Differences in Title I funding per poor child among school  districts is due, in part, to hold-harmless provisions. By 1997, California had 16  percent of the nation’s poor children, but received just 12 percent of all  Title I dollars. Our review of the Title I statute and  regulations found no formal monetary, statutory, or regulatory incentives  for states to target their funds in this way. In the aggregate, relatively  few poor children and Title I funds were associated with districts whose  allocations differed widely from their formula-calculated amounts in the  1999-2000 school year. Enacting any of the policy options—  using less restrictive hold-harmless provisions, funding targeted grants,  using an alternative cost factor, or raising the eligibility threshold—would  result in changes for many states and school districts in terms of their  formula calculations. 305), we designed  our study to provide information on (1) the extent to which Title I funds  are allocated to states, school districts and schools with the greatest  numbers and percentages of school-age children from low-income  families; (2) the extent to which allocations of such funds adjust to shifts  in numbers of children from low-income families; (3) the extent to which  the allocation of Title I funds encourages the targeting of state funds to  school-age children from low-income families; and (4) what options might  improve targeting of funds, especially to states and school districts with  higher numbers and percentages of poor children, to more effectively  serve those children.
What GAO Found

The Title I program spends $8 billion each year on elementary and secondary education. Although state and local funds account for more than 90 percent of national education expenditures, Title I has been an important source of funding for many poor school districts and schools since 1965. In the 1999-2000 school year, Title I funds were targeted on the basis of numbers and percentages of poor children, but the complex allocation process resulted in differences in actual funding per poor child. When the numbers of children from low-income families shift among states, Title I allocations adjust, but not completely, and a state whose share of the nation's poor children changed from year to year would not necessarily see a corresponding change in its Title I allocation amount. The following two factors account for this: lack of current poverty data and various hold-harmless provisions. GAO found no monetary, statutory, or regulatory incentives for states to target their own funds to children from low-income families. Several policy options could increase Title I funds allocated to states and school districts with high numbers and percentages of poor children. These options include changing the appropriations hold-harmless provisions, funding the targeted grant, using an alternative cost factor, and raising the basic grant eligibility threshold.