Assistance to States for the Education of Children With Disabilities, 57324-57335 [2013-22668]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 78, Number 181 (Wednesday, September 18, 2013)]
[Proposed Rules]
[Pages 57324-57335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22668]


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DEPARTMENT OF EDUCATION

34 CFR Part 300

[DOCKET ID ED-2012-OSERS-0020]
RIN 1820-AB65


Assistance to States for the Education of Children With 
Disabilities

AGENCY: Office of Special Education and Rehabilitative Services, 
Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend regulations under Part B of 
the Individuals with Disabilities Education Act (IDEA or Act). These 
regulations govern the Assistance to States for the Education of 
Children with Disabilities program. The Secretary seeks public comment 
on proposed amendments to the regulation regarding local maintenance of 
effort to clarify existing policy and make other related changes 
regarding: The compliance standard; the eligibility standard; the level 
of effort required of a local educational agency (LEA) in the year 
after it fails to maintain effort under the IDEA; and the consequence 
for a failure to maintain local effort. The Secretary also seeks 
comment on whether States and LEAs or other interested parties think 
these proposed amendments will be helpful in increasing understanding 
of, and ensuring compliance with, the current local maintenance of 
effort requirements. Specifically, the Secretary seeks comment from 
States and LEAs to identify where they are experiencing the most 
problems in implementing the maintenance of effort requirements.

DATES: We must receive your comments on or before December 2, 2013.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by email. Please submit your comments only 
one time, in order to ensure that we do not receive duplicate copies. 
In addition, please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket is available on the site 
under ``Are you new to the site?''
     Postal Mail, Commercial Delivery, or Hand Delivery:
    If you mail or deliver your comments about these proposed 
regulations, address them to Mary Louise Dirrigl, U.S. Department of 
Education, 400 Maryland Avenue SW., room 5103, Potomac Center Plaza, 
Washington, DC 20202-2600.
    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to include 
in their comments only information that they wish to make publicly 
available.

FOR FURTHER INFORMATION CONTACT: Mary Louise Dirrigl, U.S. Department 
of Education, 400 Maryland Avenue SW., room 5103, Potomac Center Plaza, 
Washington, DC 20202-2600. Telephone: (202) 245-7605.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to begin with any general 
comments and then to identify clearly the specific section or sections 
of the proposed regulations that your comments address and to arrange 
your comments in the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
proposed regulations. Please let us know of any further ways we could 
reduce potential costs or increase potential benefits while preserving 
the effective and efficient administration of the IDEA Part B program.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You also may inspect the comments in person in room 5104, Potomac 
Center Plaza, 550 12th Street, SW., Washington, DC, between the hours 
of 8:30 a.m. and 4:00 p.m., Washington, DC time, Monday through Friday 
of each week except Federal holidays.
    Please contact the person listed under FOR FURTHER INFORMATION 
CONTACT.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will provide an appropriate accommodation or 
auxiliary aid to an individual with a disability who needs assistance 
to review the comments or other documents in the public rulemaking 
record for these proposed regulations. If you want to schedule an 
appointment for this type of accommodation or auxiliary aid, please 
contact the person listed under FOR FURTHER INFORMATION CONTACT.

[[Page 57325]]

Background

34 CFR Part 300 (Part B)

    The regulations in 34 CFR part 300 implement Part B of the IDEA. 
Under Part B, the Department provides grants to States, outlying areas, 
and freely associated States, as well as funds to the Department of the 
Interior, to assist them in providing special education and related 
services to children with disabilities. There are four key purposes of 
the Part B regulations: (1) To ensure that all children with 
disabilities have available to them a free appropriate public education 
(FAPE) that emphasizes special education and related services designed 
to meet their unique needs and prepare them for further education, 
employment, and independent living; (2) to ensure that the rights of 
children with disabilities and their parents are protected; (3) to 
assist States, localities, educational service agencies, and Federal 
agencies in providing for the education of all children with 
disabilities; and (4) to assess and ensure the effectiveness of efforts 
to educate children with disabilities.
    Part B funding is intended to assist States and LEAs in meeting 
their financial obligation to provide special education and related 
services to eligible children with disabilities. In order to receive 
funds, States must apply to the Secretary, and LEAs must apply to their 
States. The statute and its regulations impose conditions on Part B 
grants, including a maintenance of State financial support provision 
and a maintenance of effort (MOE) provision for LEAs. This NPRM focuses 
only on proposed amendments to the LEA MOE provision.

