Originally published in Issue 5 - Mar 17, 1997

Prior-Year Education Aid: Where’s the Money?

The press has recently covered a controversy between the City and the State involving millions of dollars of education aid, the latest skirmish in an ongoing battle involving the technically complex system of State reimbursement for City Board of Education (BOE) expenditures. School districts are typically partially reimbursed in the next fiscal year for expenditures for a variety of services provided by the district, such as transportation and special education. However, there are often delays in the submission of reimbursement claims by districts. These late claims are approved and paid through a legally and bureaucratically cumbersome process which can take years to complete. The major obstacle to prior-year claim payment is a structural bottleneck in the State aid formula limiting the total amount of statewide prior-year reimbursement to $21.8 million. State law caps the City’s share of these funds at 40 percent, further constraining pay-out to the City.

This payment method grew problematic when school districts fell increasingly behind in their submission of claims, making it difficult for the State to predict its own expenditures. In response, State lawmakers established a deadline for prior-year claims in the 1994-95 State budget. While school districts such as New York City filed their claims by the statutory deadline, no law required the State to provide reimbursement to school districts in a timely manner. The deadline’s effect was to increase the influx of claims without increasing the outflow of reimbursement funds.

State audits to date show that the city is owed $108.8 million in aid for prior year claims for services provided between 1989 and 1991. According to the State, an additional $547.5 million of City claims must still be approved for expenditures made between 1989 and 1995. BOE claims that the State actually owes the City a total of $900 million retroactive to 1989, including $244 million in past special education expenditures reimbursed through a separate formula.

Even using the State’s lower estimation, it would take the State 75 years to reimburse the City through at its current rate of $8.7 million a year. Since the City carries prior-year claims reimbursement in its budget, reimbursement delays could force the City to write-off the anticipated aid, opening a hole in the current budget.