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1 Introduction Small-area estimates of poverty for school-age children are used by the U.S. Department of Education to allocate funds under Title I of the Elementary and Secondary Education Act, which supports compensatory education programs to meet the needs of educationally disadvantaged children (see Moskowitz et al., 1993~. Title I allocations for the 1998-1999 school year totaled over $7 billion. Until now, the department's role has been to allocate Title I funds to the nation's more than 3,000 counties (including Puerto Rico as a county equivalent), and the states have then distributed the county funds to school districts. For the 1999- 2000 school year, the intent of legislation passed in 1994 is for the department to make allocations directly to almost 15,000 school districts (formally known as local educational agencies, LEAs). Historically, the Title I allocations made by the Department of Education to counties used poverty estimates from the most recent decennial census for which data were available. The estimates from one census were used for a decade or more until estimates from the next census became available. Since the propor- tions and numbers of children in poverty can change significantly over time, Congress in 1994 authorized the Bureau of the Census to provide updated esti- mates of school-age children in poverty every 2 years, beginning in 1996 for the Title I allocations for counties for the 1997-1998 and 1998-1999 school years and in 1998 for the Title I allocations for school districts for the 1999-2000 and later school years. Having the most up-to-date estimates possible is important so that resources can be directed toward areas that are most in need.1 1See National Research Council (1997:Ch. 2; App. B) for data on the significant changes that occurred in the numbers and proportions of poor school-age children between the 1980 and 1990 censuses and following the 1990 census. s

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6 SMAL L-ARE4 ESTIMATES OF SCHOOL-AGE CHILDREN IN POVERTY The Title I allocations are based on estimates of eligible children: predomi- nantly, children aged 5-17 in families with incomes below the poverty level,2 but also children in foster homes, children in families above the poverty level that receive Aid to Families with Dependent Children (AFDC),3 and children in local institutions for neglected and delinquent children. At present, funds are provided for two different types of allocations basic grants and concentration grants: Basic grants allocate funds to all counties and to school districts that have at least 10 formula-eligible children and whose percentage of formula-eligible children exceeds 2 percent of the district's total school-age children. Concentration grants allocate funds only to counties and school districts with high numbers (6,500 or more) or high proportions (more than 15%) of formula-eligible children. The allocation amounts for both basic and concentration grants depend primarily on the number of eligible children in a county or school district; they also take into consideration the state's average per-pupil expenditure.4 Currently, the formulas for basic and concentration grants include a 100 percent hold-harmless provision so that no county or school district may receive less than its previous year's allocation. Congress also authorized a study through the Department of Education- by a panel of the National Research Council's Committee on National Statistics to review the Census Bureau's small-area poverty estimates for school-age chil- dren. The statute requires that the Department of Education use the Census Bureau's updated estimates for Title I allocations unless the Secretaries of Com- merce and Education determine that "some or all of the data" are "inappropriate or unreliable" on the basis of the panel's study (Improving America's Schools Act of 1994, P.L. 103-382, and 1996 continuing resolution). The Panel on Estimates of Poverty for Small Geographic Areas was set up to carry out the authorized study. The panel is charged with a broad review of the Census Bureau's postcensal poverty estimates for small geographic areas and their utility for Title I allocations. The panel began its work in June 1996 and is 2The poverty status of individuals is determined by comparing the before-tax money income of their families to the appropriate poverty threshold. The poverty thresholds vary by family size and are updated by the change in the Consumer Price Index each year. See National Research Council (1995) for an evaluation of the current official poverty measure and a proposed alternative measure; the issue of how poverty should be defined is not considered in this report. 3The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 abolished AFDC and replaced it with Temporary Assistance to Needy Families (TANF). 4For details of the allocation process, see National Research Council (1997:App. A). With direct allocation by the Department of Education to school districts, the provisions for county eligibility and grant amounts would no longer apply.

