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New school funding error found, no solution in place

The Arizona Department of Education has revealed a second error in federal funding allocations, resulting in millions of misallocated dollars intended for special education programs.

According to a letter sent to school districts and charter schools on Tuesday, the department under-allocated $15.2 million in Individuals with Disabilities Education Act, or IDEA, funding. Department spokesman Stefan Swiat said a 2015 audit by the Office of Special Education Programs also found that $14.3 million was over-allocated, affecting about 400 charters and districts.

Diane Douglas

Diane Douglas

The letter, signed by Superintendent of Public Instruction Diane Douglas, went on to blame “an incorrect funding formula that became less accurate” for the mistake.

Swiat said the error compounded over time because the department’s “antiquated formula” did not account for new and expanding charter schools, causing misallocations.

Though the error was initially identified in 2015, Swiat said the full scope of the problem was not clear until last week.

The revelation also follows reports that hundreds of district and charter schools have been receiving more federal funding for low-income students than they were entitled to while others received far less. The misallocation of Title I dollars dates back at least to fiscal year 2014.

At the time of that report, the department’s plan to recover from the error was still unclear, but Tuesday’s letter addressed ongoing questions about how both Title I and IDEA allocations may be impacted in the years to come.

In negotiating with the U.S. Department of Education, the department will propose to hold schools “harmless,” according to the letter, meaning districts and charters that received too much funding will not be asked to return the over-allocated funds, nor will their future allocations be reduced to make up for the lost dollars.

Additionally, the department will propose making the underfunded districts and charters whole over the next three to fives years by allotting the funds they had been shorted.

According to the letter, the department will accomplish that by “completely emptying our coffers from set aside funds.”

The state has carry-over from year to year. For example, Swiat said if 50 charter schools closed in fiscal years 2015 and 2016, the dollars that would have gone to those schools would have instead been set aside to make up for misallocations or “tremendous,” unexpected growth in charter operations that qualified for federal assistance.

Swiat said the department hopes to repay shorted Title I and IDEA dollars out of that fund.

But the department’s plan must still be submitted to the feds for approval, and there’s no guarantee they’ll sign off.

“If I had a crystal ball, I’d be able to tell you,” Swiat said. “I can’t speculate other than to say our conversations with U.S. Ed has been nothing but positive.”

Swiat said the feds have heard the plan only in verbal communications with the department and encouraged state representatives to submit it for official review.

Chuck Essigs

Chuck Essigs

Chuck Essigs, director of government relations for the Arizona Association of School Business Officials, said there have been occasions where the federal government has decided not to penalize schools for something that wasn’t their fault.

“Now, I don’t know how likely they are of doing that,” he added. “But I would support any efforts that the Department of Education would make to try to get the federal government to understand that this was not something that the schools did wrong. … They did everything that they thought was right.”

In the meantime, as was the case with Title I funding, affected schools have not yet been told how much they were over- or underfunded.

“Leadership wants to manage the situation, understand the scope of the problem, detail the outlined plan that they’re submitting to U.S. Ed to let (districts and charter schools) know this is what we want to have happen,” Swiat said. “If it doesn’t happen, it’s because the U.S. Department of Ed decided to go in a different direction.”

For now, district and charter representatives will have to do their best to budget for an uncertain future.

Ricardo Hernandez, Pima County’s deputy school superintendent and chief financial officer, said districts saw drastic reductions in IDEA funding for fiscal year 2018, leaving him to wonder whether errors in the allocation process have yet been resolved.

He said the Pima Accommodation District went from receiving more than $200,000 in IDEA funding last year to less than $29,000 this year. That’s especially problematic for the small district that serves students in the juvenile detention system, about a third of whom are identified as having special needs.

Other, more traditional districts may not have been hit as hard, he added. But even losing $35,000, as was the case for Flowing Wells Unified School District, may have serious consequences.

He said those dollars are used to provide services to “some of the neediest kids.”

Now, districts and charters will have to prioritize their needs, Hernandez said – and that could open districts up to legal trouble if parents find gaps in federally mandated services that must be provided even if the funds aren’t there to support them.

“To us, it’s a blindside,” he said. “Districts are having to figure out what to do and crossing their fingers that their allocations will be approved.”

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