The LEA MOE Requirement

    Under section 613(a)(2)(A)(iii) of the IDEA, except as provided in 
section 613(a)(2)(B) and (C), Part B funds provided to an LEA must not 
be used to reduce the level of expenditures for the education of 
children with disabilities made by the LEA below the level of those 
expenditures for the preceding fiscal year. This provision is repeated 
in the Part B regulations in Sec.  300.203(a).
    Standard for Determining LEA Eligibility. The regulations expand on 
the statutory requirement by adding an LEA MOE standard that State 
educational agencies (SEAs) must apply when determining whether an LEA 
is eligible for Part B funds. The eligibility standard is in Sec.  
300.203(b). Under this provision, the SEA must determine whether the 
LEA has budgeted for the education of children with disabilities at 
least the same total or per capita amount of local, or State and local, 
funds as it spent during the most recent prior year for which there is 
information available. In other words, the standard for determining 
eligibility for funds described in Sec.  300.203(b) generally compares 
the amount budgeted for the year for which the LEA is applying for Part 
B funds to the amount expended in the most recent prior year for which 
data are available.
    If an LEA has been meeting the MOE standard with State and local 
funds and in a subsequent year will not be able to budget at least as 
much in State and local funds as it spent in the most recent prior year 
for which data are available, the LEA must budget at least as much in 
local funds as it spent in local funds when the LEA last met the MOE 
standard using local funds only. (Sec.  300.203(b)(2))
    Using an LEA's budget as the measure of eligibility is necessary 
because LEAs apply for, and SEAs generally determine their eligibility 
for, Part B funding for the upcoming school year (SY) in the spring or 
early summer of the current year, well before expenditure data for that 
current year are available.
    Auditing and Compliance Standard. SEAs use a different standard 
when determining whether an LEA complied with the requirement to 
maintain effort. When an SEA examines an LEA's compliance with the MOE 
requirement, such as in an audit or compliance review, the amount of 
local, or State and local, funds expended for the education of children 
with disabilities in a year generally determines the level of fiscal 
``effort'' that an LEA must maintain in the following year. (See Sec.  
300.203(a).)
    Exceptions to the MOE Requirements. Under section 613(a)(2)(B) and 
(C) of the IDEA, certain exceptions and adjustments to the basic MOE 
requirements apply. Under section 613(a)(2)(B) and its implementing 
regulations in Sec.  300.204 (exceptions for local changes), an LEA may 
reduce its required level of expenditures because of the voluntary 
departure of special education personnel, a decrease in the enrollment 
of children with disabilities, the termination of the obligation of the 
agency to provide an exceptionally costly program of special education 
to a child with a disability, or the termination of costly expenditures 
for long-term purchases, such as the acquisition of equipment or the 
construction of school facilities.
    Under section 613(a)(2)(C) and its implementing regulations in 
Sec.  300.205 (Federal increase), an LEA may adjust its expenditures in 
fiscal years when the Part B, section 611 allocation received by the 
LEA exceeds the amount the LEA received for the previous fiscal year. 
In those years, under the conditions specified in section 
613(a)(2)(C)(ii), (iii), and (iv), the LEA may reduce its required 
level of expenditures by not more than 50 percent of the amount by 
which the LEA's current Part B section 611 grant exceeds its Part B 
section 611 grant in the prior year. If, when reviewed retrospectively, 
and after making allowances for any of the exceptions and adjustments 
described in section 613(a)(2)(B) and (C), the LEA maintained or 
exceeded its level of local, or State and local, expenditures for the 
education of children with disabilities from year to year, either in 
total or per capita, then the LEA has met the MOE requirement.
    The following chart and explanations illustrate how an LEA could 
meet local MOE under current Sec. Sec.  300.203 through 300.205 over a 
period of years:
    Numbers are dollars in 10,000s budgeted and expended for the 
education of children with disabilities
    (* Denotes how the LEA met the MOE requirement, i.e., through local 
funds or State and local funds)

                                How an LEA Meets Local MOE Over a Period of Years
----------------------------------------------------------------------------------------------------------------
                                                                                      Reductions in Expenditures
 Fiscal year (actual expenditures)     Local funds     State funds      State and     pursuant to Sec.   300.204
                                                                       local funds        or Sec.   300.205
----------------------------------------------------------------------------------------------------------------
Covering SY 2006-2007..............           * 110             190             300  ...........................
Covering SY 2007-2008..............              70             210           * 280  20 reduction permissible
                                                                                      under Sec.   300.204(a).
Covering SY 2008-2009..............              40             230           * 270  10 reduction permissible
                                                                                      under Sec.   300.204(c).
Covering SY 2009-2010..............              40             240           * 280  ...........................
Covering SY 2010-2011..............              60             220           * 280  ...........................
Covering SY 2011-2012..............            * 80             150             230  ...........................
Covering SY 2012-2013..............            * 75             160             235  5 reduction permissible
                                                                                      under Sec.   300.205.
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[[Page 57326]]

    SY2006-2007: Assumes 110 is the amount of local funds expended in 
the prior year.
    SY2007-2008: The LEA met MOE based on the combination of State and 
local funds, after a reduction of 20 permissible under Sec.  300.204(a) 
based on voluntary departures of special education personnel. The LEA 
did not meet MOE based on local funds only.
    SY2008-2009: The LEA met MOE based on the combination of State and 
local funds, after a reduction of 10 permissible under Sec.  300.204(c) 
because the LEA was no longer responsible for a particularly costly 
program of special education to a child who moved out of the 
jurisdiction. The LEA did not meet MOE based on local funds only.
    SY2009-2010: The LEA met MOE based on the combination of State and 
local funds. The LEA did not meet MOE based on local funds only, 
because the comparison is to the last year the LEA met MOE based on 
local funds only (06-07), less any reductions taken under Sec. Sec.  
300.204 (exceptions for local changes) and 300.205 (Federal increase).
    SY2010-2011: The LEA met MOE based on the combination of State and 
local funds. The LEA did not meet MOE based on local funds only, 
because the comparison is to the last year the LEA met MOE based on 
local funds only (2006-2007), less any reductions taken under 
Sec. Sec.  300.204 (exceptions for local changes) and 300.205 (Federal 
increase).
    SY2011-2012: The LEA met MOE based on local funds only (the last 
year the LEA met MOE based on local funds only, 2006-2007, less 
reductions taken in 2007-2008 and 2008-2009 permitted under Sec.  
300.204 (exceptions for local changes)), but the LEA did not meet MOE 
based on the combination of State and local funds.
    SY2012-2013: The LEA met MOE based on local funds only (the last 
year the LEA met MOE based on local funds only, 2011-2012, less a 
reduction permitted under Sec.  300.205 (Federal increase)).

