MSDE headquarters budget rises but auditors and DLS flag oversight, unspent federal funds and contract lapses

State education officials and legislative analysts told a subcommittee that the Maryland State Department of Education (MSDE) headquarters allowance will increase by $14.7 million for fiscal 2027 to $409.7 million, but analysts and auditors flagged multiple oversight and spending issues that lawmakers said require follow-up.

"The fiscal 27 budget for MSDE headquarters increases by $14,700,000 or 3.7% to $409,700,000," Catherine Barber, Department of Legislative Services analyst, said during her presentation.

Barber reviewed performance measures and financial controls. DLS noted teacher-of-color retention remained below the state's 75% goal and highlighted significant encumbered and unspent federal funds in fiscal 2025, including a $97,000,000 balance in federal food-service funds, $104,000,000 in Title I encumbrances and $88,000,000 for special education grants. DLS asked MSDE to explain why large sums remain encumbered and to provide missing data requested in the joint chairman’s report.

The analyst also summarized Office of Legislative Audits findings: problems with oversight of hiring and licensing (including inadequate screening and monitoring of local education agencies), financial-management weaknesses that led to lost investment interest (about $3,600,000), and a failure to claim $20,700,000 in federal COVID relief funds (MSDE reported recovering $4,000,000 and $16,700,000 remains). OLA identified instances of noncompetitive contracting, including an instance described in the audit in which MSDE awarded a $700,000 contract, paid the vendor upfront and could not provide documentation that contracted services were delivered; OLA referred concerns to the attorney general’s criminal division.

MSDE's leader described steps to address shortcomings. "That was something that occurred under my predecessor," Carrie Wright, State Superintendent of Schools, said of the contract questions, adding that she canceled the contract after taking office in October 2023 and acknowledged prior handling was "not appropriately handled." Wright said MSDE is implementing new oversight procedures and plans to audit LEA licensing at a sampling rate because the agency lacks staff to review all local licenses.

Lawmakers also pressed MSDE on assessment costs. DLS noted MCAP contracts require significant deficiency appropriations ($10,000,000 in FY25 and $12,200,000 in FY26) and flagged the FY27 MCAP allowance of $54,900,000. MSDE staff explained that legacy contracts awarded to multiple vendors in 2018–2019 and scope changes during COVID created duplication and higher costs; the state has since consolidated work under a single vendor approved by the Board of Public Works.

The hearing also covered MSDE program rollouts and grant funds. Barber described a new literacy policy requiring K–3 screening three times per year and individualized reading plans, with third-grade promotion rules starting in 2027–28; DLS said implementation is funded with $47.2 million in federal and nonprofit grants and requested updates on timeline changes. On school safety, DLS outlined a FY27 school safety allowance that includes $16.6 million in grants and $3.7 million for operations and noted the Secure Schools Emergency Response Grant required by statute was not funded in the allowance.

Public witnesses urged increased funding for school safety and hate-crimes prevention. Jennifer Zuckerman, representing the Melvin J. Berman Hebrew Academy and the Jewish Community Relations Council of Greater Washington, asked lawmakers to raise the hate-crimes grant from $3,000,000 to $5,000,000 to cover rising threats and greater demand. Abby Snyder of the Baltimore Jewish Council asked for a $2,000,000 increase and said FEMA scoring changes disadvantage institutions that applied in prior years.

DLS recommended adding committee narrative and a $100,000 hold pending a report on MSDE's implementation of corrective actions for hiring/licensing oversight, financial management and timely reimbursements. Committee members asked staff to provide audit documentation on the $700,000 contract and sought written updates on corrective measures.

The hearing closed without formal votes; lawmakers asked MSDE to provide supplemental information and documentation to the committee.