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Board hears budget update: federal ESSER III rescission, mixed state restoration and potential local shortfall
Summary
Finance staff warned the board on April 9 that federal and state changes are creating uncertainty for the FY26–FY27 funding picture: the U.S. Department of Education rescinded approved late‑liquidation of ESSER III funds statewide (effective March 28), St. Mary’s reports full expenditure of its ESSER III allocation, and the state conference committee restored some foundation funding for FY26 but only for one year.
District finance staff briefed the board on April 9 about federal, state and local budget developments that affect the FY26 budget outlook and longer‑term planning.
On federal pandemic funds, staff said the U.S. Department of Education rescinded approved late‑liquidation authority for ESSER III (ARP) funds effective March 28, 2025, meaning expenses incurred after that rescission date may not be reimbursed. St. Mary’s County Public Schools told the board it had fully expended and submitted reimbursement requests for its ESSER III allocation by the statutory deadline and did not request a late liquidation; district officials said they believe MSDE has already received full reimbursement on behalf of the county but are supporting MSDE as it gathers documentation for LEAs statewide.
On state funding, presenters said the governor’s original FY26 proposal reduced the district’s expected state aid; subsequent legislative work and the conference committee restored most foundation funding for FY26 but the restoration currently covers only one year. Finance staff said the special‑education nonpublic tuition holdback remains unresolved and that some line items tied to the governor’s bills and the BRFAA (Budget Reconciliation and Financing Act) continue to be negotiated. Early estimates presented to the board show the district’s state aid for FY26 is expected to be higher than the worst‑case scenario presented earlier in the spring, but uncertainty remains for FY27 and beyond.
Locally, the district reported that if local funding remains flat the system will face a multi‑million‑dollar shortfall in FY26 compared with the budget request. Staff listed steps already taken or proposed to reduce budget pressure: implementation of cost‑saving healthcare changes (Medicare Advantage plan, Prudent Rx, employee health center), elimination of certain central office positions proposed in the FY26 budget, a reduction of some instructional support roles and relocation/closure of physical sites (for example, relocating the Virtual Academy to the Leonardtown campus). Staff said these and other reductions total an estimated additional $1 million in savings; they also noted that larger cuts or structural actions (redistricting, school closures, elimination of program pathways) may be required if state or local funding does not materialize.
Presenters said county commissioners and the county CFO are actively reviewing the fiscal picture; district staff said there is a pool of funds at the county level that may be redistributed and that discussions are ongoing. The board’s finance presentation included a caution that the conference committee’s one‑year restoration leaves FY27 uncertain and that the district will present additional budget work sessions, including possible redistricting or program changes, at the May meeting if funding remains insufficient.
Board members asked for clarifications about potential federal clawbacks and about nonpublic special‑education tuition liabilities; finance staff said St. Mary’s risk is low for a federal clawback because the district had expended and submitted claims for its federal pandemic funds. The presentation was informational.