Significant Proposed Regulations

    Summary of proposed changes. We are proposing in this NPRM to amend 
current Sec.  300.203 by--
    (1) Clarifying the compliance standard. We propose to--
     Revise the heading of Sec.  300.203(a) to clarify that 
this section addresses the compliance standard an SEA must use when 
determining whether an LEA has complied with the requirement to 
maintain effort;
     Add language to Sec.  300.203(a) to clarify how an LEA 
meets the standard in any fiscal year, based on a combination of State 
and local funds or local funds only; and
     Add language to Sec.  300.203(a) to specify how an LEA 
meets the standard in any fiscal year based on local funds only if the 
LEA has not previously met the MOE compliance standard based on local 
funds only;
    (2) Clarifying the eligibility standard. We propose to--
     Revise the heading of Sec.  300.203(b) to clarify that 
this section addresses the eligibility standard an SEA must use when 
determining whether an LEA is eligible for Part B funds;
     Revise 300.203(b)(1) to replace the phrase ``most recent 
prior year'' with the phrase ``most recent fiscal year'' to conform 
with the remaining changes proposed in this section;
     Revise the language in Sec.  300.203(b)(2) to clarify that 
if an LEA relies on local funds only to meet the eligibility standard 
in Sec.  300.203(b)(1)(i), the LEA must budget at least as much in 
local funds for the education of children with disabilities, either in 
total or per capita, as the amount it spent in local funds for that 
purpose in the most recent fiscal year for which information is 
available and for which the LEA met the MOE compliance standard based 
on local funds only, even if the LEA also met the MOE compliance 
standard based on State and local funds;
     Add language to Sec.  300.203(b) to specify that if an LEA 
relies on local funds only to meet the eligibility standard in Sec.  
300.203(b)(1)(i) and has not previously met the MOE compliance standard 
based on local funds only, the LEA must budget at least as much in 
local funds for the education of children with disabilities, either in 
total or per capita, as the amount it spent in local funds for that 
purpose in the most recent fiscal year for which information is 
available; and
     Move current Sec.  300.203(b)(3) to Sec.  300.203(a) and 
to modify the language because current Sec.  300.203(b)(3) addresses 
the compliance standard, not the eligibility standard;
    (3) Specifying the MOE requirements for an LEA that fails to 
maintain effort in a prior year. We propose to specify in Sec.  
300.203(c) that when an LEA fails to maintain its level of expenditures 
required by Sec.  300.203(a), the level of expenditures required in any 
fiscal year beginning on or after July 1, 2014, is the amount that 
would have been required in the absence of that failure and not the 
LEA's reduced level of expenditures; and
    (4) Specifying the consequences for an LEA's failure to maintain 
effort. We propose in Sec.  300.203(d) the consequence for an LEA that 
fails to maintain its level of expenditures for the education of 
children with disabilities. The SEA would be liable in a recovery 
action under 20 U.S.C. 1234a to return to the Department, using non-
Federal funds, an amount equal to the amount by which the LEA failed to 
maintain its level of expenditures.
    The economic downturn in recent years has hurt many State and local 
treasuries and generated a number of questions about the application of 
the Part B LEA MOE requirements. The Department has provided guidance 
to States and LEAs about the LEA MOE provisions in Part B, through 
multiple means such as policy letters, webinars, and conference 
presentations. However, the Department continues to receive questions 
on these complex requirements.
    Through fiscal monitoring and reviewing audit findings, the Office 
of Special Education Programs (OSEP) has found that a significant lack 
of understanding regarding the local MOE requirements persists. For 
example, through our fiscal monitoring OSEP has determined that many 
SEAs have not allowed LEAs to use all four comparisons (State and local 
total or per capita or local only total or per capita) to demonstrate 
compliance with the LEA MOE requirements. This could result in an SEA 
making a finding of noncompliance and returning funds to the Department 
without giving LEAs the opportunity to demonstrate compliance using all 
four comparisons. Other States are not applying the exceptions in Sec.  
300.204 correctly or are not applying them at all. Finally, some States 
have not understood the difference between the eligibility standard and 
the compliance standard and may only be evaluating the eligibility 
standard and never determining actual LEA compliance with the LEA MOE 
provisions. As noted previously, the Secretary seeks comment from 
States and LEAs to identify where they are experiencing the most 
problems in implementing the maintenance of effort requirements and 
whether these proposed regulations will help to address those problems.
    Many parties expressed concern about our June 16, 2011, response to 
a question from Dr. Bill East about what level of expenditures an LEA 
must maintain in a year following a year in which the LEA fails to 
maintain its required level of expenditures, and the consequence for an 
LEA's failure to maintain effort in the prior year.
    After further review, and as indicated in our April 4, 2012, letter 
to Ms. Kathleen Boundy (www2.ed.gov/policy/speced/guid/idea/
memosdcltrs/osep-04-

[[Page 57327]]

04-2012.pdf), we have withdrawn our interpretation as expressed in the 
letter to Dr. East.
    In the letter to Ms. Boundy, we noted that

    LEAs, at a minimum, should not reduce their level of financial 
support for the education of children with disabilities, except as 
permitted in section 613(a)(2)(B) and (C), so that they can continue 
to meet their obligations to provide the special education and 
related services that children with disabilities need to receive a 
free appropriate public education.