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INTRODUCTION 7 scheduled to work through 1999, producing a final report at that time and such interim reports as are needed. UPDATED ESTIMATES County Estimates The Census Bureau was initially charged to produce updated estimates of poor school-age children at the county level for use in Title I allocations for the 1997-1998 school year. For this purpose, the Census Bureau provided county estimates of the number of children aged 5-17 inl994 from families with incomes below the poverty level in 1993.5 The estimates were developed from a statisti- cal model that used administrative data from Internal Revenue Service and Food Stamp Program records for 1993, estimates of poor school-age children in 1989 from the 1990 census, and 1994 population estimates to predict county numbers of poor school-age children in 1993 as measured in the March Income Supple- ment to the Current Population Survey (CPS). To increase the reliability of the predictions, the model used a weighted average of 3 years of data from the March 1993, 1994, and 1995 CPS, covering income in 1992, 1993, and 1994. The estimates from the county model were calibrated to estimates from a similar statistical model for states. The data used in the county model are obtained from several sources, and most data are not available until 2 years after the period to which they refer. When the developmental work began in 1994, the Census Bureau decided that it could not expect to produce estimates in time for the 1997-1998 allocations for a later year than 1993, given the time required for acquiring, processing, and apply- ing the data for a new statistical model. In its first interim report (National Research Council, 1997), the panel re- viewed the Census Bureau's modeling approach favorably but concluded that there had not been sufficient time to thoroughly evaluate the updated estimates produced by the specific model that the Bureau developed. As an interim solu- tion for Title I allocations for the 1997-1998 school year, the panel recommended that the 1993 county estimates be averaged with 1990 census estimates. This recommendation was adopted. Subsequently, the Census Bureau completed an extensive evaluation of the county model, modified it in several respects, and 5More precisely, the census sureauts estimates pertain to related children aged 5-17 in poor families, termed ``poor school-age children,, in this report. Related children in families include all members of a household who are under 18 years of age and related to the householder by birth, marriage, or adoption, except the spouse of the householder. Foster children are not included since they are not related to the householder, who is the person in whose name the house is owned or rented (see Bureau of the census, 1993).

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8 SMAL L-ARE4 ESTIMATES OF SCHOOL-AGE CHILDREN IN POVERTY produced a revised set of 1993 county estimates of poor school-age children. In its second interim report (National Research Council, 1998), the panel recom- mended that the revised 1993 county estimates be used for Title I allocations for the 1998-1999 school year, which was done. For both the 1997-1998 and 1998-1999 school years, the Department of Education used the Census Bureau's poverty estimates to make allocations to counties. As in the past, the states then allocated the county amounts to school districts. The states used a variety of data sources for these allocations: many states used 1990 census data wholly or in part; some states used such data sources as estimates of children enrolled in the National School Lunch Program or chil- dren in families receiving AFDC in each district. In some states in which the boundaries of school districts bear little relationship to county boundaries, the department has permitted the state to ignore the county allocations in dividing up the total allocation amount for the state among school districts. The Department of Education must approve a state's allocation plan but not the specific estimates used by a state or the allocation amounts. School District Estimates For Title I allocations for the 1999-2000 school year, the 1994 legislation charges the Census Bureau to provide the Department of Education with updated estimates of poor school-age children for school districts. The legislation charges the department, in turn, to make direct allocations to school districts rather than to counties unless the Secretaries of Education and Commerce determine that the school district estimates are inappropriate or unreliable for this purpose, taking into account the panel's recommendations. Under this procedure, the Department of Education would use the Census Bureau's estimates together with district-level estimates of the other groups of formula-eligible children (e.g., children in foster homes) to make allocations to districts according to the provisions of the formula. The states would not be involved. However, a provision in the 1994 legislation permits a state to aggre- gate the Department of Education's allocation amounts for all school districts in the state that are estimated to have fewer than 20,000 people. The state may then, using a method and data source approved by the department (e.g., school lunch data), divide up the total allocation for these districts in a manner different from the department's original allocations. This provision is a significant one because about four-fifths of school districts contain fewer than 20,000 people, although these districts contain only 27 percent of total school-age children in the United States. There appear to be several reasons that Congress in the 1994 legislation deemed it desirable for the Department of Education to make direct allocations to school districts. First, direct allocations by the department impose a measure of consistency on the allocation process (leaving aside the proviso for states to

