Funding for the Impact Aid Program: Options for Budget Year Appropriations, Forward Funding, and Advance Appropriations

Summary

Administered by the U.S. Department of Education (ED), the Impact Aid program is one of the oldest federal education programs, dating from 1950. Impact Aid, authorized under Title VIII of the Elementary and Secondary Education Act (ESEA, P.L. 89-10, as amended), compensates local educational agencies (LEAs) for “substantial and continuing financial burden” resulting from federal activities. These activities include federal ownership of certain lands, as well as the enrollments in LEAs of children of parents who work or live on federal land (e.g., children of parents in the military and children living on Indian lands). The federal government provides compensation because these activities deprive LEAs of the ability to collect property or other taxes from these individuals (e.g., members of the Armed Forces living on military bases) or their employers, even though the LEAs are obligated to provide free public education to their children. Thus, Impact Aid is intended to compensate LEAs for the resulting loss of tax revenue.

The largest Impact Aid payment, Section 8003(b) payments (also known as Basic Support Payments or BSPs), compensates LEAs for enrolling “federally connected” children. For FY2014, Section 8003(b) accounted for $1.151 billion, approximately 89.3% of all funds appropriated for the Impact Aid program. As Section 8003(b) payments account for the majority of all Impact Aid funding, this report primarily focuses on these payments.

All Impact Aid payments are funded through the Labor, Health and Human Services, Education, and Related Agencies (L-HHS-ED) annual appropriations bill. Funds are provided through “budget year appropriations,” meaning the funds would be available for the budget year beginning on the first day of the next fiscal year (e.g., October 1, 2013, for FY2014), unless otherwise specified. This availability may be retroactive if annual appropriations are not enacted until after the fiscal year has begun. The Impact Aid program is also authorized to receive appropriations through advance appropriations and forward funding. Advance appropriations become available one or more fiscal years after the budget year covered by a given appropriations act (e.g., for FY2015 and an FY2014 appropriations act). Forward funding becomes available during the last quarter of the budget year (e.g., July 1), but remains available through at least the following fiscal year (e.g., July 1, 2014, through September 30, 2015).

Under the current mechanism for funding Section 8003(b) payments and the use of continuing resolutions rather than enacting regular appropriations acts prior to the start of the fiscal year, LEAs are generally unable to receive their full Section 8003(b) payments until sometime after October 1, because of delays in when regular appropriations or a full-year continuing resolution is enacted. This can create financial difficulties for LEAs, particularly those that are heavily dependent on Impact Aid funding. Providing funds for Section 8003(b) payments through advance appropriations or forward funding has the potential to ease some of these difficulties, but has budget enforcement implications that may complicate any attempt to transition to an alternative funding schedule.

This report considers three different appropriations scenarios for Impact Aid Section 8003(b) payments that are an alternative to budget year appropriations: (1) providing forward funding for Section 8003(b) payments, (2) providing advance appropriations for Section 8003(b) payments, or (3) using both forward funding and advance appropriations to provide Section 8003(b) payments, as is done for other federal education programs such as Title I-A Grants to Local Educational Agencies authorized by the ESEA or Grants to States authorized under Part B of the Individuals with Disabilities Education Act (IDEA). Each of these scenarios has budget implications that may require at least a one-time increase in discretionary appropriations, a change in the limit set on advance appropriations, or some combination of both.