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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6484

December 17, 1987

EDUCATION, DEPARTMENT OF:

Authority to recover state school aid fund payments made to ineligible school districts

STATE SCHOOL AID ACT OF 1979:

Recovery of state school aid fund payments made to ineligible school districts

The Department of Education may recover, through billing and collection procedures, overpayments in state school aid funds made to school districts that were ineligible to receive them because of large fund balances.

Mr. Gary D. Hawks

Interim Superintendent of Public Instruction

Ottawa Street Building

South Tower

Lansing, Michigan 48909

You have requested my opinion on whether the Department of Education has the authority to recover, through billing and collection procedures, overpayments in state school aid funds made to school districts with large fund balances.

The State School Aid Act of 1979, 1979 PA 94, Sec. 101(5), MCL 388.1101(5); MSA 15.1919(1001)(5), prohibits a school district having a year-end fund balance greater than the total operating costs for that fiscal year from being allotted or paid funds under the Act in the subsequent fiscal year. However, based on information submitted with your request, it is my understanding that in some instances, the Department has made payments to school districts prior to determining whether they are ineligible for funds pursuant to Act 94, Sec. 101(5). Accordingly, some districts have received state school aid funds despite their ineligibility.

Section 15(1) of the State School Aid Act of 1979, MCL 388.1615(1); MSA 15.1919(915)(1), permits the Department to make adjustments in a district's apportionment in order to remedy any underpayment or overpayment of funds made to the district in the preceding apportionment. Specifically, Sec. 15(1), as amended by 1987 PA 128, states:

"If a district or intermediate district fails to receive its proper apportionment, the department, upon satisfactory proof that the district or intermediate district was entitled justly, shall apportion the deficiency in the next apportionment. If a district or intermediate district has received more than its proper apportionment, the department, upon satisfactory proof, shall deduct the excess in the next apportionment,...." (Emphasis added.) MCL 388.1615(1); MSA 15.1919(915)(1).

While this section permits recovery from a district which received funds to which it was not entitled by reducing the subsequent apportionment, your inquiry goes to the ability of the Department to initiate collection proceedings against districts which, due to continuous large fund balances, may remain ineligible for any school aid payments for an indefinite period of time. For the reasons that follow, it is my opinion that the Department possesses such authority.

The United States Supreme Court recently interpreted a statutory provision comparable to Sec. 15(1) as authorizing a federal agency to seek the direct recovery of funds. In Bell v New Jersey, 461 US 773; 103 S Ct 2187; 76 L Ed2d 312 (1983), the United States Department of Education sought to recoup funds granted to New Jersey under Title I of the Elementary and Secondary Education Act ("ESEA") which had been misused by the state. The Court held that the plain language of the following provision recognized the right of the federal government to recover any overpayment of funds:

" 'The Commissioner shall, subject to the provisions of Sec. 208 [dealing with inadequate appropriations], from time to time pay to each State, in advance or otherwise, the amount which the local educational agencies of that State are eligible to receive under this part. Such payments shall take into account the extent (if any) to which any previous payment to such State educational agency under this title (whether or not in the same fiscal year) was greater or less than the amount which should have been paid to it.' " 461 US at 782.

Following the Supreme Court's decision in Bell v New Jersey, courts have interpreted a provision in the Comprehensive Employment and Training Act ("CETA") permitting "necessary adjustments" and the withholding of funds for overpayments as authorizing the Secretary of Labor to order the direct repayment of misspent funds from non-CETA fund sources. See e.g. City of Gary v United States Department of Labor, 793 F2d 873, 874-875 (CA 7, 1986), and cases cited therein.

Interpreting Sec. 15(1) of the State School Aid Act in a like manner so as to authorize the Department to demand repayment from districts ineligible to receive state school aid fund payments because of large fund balances gives practical application to the statute and is consistent with legislative objectives. As with the ESEA and CETA grant recipients, the large fund balance districts have no authority to receive and retain the overpayments. By virtue of their ineligibility pursuant to Sec. 101(5), MCL 388.101(5); MSA 15.1919(1001)(5), they were not authorized to receive the funds initially.

Moreover, the Legislature never intended school districts to retain overpayments for an indefinite period of time. Where recovery is made by reducing future apportionments, Sec. 15 calls for the deduction to be made in the apportionment for the next fiscal year subsequent to the overpayment. In those cases where deductions are warranted due to a district's enrollment of certain tuition pupils, the Act permits the Department to recover overpayments over a three-year period. Sec. 15(4). A similar three-year recovery period is allowed for deductions resulting from a Department audit, except that adjustments due to audits of adult education programs conducted after September 30, 1987 are to be realized within a one-year period. Secs. 15(2) and (3). In these latter audit situations, the Department may extend the recapture period for an additional two years or one year after the adjustment is finalized, respectively, if the districts would otherwise experience hardships. Secs. 15(2) and (3).

In short, except in specific instances where a hardship would result, the State School Aid Act of 1979 contemplates the prompt recovery of overpayments. School districts with large fund balances would plainly not experience hardships by being required to return promptly state school aid funds to which they were never entitled.

It is my opinion, therefore, that the Department of Education may recover, through billing and collection procedures, overpayments in state school aid funds made to school districts that were ineligible to receive them because of large fund balances.

Frank J. Kelley

Attorney General


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