photo by: W.Va. Legislative Photography

State Senate Finance Committee Chairman Eric Tarr said Friday he believes the state will receive a waiver on its COVID-19 education spending.

CHARLESTON — Don’t call it a clawback. Officials said it’s been this way for years, but alarm bells were raised Thursday when it was revealed that West Virginia may have to spend an unexpected $465 million on education programs or return that money to the federal government.

Speaking Friday, officials representing Gov. Jim Justice and legislative finance committee leaders said they expect the U.S. Department of Education to grant a waiver to the state for its COVID-19 spending, but until the waiver is granted, an air of uncertainty looms over the budget being considered by lawmakers for the next fiscal year.

It was revealed during a House Finance Committee meeting Thursday during a presentation on the House’s version of the budget bill – House Bill 4025 – that the state is in negotiations with the U.S. Department of Education over $465 million the state was expected to spend on education. The department confirmed the negotiations in a statement Thursday evening.

“The Department is in discussions with the West Virginia Governor’s Office and State educational agency regarding a request from the West Virginia Department of Education to waive the FY 2023 maintenance of effort (MOE) waiver requirements,” a department spokesperson said.

During the COVID-19 pandemic, the state was awarded more than $1.187 billion through three federal COVID-19 relief and recovery funds through the U.S. Department of Education’s Elementary And Secondary School Emergency Relief Funds (ESSER). These funds came from the Coronavirus Aid Relief, and Economic Security (CARES) Act, Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, and the American Rescue Plan Act (ARPA).

To date, more than $834.7 million of its ESSER funds have been spent, with the state Department of Education managing the grants and the county boards of education serving as the sub-grantees. But maintenance of effort guidance was not finalized until Aug. 15, 2022, requiring state financial support for elementary and secondary education for fiscal years 2022 and 2023 to meet the average of state support for elementary and secondary education for the three fiscal years prior to the COVID-19 pandemic.

For West Virginia, that average was 41.6%, but in fiscal year 2022, the average based on interim data for West Virginia was 37.5%. State support for K-12 education in FY22 was more than $2 billion compared to overall state spending of $5.3 billion.

The U.S. Department of Education offers a maintenance of effort waiver for states unable to meet their average of state support, which the state applied for on June 21, 2022. That waiver was granted on June 12, 2023. In its waiver filing, the state placed the blame on static education spending on the state school aid formula, which is based on student enrollment.

“The pandemic brought many challenges to the state education system, one of those being declining enrollment,” according to the state’s waiver application. “The state saw less students being enrolled in pre-K, with parents choosing instead to keep their children home until kindergarten.”

State education officials argued that despite the declining enrollment being seen, the state was still maintaining its overall education funding.

“When looking at total education spending, the state continues to increase its total spending on education despite the declining enrollment trends,” the application stated. “So not only did the state maintain its funding formula on a per-pupil-basis, it continued to increase funding to education over and above the state required formula as can be seen with the increasing education funding trend compared to the decreasing enrollment trend.”

While the state was only able to maintain direct funding into education, officials were able to show that it funded education in other ways, including funding for school flood repair and construction, the Communities in Schools program, funding towards education PEIA costs, school-based health care expenses, education arts grants, and the Challenge Academy. That brought the state’s average support up from 37.5% to 40.6%.

However, the state has the same problem for fiscal year 2023, with the average state spend on education at 34.6%. The state has once again filed a waiver, and the amount on the line is $465 million. Brian Abraham, the chief of staff to Justice, said by phone Friday that the dollar amount is not a clawback, but if the waiver is not granted, it does mean the state will have to put $465 million into education spending.

“It’s not new, it’s not been hidden. It’s something we dealt with last year and fixed and we’re going to fix it this year,” Abraham said. “There’s no request to take money back from West Virginia to Washington. They’re instead asking us to spend more money on education in West Virginia. So if the choice is spend more money here or have to then send it back to Washington, the governor believes the clear answer is spend more money on education in West Virginia.”

Speaking Friday afternoon, Senate Finance Committee Chairman Eric Tarr, R-Putnam, said lawmakers have been aware of this issue since last year. He said that he believes state officials will be able to show how they’re funding education to receive the waiver.

“What we don’t want to do is send federal money back to the federal government if we have the opportunity to apply it toward a need,” Tarr said. “There’s only a few ways you can really apply it to the K-12 and then hope that they’ll accept that method.”

But while state officials wait on a decision on the waiver, lawmakers are trying to work on the budget for fiscal year 2025 beginning in July and get it passed before the end of the 2024 legislative session at midnight on Saturday, March 9 – just one week away. The Legislature is constitutionally required to pass a balanced budget and have it in place by June 30.

The Senate version of the budget – Senate Bill 200 – was on second reading in the House Friday, but action was postponed one way, keeping it on second reading until Monday. The House budget bill will also be on second reading Monday. HB 4025 sets the general revenue budget at $5.001 billion, which is a 5% decrease from the governor’s $5.265 billion budget presented to lawmakers on the first day of the 60-day session on Jan. 10.

If the waiver is not approved, the state might have to bank on surplus tax revenue for the current fiscal year to help meet the $465 million obligation. Fiscal year-to-date tax collections as of the end of February of $3.6 billion were 13.6% above the $3.2 estimate by the state Department of Revenue. That gives the state a $428 million tax revenue surplus with four months remaining in the current fiscal year.

Tarr believes the state could end the fiscal year with just under $800 million in surplus. State Code obligates some of the end-of-year surplus to the Rainy Day Fund, which sits at $1.2 billion as of the end of February. Lawmakers also include items in the next fiscal year budget to be paid with surplus tax dollars from the end of the current fiscal year, sometimes called the surplus section or back of the budget.

“To me, this affects the back of the budget more than the front of the budget,” Tarr said. “It affects our one-time spends more than our perpetual spends … There’s a lot that’s out there that’s kind of in flux.”

Until the Governor’s Office and lawmakers receive word about the approval of its waiver from the U.S. Department of Education, it means lawmakers must be cautious with the budget, and it could even mean a special session later in the year depending on whether the waiver is approved or not.