Spending spree: Oversight scarce as billions in COVID aid poured into California schools

By Robert Lewis and Joe Hong, CalMatters

When the pandemic closed schools in March 2020 – abruptly ending classes and stranding children and working parents – leaders in Washington and Sacramento scrambled to provide relief.

The result was a series of stimulus measures that allocated $33.5 billion in state and federal funds to California’s K-12 schools to address the devastation of the pandemic. It was a staggering amount of one-time funding for the state’s cash-strapped schools, equal to a third of all the money they got the year before the pandemic. 

Imagine your boss giving you a check equal to four months of your salary and telling you to spend it quickly or risk giving it back. For schools, this was money for things like laptops, air filters and mental health counselors – money to help kids.

But much of the funding has come with limited oversight and little transparency, according to a CalMatters investigation. No centralized state or federal database exists to show how schools have spent this money. And data from the districts’ quarterly spending reports provided to the state are so broad as to be virtually useless in tracking this COVID relief money.

Of the $5.9 billion local education agencies have spent so far from the largest of the stimulus funds, more than a quarter went to a category for “other” expenses, according to the state.   

“I’m just not sure anyone has a good handle on how this money was spent,” said John Affeldt, managing attorney at Public Advocates who works on educational equity issues. “There’s a lot of money that went into the system this year, and we continue to have a concern knowing how … effective it was.”

 

CalMatters spent three months examining school COVID relief spending across the state, reviewing thousands of pages of records obtained through more than 45 public records requests. That includes state spending reviews as well as accounting ledgers from two dozen school districts, including many of California’s biggest.

The records offer a unique glimpse at how school leaders grappled with the generational challenge of COVID in dollars and cents. Capistrano Unified, for instance, spent nearly $10 million on Chromebooks to make sure students could go virtual. Castro Valley Unified spent most of its stimulus money on payroll. El Centro Elementary School District spent $3.8 million to install shade structures for outdoor eating, school assemblies and teaching space.

The records reveal pandemic winners – companies that reaped millions as overwhelmed districts, suddenly flush with cash, started writing checks. Some are established firms well-positioned to fill massive orders for goods.

And some are new ventures launched by savvy entrepreneurs to capture some of the windfall. That includes a limited liability company formed in April 2020 and headquartered out of a UPS drop box in Los Alamitos that got a $52 million no-bid COVID testing contract in San Diego. And it includes a company – whose founder is described on its website as a former CIA counterterrorism officer – that morphed into a COVID-related school consultant and got a $12.7 million gig in San Bernardino, helping with COVID testing and contact tracing.

One chain of virtual charter schools gave $11 million – nearly two-thirds of its stimulus spending last year – to the publicly traded, for-profit company affiliated with the schools. A Southern California public school district spent $440,000 to hire an evangelical group for a program to help at-risk kids.

Other records reveal clear mistakes or misspending. The state told West Contra Costa Unified School District to shift nearly $800,000 in unrestricted funds to reimburse its stimulus money because the district failed to prove certain payroll costs were tied to the pandemic. Oakland Unified had to reimburse nearly $1 million in stimulus money for expenditures the state flagged as questionable. 

Some districts refused to provide CalMatters records showing where their money is going. That includes San Francisco Unified, which got more than $186 million in federal stimulus funds.

Taken together, the reporting shows the differing decisions local leaders made trying to keep teachers, kids and their communities safe from a deadly disease while also addressing the learning loss and mental health impacts of prolonged social isolation. Some of those spending decisions were made behind closed doors and with little scrutiny, making it difficult for the public to determine whether districts used the money as effectively as possible or as lawmakers intended.

Put bluntly: Every dollar spent on buses during the lockdowns was a dollar not spent on counselors or tutors or teachers.  

The stakes of such decisions could not be higher. The pandemic hurt California’s kids. More than half the students who took the statewide standardized test last year scored below grade level for English Language Arts. Nearly two-thirds of those students tested below grade level for math. Attendance is down. And federal data shows the number of students considering suicide is up.

Local educational agencies still have billions of dollars of COVID relief left to spend. If they don’t spend it by various deadlines, they may have to return it.

In a written statement to CalMatters, the state Department of Education said it is “encouraged by the impact that stimulus funding is having on the students and schools of California,” and that overseeing the funds is a top priority.

