How Schools Are Diverting Billions in Covid-19 Funds for Bailouts

Johnathan Hale Government Performance Initiative, Open Government Institute

A report by the Transparency Foundation shows many K-12 school districts have simply used the Covid-19 funding to pad their balance sheets and, worse, offer pay raises and bonuses.

At the height of the Covid-19 pandemic, President Joe Biden signed into law the so-called “American Recovery Act” that brought federal direct funding to K-12 school districts to more than $200 billion. 

Backers of the Covid funding package claimed that K-12 school districts were financially struggling and needed an immediate infusion of these federal dollars to fund building retrofits and make other public health expenditures to “reopen safely.”

Unfortunately, less than a year later evidence is mounting that many K-12 school districts have simply used the Covid-19 funding to pad their balance sheets and, worse, offer pay raises and bonuses.

New analysis being released by Transparency Foundation illustrates this problem. The foundation examined the 2021 audited financial statements released by some of the country’s largest school districts. In each case, the foundation has documented how the school districts are using the Covid funds to pad their reserves and divert funds for expenses that have nothing to do with Covid.

Take Los Angeles Unified School District, the second largest in the nation, for example. According to its 2021 audited financials, LAUSD collected 15% more revenue in its fiscal year that ended June 2021 than compared to the year prior. Stripping away all federal aid to focus solely on local and state revenue, the district’s revenues still grew at 4% — hardly a financial crisis.

Nonetheless, the LAUSD financials show the district received more than a $1 billion increase in its federal revenue during that same period.

Did all that extra money go to retrofit classrooms with new air filtration systems or purchase a bunch of masks and Covid tests? Hardly. The LAUSD financials show a massive $1.4 billion increase in the school district’s reserves.

It also went to costly salary hikes to district staff. After LAUSD received the massive infusion of federal Covid bailout monies, the United Teachers Los Angeles (UTLA) collective bargaining unit received a 5% salary increase effective July 1, 2021, plus other stipends.

What’s worse, when Biden signed the American Recovery Act and these salary hikes were awarded, LAUSD was not even open for in-person instruction — unlike the vast majority of school districts in the country that had been open throughout the 2020-2021 school year. 

LAUSD is not alone in diverting Covid funding to pad its existing budget and balance sheet. The foundation’s analysis shows a similar pattern of diversion at school districts across the country, such as the Chicago Board of Education, Houston Independent School District, and San Diego Unified School District.

Are school districts breaking the law by not spending the funds strictly on Covid preparedness and response? No — and perhaps that is what the Washington politicians intended all along.

In fact, the American Recovery Act talks about targeting relief on Covid-related issues, but the statutory language is so broad that districts have been able to exploit numerous loopholes to divert the funding.

What is the net result? As of March 31, 2022, the US Treasury reported total public debt outstanding of more than $30 trillion, a simply unfathomable financial burden being handed to future generations. American taxpayers went into debt to give a lot of money out to K-12 school districts in the name of Covid preparedness, but all they are getting in return is a wave of hyper-inflation.

From a purely financial perspective, the additional federal dollars bestowed upon schools in the name of “relief” were simply not warranted.

As Congress considers another round of so-called Covid relief funding, it ought to demand full and complete audits of the use of existing Covid relief funds — and consider demanding repayment of any Covid funds that were improperly diverted.

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