Budget & Tax, Education

How will schools spend federal COVID funds? No one knows

April 23, 2020

Ray Carter

Oklahoma’s public K-12 schools will receive nearly $161 million through the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. But officials appear to have little idea how the money will be spent beyond extremely broad categories that could include a multitude of expenses.

Most of Thursday’s meeting of the State Board of Education focused on how schools will use the federal funding, and officials may have left with as many questions as answers. Officials at the Oklahoma State Department of Education (OSDE) could not even say exactly how they will use roughly $16 million in CARES Act funding that can be retained by the agency.

Of the $161 million going to K-12 public schools through the Elementary and Secondary School Emergency Relief Fund (ESSERF) authorized in the CARES Act, 90 percent will be distributed to state school districts, while the OSDE can retain 10 percent, or about $16 million, for “emergency needs” that may later be issued as grants.

The 90 percent going to school districts will be distributed based on each district’s share of low-income students who qualify for Title I federal funding, meaning the most aid will go to the poorest districts.

“While all school districts in our state will receive something, and they do get some Title I funds, there are districts that will receive very little as a result of using this formula,” said Carolyn Thompson, chief of government affairs for the OSDE. 

The CARES Act allows the federal education funds to be used for 12 broad categories associated with COVID-19 response, but Thompson noted some are “fairly broad” with the 12th category particularly wide open.

“Number 12 is obviously very broad—any other activity necessary to maintain the operation and continuity of services in a school district,” Thompson said. “So, as you might imagine, that phrase right there could be applied to just about anything, any sort of disruption or need as a result of the coronavirus disease.”

Schools will be required to report to the state how the federal funds are spent, but that reporting will come after the fact, not in advance. Each district will be notified how much federal money it is receiving, and the funds will be provided on a reimbursement basis, meaning districts will first make expenditures and then be reimbursed with federal CARES Act funding.

“Because we know there will be public scrutiny on these funds, we would encourage districts to rely on the other 11 allowances and use number 12 only as sparingly as possible,” Thompson said.

Further, Oklahoma school districts will have until Sept. 30, 2021 to spend the funds, meaning districts could still be using CARES Act funding more than a year after the start of the COVID-19 event that prompted passage of the federal law.

Officials were also able to provide little detail on how the department will administer the 10 percent share of funding retained by the agency.

“On the 10 percent, do you guys have a plan yet as far as what you plan to do with that money?” asked board member Jennifer Monies.

“We’ve had a lot of conversations about that, about the 10 percent,” Thompson said. “I don’t know that we’ve firmed up any plans.”

“It’s premature for us to be concrete in that,” Hofmeister said.

She said the $16 million will involve “leveraging partnerships” and a possible focus on addressing digital-access needs facing schools or student groups but did not provide further information on the identity of potential partnering entities or specific uses for those millions.

The potential exists for Oklahoma public schools to build up significant fund balances due in part to the influx of federal money and state savings generated by the closure of physical sites for the last two months of the current school year.

Among other things, the CARES Act allows school districts to carry over unspent federal funding distributed as far back as July 2018 without penalty. Normally, a district can carry over no more than 15 percent of its federal funding without facing penalty. But now districts will be allowed to carry over federal funding levels that exceed that cap.

At the same time, schools may have significant savings due to the current shutdown of physical schools, particularly for things like transportation and utility costs. It is estimated those savings could be as much as $300 million statewide.

Partially offsetting those potential savings is the likelihood of state budget cuts for the 2021 state fiscal year, which begins July 1. Recent estimates suggest the total state budget could be reduced by 7.5 percent even if all state savings are drained in the 2021 budget.

Monies noted that state school funding for the current year has been maintained thanks to use of state savings, protecting schools from having to make any budget cuts this year.

“Do you anticipate that districts will hold on and be able to hold on to some of these funds, anticipating a budget cut next year?” Monies asked.

“Congress made it very clear that these funds are not intended to be an aid to replace state funding,” Hofmeister said.

“These are specifically in the act not to replace state aid,” Thompson said. “However, it’s—in my mind—a bit of semantics because of the broad flexibility that is given for the funds.”

Even as schools face some lower costs due to the closure of physical school sites, existing caps on state funding carryover remain in place, which could prompt some districts to quickly spend any associated savings from the closure.

Board member Estela Hernandez said she is concerned by that potential.

“Is that not discouraging school districts to have a ‘rainy day’ fund,” Hernandez said, “because the writing is on the wall that budget cuts are coming amid this pandemic and of course the hit that the economy has taken, especially here in Oklahoma with oil and gas.”

She added, “They’re going to need that money, but we’re telling them to spend it all now.”

“In specific to state funds, there are caps on how much districts can carry over in their state general fund,” Thompson said.

But Thompson said the caps are not ironclad. She noted districts do not face penalties for violating caps on state carryover until they have exceeded the caps for two years in a row.

“That does give districts some flexibility for this current fiscal year,” Thompson said.

The federal CARES Act funding also comes with a “maintenance of effort” requirement that mandates that states maintain K-12 funding at the average level of the preceding three years.

However, the law provides an exception for states facing severe budget challenges.

“Considering everything that we know about the state budget to date,” Thompson said, “it would be hard to imagine that Oklahoma would not be able to get that waiver.”