    In order to ensure that all parties involved in implementing, 
monitoring, and auditing LEA compliance with MOE requirements 
understand the rules to apply, we are instituting this regulatory 
action. We are proposing to amend the regulations to clarify: (1) The 
compliance standard; (2) the eligibility standard; (3) the level of 
financial support required in a subsequent year if an LEA fails to 
maintain effort; and (4) the consequences for failure to maintain 
effort.
    Compliance standard. The Department continues to receive questions 
on the compliance standard in current Sec.  300.203(a). This section 
states that except as provided in Sec. Sec.  300.204 (exceptions for 
local changes) and 300.205 (Federal increase), funds provided to an LEA 
under Part B of the IDEA must not be used to reduce the level of 
expenditures for the education of children with disabilities made by 
the LEA from local funds below the level of those expenditures for the 
preceding fiscal year.
    This does not conform to the eligibility standard in Sec.  
300.203(b). The eligibility standard provides an SEA flexibility for 
the purpose of determining if an LEA meets the eligibility standard by 
allowing an LEA to budget for the education of children with 
disabilities at least the same total or per capita amount from either 
the combination of State and local funds or local funds only as the LEA 
spent for that purpose from the same source for the most recent prior 
year for which information was available. Therefore, we are proposing 
to clarify in Sec.  300.203(a)(2)(i) that an SEA may determine that an 
LEA meets the compliance standard if the LEA does not reduce the amount 
of State and local funds expended for the education of children with 
disabilities, either in total or per capita, below the amount of State 
and local funds expended for that purpose in the preceding fiscal year, 
except as provided in Sec. Sec.  300.204 (exceptions for local changes) 
and 300.205 (Federal increase).
    In addition, under the eligibility standard in current Sec.  
300.203(b)(2), if an LEA relies on local funds to establish 
eligibility, the fiscal year that determines the amount of local funds 
the LEA must budget for the education of children with disabilities is 
the most recent fiscal year for which information is available and in 
which the LEA established compliance using local funds only. We are 
proposing to clarify in Sec.  300.203(a)(2)(ii) that an SEA may 
determine that an LEA meets the compliance standard if the LEA does not 
reduce the amount of local funds expended for the education of children 
with disabilities, either in total or per capita, below the amount of 
local funds expended for that purpose in the most recent fiscal year 
for which the LEA met the MOE compliance standard based on local funds 
only, even if the LEA also met the MOE compliance standard based on 
State and local funds, except as provided in Sec. Sec.  300.204 
(exceptions for local changes) and 300.205 (Federal increase).
    This provision is consistent with the purpose of the local MOE 
provision, which is to support the continuation of at least a certain 
level of local expenditures for the education of children with 
disabilities. This provision would clarify that an LEA does not meet 
the compliance standard if the amount of local funds expended in a 
fiscal year for the education of children with disabilities is the same 
as the amount of local funds expended for that purpose in the preceding 
fiscal year, if the LEA did not meet the MOE compliance standard based 
on local funds only in the preceding fiscal year. This ensures that if 
an LEA met MOE in year one based on local funds only, and decreased the 
amount of local funds it expended as State funding increased in year 
two, the LEA could not demonstrate that it met MOE based on local funds 
only in year three by using the preceding fiscal year (year two), the 
fiscal year in which it decreased the amount of local funds it 
expended, as the comparison year.
    For example, in year one an LEA met MOE based on local funds. In 
year two, the LEA decreased the amount of local funds it expended, and, 
because State funding increased, the LEA met MOE based on State and 
local funds. In year three, the LEA meets MOE based on local funds only 
by spending the amount of local funds it expended in year one; it 
cannot use year two (the preceding fiscal year) as the comparison year 
because the amount of local funds expended that year was less than the 
amount of local funds expended in year one.
    Thus, comparing the amount of local funds expended for the 
education of children with disabilities to a fiscal year in which an 
LEA met the compliance standard based on local funds only, rather than 
the preceding fiscal year, means in this situation the comparison year 
is the year in which the LEA expended the highest amount of local 
funds.
    In addition, under the proposed regulations, an LEA may not use as 
a comparison year a year in which the LEA met the compliance standard 
based on local funds (and not State and local funds) and in an 
intervening year increased the amount of local funds expended and met 
the compliance standard based on local funds and State and local funds. 
For example, in year one an LEA met MOE based on local funds. In year 
two, the LEA increased the amount of local funds it expended and met 
MOE based on local funds, and, because State funding also increased, it 
also met MOE based on State and local funds. In year three, the LEA 
meets MOE based on local funds only by spending the amount of local 
funds it expended in year two; it cannot use year one as a comparison 
year because the amount of local funds expended in that year was less 
than the amount of local funds expended in year two. Thus, comparing 
the amount of local funds expended for the education of children with 
disabilities to a fiscal year in which an LEA met the compliance 
standard based on local funds only, even if the LEA also met the MOE 
compliance standard based on State and local funds, means in this 
situation the comparison year is the year in which the LEA expended the 
highest amount of local funds. We understand that because of 
fluctuations in the amount of State and local funds LEAs receive for 
the education of children with disabilities, there may not be an 
approach that would in every instance result in the comparison year 
being the year in which the LEA expended the highest amount of local 
funds. However, we believe that using the most recent fiscal year in 
which an LEA met the compliance standard based on local funds only, 
even if the LEA also met the MOE compliance standard based on State and 
local funds, is most likely to result in the comparison year being the 
year in which the LEA expended the highest amount of local funds.
    On May 20, 2013, the Department's Office of Inspector General (OIG) 
issued an Alert Memorandum related to the administration of LEA MOE 
requirements by the California Department of Education (CDE). (See 
www2.ed.gov/about/offices/list/oig/

[[Page 57328]]

