State of Indiana, Office of the Governor — Waiver of the Maintenance of Effort Requirements (March 14, 2024)

Summary

A March 14, 2024 letter on the letterhead of Eric J. Holcomb, Governor, Office of the Governor of the State of Indiana, to Secretary Cardona requesting a waiver of the FY2023 Maintenance of Effort (MOE) requirements for K-12 education and higher education under section 2004(a) of the American Rescue Plan Act (ARPA). It states that funding for elementary and secondary education was 45.5% of overall state spending in FY2023, 0.8% less than the 46.3% baseline years' average, and that higher education support was 10.4%, 0.5% less than the 10.9% baseline years' average. It describes a $2.4 billion revenue loss in FY2020 and growth in K-12 and higher education funding. An appendix of tables and a list of exhibits follow.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

   STATE OF INDIANA                                                                      Eric J. Holcomb
   OFFICE OF THE GOVERNOR                                                                         Governor
   State House, Second Floor
   Indianapolis, Indiana 46204



March 14, 2024
The Honorable Miguel Cardona
Secretary
U.S. Department of Education
400 Maryland Avenue, SW
Washington, D.C. 20202


Dear Secretary Cardona:
Included with this letter is Indiana’s request for a waiver for the FY2023 Maintenance of Effort (MOE)
requirements for K-12 education and higher education under section 2004(a) of the American Rescue
Plan Act (ARPA). While the state continued to grow its general fund investment in K-12 and higher
education to historic levels, other investments disrupted the FY2023 proportionality measures required by
the MOE calculation provisions. Funding for elementary and secondary education as a proportion of
overall state spending in FY2023 was 45.5%, 0.8% less than the 46.3% baseline years’ average. State
support for higher education as a proportion of overall state spending was 10.4%, 0.5% less than the
10.9% baseline years’ average. Nevertheless, Indiana has remained committed to its priority investment in
education.
Shortly after the signing of the state’s FY2022 and FY2023 biennial budget on April 29, 2021, the State
of Indiana sent a letter to the U.S. Department of Education detailing a preliminary analysis of the
challenges presented by the Coronavirus Response and Relief Supplemental Appropriations Act
(CRRSA) and ARPA MOE proportionality requirements and the context regarding the priority that
Indiana has and continues to place on education funding. Despite these challenges, Indiana met the
proportionality requirements for K-12 and higher education funding for FY2022. The State of Indiana
requests a waiver for the FY2023 MOE requirement for K-12 and higher education funding under section
2004(a) of the ARPA.
Indiana continues to commit approximately half of the entire state budget to K-12 education and an
additional 10% for higher education. The FY2022 and FY2023 budget reinforced this priority, as did the
FY2024 and FY2025 budget passed in April 2023. Over the last four years, the Indiana General
Assembly has continued to appropriate increasing dollars to tackle pandemic learning loss, increase per
pupil funding, and reduce the unfunded liabilities in teachers’ retirement funds.
Section 1 – Pandemic Response
In response to the pandemic’s potential adverse impact to the budget, the state took steps early in the
pandemic to restrain overall state spending. When agencies across the state were subject to significant
allotment restrictions (15%) as protective measures against the pandemic, K-12 funding was exempted.
Higher education funding, though restricted by 7%, was both restored and increased in the years
following. No such restrictions were placed on need-based financial aid appropriations.
Due to the economic impacts from the COVID-19 pandemic and the tax filing deadline changes, the State
of Indiana faced a significant revenue shortfall in FY2020. To maintain a positive balance in the General
Fund, funding was transferred from the state’s reserve balances. The Budget Director’s memo directing
the transfer of $577.6 million from the Medicaid Contingency and Reserve Account to the General Fund
can be found in Exhibit A.
The U.S. Department of the Treasury promulgated ARPA rules instructing states and local governments
how to calculate lost revenue during the COVID-19 pandemic. Based on those instructions, the state
experienced a $2.4 billion revenue loss in FY2020 compared to the counter factual baseline growth trend
of the three years prior to the pandemic. See Table 1 in the Appendix. Additional revenue loss of $466
million was calculated for FY2023. In light of volatile revenue fluctuations during the pandemic and
additional needs for Medicaid, public health, and child welfare provision, the state took a prudent
approach by avoiding structural program growth that would commit uncertain future revenue growth
beyond sustainable levels. More information regarding the state’s revenue can be found in Exhibit B.
Additionally, state and federal Medicaid expenditures have continued to grow considerably year-to-year.
As seen in Table 2, state general fund expenditures for Medicaid grew by over $400 million in FY2023.
However, even during the pandemic, the State of Indiana never reduced appropriations for education
(elementary, secondary, or higher), but increased them to historic investment levels. More information
regarding Indiana’s management of the COVID-19 pandemic can be found in Exhibit C.


