Race to the Top Update: $3 Billion Remains?
At Whiteboard Advisors, we often hear from investors, NGOs, and education companies that want to understand how the Race to the Top program is shaping education markets and opportunities – and how products or solutions with the potential to impact student achievement can support state and local agencies in leveraging massive federal investments designed to do just that. Most market watchers know that roughly $4 billion has been awarded to states, but scarce data exists to trace how and where those funds are flowing and just how much of the funding has yet to be spent.
Some background: the U.S. Department of Education recently released spending reports for Recovery Act spending, as of September 7, 2012. Of the $3.94 billion in funding for Race to the Top state grants (for the original twelve winners: the District of Columbia, Delaware, Florida, Georgia, Hawaii, Massachusetts, Maryland, North Carolina, New York, Ohio, Rhode Island, and Tennessee), over $3 billion, or over 77%, remains unspent.
The amount of funding pulled down by States varies widely across the states – Delaware and Tennessee, which were the first two states given awards, have both spent over 30%, with Delaware at 38% and Tennessee at 33%. All of the other states have spent close to 20%, except for Hawaii (14%) and New York (8%).
At first glance, this might seem like cause for concern – the Race to the Top program is half-over and yet less than a quarter has been drawn down from the Feds. However, it is worth noting that while only 23% has been “liquidated,” or pulled down from the Department’s grants system and paid out as cash funds to States, remaining funds may well have been assigned to specific projects or contracts—or “obligated,” in Federal speak.
Oddly enough, it is much harder to find this number. For example, it is possible to find States’ self-reported data for spending through June 30th, the end of the most recent reporting period. However, while this information contains details about activities and includes a breakdown of cash pulled down from the Feds as well as cash outlay by states (which can differ slightly), it does not give us a sense of how much has been actually obligated, or committed to contracts.
What does this mean for education businesses and investors?
The business of understanding Race to the Top fueled trends, tracing market share and picking winners-and-losers requires a state-and-local analysis. The lexicon varies from state-to-state or market to market, and is muddied by inconstant use of terms within the industry.
Race to the Top-driven formative assessment RFPs, for example, vary wildly and incorporate a range of implicit and explicit assumptions about the features, psychometric validity, and capabilities of solutions. Statewide student improvement systems look different from state-to-state and increasingly incorporate requirements for teacher evaluation and effectiveness, data management, and planning tools that have historically formed more distinct vertical markets.
Interestingly, pursuit of these opportunities is driving partnerships among historically niche-oriented education businesses. We expect that those partnerships will, in turn, inform consolidation across verticals in the months and years to come. Public sector education contractors will look more and more like large scale IT contractors and systems integrators that we see in other government markets.