“The department has a robust monitoring system to ensure that (agencies’) expenditures are in accordance with all applicable federal and state requirements,” according to the statement.

Still, it might not be enough.

The state auditor’s office criticized oversight in an October report, saying the state is not using the limited data it receives to identify abnormal spending patterns and scrutinize local educational agencies.

“The state Department of Education has not taken a very active role in managing how the money is being spent,” said Kris Patel, supervising auditor who led the team behind the October report.

Patel said lack of oversight is particularly concerning as spending deadlines approach.

“If you’re trying to spend money at the very last minute, there’s always the high risk that you might misspend the money,” Patel said.

Money, money, money

After the pandemic shut down the world, lawmakers in Washington, D.C, passed six major pieces of stimulus legislation worth more than $5 trillion. The money was spread across myriad programs including business loans, funds to government agencies and checks directly to citizens.

California got yet another infusion of cash when higher-than-expected tax revenue created a massive budget surplus – more relief for beleaguered local governments.

The cash might have been a blessing for many state and local government agencies, but it was also an enormous challenge. Officials had massive amounts of money to address the urgent need – as the disease ravaged communities and the economy teetered – while also ensuring the funds weren’t wasted or even stolen.

Some deals blew up, resulting in recriminations and investigations.

While much has been written about emergency spending at the state level, including fraud targeting the state’s Employment Development Department, less is known about the money that poured into the nation’s schools.

The federal stimulus measures created the Elementary and Secondary School Emergency Relief Fund and the Governor’s Emergency Education Relief Fund – two large pots of money allocated to schools and state education departments in multiple rounds.

Ultimately, California public schools and charters got almost $29 billion in federal stimulus money. Billions more came from state programs lawmakers in Sacramento created.

Each program has its own spending requirements and categories – steering money toward things like instructional materials, school breakfast programs, purchasing educational technology and implementing public health protocols. 

But some of the spending categories are broad. There’s money for principals “to address local needs,” and a catchall category described in state records as “other activities to continue school operations and employment of existing staff.”

California has about a thousand public school districts and hundreds of public charter schools that received COVID relief funds.

To get a cross-section of the stimulus spending, CalMatters asked more than 30 school districts for their accounting ledgers. Those districts included the 20 biggest and 10 random agencies across a geographically and demographically diverse swath of the state. 

The records are a chronicle of the pandemic.

Take Garden Grove Unified. In August 2020, with the school year about to start virtually, the district spent $895,000 on Apple Computer equipment. In May 2021, planning to reopen school buildings to in-person learning, the district spent $275,000 with Air Filter Supply. This school year, with students and teachers back, the district has paid Maxim Healthcare Staffing Services more than $500,000 for temporary classroom staff to help special education students with learning recovery.

The ledgers also reveal unique local approaches to the pandemic. Castro Valley Unified, in the Bay Area, spent $14,250 in stimulus funds on Freedom Soul Media Education Initiatives, an equity consultant, and $93,000 on restorative justice consultants, records show.

Santa Ana Unified gave $393,000 to Angels Baseball LP to rent out the major league baseball stadium for last year’s high school graduation festivities.

In Riverside County, Corona-Norco Unified gave $440,000 to an evangelical group called Rescue a Generation run by a charismatic young pastor. The group runs a program for at-risk students in various schools.

“We are in a great season at Rescue a Generation,” according to the group’s website. “God has opened up many doors for us to be in schools providing life coaching for students with behavioral issues.” 

In a phone interview, executive officer Jose Rodriguez acknowledged the nonprofit’s religious mission.

“We are a faith-based nonprofit organization that provides coaching, empowerment and the gospel to this generation,” Rodriguez said.

He said while the program is faith-based in morals and values, “we’re not trying to push an agenda.” He said the school program is secular and his team doesn’t discuss religion with students.

A Corona-Norco spokesperson said school staff oversee the program – which has helped reduce chronic absenteeism – to verify it follows school guidelines, and administrators reviewed content to ensure it doesn’t cross religious boundaries.

Local needs drive COVID relief spending

Michael Fine said he didn’t expect to see a one-size-fits-all approach to using the money. Fine is chief executive officer of the Fiscal Crisis and Management Assistance Team, a state-created organization that helps fiscally troubled school districts get their finances in order.

Some districts burned through the money quickly, in part to stave off budget cuts, Fine said. Others have been able to use some money for immediate needs while also planning long term.