auditreports/fy2013/l09n0004.pdf.) The OIG found two instances in which 
CDE allowed LEAs that had not previously demonstrated compliance based 
on local funds only to demonstrate MOE compliance by comparing their 
fiscal year 2009-2010 local only expenditures to fiscal year 2006-2007 
local only expenditures. We agreed with the OIG that in this situation, 
the LEAs should not have been permitted to demonstrate MOE compliance 
by comparing their fiscal year 2009-2010 local only expenditures to 
fiscal year 2006-2007 local only expenditures.
    We recognize that the current regulations do not address the 
situation where an LEA has not previously demonstrated compliance based 
on local funds only. Both the statutory and regulatory LEA MOE 
provisions set out two comparison years for the purpose of LEA MOE 
compliance--the preceding fiscal year or, if the LEA relies on local 
funds only, the most recent fiscal year the LEA met the MOE compliance 
standard based on local funds only. Given the OIG's recommendation that 
the Department revise the local MOE regulation as needed and the fact 
that this situation is not addressed in the current regulations, we are 
proposing to add language to Sec.  300.203(a)(2)(iii) to specify that 
the comparison year that applies when determining compliance if an LEA 
has not previously met MOE based on local funds only is the preceding 
fiscal year.
    Because current Sec.  300.203(b)(3) addresses the compliance 
standard and not the eligibility standard, we are also proposing to 
modify the language and move that section to proposed Sec.  300.203(a), 
which would address the compliance standard.
    Eligibility standard. Under current Sec.  300.203(b)(2), an LEA 
that relies on local funds to establish eligibility must ensure that 
the amount of local funds it budgets for the education of children with 
disabilities in that year is at least the same, either in total or per 
capita, as the amount it spent for that purpose in the most recent 
fiscal year for which information is available and the standard in 
paragraph (b)(1)(i) of this section was used to establish its 
compliance with this section.
    The Department has received questions that indicate the language 
``the standard in paragraph (b)(1)(i) of this section was used to 
establish its compliance with this section'' has created some 
confusion. Therefore, we are proposing to revise Sec.  300.203(b)(2) to 
clarify that the comparison year is the most recent fiscal year for 
which information is available and the LEA met the MOE compliance 
standard using local funds only, even if the LEA also met the MOE 
compliance standard based on State and local funds. We are also 
proposing to add language to Sec.  300.203(b)(3) to specify that the 
comparison year that applies when determining eligibility if an LEA has 
not previously met MOE based on local funds only is the most recent 
fiscal year for which information is available.
    Level of effort required in a subsequent year. The Department 
believes that when an LEA fails to maintain its required level of 
expenditures, the level of expenditures required in future years should 
be the amount that would have been required in the absence of that 
failure and not the LEA's actual expenditures in the year it failed to 
meet the MOE requirement. This interpretation is based on careful 
consideration of the statutory language, structure, and purpose.
    The statute is silent on the precise question of the level of 
effort required if an LEA fails to meet MOE in a prior year. In 
contrast, section 613(a)(2)(B) and (C) of the IDEA describes in detail 
two sets of conditions under which an LEA lawfully may reduce its 
expenditures. In light of the precision with which these exceptions and 
adjustments are spelled out, it would be anomalous for Congress to 
permit LEAs--through silence--to reduce the required level of 
expenditures. The absence of an exception in the statute for failure of 
an LEA to meet the local MOE requirement in the prior year strongly 
supports the position that such a failure does not reduce the level of 
effort required in future years. In light of the detail with which 
other exceptions are laid out in the statute, we believe that the Act's 
silence on the level of expenditures required in the year after an LEA 
has failed to comply with the LEA MOE requirement does not reflect an 
intent by Congress to permit LEAs to take advantage of a violation of 
the Act.
    With regard to the State maintenance of State financial support 
required in section 612(a)(18) of the Act, the IDEA makes clear that, 
if effort is not maintained in a particular year, the financial support 
required in future years ``shall be the amount that would have been 
required in the absence of that failure and not the reduced level of 
the State's support.'' 20 U.S.C. 1412(a)(18)(D). Although similar 
language pertaining to LEAs is not contained in section 613, had 
Congress intended the phrase ``for the preceding fiscal year'' to carry 
a different meaning when applied to LEAs, we believe it would have 
stated that intention clearly. Rather, it is likely that Congress did 
not feel compelled to restate in section 613 what it already had made 
obvious in the preceding section.
    Furthermore, allowing an LEA to reduce spending on the education of 
children with disabilities by failing to comply with a statutory 
requirement is inconsistent with the purpose of the local MOE 
requirement, which is to support a continuation of at least a certain 
level of local expenditures for the education of children with 
disabilities. Permitting an LEA to lower its required level of effort 
based on a past year's failure to comply with the requirement conflicts 
in a fundamental way with that purpose and provides a financial 
incentive for LEAs not to maintain their fiscal efforts. We do not 
believe that the statute contemplates that an LEA should be permitted a 
future financial benefit from a current failure to comply with the LEA 
MOE requirement.
    We also believe that if an LEA were permitted to reduce 
expenditures for the education of children with disabilities for 
reasons not specifically stated in the exceptions in section 
613(a)(2)(B) and (C) of the Act, services for children with 
disabilities would likely suffer. This result would be contrary to the 
overall purpose of the IDEA, which is ``to ensure that all children 
with disabilities have available to them a free appropriate public 
education'' (20 U.S.C. 1401(d)).
    The adjustments and exceptions that are built into the IDEA in 
section 613(a)(2)(B) and (C) provide sufficient protection to LEAs 
faced with changed circumstances, and they also help to ensure that 
sufficient funding will be available in the future to provide 
appropriate services to children with disabilities. Additionally, under 
Sec.  300.203(b), an LEA is given the benefit of the most favorable of 
four comparisons in calculating the required maintenance of effort 
level. An SEA must determine that an LEA meets the MOE standard if, 
after taking into account the adjustments and exceptions described 
previously, the LEA maintained (or exceeded) its level of local, or 
State and local, expenditures for the education of children with 
disabilities from year to year, either in total or per capita.
    For all of these reasons, we believe that the position expressed in 
the April 4, 2012, letter correctly interprets the statutory obligation 
of LEAs to maintain effort. Therefore, we are proposing to add a 
provision that if, for any fiscal year, an LEA fails to maintain 
effort, the level of effort required of the LEA in a subsequent fiscal 
year is the amount that would have been required in the

[[Page 57329]]

absence of that failure and not the LEA's reduced level of 
expenditures. We are proposing to specify that this provision would 
apply to any fiscal year beginning on or after July 1, 2014, the 
beginning of the first grant award period after the date these 
regulations could take effect.
    Under the proposed regulations, in order to be eligible to receive 
a grant under IDEA Part B, LEAs will need to budget as much or more 
State and local funds in the upcoming fiscal year as they expended in 
the most recent fiscal year for which data are available. If LEAs do 
not meet that test, they must budget as much or more local funds in the 
upcoming fiscal year as they expended in the most recent fiscal year 
for which data are available and in which they met the MOE compliance 
requirement based on local funds only, even if the LEA also met the MOE 
compliance standard based on State and local funds.
    Thus, if an LEA did not maintain effort in 2012-2013, and will meet 
the MOE requirement based on the combination of State and local funds 
in 2014-2015, the LEA must budget for 2014-2015 the amount that it 
should have expended in 2012-2013 rather than its actual 2012-2013 
expenditures. Similarly, when determining an LEA's eligibility based on 
expenditures in 2013-2014, if an LEA did not maintain effort in 2013-
2014 and will meet MOE in 2015-2016 based on the combination of State 
and local funds, the State must compare the LEA's amount budgeted for 
2015-2016 to the amount the LEA should have expended in 2013-2014 
rather than its actual expenditures. If an LEA will not be able to meet 
the MOE requirement based on State and local funds but did not maintain 
effort in the last year it established eligibility based on meeting MOE 
with local funds only, the LEA must budget for the upcoming fiscal year 
the amount of its expenditures for the last year that it met the MOE 
requirement based on local funds only. States will need to carefully 
review LEA applications, and compare amounts budgeted to amounts 
expended in prior years, to ensure that their LEAs meet the eligibility 
requirement.
    In addition, States will need to monitor and audit their LEAs to 
ensure that they expended as much or more State and local funds in the 
next fiscal year as they did in the prior year, less any reductions 
permitted by Sec. Sec.  300.204 (exceptions for local changes) and 
300.205 (Federal increase). For example, if an LEA failed to maintain 
effort in 2013-2014, the level of effort that a State must audit 
against when considering the combination of State and local funds for 
2014-2015 is the level of effort the LEA should have met in 2013-2014, 
less any 2014-2015 reductions permitted by Sec. Sec.  300.204 
(exceptions for local changes) and 300.205 (Federal increase). 
Similarly, when an SEA considers an LEA's compliance with MOE based on 
local funds only for 2014-2015, the level of effort required is the 
LEA's required level of effort in the most recent fiscal year in which 
the LEA met MOE based on local funds only, even if the LEA also met the 
MOE compliance standard based on State and local funds, less any 
intervening reductions permitted by Sec. Sec.  300.204 (exceptions for 
local changes) and 300.205 (Federal increase). The following charts 
illustrate how to identify the level of effort required of an LEA 
consistent with this interpretation for both eligibility determinations 
and auditing and compliance purposes.