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INTRODUCTION 9 reallocate the amounts for districts with fewer than 20,000 people). Second, direct allocations to school districts solve a problem with the concentration grant formula in which a county may not be eligible for a concentration grant, but one or more of the school districts in the county may meet the eligibility criteria. (This can happen when a poor school district is located within a county that, on average, is not poor enough to qualify.) Under the current two-stage allocation process, poor school districts in counties that do not qualify for a concentration grant receive less funds than they would receive with direct allocations.6 Finally, if adequate data were available for estimation, the use of updated school district- level estimates in the allocations would take account of changes that have oc- curred since the previous census in the distribution of poverty among school districts within counties. In fall 1998 the Census Bureau provided estimates for school districts of the numbers of children aged 5-17 in 1996 who were living in families with incomes below the poverty level in 1995. It has not been easy to develop reliable updated estimates for counties, and the task is much more difficult for school districts. Some school districts are the same as counties; however, most school districts are smaller than counties, the boundaries of many of them cross county lines, and the boundaries can and often do change over time. Also, some school districts pro- vide education for specific grade levels, such as kindergarten-8 or 9-12. Largely because of these complicating factors, there is a paucity of data for developing updated poverty estimates at the school-district level: there are currently no school district equivalents of federal income tax return or Food Stamp Program data that are used in the Census Bureau's state and county estimation models. Because of the lack of data at the school district level, the Census Bureau's procedure for developing 1995 school district poverty estimates uses a simple model that assumes that the proportions or shares of poor school-age children in school districts within each county in 1995 are the same as they were in 1989 (as measured by the 1990 census). The estimation procedure involves the following steps: 1990 census data are retabulated to match 1995-1996 school district bound- aries (determined from a special survey); the proportion of the county total of poor school-age children in the 1990 census is determined for each school district (or part of a school district) in the county; and the 1990-based proportions are then applied to updated 1995 county estimates from the Census Bureau's county model to produce 1995 school district estimates.7 Because of the time required to complete the survey of 1995-1996 school district boundaries and the time lags in the availability of data for the county estates may reserve up to 2 percent of their concentration grant funds to allocate to such districts. 7The 1995 school district estimates and the 1993 and 1995 county estimates are available on the census sureauts web site: http://www.census.gov/hhes/www/saipe.html.

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10 SMAL L-ARE4 ESTIMATES OF SCHOOL-AGE CHILDREN IN POVERTY model, the Census Bureau was not able to produce school district estimates for later than 1995. Moreover, the Census Bureau's "synthetic" estimation proce- dure does not capture intracounty variation in the extent to which school-age poverty has increased or decreased among school districts between 1989 and 1995. However, the estimation procedure does produce estimates more recent than the census, it is consistent across the nation, and it responds to the concern that concentration grants be directed to all eligible school districts, including those in counties that are not eligible. PLAN OF THE REPORT This, the panel's third interim report, assesses the Census Bureau's 1995 school district estimates for use in Title I allocations for the 1999-2000 school year. The report contains five chapters and an appendix. Chapter 2 briefly describes the Census Bureau's procedure for obtaining updated county estimates of the numbers and proportions of poor school-age children in 1995 and summarizes the evaluations of those estimates. Although the Department of Education does not use county estimates in Title I allocations when the allocations are made directly to school districts, the county estimates are central to the method used by the Census Bureau to derive updated school district estimates and, therefore, to an evaluation of those estimates. Chapter 3 describes and evaluates, as best as can be done, the Census Bureau's procedure for obtaining 1995 school district estimates of poor school- age children. Given the scarcity of data with which to implement alternative estimation procedures for school districts, the opportunities for evaluation are equally very limited. Chapter 3 also describes the Census Bureau' s procedure for obtaining, from its population estimates program, 1996 school district estimates of the total number of school-age children and the total population in each dis- trict. Chapter 4 provides the panel's assessment of the 1995 school district esti- mates and its recommendations for 1999-2000 Title I allocations. Chapter 5 outlines research and development activities for further work on developing up- dated county and school district estimates of poor school-age children. The appendix uses data for the state of New York to illustrate the results of an alternative procedure for developing updated school district estimates that is based on counts of participants in the National School Lunch Program.