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It is evident from the formula that any change in the total LEA ADA or membership would directly affect the Federally connected ADA and the amount of payment.

As a result of this situation, GAO recommended that the methods used to compute Federally connected ADA be simplified. They suggest that a national ratio of total ADA to total membership (enrollment) be developed. The Federally connected membership could then be multiplied by the national ratio. This method would provide a common basis among States for computing the Federally connected ADA.

It is interesting to note that GAO in their February 1957 report on Impact Aid also recommended that the method for computing Federally connected ADA be simplified. The current method is an outgrowth of that recommendation. The current recommendation is to further simplify the method.

USOE in their response of July 23, 1976, suggested another alternative to the problem--compute payments on the Federally connected membership. This alternative would simplify the procedure to an even greater extent.

III. DUPLICATE PAYMENTS
RECEIVED BY LEA's

The initial Act contained section 3(e) which required that revenues received by an LEA for a Federal property be deducted from its entitlement. These deductions included the value of any transportation for custodial services provided to an LEA by the Federal Government.

Many school districts in States which have vast areas of Federal lands within their boundaries --Indian reservations, national forest lands, and public domain land--received revenues from taxes from privately owned improvements located on such lands--national forest payments, Taylor Grazing Act payments, Migratory Bird and Wildlife Act payments, and payments in lieu of taxes.

In 1953, PL 83-248 amended section 3(e) to limit the deductions of revenues received for national forests, Taylor grazing lands, and the Migratory Bird and Wildlife Act to the extent claimed against the property for which such payments were made. The remaining revenues from taxes for privately owned improvements located on Federal lands, payments in lieu of taxes, mineral leases, and the value of transportation and custodial services were deducted in the amount received.

PL 89-750 amended PL 81-874 to limit deductions to a minimum of $1,000. The $1,000 minimum was imposed as a matter of administrative efficiency and convenience. Determination of smaller amounts would incur excessive administrative costs.

PL 81-874 was further amended in 1968 by PL 90-247 which deleted section 3(e) entirely.

According to the GAO report, approximately $5 million was deducted under section 3(e) in FY 1967. This was approximately 1. 2 percent of the total entitlements for the same year.

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IV. IMPACT AID FUNDS USED

TO SUPPLANT STATE FUNDS

In their review, GAO found two States that may have been in violation of section 5(d) of the Act. As a result of this finding, they suggested that closer review of State aid allocation formulas should be emphasized.

Section 5(d) of the Act was one of the areas in which particular difficulty was experienced in FY 1973 and FY 1974. In-depth studies of each State's school finance formulas and procedures should have been made at the regional and Washington levels to adequately administer this section of the Act. A decrease in the DSAFA staff from approximately 100 persons in FY 1966 to approximately 50 staff members in FY 1977 made it impossible to properly analyze the various State's formulas and procedures.

In FY 1975, an act was passed which made it possible to make payments to LEA's in States which were in violation of section 5(d) providing such States had passed an equalization law.

PL 94-482, then, amended the section by delaying its implementation until FY 1978.

Interim final regulations establishing criteria for section 5(d) have been published. Also regional staff have been instructed to review State financial data in accordance with the interim final regulations and report no later than June 30, 1977.

V. COMPUTATIONS OF PAYMENT RATES

In their report, GAO makes four observations concerning rates. They are: (1) data submitted by States to establish rates have not been reviewed in recent years to determine if the source of funds have been reported under the appropriate category, (2) neither regulations nor instructions that weight or attach importance to the 12 criteria used to establish rates have been developed, (3) the instructions concerning the 12 criteria and the data collected on the application form do not correspond, and (4) procedures do not allow for the influence of Impact Aid funds when LEA's receiving such funds must be used as comparable districts in computing rates.

The DSAFA staff has been reduced by more than 50 percent of its strength since FY 1966. This reduction plus the limited regional staff has made it impossible to properly review and analyze all of the rate data submitted by States.

USOE officials have indicated that the procedures and their application for approving Federal payments based on comparable LEA data are being examined. On the basis of this examination, appropriate modifications will be made and will be published in instructions to States and LEA's for FY 1978. This examination should address the last three observations listed in the above paragraph.

VI. ECONOMIC IMPACT OF FEDERALLY

CONNECTED CHILDREN ON LEA's

Many studies of the Impact Aid Program have been conducted. These studies usually include a section on the economic impact or burden imposed on LEA's by Federally connected children. A number of concepts or alternatives to measure the Federal impact have been developed. However, no concept has been developed which would compensate for the differences in the characteristics of the many existing situations which would be acceptable to the many different interested groups.

In order to respond to the Congressional request for analysis of the economic impact of Federally connected children on LEA's, GAO conducted a statistical analysis on data from 1, 671 LEA's in 16 States for FY 1973. One analysis was made to determine the effect of tax increases relative to decrease in Impact Aid funds. Another analysis was conducted to determine the effects of alternate eligibility requirements on the total cost of the program. The relationship of Federally connected children to LEA's financial resources was the third analysis.

A. Tax Increases Related to
Impact Aid Decreases

During FY 1973, the year of application which GAO used in their report, PL 81-874 contained a provision which permitted an LEA to phase out of the program. (This provision was changed in the current law by PL 93-380.) The first year the LEA did not meet the three percent eligibility requirement, it was eligible to receive full entitlement for the number of children claimed. The second succeeding year the three percent eligibility requirement was not met, the LEA was entitled to receive 50 percent of total entitlement for the number of children claimed.

The data used by GAO to conduct the analyses of tax increases related to the decreases in Impact Aid included 242 LEA's which did not meet the three percent eligibility requirement.

B. Alternate Eligibility Requirements
and Their Effects on the Total

Cost of the Program

The provisions of PL 81-874 were changed considerably by PL 93-380. These changes were effective for FY 1975. Hence, the reductions based on the alternatives enumerated in the GAO report are no longer applicable.