In yet another blow to a city school system trying to recover from serious financial problems, state auditors are asserting that Baltimore schools misused $18.3 million in federal funds between 2001 and this year.
State officials said yesterday that they will have to withhold millions of dollars in federal money in the fall unless the city can negotiate an agreement with the federal government.
School and city officials, describing the action as an unwarranted attack, disputed the findings of the recently completed state audit and called the action "inappropriate."
For a school system already reeling from financial difficulties and trying to close a $58 million deficit, the loss of millions of federal dollars would likely affect the quality of education for many of the city's students.
"We are certainly not out to do anything harmful to the Baltimore City public schools," said Maryland state School Superintendent Nancy S. Grasmick, but she added that she could not ignore the misuse of funds by city schools. "We have a fiduciary responsibility for federal dollars."
Bonnie S. Copeland, the school system's chief executive officer, referred all questions to her staff, who offered a spirited defense of the school system and anger toward the state.
Chief of staff Jeffery N. Grotsky said the system was surprised that the state had not continued discussions over the audit before taking action. "We would like an opportunity to negotiate at the state level," he said.
The system has proof, he said, that at least $7 million of the $18 million was spent correctly.
Baltimore City Solicitor Ralph S. Tyler, who is a former school board member, called Grasmick's actions inappropriate.
"There was no requirement to withhold or threaten the withholding of funds," he said. "She had the choice to allow the process to proceed ... then to impose a sanction if one is needed, rather than have the execution before the trial."
Tyler said the state may not have the legal authority to withhold the federal funds, and he considers its action a way to sabotage the city's efforts to help the school system regain its financial footing. Last March, the city lent the schools $43 million to avert insolvency.
The audit, completed in the past few weeks, found that Baltimore had spent its Title I funds - federal money designated for poor children - on children in schools that were not considered needy. Ninety-seven of Baltimore's 184 schools are designated Title I schools.
While the state found no evidence of fraud, Grasmick said, it was clear that city school officials did not make an effort to completely understand the rules governing the grants and that internal controls over the spending were inadequate.
Grasmick said she hoped that Copeland would soon ask for negotiations with the state and the U.S. Department of Education to resolve the issue.
Federal officials could decide to forgive misuse of funds, without requiring repayment, she said. Or they can ask the city and state to find ways to give poor students extras instead of paying back the money directly.
A school is designated for Title I money if it has a high percentage of students who are poor enough to qualify for reduced price or free school lunches. This year, Baltimore was expected to receive $23 million in federal funds under the program. The U.S. Department of Education hands out the money to state governments to administer, including monitoring of expenditures.
The school system, state officials said, did not follow the regulations that govern where and how the money can be used.
For instance, the state audit found: