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A poor explanation of a federal obligation led to a panic last week that the state of West Virginia was going to have to give back $465 million to the U.S. Department of Education.
Even the word "clawback" was used, but as it turns out, it's not really a clawback at all, at least in the short term. But depending on negotiations with the department for a second and final waiver, the state might have to -- heaven forbid -- spend an additional $465 million on education.
And if we don't do that, then the clawback commences.
As a colleague -- Mountain State Spotlight state government watchdog reporter Henry Culvyhouse -- said to me Friday when talking about this, it is a Sword of Damocles hanging over the state until we get the thumbs up on another waiver.
I won't explain how all this happened in detail again. I already did that in a story over the weekend. But in short, we accepted federal COVID-19 dollars through the U.S. Department of Education. We received more than $1.1 billion that went directly to county school systems, with more than $834 million spent as of the end of 2023.
The rules were constantly shifting, but in the end, states were required to maintain a certain level of education spending in order to keep using the federal dollars. West Virginia's unique -- and stupid -- student aid formula makes it hard to just dump a bunch of state money into county school systems without running afoul of the formula, so the state's education spending kept falling below the level the feds wanted.
As a result, we received a waiver last year from the U.S. Department of Education after the state showed how it was investing in education in other ways than just through direct spending. But we have the same issue this year and once again we're negotiating with the feds for a waiver.
We'll probably get that waiver and be fine. But it seems apparent to me that state officials thought we'd already have that waiver by now and if we had, then no one would have ever noticed this issue. I had never heard of "maintenance of effort" before last week and had never been aware this was even an issue. It came as a surprise to most, though there had been rumors that something was up.
When the House Finance Committee presented Thursday its version of the bill setting the general revenue budget for the next fiscal year, that's when it became apparent something was amiss. That was the first mention of "clawback."
I was sick Thursday and at home on the couch with my dog. But undistracted by legislative coverage, I had time to open my laptop and start looking at the U.S. Department of Education's data on COVID grants and figured out no, this is not a clawback ... yet. But we do have some interesting choices.
If we find out we received the waiver between now and midnight Saturday, March 9, when the session ends, then nothing happens, and the Legislature passes a budget as normal. But if we don't hear about the waiver before the session ends, then the Legislature will likely pass a skinny budget and once we get that waiver, call a special session in a few months to beef the budget back up.
But if we find out our waiver request was denied, then the state is going to have to put $465 million into educational spending. That's a big chunk of money, though it's not impossible. The state is already sitting on more than $425 million in surplus tax revenue for the current fiscal year and could end the fiscal year with just under $800 million. But we also have to consider other obligations.
For example, we'll have to put a certain number of surplus dollars into the Rainy Day Fund. We are already seeing issues with the state's liability insurance provider, which has gone sideways. The feds are reducing Medicaid dollars. And the personal income tax cut from last year created a formula for future triggers to reduce personal income tax rates and no one knows what that amount will be.
In a lengthy press release Saturday, Gov. Jim Justice urged the Legislature to pass the budget as it normally would, which includes additional education funding (pay raises for teachers/staff, funding for the School Building Authority).
"Again, I'm confident that we will reach a positive resolution quickly, and I call on the Legislature to act swiftly on my proposed budget, including the historic pay raise for educators and the unprecedented funding for our School Building Authority," Justice said. "This isn't just about meeting federal expectations; it's about our ongoing commitment to improving education for all West Virginians."
Of note, Justice placed the blame on this waiver situation on a prior unnamed state superintendent of schools, claiming this waiver issue was not brought to his attention until Michelle Blatt became state superintendent.
"This issue started several years ago, under a prior State Superintendent who failed to adequately address the issue and failed to tell the State Board of Education," Justice said. "When Superintendent Blatt was appointed, she brought the issue to my attention, and my Chief of Staff and others have been working directly with the federal DOE to negotiate a solution."
My source close to the state Board of Education confirms they were left in the dark and never fully briefed on this issue, and that former state superintendent Clayton Burch said it was nothing to worry about and we'd get a waiver.
But the governor's signature is on our June 21, 2022, waiver request for the first approved waiver when Burch was superintendent. And the waiver approval letter was sent to Justice and former state superintendent David Roach on June 12, 2023 (Roach retired around this time following his handling of a situation with Upshur County Schools regarding alleged misuse of COVID funding by the school system).
It sure seems like Justice, or at least his staff, have been in the loop since 2022 on all of this.