Millions of dollars in expired grants could be restored for Arizona schools, feds say (2024)

Arizona schools could retrieve tens of millions of dollars in expired grant funding, according to an offer from the U.S. Department of Education.

At the federal agency's urging, the Arizona Department of Education has requested a waiver that would extend the spending deadline and get more grant dollars into the hands of state schools.

The U.S. department told The Arizona Republic it would consider Arizona’s request even though the grants’ deadline passed in September 2023.

Tom Horne, superintendent of public instruction, and Michelle Udall, his associate superintendent over school improvement, previously said it was too late to address the issue by the time Horne took office in January 2023, although the department under previous superintendent Kathy Hoffman had requested a similar waiver as recently as November 2022.

Horne said his administration applied for a waiver after the U.S. department informed state education officials it was an option last week.

“I will always fight for more money for schools, so I am happy to submit this waiver request to the federal government," Horne said in a news release Monday.

Horne said his predecessor, Hoffman, was responsible for the fiasco. The funds were first sent to the state department under her watch.

Hoffman and Gov. Katie Hobbs pointed back at Horne, suggesting he was asleep at the wheel because the deadline to spend the money passed during his term and without his knowledge. Udall said the administration was not aware the grants had expired until March 2024, months after the fact.

Horne's administration estimated between 150 and 200 schools received cuts to their anticipated school improvement grants last month. Some lost more than 50% of what they expected. Those cuts came after school leaders had solidified spending plans and just before students returned for the year.

Hobbs and several Arizona Democrats called for an investigation.

Horne says money had to be allocated years ago, in Hoffman administration

School improvement grants provide targeted support for district and charter schools with underperforming students. Grants cover expenses like staff positions, professional development and curriculum.

Doug Nick, spokesperson for the state department, last week told The Republic that schools needed to receive the money at the beginning of a spending cycle so they would have a full 15 months to obligate the money for specific expenses. That cycle ran from July 2022 through September 2023 for the now-reverted funds, Nick said.

The U.S. department clarified the grants in question run in 27-month cycles, meaning the allocation period began in 2021.

Employees who were held over from Hoffman’s administration and remained on staff through “mid-2023 … did not alert their superiors about the impending reversion,” Nick said when initially asked about the situation.

Later, Nick said a single Hoffman-era employee bore responsibility for failing to catch the $29 million loss. That employee did not ensure “enough money was allocated each year, causing a buildup of funds,” Nick said.

Horne, in a news release Aug. 5, said, "I did not tolerate theincompetence of the employee,who was fired or resigned when told otherwise would be fired in March 2023."

A full year passed before Udall said the department discovered the loss.

Nick said last week that even if the state department had known about the September 2023 deadline, it could not have issued new grants because the money had to have been allocated at the start of the 15-month period.

“Those grants had to have begun no later than summer of 2022,” Nick said.

Horne issued a news release on Aug. 6 denouncing The Republic’s reporting on the lost money as “dishonest” because it did not state the reverted funds had to be allocated to schools by July 1, 2022, before Horne took office.

The department did not provide its information about the July 1, 2022, deadline until after the story published Aug. 5.

An Education Department official in another state told The Republic that's not how the funding process worked.

A spokesperson for the Florida Department of Education said in its experience, “the money could be allocated at any point” and there is “no deadline for allocating the funds” before obligating them.

Former Education Department employee refutes Horne

Originally, Horne’s administration said the lost money was from the 2020-21 and 2021-22 school years.

Those dates were wrong, according to the U.S. department: Arizona lost $4 million from 2019-20 and about $24.5 million from 2020-21. The federal and state departments can view these balances online at any time.

Nick later confirmed the Arizona department had misstated the grant years.

A former employee questioned the Arizona department’s understanding of how the allocation process works.

Denise Lee joined the department under former Superintendent Diane Douglas, worked for Hoffman and stayed to work for Horne for more than a year. She was a fiscal director before being fired in June. The state department could have given schools that money at any point before the September deadline, she said.

The department tries to get money to schools as quickly as possible to maximize their spending window. Although the department ideally would allocate money as soon as it became available, Lee said that was not required.

She said she had attended multiple grants management meetings at which department employees discussed the funds’ impending expiration. Horne was briefed on the issue, but she said he dismissed it.

“We sit in a room once a month, and we go over all this,” Lee said. “How do you not know what your budget is and that $29 million is getting ready to go back to the feds and hasn’t been spent? How do you not know as the superintendent? … When people were trying to make you aware of what was going on, you didn't want to believe them.”