        Eligibility Determinations Based on State and Local Funds
------------------------------------------------------------------------
                                                     Level of effort to
    Budget year (planned                            be budgeted  (either
        expenditures)         Met/did not meet MOE  total or per capita)
                                                             \1\
------------------------------------------------------------------------
2014-2015 Budget (Assumes     Met MOE in 2012-2013  2012-2013 actual
 most recent fiscal year for                         expenditures.
 which data are available is
 2012-2013).
                             -------------------------------------------
                              Did not meet MOE in   2011-2012 actual
                               2012-2013.            expenditures less
                                                     any reductions in
                                                     2012-2013 permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2015-2016 Budget (Assumes     Met MOE in 2013-2014  2013-2014 actual
 most recent fiscal year for                         expenditures.
 which data are available is
 2013-2014).
                             -------------------------------------------
                              Did not meet MOE in   2012-2013 actual
                               2013-2014.            expenditures less
                                                     any reductions in
                                                     2013-2014 permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2016-2017 Budget (Assumes     Met MOE in 2014-2015  2014-2015 actual
 most recent fiscal year for                         expenditures.
 which data are available is
 2014-2015).
                             -------------------------------------------
                              Did not meet MOE in   Level of effort
                               2014-2015.            required to meet
                                                     MOE in 2014-
                                                     2015.\2\
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \1\ The required level of effort for budgeting purposes does not 
include any reductions that could be taken in the budget year under 
Sec. Sec.  300.204 and 300.205.
    \2\ As determined under proposed Sec. Sec. 300.203(b) and 
current 300.205.

[[Page 57330]]



     Auditing and Compliance Analysis Based on State and Local Funds
------------------------------------------------------------------------
                                                      Required level of
     Fiscal year (actual      Met/Did not meet MOE     effort  (either
        expenditures)                               total or per capita)
------------------------------------------------------------------------
Covering school year 2013-    N/A.................  2012-2013 actual
 2014.                                               expenditures less
                                                     any reductions in
                                                     2013-2014 permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
Covering school year 2014-    Met MOE in 2013-2014  2013-2014 actual
 2015.                                               expenditures less
                                                     any reductions in
                                                     2014-2015 permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
 
                              Did not meet MOE in   Level of effort
                               2013-2014.            required to meet
                                                     MOE in 2013-2014,
                                                     less any reductions
                                                     in 2014-2015
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
Covering school year 2015-    Met MOE in 2014-2015  2014-2015 actual
 2016.                                               expenditures less
                                                     any reductions in
                                                     2015-2016 permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
                             -------------------------------------------
                              Did not meet MOE in   Level of effort
                               2014-2015.            required to meet
                                                     MOE in 2014-2015
                                                     less any reductions
                                                     in 2015-2016
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------


          Eligibility Determinations Based on Local Funds Only
------------------------------------------------------------------------
                                                     Level of effort to
    Budget year (planned                               be budgeted \3\
        expenditures)         Met/did not meet MOE  (either total or per
                                                           capita)
------------------------------------------------------------------------
2014-2015 Budget (Assumes     Met MOE in 2012-2013  2012-2013 actual
 most recent fiscal year for                         expenditures.
 which data are available
 and LEA eligibility was
 established based on
 meeting MOE with local
 funds only is 2012-2013).
                             -------------------------------------------
                              Did not meet MOE in   Actual expenditures
                               2012-2013.            from the last year
                                                     the LEA met MOE
                                                     based on local
                                                     funds only, even if
                                                     the LEA also met
                                                     MOE based on State
                                                     and local funds,
                                                     less any reductions
                                                     in intervening
                                                     years permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2015-2016 Budget (Assumes     Met MOE in 2013-2014  2013-2014 actual
 most recent fiscal year for                         expenditures.
 which data are available
 and LEA eligibility was
 established based on
 meeting MOE with local
 funds only is 2013-2014).
                             -------------------------------------------
                              Did not meet MOE in   Actual expenditures
                               2013-2014.            from the last year
                                                     LEA met MOE based
                                                     on local funds
                                                     only, even if the
                                                     LEA also met MOE
                                                     based on State and
                                                     local funds, less
                                                     any reductions in
                                                     intervening years
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2016-2017 Budget (Assumes     Met MOE in 2014-2015  2014-2015 actual
 most recent fiscal year for                         expenditures.
 which data are available
 and LEA eligibility was
 established based on
 meeting MOE with local
 funds only is 2014-2015).
                             -------------------------------------------
                              Did not meet MOE in   Level of effort
                               2014-2015.            required to meet
                                                     MOE in 2014-
                                                     2015.\4\
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \3\ The required level of effort for budgeting purposes does not 
include any reductions that could be taken in the budget year under 
Sec. Sec. 300.204 and 300.205.
    \4\ As determined under proposed Sec. 300.203(b) and current 
Sec. Sec. 300.204 and 300.205.

