Federal regulations force school districts to spend Act 10 savings or face funding cuts

​(This article appeared in the Fall 2017 issue of Diggings and appears courtesy of the Badger Institute.)


Savings that Wisconsin taxpayers could have realized through implementation of Act 10 in 2011 — sometimes hundreds of thousands of dollars in a single district — were lost because federal regulations penalize school districts that find ways to spend less money.

The Oostburg School District in Sheboygan County, for example, experienced a huge reduction in expenses for the special education fund followiing the passage of Act 10, says Kristin DeBruine, the district͛s business manager.

Special education programs, however, are funded with federal as well as local tax dollars — and full, ongoing federal funding continues only if local and state funding remains constant or increases from year to year.

In order to avoid a federal funding cut, the Oostburg district spent the Act 10 savings in other ways, including almost $60,000 to install an elevator in its middle school. At the time, and to this day, the school does not have any students who use wheelchairs. So the elevator sits largely unused, DeBruine says.

While installing the elevator also helped the district meet federal disability compliance rules, “We would not have put it in without the required use of the money, as it is only used for after-school activities, and the cost would not have allowed us to do it otherwise,” DeBruine says. That simply just doesn’t make sense at all.”

Maintenance of effort rule

The federal requirement that schools continue to spend at least the same amount of local or state tax dollars year after year or face a loss of federal funding is known as “maintenance of effort,” or MOE.

MOE requirements are “seen at the federal level as a way to make sure that federal funds aren’t displacing state and local funds,” says John Debacher, director of library development for the Wisconsin Department of Public Instruction. Critics say, however, that MOE rules commit districts to continually spend large amounts of money, restricting their ability to address changing circumstances and priorities, and emphasize spending and compliance over educational outcomes.

“We tend to budget money just to meet MOE rather than spending it in the most effective, efficient manner,” says Penny Boileau, administrator for the Brighton #1 School District in Kansasville in Kenosha County. “We should be able to prove we are meeting the needs of our students by some other means rather than by comparing funding spent in one year compared to the next year.”

The 257 Wisconsin school districts that responded to a Badger Institute open records request this summer said they had spent more than $1.3 billion on maintenance of effort in 2015-16, an average of $2,559 per student. With 424 public school districts in the state, the total is likely hundreds of millions of dollars higher.

The federal government seems to care less about achieving educational goals than it does about counting dollars and satisfying auditors, said one superintendent, responding to a Badger Institute survey conducted this summer.

“There are no conversations about children with special needs and the intense services being provided,” he said.

“Rules get in the way of innovation and progress. Rules around maintenance of effort hurt education. Paperwork gets in the way of spending time on students,” another superintendent said.

A number of federal grants carry MOE requirements, including those for libraries and school lunch programs. The biggest MOE commitment is to the Individuals with Disabilities Education Act (IDEA), which funds services for disabled students. Even though the state is required by federal law to provide equal educational opportunity to disabled children, states are not required to accept federal money to pay for it. But if officials don’t take the money, they must provide those services with local funds and explain to taxpayers why they refused to take “free” federal money.

“The public perception of turning down what the public believes is ‘free money’ is an even bigger problem” than taking the money, says Jeremy Struss, business manager for the small Swallow School District in Waukesha County. “They often don’t understand that the labor costs to receive these funds can be significant, sometimes more than the amount we are receiving.”

Jeff Kasuboski, superintendent of the Wautoma School District in central Wisconsin, laments the federal rules that mandate spending. “What is so terribly ridiculous is that maintenance of effort tells you that you must spend at least as much, if not more, on special education as you did the previous year.”

“Who are they to dictate how much money we spend? It’s absolutely ridiculous. If you find a cheaper way to do it, why wouldn’t you?” he adds.

The aftermath of Act 10

Act 10 was passed by the Republican-controlled Legislature and signed into law by Gov. Scott Walker in 2011 to address a projected $3.6 billion budget deficit. Its most controversial components required most public-sector employees, including teachers, to contribute more to their health care and pension benefits. It also restricted public employee unions͛ bargaining power.

Other savings were realized in some school districts as the new law excluded health benefits from union contracts. That change allowed some districts to shop for health insurance since their previous contracts often required signing with the union-affiliated WEA Trust.

About a third of Wisconsin school districts switched insurers from WEA Trust in the first year after Act 10’s passage, according to news reports. One estimate put the health insurance savings for local districts statewide at $404.8 million.

