April 16 (Bloomberg) -- Education Secretary Arne Duncan plans to spend a record $5 billion to transform U.S. schools by rewarding states for innovation, providing merit pay to teachers and creating a national scorecard to identify failing schools.

The Education Department has already distributed $44 billion of its $100 billion in stimulus funds to stave off the firing of teachers, Duncan said yesterday in an interview in Washington. An additional $5 billion will be given as an incentive to states that are “fundamentally willing to challenge the status quo,” he said.

Duncan, 44, the former head of Chicago’s public schools, said the retirement of 1 million teachers in the “next couple of years” gives the U.S. an opportunity to attract and retain a new generation of educators. He said he plans to enlist President Barack Obama and First Lady Michelle Obama to help recruit teachers, and then reward the newcomers for working in struggling schools and districts.

“Talent matters tremendously,” Duncan said. “If we can bring in this next generation of extraordinary talent, we can transform education, and our ability to do that over the next couple of years will shape education in this country for the next 25 or 30 years.”

Duncan also aims to remake the No Child Left Behind law to set national standards of performance while giving states and school districts more flexibility about how they meet those goals. Under the current law, signed by President George W. Bush in 2002, states set their own standards for determining what constitutes an adequate education.

‘Lying to Children’

“We’re basically lying to children and families now,” Duncan said. “When a child and a parent hear they’re meeting the state standard, the logical assumption is that they’re doing OK. In fact, in many places, if you’re meeting the state standard, you’re barely able to graduate from high school.”

Too often, states weakened their goals so more schools would achieve them, leading to a “dumbing down,” he said.

“We need national standards, and assessments to measure them,” Duncan said. “The idea of having 50 states designing their own standards is crazy.”

Duncan may find his ability to achieve his ambitions restricted by the limits of his office, said Chester Finn, president of the Thomas B. Fordham Institute, a Washington organization that takes positions on education issues.

“He doesn’t have much leverage,” Finn said. “He doesn’t sign a single teacher paycheck.”

While the $5 billion Duncan has available to reward states is more, “by billions,” than any of his predecessors had, it’s dwarfed by the size of total spending on primary and secondary education, he said.

One-Time Spending

“American education is a half-trillion dollar enterprise,” Finn said. “Even if you have $5 billion to spend, that’s only 1 percent of the total and can only be spent one time.”

Duncan’s best prospects for change may come through the national standards he wants to create in reauthorizing No Child Left Behind, Finn said. Otherwise, “you can encourage national standards and you can bribe states to follow them but you can’t compel them,” he said.

Duncan became chief executive officer of the Chicago public school system, the nation’s third largest, in 2001. A graduate of Harvard University in Cambridge, Massachusetts, and a member of its Crimson basketball team, Duncan played the game professionally in Australia.

In his first year as education secretary, Duncan wants to produce a “national scorecard” to help families compare schools.

Believer in ‘Outcomes’

The scorecard would include “a series of metrics that we’d put out every single year,” he said. “I’m a big believer in looking at outcomes. I’m going to look at high-school graduation rates and college graduation rates.”

The goal would be to expose discrepancies among schools and districts to force change, he said.

“I’m really hoping that transparency and truth is going to spur a sense of outrage amongst parents,” he said.

Duncan said he is focused now on saving teaching jobs. As many as 600,000 teaching job may be lost because of the recession, Duncan said, citing a study by researchers at the University of Washington.

Saving Jobs

“That would be a teaching catastrophe,” he said. “You don’t want to see classrooms to go up from 25 to 40. I’m convinced were going to save hundreds of thousands of teaching jobs. We’re not going to save them all, but we’re going to stave off what would be a total disaster.”

A group of more than 30 education, business, civil rights and philanthropy organizations including the U.S. Chamber of Commerce urged Duncan today to ensure that states use the stimulus money to “fundamentally change” the education system.

The administration’s “speed and efficiency” in allocating the funds “must not trump reform and improvement,” the Coalition for Student Achievement said in a letter to Duncan.

Other members of the coalition, which announced its formation today, include the Business Roundtable, the Bill & Melinda Gates Foundation and the National Council of La Raza.

To contact the reporters on this story: Oliver Staley in New York at ostaley@bloomberg.net; Molly Peterson in Washington at mpeterson9@bloomberg.net;

Last Updated: April 16, 2009 15:28 EDT