“There’s a district in the Central Coast area that bought an ice cream truck with their money,” Fine said. “When I was told that I kind of went off.”

Fine declined to name the district. He said he talked to district leaders and learned they used the truck to drive around and give away ice cream to kids stuck at home during the early days of the pandemic.

He said he still has questions about the truck – like why they couldn’t just lease one, or whether they’ll eventually sell it and repurpose the funds. But he said he came to realize it was “a way to make a nontraditional connection with kids.”

“You can’t just look at the accounts payable ledger,” Fine said.

San Juan Unified in the Sacramento region used funds to hire an instructional aide for every classroom in its early grades and a new teacher at every school. Such hiring has been difficult because of a widespread teacher shortage, but the stimulus has also allowed the district to pay hiring bonuses, said Melissa Bassanelli, the district’s deputy superintendent of schools and student support.

In terms of creative spending, one school in the district, Northridge Elementary, spent $11,000 in discretionary relief money to build a Harry Potter-inspired house system in which students from different grades were grouped together in a friendly competition. They earned team points throughout the school year for things like demonstrating good sportsmanship and winning games during recess. The school bought pens, bracelets, masks and other branded supplies. The program featured games on Fridays and the reading of team scores on Mondays – the days students are most likely to be absent. 

“We’re really strategic. You don’t know who the winning house is until you show up to class on Monday,” principal Petra Luhrsen said.

National School District in San Diego County used stimulus money to avoid planned cuts.

“Right before the pandemic hit, we proposed a budget reduction plan with some severe layoffs that were going to hit in March 2020,” Superintendent Leighangela Brady said. “Instead of hiring staff, we used the money to not lay off.”

Tech companies at the trough

One common area of spending was technology. Some districts spent heavily on laptops, hot spots and other hardware, as well as computer programs and support in order to make the switch to virtual schooling when buildings shut down.

Some educators and advocates question the amount of high-tech spending.

“Consulting companies and education service providers have been really aggressive in reaching out to districts to use these funds for new programs that they’re now creating to serve students,” said Amir Whitaker, senior policy counsel for the American Civil Liberties Union of Southern California – calling it an “education industrial complex.”

Districts threw COVID relief money at a menu of technology firms offering services like remote tutoring, online assessments, cybersecurity and virtual lessons.

One popular ed tech company is Edgenuity, an Arizona-based firm that rebranded itself late last year as Imagine Edgenuity. The company offers online curriculum and coursework. 

Sulphur Springs Union School District used Edgenuity last school year as a supplement to live instruction during distance learning.

“The program itself had some glitches. It was not very user friendly, unfortunately, so we used it for only one year,” said Jezelle Fullwood, assistant superintendent of educational services.

Clovis Unified is still using the company.

“We’ve used our Edgenuity for years,” said Susan Rutledge, Clovis’ assistant superintendent of business services. “Our Clovis Unified kids who are still online are using it. I know teachers have been happy with it.” 

A spokesperson for Edgenuity’s parent corporation said the company served thousands of schools and districts during the pandemic and is currently operating in several hundred California districts.

“Education technology solutions not only helped millions of students through a tumultuous time but continues to assist teachers today with insights from real-time data to meet each student where they are and anticipate future learning needs to drive better learning outcomes,” wrote Tim DeClaire, Imagine Learning’s communications director, in an email to CalMatters.

Some advocates, like Nicole Gon Ochi, deputy managing attorney at Public Advocates, question whether there are better uses.

“How much are the districts using toward staffing – which is actually what the kids need – as opposed to more software programs and these digital things?” Ochi asked.

Pandemic winners

It wasn’t just technology companies that reaped massive paydays from districts flush with stimulus cash. Personal protective equipment vendors and businesses selling indoor air quality products got lots of deals. Firms touting COVID testing-related services also were in high demand.

In September 2021, San Diego Unified’s board ratified a no-bid contract with a firm called Responsive Partners LLC to run a COVID testing program. The district amended the contract a few months later and the agreement – which runs through July 30 – is now worth up to $52 million.

Responsive Partners formed during the pandemic in April 2020, records show. Its manager-members in the most recent filing with the Secretary of State’s Office are three other companies. Its address listed in regulatory filings and on the company’s website is a UPS drop box in Orange County.

