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Department May Collect Interest On Misspent Grants

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WASHINGTON--The U.S. Supreme Court has let stand an appellate-court ruling that allows the Education Department to charge interest on allegedly misspent federal grants while such funds are the subject of litigation.

The Court declined last week to review the decision in the case, Honig v. Bennett (Case No. 87-1261), which stemmed from a department auditor's finding in 1975 that a California school district had misspent Chapter 1 remedial-education aid.

The department alleged that the Hayward Unified School District had misused $188,140 in grants during 1970 and 1971. The amount was subsequently lowered to $108,701 by the department's audit appeal board.

Acting on behalf of the district, state education officials appealed the department's ruling in 1978 to a federal appeals court, which dismissed the suit on a technicality.

The state, however, retained its right to sue in a lower court.

The dispute languished until 1981, when the Secretary of Education sent two letters to the state demanding repayment of the funds and threatening to charge interest. The state then filed a second suit in federal district court, challenging the Secretary's authority to impose the penalty.

The district judge ruled in the state's favor, holding that the Chapter 1 law did not specifically empower the Secretary to charge interest on allegedly misspent grants.

The U.S. Court of Appeals for the Ninth Circuit reversed that ruling last November, citing a High Court decision last year that the Army Corps of Engineers could impose a similar penalty against a state in a dispute over federal disaster aid.--TM

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