It sounded at first like the best of news for South Carolina. The $26 billion jobs bill passed by Congress earlier this month would send $143.7 million to the state, which has lost between 2,800 and 3,900 teaching jobs over the past two years.Instead, after taking a look at the bill’s fine print, state education officials found a flaw that could deprive them of that money. A set of provisions in the bill requires states to have kept up their level of higher education spending this year, something South Carolina did not do. The bill, which offers money only for K-12 schools, included the higher education funding requirement as a holdover from previous drafts of the legislation.

“It appears to us that the only fix is going to be possible through Congress,” says Jim Foster, of the South Carolina Department of Education. U.S. Representative Rep. James Clyburn has promised to help once Congress reconvenes in September.

Three weeks after the bill’s passage, several states are – like South Carolina – grappling with its ramifications. Sparking the confusion is language wedged into the U.S. Department of Education’s rules for allocating the money. While the provisions that could harm South Carolina were also present – and stricter – in the 2009 Recovery Act, the stimulus bill made it possible for states to ask Washington to waive those requirements. Thirteen states and Puerto Rico applied for waivers. But this month’s jobs bill does not offer waivers, which means that those states that have made drastic cuts to higher education could miss out on the windfall.

The U.S. Department of Education has not identified precisely which states could run into a non-compliance problem. “We’re probably talking five to six states that will run into any problem,” says Mike Griffith, of the Education Commission of the States. “I would worry about California, I would worry about Pennsylvania, I wonder a little bit about Rhode Island and some of the New England states and other than that, maybe Michigan.”

Despite the uncertainty, money has already started to flow. Given the general budget emergency at the state level, the Obama administration has been willing to send the funds out now and wait for administrators to prove their eligibility later. To speed up the process, the application form only asks a state’s governor to check one box and sign. This is a marked change from other grant programs, which ask states to send in all their paperwork before they get any money. It remains to be seen, however, if states that are found to fail the requirements, such as South Carolina, will have to return the money.

The jobs bill offered the promise of extending the 2009 federal stimulus, which is set to expire this year, thus keeping state and local governments from laying off hundreds of thousands of teachers. About $10 billion of the funding in the bill was devoted to education, the rest to Medicaid. States can either use the money this year or hold onto it until next fiscal year if they’re anticipating further budget difficulties. With the school year already under way in many districts, some administrators have said they would rather use the money to preserve jobs next year.

It’s almost impossible to estimate how many teachers have been laid off so far around the country but experts put the number somewhere between 100,000 and 300,000. U.S. Education Secretary Arne Duncan has said the new legislation would protect 161,000 jobs.The bill means school districts “won’t need to make those tough calls,” he said in a conversation with reporters the day the bill passed. “It is providing a financial lifeline for schools that are facing what might be the worst financial crisis since the Great Depression,” he said.

Although South Carolina has not filled out its application yet, fearing it will be turned down, 11 states and American Samoa have already received money. They will now have 60 days to prove that they meet the maintenance of effort requirement.

State education officials may face another obstacle just as serious as the higher education spending requirement. It is the likelihood that some fiscally troubled governors and legislatures will use the new money to patch holes in their general fund rather than distributing it to school districts. In Congress, Rep. Lloyd Doggett, an Austin Democrat, inserted a stringent Texas-specific provision into the bill that calls on the governor of the state to guarantee that it will maintain the same level of funding for K-12 schools for three years. Doggett has said his amendment was intended to make it impossible for the state to use federal education money to plug other budget holes. Earlier this summer, several education groups wrote a letter to Washington charging the state with misallocating stimulus funds.

In some states, arguments are already taking place over how the money can be spent. Rhode Island Gov. Don Carcieri wants to use his state’s $32.9 million in education money to help plug a $38 million gap that opened up when the state banked on receiving more Medicaid money from Washington than was allocated. School advocates, led by Education Commissioner Deborah Gist, have asked him to send the money to school districts as intended.

In New Hampshire, Gov. John Lynch has also said he would use the money for general budget purposes, rather than sending it to schools. Education advocates say that would not be allowed under the law. And in California, which is still struggling to pass a budget two months after the legal deadline, it’s impossible to say whether money from the bill will be used to supplant other state funding, says Rick Pratt, of the California School Boards Association.

“There’s no debate,” he says, “in terms of what the federal expectation is. You can’t use it to plug holes in the budget or to restore state level reserves but measuring the extent that that happens is going to be problematic in California and the reason is we don’t have a budget.”

Outgoing California Governor Arnold Schwarzenegger has proposed allocating $48.9 billion to K-12 education. Democrats in the state Assembly, in their budget proposal, upped that to $54.4 billion. A conference committee budget, still under debate, later set the figure at $52 billion. The state was the first to apply for the federal funds and has been awarded $1.2 billion, but how it will spend the money remains to be seen. California has lost about 20,000 school personnel in layoffs this year. Federal officials estimate the grant money would fund about 16,500 jobs.

Contact David Harrison at dharrison@pewtrusts.org

See related stories:

Congress weighs stimulus for schools (April 20, 2010)

States and schools: A race against time (June 9, 2010)

U.S. House returns to approve aid for states (Aug. 10, 2010)