a manner that has the effect of establishing, restoring, or supplementing a rainy-day fund; (3) reduce or retire debt obligations incurred by the State; or (4) supplant State funds in a manner that has the effect of reducing or retiring debt obligations incurred by the State.”

The prospects for passing the American Jobs Act remain remote.  Early indicators are that the House will cherry pick the President’s proposal and move elements with bipartisan support, such as the payroll tax cut, while allowing other elements to die on the vine.  Unless the Super Committee decides to carry large elements of the Jobs Act as part of its deficit recommendation, it is hard to chart a pathway for passage for the Teacher Stabilization Fund.  However, given the scale of funding available, and the ongoing impact of the state fiscal crisis, the proposal will undoubtedly be tracked with bated breath in state capitols across the country. 


State Allocations of the Teacher Stabilization Fund

















District of Columbia










































New Hampshire


New Jersey


New Mexico


New York


North Carolina


North Dakota










Rhode Island


South Carolina


South Dakota














West Virginia