Nick, the state department spokesperson, said it hosted biweekly "strategic funding" meetings.

A spokesperson for the U.S. department said it communicates in August or September of each year with chief state school officers to remind them of deadlines.

Nick did not comment on Lee's allegations or whether the department received communication from the federal agency.

Hoffman administration had accrued millions of dollars in unused grants

Millions of dollars of unspent funds accumulated during Hoffman's four years as superintendent, a fact she acknowledged.

Hoffman said schools that qualify for improvement grants are often stretched thin and lack personnel devoted to federal grant management. Some schools take a bit of prompting to ensure they don't leave money on the table, she said.

The pandemic complicated matters when the federal government gave schools additional relief money to help reopen and combat learning loss. Relief money had tighter spending windows, so other grants, including school improvement, took a back seat, Hoffman said.

Still, Hoffman said her administration shared no culpability in losing funds.

"Under my administration, there was clear and consistent communication about those sorts of things," Hoffman said. "This, to me, seems like a breakdown in communication, and I think the current administration should be held accountable to that."

Waivers have been common since the pandemic. Other states faced similar challenges in the years after the COVID-19 outbreak. The U.S. department said many had requested and received waivers to extend their federal grants’ lifespans, including Arizona.

"That would be generally our practice, is anytime funds were not fully allocated and spent down, then we would absolutely apply for any and all waivers available to us," Hoffman said.

Arizona received its first waiver for 2019-20 funds on Nov. 3, 2022, but did not renew that request or make a subsequent request for the 2020-21 funds. Together, those grants account for the lost $29 million.

Nebraska requested a waiver for 2020-21 funds on Sept. 29 last year — one day before the obligation deadline — and received an extension on Oct. 18.

Florida also received an extension, according to a spokesperson. And New York submitted a request Nov. 16. It had more than $34 million left unspent.

Arizona seeks a waiver to revive expired school improvement money

Nick said the U.S. department reached out to Arizona Thursday encouraging the state department to apply for a waiver, three days after The Republic contacted the U.S. department about the issue.

"The Department does not want these funds to lapse and they do not need to lapse," the email from the U.S. department read.

Horne's administration requested a waiver to extend access to the previously expired funds and to those scheduled to expire next month, according to the news release.

Nick said the U.S. department contacted Arizona officials in June to let them know they could request an extension on their liquidation period but did not inform them that a waiver was an option at that time.

Communications from the U.S. department about these grants went to Associate Superintendent Catherine Barrett.

Hobbs, lawmakers call for audit of Horne’s Education Department

Hobbs joined six members of the Arizona House of Representatives on Monday in calling for an investigation into the Education Department's finances since Horne took office.

The Democratic leaders wrote an Aug. 7 letter to Rep. Matt Gress, R-Phoenix, requesting he include a special audit on the Joint Legislative Audit Committee's next agenda. Gress heads the committee.

“As our letter states, the actions of the Arizona Department of Education and Superintendent Horne have raised serious questions about their ability to responsibly oversee the state’s education federal funding distribution,” House Democratic Whip Nancy Gutierrez, D-Tucson, said in a news release.

“We need more attention to detail, basic transparency and better communication with schools — and with us — to avoid the budget cuts and negative impacts that our schools have experienced. We need an audit right now to find out exactly what is happening and why, and to restore trust.”

The letter focused on school improvement and federal Title I grants, both of which suffered dramatic blows this year.

Title I supports schools with large populations of students from low-income households. Arizona sets aside up to 7% of Title I grants each year to fund school improvement.

Schools lost roughly 20% of their anticipated Title funding earlier this spring, which the Arizona department attributed to changes in poverty demographics relative to other states.

The department has not released its allocation formulas. Nick said that's common practice to protect student-level personal data.

School finance experts across Arizona have attempted to recreate the formulas and determine how the department settled upon its cuts. They've been unsuccessful, "leading to confusion and doubt regarding the accuracy of those calculations," according to the letter.

In a statement responding to The Republic's reporting last week, Hobbs accused Horne of putting "his partisan agenda and political games ahead of doing his job" and said he "needs to be held accountable for the gross mismanagement of school improvement grants."

Horne clapped back Monday, defending his department's financial management.

“The governor today is repeating false allegations. These dollars should have been sent to districts and charters years ago during the Hoffman administration, but they were allowed by previous staff to accumulate and potentially revert. In reality she is asking to investigate Kathy Hoffman’s administration, but the problem is being corrected by my administration," he said.