The board ratified the initial agreement at a September board meeting with no discussion, a video of the meeting shows. The board approved the amended agreement in January, again, with no public discussion.

That a company with no history, no apparent physical location and murky ownership could get a massive no-bid testing contract with the second largest district in the state – all without any kind of public hearing – is emblematic of the large amounts of money flying out the door with limited oversight and little transparency.

School officials say the contract was worth it for a district that’s had a particularly aggressive testing strategy to keep schools open – offering far more tests and testing sites than many other districts.

“I can’t say enough good things about this company. We’ve had such great care from them,” said Susan Barndollar, San Diego Unified’s head of nursing.

CalMatters spoke to a number of people within the district who said the testing program has worked well. Multiple sources also talked about the staffing crunch at the time and how difficult it was finding health care workers.

“Responsive labs really looked at the staffing, and they had a very creative solution for it,” Barndollar said. “They had a huge pool of EMTs they could use in San Diego to do the testing. They had ambulances and vans to get their equipment around. Their prices were very competitive.”

The man who signed the contract for Responsive Partners was Ryan Merchant. According to his LinkedIn profile, he previously managed a Southern California ambulance company.

The managing member of Responsive Partners who filled out the most recent business filing with the Secretary of State’s Office is Brandon Hudler. 

CalMatters attempted to speak with someone at the company. A man who answered the phone listed on Responsive Partners’ website identified himself as Merchant’s business partner but declined to provide his name. He said the company’s attorney – whom he declined to name – would call a CalMatters reporter to answer questions. No attorney called.

CalMatters also emailed a list of questions to Merchant at his Responsive Partners email listed in the San Diego Unified contract. He did not respond.

From fighting ISIS to fighting COVID

San Bernardino City Unified put its testing contract out to bid. They ultimately selected Applied Memetics, a Virginia-based firm founded by Daniel Gabriel, a former CIA counter-terrorism officer, according to his bio on the company’s website.

As recently as 2018, the company was described in Intelligence Online as “a key player in the Pentagon’s offensive to counter the influence of (the) Islamic State … on social and other media platforms.”

While the company’s website until recently still touted its national security work, the homepage described Applied Memetics as “America’s Leading Provider of K-12 & Community Health Solutions.”

The former Centers for Disease Control and Prevention director, Dr. Robert Redfield, is listed on the site as being a senior medical adviser.

San Bernardino City Unified paid the company $8.4 million in stimulus money through the first eight months of this fiscal year, records show. The entire agreement is worth up to $12.7 million, according to board documents.

Jens Dakin, a company vice president, said Applied Memetics’ core skills – strategic communications, research, data analysis – translate well to public health.

“It’s problem solving,” he said.

School and teachers union officials praised the company, which helped cover a shortage of nurses in the district.

Curious spending but little oversight

The California Virtual Academies, a chain of nine charter schools across the state, were probably better positioned than most to weather the pandemic. They didn’t need to worry about masking issues or social distancing requirements and didn’t need to suddenly figure out how to teach remotely. That’s because they were already teaching students exclusively online, even before the pandemic.

So how did the virtual academies use the $18 million in COVID relief money they spent last year? Nearly two-thirds of it – $11 million – went to K12 Management Inc., a subsidiary of the publicly traded corporation that helps run the schools, according to records the schools provided to CalMatters in response to a records request. And while some of that money is listed as going to pay for computers and peripheral equipment for students, $8.6 million went to “student course materials” or “online curriculum” from the corporation, the records show.

The charters and their relationship to the parent corporation – Stride Inc., which was formerly known as K12 Inc. – has been the source of past legal problems. In 2016, the state attorney general’s office announced a $168.5 million settlement with K12 Inc. over allegations the company and schools misled parents to boost enrollment and inflated attendance numbers. 

The attorney general’s complaint also alleged that while the academies were purportedly independent, the company effectively ran the schools and pushed them into contracts that benefitted the corporation.

As part of the settlement, K-12 Inc. didn’t admit to wrongdoing. Then and now, the company has maintained the schools are independent from the corporation.

CalMatters spoke to several current or former staff at the virtual academies who worked during the pandemic. They said teachers and counselors were overwhelmed as enrollment grew and questioned why so much money went to the corporation.

