Court To Decide Conflict Over 'Misspent' Funds

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The Supreme Court has agreed to resolve conflicting appellate-court decisions on the authority of the Education Department (ed) to recover Title I funds that were misspent by states and school districts prior to 1978.

Federal education officials have estimated that as much as $60 million, allegedly misspent by 27 states, is at stake.

Because of ed's recent decision to deregulate education block grants under Chapters 1 and 2 of last year's Education Consolidation and Improvement Act, some analysts believe that an adverse decision from the Court could impair the department's power to collect misspent funds in the future.

Furthermore, the Justice Department contends in its brief on behalf of ed, the government stands to lose control over expenditures in more than 1,000 federal grants and contracts administered by agencies other than ed

In two related cases accepted for the Court's review, Bell v. New Jersey and Bell v. Pennsylvania, the two states contend that until 1978, the federal education agency had no specific statutory authority to recover federal funds, although it could audit state and local education agencies.

Repayment of Funds

The General Education Provisions Act (GEPA) in 1978 established the Education Appeal Board and empowered it to demand repayment of funds spent in violation of federal guidelines. ed officials say the most common violations involve the expenditure of Title I funds on other programs.

In October 1981, the U.S. Court of Appeals for the Third Circuit ruled in the New Jersey and Pennsylvania cases that the states did not have to return a total of $1.45-million because the improper expenditures alleged in ed audits took place before the 1978 legislation gave the federal agency explicit collection power. Two days later, the U.S. Court of Appeals for the Fourth Circuit reached the opposite conclusion in a case in which West Virginia fought ed's demand that the state repay $125,000.

The government appealed the Third Circuit's ruling. The states of West Virginia and Maryland have filed friend-of-the-court briefs siding with New Jersey and Pennsylvania.

Although the department's authority to collect misspent funds has not been disputed since 1978, the case could affect requirements under the block grants.

In regulations published last summer, ed said that GEPA would not apply to Chapters 1 and 2, which provide for audits but do not contain specific language about recovery of misspent funds. The House of Representatives later voted to veto those regulations, but the issue has not been resolved.

When the suspension of GEPA raised questions last summer about recovery of misspent funds, ed responded that the legislation implies such authority--the same argument it is making about the old Title I statute before the creation of the appeal board.

"If in fact the department says that GEPA does not apply to Chap-ters 1 and 2, and if it loses this case, there is currently no legal authority, and therefore the procedures they set up in the regulations would be null and void," said a Washington lawyer with considerable experience in Title I cases.

The lawyer said the Inspector General Act of 1978 might be construed as providing the authority in the absence of GEPA, but "it's not an open-and-shut case. Some would argue, as some did, that there is no authority."

Vol. 02, Issue 06

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