When Arne Duncan was Chicago schools chief, he welcomed a research project that paid students to earn good grades, believing that monetary incentives would keep teens in school.

Now as U.S. Secretary of Education, Duncan has deployed monetary incentives on a broader scale, enticing states with the $4.3 billion Race to the Top program while announcing that incentives will play a major role in his plan to reauthorize the Elementary and Secondary Education Act.

Incentives pop up everywhere in Duncan’s Department of Education. There’s $350 million to help states develop common standards in math and English, which Duncan says will align standards nationwide and help focus teaching on essential skills that students need to master. There’s incentive money for teacher merit-pay systems, as well as the proposed Early Learning Challenge Fund to increase access and quality of preK education, which includes $9.3 billion available in competitive grants over the next decade.

Making so much federal education funding available in competitive grants marks a significant change in federal policy, which in the past has allocated funding through formulas based on population or income.

Duncan says that approach hasn’t sparked the kind of dramatic reform that’s needed.

“We are trying to change the business we are in, from an organization that just does formulaic grants to one that fosters excellence and encourages innovation,” says Duncan.

The use of monetary incentives to influence behavior—be it in students or state bureaucracies—is part of a market-driven approach to education policy that is gaining growing influence nationwide.

A Lever for Change

The $4.3 billion Race to the Top program, though large in comparison to previous federal programs, is dwarfed by total K-12 spending, which the National Center for Education Statistics estimates at about $530 billion per year.

“We want to leverage our small share of the education pot for real change,” says Duncan.
Even before any grants have been awarded, the Race to the Top competition has provided an incentive for several states to eliminate or raise charter-school caps, develop data management system to better track student progress, and tie teacher evaluations to standardized test scores.

• In Tennessee, the governor called a special legislative session to win approval of a law that requires that 50 percent of a teacher’s evaluation be based on student achievement.
• Other states, like Michigan and Iowa, have lifted caps on the number of charter schools.
• Some teachers unions have dropped objections to linking evaluations to test scores so as not to stand in the way of increasing funding.

“There are a number of states willing to undertake ambitious reform when there are dollar rewards involved,” says Thomas Kane, professor of education and economics at the Harvard Graduate School of Education. “Particularly at the state level, the federal government has a sort of lever that can work.”

Political Pressures

Frederick Hess, director of education policy at the American Enterprise Institute, says so far the Race to the Top’s incentives have worked, but wonders if states will follow through on what they have mapped out, especially if they aren’t selected for a federal grant.

“We may have already reached the high-water mark,” says Hess. “If a state doesn’t get any funding in the first or second rounds, they will have little incentive to follow through on what they’ve set up to do.”

Kane predicts there will be political pressures to spread the money around to all states.

“It remains to be seen if the rewards are really limited to the states that have proposed the most ambitious reforms,” he says. “The federal government may have a hard time limiting the dollars to those states.”

A Flood of Funding

The push for ESEA reauthorization follows an unprecedented flood of federal funding into K-12 education. While K-12 aid came to about $46 billion this year, an additional $68 billion has so far flowed to states through the federal stimulus program, intended to shore up local district finances.

The two rounds of Race to the Top funding to be distributed this year will be awarded on a competitive basis by 58 yet-to-be-identified peer reviewers, who will be paid $5,000 each to assess applications from 40 states and the District of Columbia.

Education spending is expected to rise 6 percent under Obama’s education plan. Much of the $3 billion increase for K-12 education will be made available in competitive grants to states, including $1.3 billion for a third round of Race to the Top funding. By 2011, school districts and nonprofits will be able to apply directly to the U.S. Department of Education for grants disbursed through the $650 million Investing in Innovation Fund.

An Incentive to Reauthorize ESEA

The administration is also using incentives to try to influence Congress. It plans to offer an additional $1 billion in K-12 education funding if Congress approves the ESEA reauthorization this year.

Ever the optimist, Duncan sees education as one issue that Republicans and Democrats can agree upon. He hopes a reauthorization deal will be struck by late August, before the 2010 Congressional campaigns are in full swing.

“We are putting out a huge incentive to get it done,” Duncan said in a recent conference call with education writers. “Our goal is to get it done this year.”

Observers, however, are skeptical, noting that Congressional attention may be drawn to health-care reform and the economy. “The atmosphere in Washington is so poisonous on health care and finance, we just don’t know what will happen with education,” says Bruce Hunter, associate executive director of the American Association of School Superintendents. “Right now it looks gloomy about getting it done this year.”


David McKay Wilson is a New York-based education journalist.