[[Page 57331]]



       Auditing and Compliance Analysis Based on Local Funds Only
------------------------------------------------------------------------
                                                      Required level of
    Fiscal year  (actual      Met/Did not meet MOE     effort  (either
        expenditures)                               total or per capita)
------------------------------------------------------------------------
2013-2014...................  N/A.................  Actual expenditures
                                                     from the last year
                                                     LEA met MOE based
                                                     on local funds
                                                     only, even if the
                                                     LEA also met MOE
                                                     based on State and
                                                     local funds, less
                                                     any reductions in
                                                     intervening years
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2014-2015...................  Met MOE based on      Actual expenditures
                               local funds only in   from 2013-2014 less
                               2013-2014.            any reductions in
                                                     intervening years
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
                             -------------------------------------------
                              Did not meet MOE      Level of effort
                               based on local        required to meet
                               funds only in 2013-   MOE in the last
                               2014.                 year the LEA met
                                                     MOE with local
                                                     funds only, even if
                                                     the LEA also met
                                                     MOE based on State
                                                     and local funds,
                                                     less any reductions
                                                     in intervening
                                                     years permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------
2015-2016...................  Met MOE based on      Actual expenditures
                               local funds only in   from 2014-2015 less
                               2014-2015.            any reductions in
                                                     intervening years
                                                     permitted under
                                                     Sec.  Sec.
                                                     300.204 and
                                                     300.205.
                             -------------------------------------------
                              Did not meet MOE      Level of effort
                               based on local        required to meet
                               funds only in 2014-   MOE in the last
                               2015.                 year that LEA met
                                                     MOE based on local
                                                     funds only, even if
                                                     the LEA also met
                                                     MOE based on State
                                                     and local funds,
                                                     less any reductions
                                                     in intervening
                                                     years permitted
                                                     under Sec.  Sec.
                                                     300.204 and
                                                     300.205.
------------------------------------------------------------------------

    Consequences for Failure to Maintain Effort. We also are proposing 
to add a provision regarding the consequence if an LEA fails to 
maintain its level of expenditures for the education of children with 
disabilities. The provision would specify, consistent with long-
standing Department practice, that the SEA is liable in a recovery 
action under 20 U.S.C. 1234a to pay the Department, from non-Federal 
funds or funds for which accountability to the Federal government is 
not required, the difference between the amount of local, or State and 
local, funds the LEA should have expended and the amount that it did 
expend. 20 U.S.C. 1234a describes the method the Department uses to 
recover misused funds.
    Under 20 U.S.C. 1234b(a), if a recipient of Department funds is 
determined to have made an unallowable expenditure or to have otherwise 
failed to discharge its responsibility to account properly for funds, 
the recipient is required to return an amount that is proportionate to 
the harm to the Federal interest. The addition of this provision to 
current Sec.  300.203 will not change the law in this area. However, it 
is important to add this provision to the regulations in order to 
highlight the importance of the LEA MOE requirement and the 
significance of the remedies for a failure to comply. This addition 
should increase focus on, and, through heightened attention and 
monitoring by States, compliance with the LEA MOE requirement.
    Although not necessary to address in the regulation, it is 
worthwhile to point out that if an SEA is required to pay the 
Department based on an LEA's failure to comply with the LEA MOE 
requirement, the SEA may then seek to recoup from the LEA, from non-
Federal funds or funds for which accountability to the Federal 
Government is not required, the amount by which the LEA did not 
maintain effort. Whether the SEA seeks recovery of those funds from the 
LEA is a matter of State discretion.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive Order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    The proposed amendment is a significant regulatory action subject 
to review by OMB under section 3(f)(4) of Executive Order 12866.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and, taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;

[[Page 57332]]

    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make informed choices. Executive 
Order 13563 also requires an agency ``to use the best available 
techniques to quantify anticipated present and future benefits and 
costs as accurately as possible.'' The Office of Information and 
Regulatory Affairs of OMB has emphasized that these techniques may 
include ``identifying changing future compliance costs that might 
result from technological innovation or anticipated behavioral 
changes.''
    We are issuing these proposed regulations only upon a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that maximize net benefits. Based on the analysis that 
follows, the Department believes that these proposed regulations are 
consistent with the principles in Executive Order 13563.
    We also have determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Potential Costs and Benefits

