Market Insights

Update on K-12 Funding and Reform
Expert advice for thriving in 2011 and beyond

— Friday, March 25, 2011

Because the funding landscape is in constant flux, we all need to stay on top of the political and funding changes that shape education. Read on to learn more from two experts in our market and get five action steps to find opportunities that can position your business for changes in the future…

Expect the new political climate to bring a reduction in federal education funding.

“Education policy and funding are affected by the political atmosphere,” points out Anne Wujcik, Education Research Analyst for MDR. “And we have seen a big change in climate resulting from the November elections.” With an influx of 100 new members into Congress, we now have a legislative body, especially in the House of Representatives, that is more conservative, more focused on debt reduction and fiscal accountability, and also much more inclined to strive for a more limited role for the federal government in all areas, including education.

As of this writing, Congress is still struggling to pass a budget for the current fiscal year (which started in October 2010), so for the past six months our government has been operating under multiple continuing resolutions. At the beginning of March, Congress passed a temporary funding measure to keep the government operating through March 18, but education spending was severely cut. The latest continuing resolution runs through April 8, with no further cuts to education funding.

The Republican-majority House has set much more aggressive budget-cutting goals, having passed a bill that included $61 billion in cuts from FY2010 spending levels. The Senate has rejected that bill, and the President continues to promise a veto, so the real question is how the two chambers will reach a compromise. The process to reach that compromise will be a bellwether for what to expect for the FY2012 budget and the re-authorization of the ESEA.

ACTION STEP 1: Keep an eye on what is happening in Washington, and start thinking of ways to adjust your business for what could be a lean future for the education industry.

Align your business with Obama’s overarching education themes, and monitor proposed changes and new programs for the FY2012 education budget.

President Obama has submitted his request for FY2012, and it is closely tied to the Blueprint for Reform, the Administration’s vision for re-authorization of the Elementary and Secondary Education Act. Marketers need to stay on top of the Blueprint’s proposed changes to ESEA to prepare for swift alignment to the newly organized funding structure that may emerge. To gain an edge on your competition, start planning now to adjust your business to these prominent trends in the Administration’s Blueprint:

  • Program Consolidation – The Blueprint currently consolidates 38 programs into 11 larger categories, so if your company has been focusing on one of the programs being consolidated, you will need to adjust your messaging accordingly to remain relevant.
  • Charters and Low-Performing Schools – The Administration strongly supports charter schools as well as programs to specifically help low-performing schools—one of the four priorities of the Blueprint. Education businesses that tailor their products and services as solutions to address and serve these two Obama priorities will be in a position to garner more sales.
  • More Competitive Funding – While formula funding is not going away, the Administration favors initiatives designed around competitive funding, like the Race to the Top and Investing in Education programs. In fact, $4.9 billion of the education funding allocation shifted from formula grants to competitive programs between 2010 and 2011. With competitive initiatives on the rise, you need to have a strategy to work with key districts to get written into their grants.
  • Evidence-Based Research – It is now required that all products and services purchased with federal funds show evidence of effectiveness. In general, the more expensive your product, the more likely it is that you will be asked to supply evidence of effectiveness to validate a purchase. This means white papers from company-conducted studies are no longer acceptable. Instead, research must follow more scientific research protocols and may need to include control groups. Companies that have not done this kind of research yet need to get started and find a way to incorporate the expense into their cost of doing business and possibly increase pricing to accommodate for the fees involved. Read more…

Of course, Congress does not necessarily support all of Obama’s priorities for the ESEA re-authorization. The two parties differ on some key areas, and the two chambers have chosen to examine the bill in very different ways. All of this means the entire process could take quite some time, so stay tuned.

The budget request the Administration submitted for 2012 was a little lower than what was submitted last year, though still larger than the 2010 appropriation. Notable changes to existing programs include:

  • Race to the Top – The $900 million proposed for 2012 is for competitive grants for school districts, instead of for states.
  • School Improvement Grants – An increase of $54 million over FY2010 has been requested for this Title I program. The program would also get a new name, School Turnaround Grants.
  • Investing in Innovation – With $300 million proposed for i3 in 2012, these grants would help support STEM initiatives.

Proposed new programs are:

  • $350 million for a new program called the Early Learning Challenge Fund, described by Education Secretary Duncan as an "RTTT-like initiative" to prepare students for school.
  • $300 million for Title I Rewards, designed to reward Title I schools that are making progress.
  • $90 million for an Advanced Research Projects Agency to support research on technology use, educational systems, and tools for the classroom (which is different from E2T2’s objective to fund the acquisition of technology for schools).

ACTION STEP 2: Review Obama’s proposed FY2012 budget to monitor the funding levels of the specific federal programs that impact your company.

Target these high-demand product areas.

