Dispute resolution may allow Oklahoma to recover withheld funds

Friday, June 6th 2003, 12:00 am

By: News On 6

OKLAHOMA CITY (AP) -- The state of Oklahoma may now be able to recover some federal funds that were withheld in a dispute over legislators' diversion of money to the state Regents for Higher Education.

The U.S. Treasury Department has withheld $2.8 million from Oklahoma since May 23 because of the dispute, which started in 1996.

State Finance Director Scott Meacham said the agreement between the state and federal officials will allow the state to recover some of the funds.

A 1996 law redirected state employee payments to the Oklahoma State Employees and Education Group Insurance Board, which at the time had a surplus, into a special account.

More than $31 million from the account was then transferred to the regents as part of their annual appropriation from October 1996 through May 1997.

The U.S. Health and Human Services Department argued that some of the money came from federal grants that paid some employees' salaries.

Then-Finance Director Tom Daxon said because the money was directed to state employees as salary and benefits, it was no longer the federal government's money.

The federal agency said the state owed the federal government $7.4 million, plus interest. The issue was taken to court.

Last June, a federal appeals court in Denver ruled that Oklahoma wasn't entitled to the money because state officials diverted federal funds for an improper use.

State officials appealed the decision to the U.S. Supreme Court, but the high court declined to hear the case last year.

Oklahoma's bill comes to $13 million, which includes $7.1 million in principal and $5.6 million in interest. Under the agreement, the state will pay $4 million each fiscal year until the debt is satisfied.

"Federal officials are also considering returning some of the already withheld funds where the withholding of those funds results in an emergency, such as payment of employee salaries," Meacham said.

Some of the agencies affected are the University of Oklahoma, the state Health Department, Oklahoma State University, the state Department of Environmental Quality, the Oklahoma Water Resources Board, the Oklahoma Climatological Survey and the OU Health Sciences Center.

"We're still determining the full extent the garnishment had on the institutions, and we're hopeful that the action taken by the director of state finance will restore this funding, especially during these challenging economic times," said Harve Allen, a spokesman for the state regents.

Meacham said the Legislature appropriated $4 million on the last day of the session this year to begin paying the debt.

Gov. Brad Henry is expected to sign the legislation.