The Obama administration on June 18 warned states that it might withhold millions of dollars in federal stimulus funding if they use the money to plug budget holes instead of boosting aid for schools.

Education Secretary Arne Duncan made the threat in a letter to Pennsylvania Gov. Ed Rendell, but his words could have implications for Texas, Arizona, and several other states as well. Duncan's letter also raises the stakes for the White House, which will come under intense pressure from Congress if Duncan does hold back some money.

In the letter, Duncan wrote he is displeased at a plan by Pennsylvania's...

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