Although there is concern that education funding levels will be cut in the future, there is still money on the table. Product development areas with the strongest revenue potential right now include:

  • Common Core State Standards – The strong adoption rate of the new national standards means companies need to work toward aligning their products with them or lose out. In the near future, it is expected that 46 states plus the District of Columbia will have adopted the common standards. Some states are beginning to call for materials aligned with the CCS to supplement existing basal resources, with electronic products being the preferred choice because they can most easily be adapted to existing content. With the dire budget situation at the state level, funding will delay full implementation of the Common Core Standards, which could take until 2013 or later. However, the reality is that the new standards are here to stay. Get on board with the Common Core Standards to keep your offerings relevant to the U.S. classroom.
  • STEM – The country is recognizing the need for stronger STEM (science, technology, engineering, math) programs in order to compete internationally. If your company develops materials in any of these areas, be sure to promote them as STEM resources.
  • AP Courses – After a period of low interest, AP is experiencing a revival as part of the overall attention to a more rigorous curriculum. Review your products to determine if any of them can be adapted to the AP curriculum so your company can expand into this market segment.
  • Video and Online Tools – These types of products provide learning solutions for new environments, such as blended programs, virtual schools, and the growing number of states considering a four-day school week. Online and video resources have potential for the classroom and also for professional development. Have you started to explore these new delivery vehicles for your existing and future content?
  • Products that support increased graduation rates and job preparedness – Whether you produce curriculum or assessment products, be sure to promote your line’s capabilities in helping students to gain the skills they need to finish high school and find successful employment. Evaluate your products and marketing now to see what it would take to better address this education priority.
  • Professional Development – No product or program will be successfully implemented unless teachers and administrators have the knowledge and skills to engage effectively. Funding sources are all focused on making sure that this happens through professional development. Each of you should consider how you are going to address this. Remember, this is NOT money for product training; rather it is for how to teach this subject effectively.

ACTION STEP 3: Be sure you are exploring as many ways as possible to position your products as must-have solutions.

Go where the big money is to make the most of 2011.

There are still plenty of unspent Stimulus dollars. It makes sense to target the biggest opportunities first, so here they are in descending order.

  • Roughly $15 billion of ARRA money – All of this money must be obligated by September 30, 2011:

    Go to edmoney.org, a project of the National Education Writers Association, to track education Stimulus spending at both the district and state levels. You will see that for many states, up to 60% of their Education ARRA funds have yet to be spent or obligated. If you need to monitor the remaining funds by a specific Stimulus program instead, go to this Department of Education site, which is updated by the U.S. Office of Management & Budget.
Additional Opportunities to Research...

  • $4.3 Billion for Race to the Top – The winning 12 states must spend their RTTT funds within four years. Jenny House, President of RedRock Reports, encourages all education businesses to go after these funds. RTTT funds are not locked in. The winning states are required by law to put out RFPs. And it is far from too late to get in on the RTTT funds. Final approvals of revised plans were issued in January, and funds are just now beginning to reach the districts.

    RTTT funds initially will be spent for planning activities and getting infrastructure in place. As schools open this fall, funds will start to be used in earnest for other products and services that support RTTT’s four key concentration areas: standards and assessment, building data systems, developing effective teachers and administrators, and turning around low-performing schools.

    Be sure your RTTT business development efforts target both state-level and district-level administrators because RTTT awards are allocated evenly between the state’s Department of Education and its districts. Read more…

    Dr. House also stressed that education companies should be targeting the states that were not selected for RTTT funds. These states put much thought and effort into their applications, and because of that, many are looking for and finding buckets of money to allow them to move forward with their RTTT plans on their own.

    To track RTTT funding, there are several options. For the easiest and most comprehensive route, you can subscribe to a commercial service, such as MDR’s School Purchasing Monitor. If you want a free option, you can subscribe to a listserv from each of the RTTT states and large districts, but you do have to register for each one individually and be prepared to sift through lots of incoming data to get to the important funding information you are looking for.
  • $3.5 Billion for School Improvement Grants – These funds are to be used to support the lowest-performing schools over the next three years through either a turnaround, restart, closure, or transformation model. Each of the 730 schools receiving these grants have anywhere from $500K to $2M to be spent per year. Note that about 75% of the participating schools are undertaking the transformation approach, so they will be keeping their staff and using their funds to overhaul their curriculum programs. Also, half the SIG schools are high schools, so if your products support those grades, you should be identifying and targeting high schools awarded SIG funding.

ACTION STEP 4: Determine which of these opportunities fit your products and services. Decide what action steps you can take now to capture some of these remaining federal dollars. Information and updates on School Improvement Grants at the school level is available in MDR's MarketView and SIG school selects are available on MDR K-12 lists.

Help your sales staff make the sale.

The funding landscape is more complex today than ever before, both for educators and for industry suppliers. Make sure your sales staff is knowledgeable of the rules and requirements of the many federally funded programs. For example, the Department of Education will be auditing the usage of ARRA dollars for unallowable expenses (such as product licenses committed past 2012) and usage of funds for goods that do not support program objectives. Do not put your business or a customer at risk of an unfavorable audit. Also be sure to give Sales the tools they need to show alignment with federal program objectives. Help them find and reach decision makers so they use their time effectively. Sales tool kits can include everything from grant templates to conversation starter ideas and key contact lists.

ACTION STEP 5: Work collaboratively with your Sales counterparts, and together you will maximize your company’s revenue from federal programs.

Good luck!

There are many ways to improve your company’s ability to win more federal dollars. Make a plan today to work some of these action items into your existing marketing, product, and sales efforts…and you will be on your way to growing your business today and tomorrow.

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This article is based on MDR’s February 2011 webinar entitled “ What’s Happening With Stimulus Funding and Obama’s Education Initiatives?” The one-hour online event features two funding experts: Jenny House, President of RedRock Reports, and Anne Wujcik, Senior Education Research Analyst for MDR. The webinar includes details on the current funding situation and what it means for education businesses. It is part of MDR’s library of free marketing webinars and is available on demand for viewing at any time.