Local districts could have conceivably saved millions of dollars more if not for running afoul of maintenance of effort rules and being forced to spend that money or have their federal funding cut.

Following Act 10, the tiny Spooner School District in northwestern Wisconsin reduced special education spending by $160,000, mostly due to savings on health insurance. Although special education services were not reduced, the district was penalized for not maintaining the same level of spending, causing its federal funding to be cut by $30,000 the next year.

“We did not change our delivery of (special education services). We just saved money on employee costs,” says Michael Markgren, the district’s business manager at the time. He is now business manager for the Altoona School District near Eau Claire.

“But we were penalized for that. Districts have to be aware of that when they change insurance carriers now. If you have savings, you have to make sure that you still meet” maintenance of effort requirements, he says.

The problem extends well beyond insurance changes.

When some teachers retired following Act 10, many districts saved money by replacing them with younger teachers earning less. One such district was the Mount Horeb Area School District in Dane County, which — rather than face funding cuts for not meeting federal requirements — spent the savings on lower-priority needs such as supplies.

“It’s a waste because if you haven’t cut services, then you just have to find things to buy where you could’ve better reallocated to a different area,” says Wayne Anderson, Mount Horeb’s superintendent at the time.

Matching requirements

Another way the feds control local school spending is through “matching” requirements. These apply to meal programs, vocational training and other purposes. In those cases, the federal government provides funding for a particular project and the state or local district is required to “match” that amount on a percentage basis.

One project is GEAR UP— Gaining Early Awareness and Readiness for Undergraduate Programs — meant to increase the number of low-income students entering post-secondary schools. The six-year grant program requires a dollar-for-dollar match. In Wisconsin, the federal government provided $5 million over the six years. The state’s annual match is about $833,000.

Altogether, DPI spends about $6.5 million a year in required matching funds. No statewide data is available on how much local districts spend matching federal grants.

Matching and MOE are requirements of federal funding that many taxpayers and even some school officials are unaware of or don’t track.

“We don’t keep an inventory of (federal) grants” or their related maintenance of effort requirements and other associated costs, says the legal counsel for one large northeastern Wisconsin district, explaining in an email why it could not provide the information to the Badger Institute when asked.

“Those costs are included as line items within each department’s budget and are not made available in a consolidated list to school board members or anyone else,” she says.

“It doesn’t surprise me when I hear that,” one regional school administrator says. Since they’re not required by state law to create a document with that information, “it’s really (local school) board policy that guides their response.”

Even though state and federal auditors review matching and MOE spending, the data is not readily available so it is difficult for taxpayers to get a full picture of the local financial burden that results from accepting federal money.

The Badger Institute survey indicates that, even in districts where administrators and federal regulators keep close tabs on MOE and matching requirements, school board members and their constituents are largely unaware of the fiscal stranglehold forced upon districts by federal regulations.

The survey taken in July and August showed just 17 percent of school superintendents say school board members in Wisconsin pay “very close attention” to how federal dollars are spent. Almost 28 percent of superintendents, say school board members pay “very little attention” to how they are spent. That contrasts with school board members’ attention to local funds —39 percent of superintendents think school boards pay “very close attention” and less than 12 percent think they pay “very little attention” to how local dollars are spent.

MOE rules are a way of getting the state and local school districts to spend their money on priorities set in Washington, critics say.

“There’s no doubt the feds want to control what’s going on at the local level as much as possible,” says state Rep. Joe Sanfelippo (R-New Berlin). “That’s kind of the position you put yourself in when you sell your soul to the devil. You have to dance to his tune.”

Rep. Jeremy Thiesfeldt (R-Fond du Lac) agrees. “One of the problems with the federal government being involved in education is they tell you to maintain certain levels of spending. But if you have a down year, if you cut back on your dollars, then you’re not going to get your (federal) money,” says Thiesfeldt, chairman of the Assembly Education Committee and a former teacher. “But if they cut back, you still have to maintain your spending” to deliver services.

Sanfelippo concludes, “The best thing would be for the federal government to just lower our taxes and not take so much of our money and then pretend they’re doing us a favor when they send it back with all those strings attached.”

Dan Benson is editor of the Badger Institute’s Project for 21st Century Federalism. Julie Grace, a graduate student studying communications at Marquette University, is an intern at the institute. Badger Institute reporter Dave Daley contributed to this story. Read the entire issue of Diggings Fall 2017 here.

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