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In First Challenges, Federal Courts Disagree On Whether States Must Return Title I Funds

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Two conflicting federal court decisions were handed down last month on the issue of whether states must repay the Education Department (ed) for Title I money the federal auditors say was "misspent."

In a case involving Pennsylvania and New Jersey, the U.S. Court of Appeals for the Third Circuit ruled that the department did not have the authority to collect a total of $1.45 million from the two states, because, prior to 1978, that authority was not specifically included by Congress in federal education law.

Two days later, on Oct. 15, the U.S. Fourth Circuit Court of Appeals reached the opposite conclusion in a case in which West Virginia fought a $125,000 ed repayment demand.

The cases represent the first court challenges to the department's authority to collect the Title I money, according to state and federal government attorneys. Because 23 other states have protested auditors' findings to the education department's board of appeals, attorneys say the resolution of the cases could have implications for the other3states. (See Education Week, Sept. 21.)

Title I funds, for the education of disadvantaged students, are disbursed to state agencies on a formula basis.

State education agencies are responsible for distributing funds to local school systems and for ensuring that the systems comply with federal regulations.

Most of the allegations against states involve failure to comply with provisions of Title I law that prohibit the funds to be used for anything but programs for disadvantaged children.

Collecting 'Misspent' Funds

Another provision often violated forbids states and school systems to replace their own funds with federal funds, according to Steven H. Freid, an ed attorney.

The federal government was given specific authority to collect "misspent" funds from states by the General Education Provisions Act (gepa) of 1978.

In the Third Circuit case, the court ruled that, prior to the passage of gepa, the federal education office had in its power "a variety of6procedures" for collecting the money. Those included "withholding funds," and "refusing to approve applications" for Title I funds in subsequent years, the court said.

Conversely, the court in the West Virginia case ruled that even without Congressional legislation, "the Secretary [of Education] can, independently of specific statutory authority, recover funds which are granted for specific purposes and misspent in contradiction of those purposes."

Mr. Freid, who represented the federal government in the Pennsylvania case, said the department is studying whether to ask for a rehearing before the full court or to appeal the case to the U.S. Supreme Court.

Mr. Freid also said the opposing rulings come at a time when the Reagan Administration has begun to negotiate with some of the other states to reach compromises the amounts of repayments.

He said said education officials in California, Arizona, Nevada, Puerto Rico, and Washington, D.C., had been involved in negotiations with ed officials. None of those cases have yet been settled, he said.

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