A closer look at CARES Act funding requirements for K-12

On March 27, 2020, Congress passed H.R. 748, the Coronavirus Aid, Relief and Economic Security (CARES) Act, authorizing $2.2 trillion in federal economic aid in response to the COVID-19 pandemic. The legislation provides the bulk of its emergency funding to K-12 education through an overarching Educational Stabilization Fund, with states receiving approximately $13.5 billion under the Elementary and Secondary School Emergency Relief Fund (ESS Fund) and another $3 billion through the governor’s Emergency Education Relief Fund (Governor’s Fund). Local educational agencies are eligible sub-recipients under both of these funds. In addition to their potential eligibility for these two funds, career and technical education schools with adult education programs are eligible for monies under the Education Stabilization Fund’s separate Higher Education Emergency Relief Fund. Notification of eligibility for those additional funds was released last week.

Ohio’s allocated funds

On April 23, 2020, the U.S. Department of Education (USDE) released its State Allocation Table for the ESS Fund, allocating $489,205,200 of those emergency funds to Ohio for distribution to local educational agencies, including charter schools. In turn, the Ohio Department of Education (ODE) must allocate at least 90 percent of these funds ($440,284,680) as subgrants to schools throughout the state in proportion to the amount of Title I (Part A) funds they received in the most recent fiscal year. ODE may use the remaining $48,920,520 at its discretion to address emergency needs and issues related to COVID-19 through grants or contracts while reserving a maximum of $2,446,026 of the ESS Fund monies for its own administrative costs. The CARES Act enumerates a broad range of purposes for which local educational agencies may spend these monies, including the provision of special education services, activities addressing the needs of homeless students, educational technology, summer and afterschool learning programs, mental health services and supports, basic health and sanitation measures, and such “other activities that are necessary to maintain the operation of and continuity of services in local educational agencies and continuing to employ existing staff of the local educational agency.” 

Ohio’s share of Governor’s Fund monies is $104,917,025. These monies are to be awarded by the governor as emergency support grants to schools, colleges and other education-related entities throughout Ohio that have been significantly impacted by COVID-19 or have been essential to providing emergency services to students. 

Applications for both of these funds are open at the federal level, and states may now apply by submitting an agreement and certification form for each fund. USDE has committed to obligating and releasing a state’s allocation within three business days of receiving its completed agreement and certification. States must award the funds they receive within one year of their receipt from USDE, and any undistributed monies must be returned to USDE for re-allocation to other states. It is expected that Ohio will release information in the future concerning its receipt and distribution of these funds.

School district requirements

USDE’s notices announcing the opening of the application processes for the Governor’s Fund and the ESS Fund require state agencies, such as ODE, to ensure that local educational agencies receiving these monies provide equitable services to students and teachers in the non-public schools located within their districts. USDE states that it will be providing additional guidance to local districts about this equitable services requirement.

Further, the notices remind state applicants that local schools wishing to receive monies under either the ESS Fund or the Governor’s Fund must, “to the greatest extent practicable,” continue to pay their employees and contractors during the period of any disruptions or closures related to the COVID-19 pandemic. This eligibility condition is found in Section 18006 of the act, which provides: “A local educational agency, State, institution of higher education, or other entity that receives funds under ‘Education Stabilization Fund,’ shall to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus.” Unfortunately, the text of the statute does not provide direction as to what “the greatest extent practicable” actually means, and no federal guidance has yet been issued to assist in its interpretation.

State guidance on continued contract payments

ODE’s Office of Federal Programs released Q&A guidance on April 15, 2020, related to the CARES Act requirement that school districts continue to pay their contractors. While ODE does not further define “to the greatest extent practicable,” it does recommend that school districts work directly with their contractors (such as transportation, janitorial, after school service providers, etc.) and legal counsel to determine “what makes the most sense for all parties” until the USDE issues clear guidance on the matter.  ODE’s Q&A reminds districts that they should continue to pay for services that are rendered by contractors. In situations in which contractors’ services have been reduced or postponed, ODE recommends that school districts and contractors collaboratively find alternatives to meet the objectives of the contract, make necessary modifications to the contract and take steps to eliminate any potential disruption in the contracted services once this crisis ends. It does not recommend the outright cancellation of outside contracts.

The Auditor of State’s Office (AOS) also addressed the issue in its April 23, 2020, COVID-19 FAQ update. There, AOS presents the specific question of whether school districts can terminate contracts with Educational Service Centers (ESCs) during the pandemic due to the building closures and an inability for the ESC to provide contracted services. In answering that question in the negative, AOS explains that O.R.C. Section 3313.843 requires school districts having an average daily enrollment of 16,000 or less to enter into an agreement with an ESC and notes that “city, exempted village, local and joint vocational school districts may set up contracts with ESCs for various services based on agreed upon fees beyond those covered by ORC Section 3313.843 contracts.” AOS states that “ESC contracts cannot be broken, unless it is within the parameters provided by Ohio law.” It further explains that, “[b]ecause the pandemic declaration is outside the window to cancel an ESC contract, federal funds could be used to subsidize the cost of the contracts so long as it is an allowable expense of the funds” and finishes its answer by acknowledging that “[t]he language in certain Federal COVID programs may make use of the COVID funds allowable for subsidizing the cost of these contracts.”  

Districts may further question whether funds paid to a vendor that is not providing its contracted services are being expended for a proper public purpose, as required by law.  AOS’ April 23 FAQ update addresses that concern as well and refers school districts to FAQ Numbers 1 and 11 in the ODE guidance discussed above, stating: “While there are no specific answers from USDE on paying contractors yet, ODE provides good advice to schools.”  AOS states that it will “audit according to the guidance provided by USDE and ODE,”which is expected to continue evolving, and “defer to well-reasoned legal opinions school districts obtain from their legal counsel.” AOS further pledges that it “will not issue Findings for Recovery for expenditures that appear to conform to this guidance and have documentation to support the district’s due diligence in performing an evaluation of the matters at hand.” It additionally states that it “will consider the facts and circumstances present and the information available to schools while district officials were making relevant decisions” when evaluating potential questioned costs in an audit.

State guidance on continued employee payments

Neither ODE’s Office of Federal Programs Q&A or AOS’ updated COVID-19 FAQ answers the question of what it means to continue paying employees “to the greatest extent practicable” during the period of any coronavirus-related disruption or closure. School districts continue to be subject to the pay continuation provisions found in Ohio Revised Code Sections 3319.08(B) (regarding teachers) and 3319.081(G) (regarding non-teaching employees). However, these are extraordinary times presenting unexpected situations. Understanding that difficult circumstances may arise, school districts will want to continue paying employees “to the greatest extent practicable” to ensure their continued eligibility for CARES Act funds. Districts considering reductions in force and contract suspensions are encouraged to work closely with legal counsel prior to making any staffing and compensation decisions.

For additional information, ODE’s Q&A can be found here and AOS’ COVID-19 FAQ can be found here.

Please keep in mind that new guidance is being provided almost daily by the U.S. DOE, ODE, and other entities on various topics affecting school districts. This article contains information known as of its initial publication date and should not be considered legal advice.

View video explanation of CARES Act funding requirements by Jason Stuckey >>