"Loophole" Allows for Sweeping Flexibility in Stimulus Funds, ED Confirms

Washington, March 16 — The U.S. Department of Education is prepared to accept an ambitious interpretation of the economic stimulus law that would allow up to $48.6 billion to be spent with maximum flexibility, in some cases on activities that were previously thought to be forbidden, such as school construction.

The reading of the law is expected to be explained by the end of the month in guidance the Education Department (ED) will send to governors who plan to apply for education "stabilization" funds under the stimulus. Those dollars are designed to offset projected state and local budget cuts, primarily in education.

At least three organizations have asked ED to weigh in on a previously little-noticed loophole in the language of the law, which states that school districts can use stabilization dollars for "any activity authorized by the Elementary and Secondary Education Act (ESEA)," among other statutes. The loophole resides in Title VIII of ESEA, which authorizes Impact Aid, a Cold War-era program that allows for sweeping spending authority with minimal strings attached.