Section 2 – Relevant Factors
As seen in Table 3, K-12 funding has increased each year since FY2017. In fact, the increase in general
fund expenditures between FY2022 and FY2023 ($386.1 million) is the largest increase year-over-year in
the same span of time (a 4.7% increase from FY2022 dollars). Additionally, per pupil funding has
increased each year, with FY2023 being a 4.3% increase to per pupil, the largest in several years.
As seen in Table 4, higher education funding has also continued to increase each year. Total higher
education state expenditures increased by 5.73% ($103.2 million) in FY2022 and another 1.42% ($27.1
million) in FY2023. Per pupil funding increased by 7.95% in FY2022 and 1.66% in FY2023. Per pupil
funding in FY2023, $9,201, is the highest it’s been in the last 10 years.
Indiana general fund revenues rebounded significantly as it and the nation emerged from the pandemic.
Because of the unlikely sustainability of the uncommon growth in state general fund revenues, the state
chose to make its largest investments in one-time infrastructure and economic improvement projects
while increasing support for education and addressing significant needs in Medicaid funding. Examples of
these one-time investments shown in Table 5 include economic development, transportation, and a $730
million additional contribution to the Teachers’ Retirement Fund. Other key growth items in FY2023
specific to education included investments made to the Indiana University Purdue University Indianapolis
(IUPUI) Campus, Ivy Tech Community College, and the Charter and Innovation Network Fund, as seen
in Table 6.
Federal relief, such as ESSER and GEER, has been critical in helping the state maintain stability and
mitigate financial risks and has complemented state general fund investments. As seen in Exhibit D,
schools are primarily using the federal relief to fund four key priorities: Accelerating Learning,
Supporting Educators, Sustainable Innovation, and Updating Technology and Infrastructure. These
federal funds are currently being deployed for one-time investments and innovative strategies.
Indiana has continued to grow its investment in K-12 and higher education at historic levels. The COVID-
19 pandemic introduced a great level of uncertainty, particularly to projected revenues. The state balanced
its commitment to ongoing priority programs with prudent one-time key investments. Indiana’s priority
funding of K-12 and higher education is clear and continues into the current and future fiscal years, as
described in Exhibits E and F. In the current biennium, large investments have already been made to key
K-12 and higher education initiatives, such as teacher training in the science of reading and performance-
based funding for universities.
The State of Indiana respectfully requests a waiver for the FY2023 MOE requirements for K-12 education
and higher education under section 2004(a) of the ARPA.
Sincerely,


 (b) (6)
Appendix – Documents and Data
(Revenues and expenditures expressed in millions.)

Table 1: Actual Revenue vs. Counter Factual Baseline

                                          FY20                   FY21                     FY22                    FY23
 Actual Revenue                        $20,813                 $25,252                  $26,801                $26,808
 Baseline                              $23,266                 $24,504                  $25,852                $27,275
 Revenue Loss                         $ (2,414)                   $748                     $948                 $ (466)


Table 2: State General Fund Growth in Medicaid Expenditures
                                 FY19                 FY20                FY21                 FY22              FY23
 Expenditure                    $2,229               $2,268             $2,164                $2,203            $2,678
 Growth (%)                          -               +1.7%              -4.6%*                +1.8%            +21.6%
*Decrease due to enhanced federal match made available through the Families First Coronavirus Response Act.


Table 3: K-12 Total General Fund Expenditures and Per Pupil Funding Growth
                         FY17      FY18      FY19                     FY20      FY21               FY22           FY23
 Expenditures           $7,205    $7,328    $7,414                   $7,598    $7,603             $8,086         $8,462
 Total               1,110,866 1,116,556 1,117,590                1,111,333 1,112,460          1,120,155      1,124,094
 Enrollment
 Per Pupil               $6,489         $6,563        $6,633         $6,837        $6,834          $7,219       $7,528
 Funding
 Change                         -     +1.14%         +1.07%        +3.08%          0.00%         +5.63%        +4.28%




Table 4: Higher Education General Fund Expenditures and Per FTE Funding Growth
                                    FY19              FY20             FY21                FY22                   FY23
 Expenditures                      $1,819            $1,870           $1,800              $1,903                 $1,930
 Full Time Equivalents            224,369           223,329          214,692             210,277                209,787
 Per FTE Funding                $8,106.26         $8,372.25        $8,384.38           $9,051.31              $9,201.60
 Change                                 -          +3.28%           +0.14%              +7.95%                 +1.66%


Table 5: Largest FY23 Budget Increases of General Fund Dollars
                                                         FY23 General              FY22 to FY23          FY22 to FY23
                                                      Fund Expenditure                  Increase              Increase
 Teachers Retirement Pension Fund                              $1,705                       $730               +74.9%
 K-12 School Tuition Support                                   $8,146                       $387               +4.99%
 Economic Development Infrastructure                              $59                        $58               +99.2%
 Rail and Transportation Investment                               $74                        $54               +73.0%
Table 6: Other Large Increases for FY2023 Expenditures in K-12 and Higher Education

                                          FY23 General Fund        FY22 to FY23       FY22 to FY23
                                                Expenditure             Increase           Increase
 IUPUI Campus Fund                                     $122                  $11            +9.00%
 Ivy Tech State College Fund                           $253                   $5            +2.06%
 Charter and Innovation Network Fund                    $46                 $10             +22.1%




       Exhibit A. SBA-MEMO-FY20-Medicaid-Reserve-Transfer.pdf (in.gov)
       (https://www.in.gov/sba/files/SBA-MEMO-FY20-Medicaid-Reserve-Transfer.pdf)

       Exhibit B. Indiana State Budget Agency Revenue Data
       (https://www.in.gov/sba/budget-information/revenue-data/)

       Exhibit C. Indiana State Budget Agency COVID 19 Financial Management Hub
       (https://www.in.gov/sba/covid-19-financial-management/)

       Exhibit D. Indiana Department of Education GEER and ESSER Dashboard
       (https://www.in.gov/doe/grants/esser-geer-dashboard/)

       Exhibit E. FY2024-FY2025 General Fund Appropriations by Functional Category
       (https://www.in.gov/sba/files/27-Charts-2023-GFAppByFuncCat.pdf)

       Exhibit F. FY2024-FY2025 K-12 and Higher Education Budget Information
       (https://www.in.gov/sba/files/58-Charts-2023-ED-2.pdf)


File and source

File

department-of-education-pdf-www-ed-gov-5000a37dcf.pdf

Size

211,455 bytes

SHA-256

ed1614e8826c6bb0f63a14f5961205abf4f88d501596f329abaf602b9065419d

Our copy

department-of-education-pdf-www-ed-gov-5000a37dcf.pdf

Original

www.ed.gov