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In October of 1976, the General Accounting Office carried out an assessment of the impact aid program. As part of this assessment, GAO analyzed the economic impact of federally connected children, and also the administration of the program. We have as a second witness this morning, Mr. James D. Martin, Deputy Director, Human Resources Division of the General Accounting Office, who will testify on the findings of this GAO assessment.

I do want to state I am one of the few members in the Congress presently serving who was here when we wrote the impact aid legislation back in 1949 and 1950. At that time, within 40 miles of Fort Knox, Kentucky, there were some old NRA buildings. Because of the Fort Knox situation the impact was so heavy in that area that it was really necessary to pass 815 and 874.

I still feel that this has been very useful throughout the years. I am hoping somewhere along the line that the federal government becomes a better partner with the local educational agencies and the states in the area of financing education. This may be a vehicle whereby we could go to some form of general federal aid to education.

I am delighted to welcome here this morning our first witness, Dr. William L. Stormer, Director of the Division of School Assistance in Federally Affected Areas, Bureau of Elementary and Secondary Education, U.S. Office of Education.


Mr. STORMER. Mr. Chairman and members of the subcommittee, it is my pleasure to appear before you this morning to review the status of the Impact Aid program, especially as it was amended by P.L. 93-380, the Education amendments of 1974.

The Education Amendments of 1974 revised substantially the P.L. 81-874 authorization language. Entitlement formulas and methods of making payments were drastically changed. As a result, what was a complex law was made even more complex and confusing to both applicants and administrators. The amendments have presented major administrative problems. They have made it necessary for us to rely heavily on automated data processing systems. Such dependence on automated systems has made it difficult to pay local educational agencies on a timely basis.

The addition of categorical aid within the same formula that otherwise provides general use funds has created many problems and, we fear, the poor use and perhaps even poorer monitoring of funds vitally needed in the essential areas for which they were intended.

The hold-harmless provisions require very complicated formulas to produce payments that are then subject to change for several years. This is compounded by the fact that each change alters the payments in succeeding years as well.

We have spent considerable time in developing criteria for evaluating the various state equalization programs to determine their effect on P.L. 874 school districts.

Today we will provide more detail concerning the problems we've encountered in at least these major areas. Before we do this, it might be helpful to identify the major changes brought about by the Education Amendments of 1974. These include:

Creation of several subcategories of A children;

Creation of several subcategories of B children to provide varying local contribution rates for children who reside on federal property only, those whose parents are employed in the same county as the school district, those employed out of the county but in the same state, and those in the uniformed services;

Exclusion from A and B categories children whose parents are employed outside the state of the school district;

Counting all children who reside on Indian lands in the A category regardless of the employment status of their parents; Addition of a payment for handicapped children residing on Indian lands (A category) equal to one and a half times the usual rate if a special program for their educational needs is being provided;

Addition of a payment for handicapped children of parents in the uniformed services in both "A" and "B" categories;

Provision of three tiers for making payments when appropriations are not sufficient to provide full entitlement;

Authorization of payments of low-rent housing children in the first and third tiers but not in the second. Such payments must be used for Title I or Title I-type programs and projects designed to meet the special educational needs of educationally deprived children;

Modification and extension of assistance for decreases in Federal activiites;

Addition of four hold-harmless provisions (two of which became effective in fiscal year 1975 and two in fiscal year 1976);

Waiver of prohibition of considering P.L. 874 payments when state aid programs provide equalization, which also was made effective for fiscal year 1975.

As you know, the purpose of Section 3 of P.L. 874 is to compensate school districts for educating children who are in an area as a result of Federal activities. Primarily the program compensates for the loss in tax base of Federal property, property taxes being the major source of local funds to support free public education.

Prior to the amendments, the law contained only two categories of federally-connected children. Both remain in the program as basic classifications of children. The A category child lives on Federal property with a parent either employed on Federal property or in one of the Uniformed services. The B category child either lives on Federal property or lives with a parent employed on Federal property or in one of the Uniformed services.

For eligibility purposes, the B category child counts as a whole child but for payment purposes he represents considerably less than a whole child. The A child counts as approximately a whole child for both purposes.

For payment purposes, the B child formerly represented half the value of an A child. The computation of the number of A children in average daily attendance ADA and one-half the number of B children in ADA multiplied by the local contribution rate determined entitlement.

Our present determination of entitlement differs considerably. There are now seven subcategories of A children and nine subcategories of B children. These subcategories reflect either a different portion of the local contribution rate or a different portion of entitlement to be paid under the three-tier-payment system or amounts that must be tracked. It is necessary to use an automated system to determine military, Indian and low-rent housing children. In addition, the automated system determines the "in" or "out of county" status of pupils by comparing the county or counties of a school district with the county or counties of a Federal property. Approximately 9,000 Federal properties are claimed by 4300 school districts. Many of the Federal properties are claimed by more than one school district and thus are "in county" in some and "out of county" and "out of state" for others. Some school districts claim as many as several hundred Federal properties.

In order to compute an entitlement, the local contribution rate must be multiplied first by the percent applicable to a particular subcategory and then by the number of children in ADA in that subcategory. For a school district with every one of the subcategories, this means 32 computations plus the addition of subcategory entitlements in order to determine total entitlement. This compares to the former one computation.

Prior to the enactment of P.L. 93-380, entitlements were prorated equally (after the full funding of Federal schools) in the event that an appropriation did not provide enough funds to pay all entitlements in full. Currently there are three payment tiers. The first provides 100 percent of Section 2 entitlement and 25 percent payment of all other subcategory entitlements. The second provides varying additional percentages for payment and must be paid in full or not at all. (However, low-rent housing entitlements may not be paid in the second tier.) The third tier provides an equal portion of the balance of entitlement in each subcategory. (A few of the entitlements are paid in full through the second tier.) In order to compute payments in the second as well as the third payment tier, entitlements in each subcategory must be multiplied by the percentages applicable to each subcategory. This can result in 32 or more computations in order to determine payment in addition to the 32 plus computations that were necessary to determine entitlements. These computations are further complicated by certain payment limitations for those districts that no longer meet the three percent eligibility requirement but are permitted to retain eligibility for two years. These borderline districts have become more numerous in recent years.

The computations become even more numerous for determining payments under Section 3(e) and the other four hold-harmless

provisions. Needless to say, it is extremely difficult to help a school district determine its payment, unless the application has been processed through both automated data systems, the one for determining subcategories of children and the other for computing entitlements and payments.

Step by step procedures for determining eligibility for entitlements and payments were charted by the Library of Congress in the spring of 1975. Because they serve to illustrate the complexities of the present program, we have taken the liberty of making copies for each of you to illustrate the determination of eligibility, entitlement and payment.

[Material referred to follows:]

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