Administered by the U.S. Department of Education (ED), the Impact Aid program is one of the oldest federal education programs, dating from 1950. Impact Aid, authorized under Title VII of the Elementary and Secondary Education Act (ESEA, P.L. 89-10, as amended), compensates local educational agencies (LEAs) for the financial burden resulting from certain federal activities carried out in their areas. These activities include federal ownership of certain lands, as well as the enrollments in LEAs of children of parents who work or live on federal land (e.g., children of parents in the uniformed services and children living on Indian lands). The federal government provides compensation because these activities deprive LEAs of the ability to collect property or other taxes from these individuals (e.g., members of the uniformed services living on military bases) or their employers, even though the LEAs are obligated to provide free public education to their children. Impact Aid also provides support for certain students with disabilities and for school construction. The largest Impact Aid component, Section 7003(b) payments (also known as Basic Support Payments), compensates LEAs for enrolling “federally connected” children. For FY2026, Section 7003(b) accounted for $1.477 billion, 90.6% of all funds appropriated for the Impact Aid program. As Section 7003(b) payments account for the majority of all Impact Aid funding, this report primarily focuses on these payments. All Impact Aid payments are funded through the Labor, Health and Human Services, Education, and Related Agencies (L-HHS-ED) annual appropriations act. Funds are provided through “budget year appropriations,” meaning the funds would be available for the budget year beginning on the first day of the fiscal year (e.g., October 1, 2025, for the FY2026 L-HHS-ED appropriations act), unless otherwise specified. This availability generally is retroactive to October 1 if annual appropriations are enacted after the fiscal year has begun. The Impact Aid program is also authorized to receive appropriations through advance appropriations and forward funding. In current practice, advance appropriations become available one fiscal year after the budget year covered by a given appropriations act (e.g., appropriations provided for FY2027 in an FY2026 appropriations act). Forward funding becomes available during the last quarter of the budget year (e.g., starting July 1, 2026, for the FY2026 appropriations act) but remains available through at least the following fiscal year (e.g., available from July 1, 2026, through September 30, 2027). Without advance appropriations or forward funding, when full-year appropriations are not provided prior to the beginning of the budget year, LEAs are generally unable to receive their full Section 7003(b) payments until sometime after October 1. This can create financial difficulties for LEAs, particularly those that are heavily dependent on Impact Aid funding. Providing funds for Section 7003(b) payments through advance appropriations or forward funding has the potential to ease some of these difficulties, but either change has budget enforcement implications that may complicate any attempt to transition to an alternative funding schedule. This report considers three different appropriations scenarios for Impact Aid Section 7003(b) payments that are an alternative to budget year appropriations: (1) providing forward funding for Section 7003(b) payments, (2) providing advance appropriations for Section 7003(b) payments, or (3) using both forward funding and advance appropriations to provide Section 7003(b) payments, as is done for other federal education programs such as Title I-A Grants to Local Educational Agencies authorized by the ESEA or Grants to States authorized under Part B of the Individuals with Disabilities Education Act (IDEA). Each of these scenarios has budget implications that may require at least a one-time increase in discretionary appropriations, a change in the limit set on advance appropriations (if applicable), or some combination of both.
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