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Distributing CARES Act Funds to Private Schools in Light of the Recent Preliminary Injunction

September 2, 2020

The federal District Court for the Northern District of California has issued a preliminary injunction temporarily prohibiting enforcement of the Department of Education’s (DOE) rules for how public-school districts are to distribute Coronavirus Aid, Relief, and Economic Security Act (CARES Act) funds to private schools. State of Michigan v. Betsy Devos, No. 20-4478, 2020 WL 5074397 (N.D. Cal. Aug. 26, 2020) (order granting preliminary injunction). The State of Wisconsin joined seven (7) other states, the District of Columbia, and four (4) municipal school districts in suing the DOE in order to block the DOE’s rule from going into effect. The injunction impacts all Wisconsin public schools who received CARES Act funds that must be shared with private schools.

The plaintiffs argue that the DOE’s rule runs contrary to the CARES Act with respect to the formula that public school districts must apply in determining the amount of funds to be shared with private schools. Under the CARES Act, Congress directed relief money to public school districts through two (2) primary sources—the Elementary and Secondary School Emergency Relief (ESSER) Fund, and the Governor’s Emergency Education Relief (GEER) Fund. Both funds are allocated to each state “in the same proportion as each State received under part A of Title I of the ESEA of 1965 in the most recent fiscal year.” CARES Act, P.L. No. 116-136 (Mar. 27, 2020), § 18003(b). Likewise, the CARES Act requires school districts to calculate the portion of funding that must be shared with private schools “in the same manner as provided under [Title I] of the ESEA of 1965.” CARES Act, P.L. No. 116-136 (Mar. 27, 2020), § 18005(a). Under Title I, public school districts share funds with private schools based on the proportion low-income students attending private schools compared to those attending public schools in the public school district.

The DOE’s rule, however, required public school districts to determine the portion of funds to be shared with private schools based on the total number of children attending public school and private school in the public school district.

In determining whether to grant the preliminary injunction, courts weigh three (3) factors: the likelihood of the plaintiffs succeeding on the merits of the case; the irreparable harm to the plaintiffs if the preliminary injunction is not granted; and a balancing of hardships and the public interest (though this final factor is typically two separate factors, the issues merge where, as here, the government is a party).

Likelihood of Success on the Merits

Generally, courts evaluate challenges to agency regulations using a two-step analysis. Courts first ask whether a statute is silent or ambiguous on an issue. If a statute is silent or ambiguous on an issue, then, under the second step, courts will defer to an agency’s interpretation of a statute if the interpretation is reasonable.

Here, the court concluded that the DOE could not get past the first step of the analysis because Congress had clearly articulated a formula for distributing CARES Act funds when referencing the formula used under Title I. Consequently, the court found that the plaintiffs were likely to succeed on the merits of the case.

Irreparable Harm

Using the formula provided in the DOE’s rule would divert $4 million more to private schools than would the formula provided for in the CARES Act. That fact established that the State of Wisconsin, along with the other plaintiffs, would suffer irreparable harm if the preliminary injunction was not granted.

Balancing Hardships and the Public Interest

The court found that the public’s interest in having duly elected congressional representatives make law weighed in favor of enjoining the DOE’s rule, which rewrites the distribution formula found in the CARES Act.

Ultimately, because the preliminary injunction factors weighed in favor of the plaintiffs, the court granted the preliminary injunction, thereby prohibiting the DOE from enforcing its rule regarding the distribution of CARES Act funds to private schools.

Impact on Wisconsin Public School Districts

For Wisconsin public school districts, the preliminary injunction means that the DOE’s rule may not be enforced in the near term. It remains to be seen how the Northern District of California will ultimately decide the case. However, the language of the preliminary injunction order is a strong indication that the court will not accept the DOE’s position when the case is ultimately decided on its merits.

Until that decision is made, public school districts remain in limbo—pressured to budget and pay expenses for the looming school year, but unsure how to do so.

Because the preliminary injunction prohibits the DOE from enforcing its rule, public school districts should proceed with any distributions to private schools under the distribution formula set forth in the CARES Act and Title I. That is, public schools should look at the number of low-income students in public schools and in private schools in the public school district, and calculate the proportionate amount of funds to be distributed based on those numbers.

For questions regarding this article, please contact the author, Attorney J.J. Hermes (email: jjhermes@strangpatteson.com; telephone: 833-654-1178 toll-free), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.

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