CalMatters reached out to academy officials, including the head of schools and a local board member. A Stride Inc. spokesman, Mike Kraft, responded saying the company had been asked to answer questions on behalf of the schools. In an email, the company told CalMatters that the state didn’t provide additional funding to cover the increased enrollment and that the corporation provides online curriculum, education materials, a learning management system and “a wealth of other items” for students and teachers.

“The (California Virtual Academy) schools used stimulus funds in compliance with the law,” according to the Stride Inc. response.

Most districts and schools will face little scrutiny for their pandemic spending decisions, outside local administrative offices and boardrooms.

Yes, some funds do require a public spending plan. The state also required a special report on how districts are using their one-time funds.

“But it was a very, very general document,” said Victor Leung, director of education equity for the ACLU of Southern California. “It was extremely unclear how those districts spent the money.”

Such documents also aren’t always easy for parents to find on district websites.

The state Education Department does review a selection of districts annually as part of the Federal Program Monitoring process. During such reviews, state evaluators look to make sure district policies are up to date and scrutinize a sampling of expenditures to make sure they’re appropriate.

Last fiscal year, the department reviewed stimulus spending at 15 local educational agencies – less than a percent of the roughly 1,700 agencies that got stimulus funds. This year the department is reviewing 50.

Those reviews turned up numerous red flags. Six of the 15 reviews from last year had so-called “findings” while 19 of the 37 so far this year flagged potential problems. The issues range from poor recordkeeping, to outdated conflict-of-interest policies, to outright misspending.

The state auditor mentioned the issue in its October report on school stimulus spending.

“The small number of (local educational agencies) that Education monitored is concerning given that it identified significant issues related to unsupported or unallowable expenditures at some of the 15 … that it selected,” according to the auditor’s report.

Oakland Unified had to shift nearly $1 million in funds to reimburse stimulus money it apparently misspent on things like commercial trucks and a communication system, records show.

Parlier Unified, in Fresno County, was ordered to return $733,000 in relief funds to the state, according to a copy of the notification of findings from November. A state spokeswoman, Maria Clayton, told CalMatters the Education Department is working with the district to see if there’s a way the schools can keep the funds and use them for something else that is allowed.

Some districts were able to resolve findings simply by providing more information to the state.

The state Education Department, for example, last year ordered the Sacramento-based charter school St. HOPE Public School 7 to justify much of its stimulus spending. Among the questioned costs was $11,000 the school spent on attorneys fees, records show.

In response to the findings, St. HOPE provided the state with accounting ledgers, invoices, written descriptions of spending and other records. The material showed, for example, the attorneys fees were for negotiations with the teachers’ union regarding the return to school and therefore justified.

CalMatters visited St. HOPE on a recent school day. In a first grade classroom, a group of students sat at a semi-circle table reading the time as a teacher moved the hands of a Frisbee-sized clock. Other students were busy at work on Chromebooks, which the school purchased using federal relief funds.

The school – whose students are mostly Black and Latino, and low-income – reopened for optional in-person instruction in November 2020, well before most public schools. Charter school officials say it was the stimulus money that enabled them to afford the face masks and cleaning supplies to keep serving students.

“We had a huge amount of students return to the physical learning environment because distance learning is challenging,” said Kari Wehrly, superintendent of St. HOPE Public Schools. “They were missing out on a lot of the structures and supports.”

Another district – Hayward Unified, dinged by state monitors over stimulus spending in a review last year — has been able to resolve most of its findings without losing money. State reviewers identified six issues at the school in fiscal year 2020-21.

Still, it’s taken a long time for the district to prove to the state it didn’t mishandle money. Districts are supposed to resolve findings within 45 days. As of this month, it’s been more than a year, and one finding remains outstanding.

Hayward’s Assistant Superintendent of Business Services, Allan Garde, wrote in an email to CalMatters that the district has been busy trying to keep schools open and running, and expected to resolve the last of the outstanding issues by the end of this month.

The slow pace of resolution hints at the limits of state authority.

In emails to her boss from January, the state monitor handling the Hayward review asked about sending a threatening-sounding letter to the district and complained about her inability to close the case.

“I have no teeth when it comes to resolving outstanding items,” she wrote, according to emails provided to CalMatters in response to a public records request.

Her boss wrote back: “I worry about making any empty threats as it could undermine things.”

For the record: The amount Castro Valley Unified spent on an equity consultant was revised based on updated information the district provided after publication.