LIANE HANSEN, host:

Stimulus money released to the states last April by the U.S. Department of Education was supposed to be used to boost funding for schools and colleges, as well as protect key programs and jobs. Well, now comes word from the department's inspector general that some states slashed education budgets anyway. And they're using stimulus dollars to replace the money they cut.

NPR's Claudio Sanchez explains.

CLAUDIO SANCHEZ: The Obama administration's message to states from the get go was this: stimulus funds earmarked for education are to supplement, not supplant state funding for schools and colleges. Here's what Education Secretary Arne Duncan had to say in late summer.

Secretary ARNE DUNCAN (Department of Education): We're really focused on, you know, making sure states are using the stimulus money well. But what we want to do is make sure people aren't playing games.

SANCHEZ: It wasn't long, though, before the Education Department started hearing about states playing what it called shell games with stimulus funds. In at least one case, department officials blocked a state from drawing stimulus money because it was cutting school funding so deeply.

This growing dispute with states has become so politically charged, the Education Department declined to comment for this story. The department's inspector general, on the other hand, hasn't been shy at all.

In its report about how states were spending stimulus funds, it found that over a dozen states are inappropriately using stimulus dollars to replace the money they've cut from education. It specifically cited Massachusetts, Pennsylvania and Connecticut.

Mr. THOMAS MURPHY (Spokesman, Department of Education Connecticut): We're really perplexed at the report and need to sort it out.

SANCHEZ: That's Thomas Murphy, spokesman for Connecticut's Department of Education. He says his state got high marks this summer when federal education officials looked at its proposal for spending stimulus funds.

Mr. MURPHY: These funds came with the greatest flexibility to help states stabilize their education funding programs, and that's how Connecticut used those funds

SANCHEZ: Murphy says Connecticut is in compliance as long as it doesn't cut education spending below 2006 levels. But it's clear that lots of states won't be able to maintain that level of funding, let alone boost spending on education, as the Obama administration would like.

Mr. JON SHURE (Deputy Director, Center for Budget and Policy Priorities) Twenty-five states have cut funding for K through 12 education and 34 have cut higher education funding.

SANCHEZ: Jon Shure is with the Center for Budget and policy Priorities. He says the stimulus aid has covered no more than 30 percent of states' budget shortfalls.

Mr. SHURE: States are facing such a severe crisis that a lot of the federal money is helping states just to stay even and avoid further budget cuts.

SANCHEZ: Minnesota, for example, is balancing its budget by delaying almost $2 billion in payments to schools. Michigan plans to cut per-student funding by $218. Missouri has frozen funding for its public colleges indefinitely.

Linda Luebbering is Missouri's budget director.

Ms. LINDA LUEBBERING (State Budget Director, Missouri): We have to make do with the money we have. And given that our revenues are doing much worse than anticipated, we will have to make additional reductions in the budget to keep it in line with available revenue.

SANCHEZ: Education, says Luebbering, will be the last thing Missouri cuts.

U.S. Education Secretary Arne Duncan warns if states cut education below 2006 levels and use stimulus funds to plug holes in their education budgets, he may exclude them from billions of dollars the administration is offering states for reforming their schools.

Claudio Sanchez, NPR News.

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