A draft proposal of rules by U.S. Department of Education could force the state to undo $160 million in cuts to higher education approved in January by lawmakers if Arizona is to receive $775 million in federal stimulus aid.

Republican legislative leaders were briefed on the development on March 24 and 25. Under the American Recovery and Reinvestment Act, the federal education department is tasked with creating guidelines for states to follow in their applications for stimulus funding.

Included in those rules, House Speaker Pro Tem Steve Yarbrough said, is a requirement that prevents the state from reducing the level of funding for both K-12 and higher education to below fiscal 2009 levels. He said lawmakers were told the draft rules were not expected to change significantly before being adopted.

Requiring education spending to be maintained at fiscal year 2009 levels would mean that $160 million in cuts to universities and community colleges enacted in late January to help the state close a $1.6 billion budget hole would have to be restored if the state wants to collect federal stimulus money intended for education.

"We're at risk of losing $775 million if we don't, but we're going to meet the qualifications," said Rep. John Kavanagh, chairman of the House Appropriations Committee.

Re-funding the schools would compound the problems with the state's recalcitrant fiscal 2009 budget. Since the budget fix two months ago, state revenues have continued to slip and another $500 million deficit is predicted for the remainder of the year, which ends in June.

Yarbrough said lawmakers believe they can recoup some of the $160 million by sweeping money from other university funds. But that would still result in the $500 million deficit growing to about $615 million, he said, which would make the deficit in the upcoming fiscal year even worse.

"It's north of $3 billion now," he said.

House Speaker Kirk Adams said requiring the budget cuts to be restored is just another complication in an already complex situation.

"As if our $3 billion deficit wasn't a big enough problem, now we've got the federal government screwing it up," he said.

Kavanagh said lawmakers have asked the U.S. Department of Education for a clarification of the proposed rules and are waiting for a response. A month ago, lawmakers were told that education funding would have to meet fiscal 2006 levels in order to qualify for federal stimulus money, but the new rules would raise the standard considerably.

In the meantime, Republicans are still hard at work on a draft budget for the 2010 fiscal year and plan on releasing it by the end of the month.

"Where's the bouncing ball going to land? It's very difficult for us to determine a final budget if we don't know where it's going to land," Adams said.

If the federal government hasn't responded by that time, he said the budget proposal may include triggers, in which some spending or cuts would be dependent on external factors, such as stimulus money.

"Everybody wants to get it out (soon), especially the education community, which needs it for planning," Kavanagh said.