    In accordance with both Executive orders, the Department has 
assessed the potential costs and benefits of this regulatory action. In 
conducting this analysis, the Department examined the extent to which 
the changes made by these proposed regulations would add to or reduce 
the costs to States, LEAs, and others, as compared to the costs of 
implementing the current Part B program regulations. Based on the 
following analysis, the Secretary has concluded that the proposed 
changes could result in reduced costs for States and LEAs to the extent 
that increased understanding of LEA MOE requirements and use of all 
four tests to demonstrate LEAs met MOE would result in States making 
fewer repayments to the Department and seeking fewer recoveries from 
LEAs. However, there is also potential for additional costs for States, 
and potentially LEAs to the extent LEAs are required to increase 
expenditures in the year following a failure to meet the LEA MOE 
provisions under Part B of the Act or in the event that a State or LEA 
incorrectly calculated MOE in a previous year due to confusion. The 
Secretary believes that the benefits of ensuring that adequate 
resources are available to provide FAPE for children with disabilities 
are likely to outweigh any costs to LEAs that violated the local MOE 
requirements in the previous year and do not plan to restore funding in 
the subsequent year to the level they should have maintained in the 
prior year.
Section 300.203
    The effect of the proposed changes on LEAs would depend on: (1) The 
degree of misunderstanding on the part of States and LEAs about the 
eligibility and compliance standards and the flexibility that the LEAs 
have in meeting one of four tests; and (2) the likelihood that LEAs 
would violate the MOE requirement in one or more years and seek to 
maintain funding at the reduced level in subsequent years. One possible 
source of information that could be used to estimate the effect of the 
proposed changes on LEAs would be data on previous findings of LEA 
violations. However, the Department has limited information on LEA 
violations. States are responsible for monitoring LEA compliance with 
MOE requirements and resolving any audit findings in this area, but 
States are not required to report the number of LEAs that violated MOE 
requirements, the basis of the violations, or the amount of funding 
involved.
    Other sources of information on the likely effects of the proposed 
changes are audit reports and OSEP's fiscal monitoring of States 
regarding the implementation of the current regulations.
    OSEP's fiscal monitoring, in conjunction with OIG's audit findings 
and reports, have identified a number of problems with State 
administration of the LEA MOE requirements under the current 
regulations, suggesting that there is confusion about the MOE 
requirements and a lack of clarity in the existing regulations. 
Specifically, OSEP has found that at least 40 percent of States have 
policies and procedures that are not consistent with how States should 
determine eligibility or compliance in relation to the LEA MOE 
requirements. Most notably, it appears that some States have not 
allowed LEAs to use all four tests to demonstrate that they have met 
the MOE requirements for purposes of eligibility or compliance 
determinations, including the test that allows the LEA to demonstrate 
it met the MOE requirement on the basis of only local funds. There is 
also some indication that States may have used an inappropriate 
comparison year when States have allowed LEAs to make a local-to-local 
comparison.
    In years when States did not allow the LEAs to use all four tests 
to demonstrate they met MOE, it is possible that LEAs budgeted for, and 
expended, more than they would have if both States and LEAs had 
understood they had flexibility to use all four tests. In these 
instances, the clarification made in the proposed regulations could 
result in a reduction in future expenditures on the part of LEAs. 
Additionally, in instances in which States did not appropriately allow 
the LEAs to use all four tests in meeting MOE, the State may have 
sought to recover funds from LEAs or made unnecessary repayments to the 
Department. Clarifying that all four tests may be used for MOE 
determinations could result in States making fewer repayments to the 
Department and seeking fewer recoveries from LEAs.
    Alternatively, in those cases in which States may be allowing LEAs 
to use an incorrect comparison year in implementing the test for local-
only funds, the change in the regulations that clarifies the comparison 
year may result in increased expenditures for LEAs. For example, in its 
May 20, 2013 Alert Memorandum, the OIG raised concerns about the 
comparison years used by the State of California in determining LEA MOE 
compliance. According to that memorandum, the State used an incorrect 
comparison year when determining that two LEAs met MOE requirements 
using the local-only test. Specifically, California allowed the LEAs 
that had never relied on local funds only to meet the MOE requirement 
to use a comparison year from three years earlier, instead of requiring 
a comparison of local-only expenditures to the previous fiscal year. In 
this case, the clarification made by the proposed regulations would 
require increased LEA expenditures. We do not know the extent to which 
the use by States and LEAs of incorrect comparison years has permitted 
lower expenditures than would be required under the proposed changes, 
or, alternatively, the extent to which using the incorrect comparison 
year has resulted in higher expenditures than would be required under 
the proposed regulations. However, in general, the findings in fiscal 
monitoring demonstrating that States are providing less flexibility to 
LEAs than is allowable under the law suggest that the clarifications 
included

[[Page 57333]]

in these proposed regulations could reduce costs for both LEAs and 
States.
    The regulations also specifically address the level of expenditures 
required by an LEA in the years following a year in which an LEA 
violated the MOE requirements. Specifically, the proposed regulations 
clarify that, in a year following a year in which the LEA failed to 
meet MOE, the required level of expenditures is the level of 
expenditures in the last year in which the LEA met the MOE 
requirements, not the reduced level of expenditures in the preceding 
year.
    We believe that this clarification in the regulations will improve 
State administration of the program, is consistent with the intent of 
the IDEA, and is in the best interest of children with disabilities. We 
do not expect the change to have a significant impact on LEA 
expenditures in the near term because of what we know about the extent 
of LEA violations and the likelihood of future violations. However, the 
change would eliminate the risk we have under the current regulations 
that State policy would permit LEAs that reduce spending in violation 
of the MOE requirements to maintain the reduced level of expenditures 
in subsequent years.
    The Department typically learns of an LEA violation in conjunction 
with its review of audit findings. In the relatively few instances in 
which the Department has issued program determination letters to States 
concerning audit findings about LEA failure to maintain the appropriate 
level of effort, most of the findings concerned the absence of an 
effective State system for monitoring LEA MOE, rather than identifying 
MOE violations. Since 2004, the only program determination letter that 
identified specific questioned costs for LEA failure to meet MOE 
involved Oklahoma. In December 2006, the Department issued a program 
determination letter to the Oklahoma SEA seeking recovery of 
$583,943.29 expended under Part B of the IDEA due to audit findings 
that 76 LEAs had not met their required level of effort for the receipt 
of Federal fiscal Year (FFY) 2003 funds. In SY 2009-2010, Oklahoma 
reported having 532 LEAs; accordingly, 76 LEAs represented 14 percent 
of the State's LEAs affected by these audit findings. After reviewing 
additional materials provided by the State that supported the 
application of the MOE exceptions in Sec.  300.204 (exceptions for 
local changes), the Department reduced the amount of its determination 
to $289,501.76. The final claim against Oklahoma was settled at 
$217,126.32.
    We also searched the Federal Audit Clearinghouse for information 
about single audits of Federal awards conducted by States or private 
accounting firms of LEAs that expend $500,000 or more in a year in 
Federal award funds as required by the Office of Management and 
Budget's (OMB) Circular A-133. The Federal Audit Clearinghouse is 
located at the following link: www.census.gov/econ/overview/go1400.html. We searched for audit findings in response to area ``G'' 
of the compliance supplement to OMB Circular A-133, which relates to 
``Matching, Level of Effort, and Earmarking,'' for audits related to 
Code of Federal Domestic Assistance 84.027 (funds awarded under section 
611 of the IDEA). Single audits of Federal awards are not available for 
all LEAs through the Federal Audit Clearinghouse, but there is 
information on single audits for 9,024 LEAs for FY 2009, which 
represents approximately 60 percent of LEAs.
    Our search identified 25 audits that contained findings related to 
section G of the compliance supplement, four of which were accompanied 
by audit reports that included questioned costs related to failure to 
achieve the required MOE. Only two of the four audits specified amounts 
of questioned costs, for $10,428 and $153,621.53, respectively. 
Although one cannot assume that these findings represent all violations 
of the LEA MOE requirement, both the small number and size of 
questioned costs related to failure to meet this requirement suggest 
that LEA MOE violations are not extensive. Audit findings for fiscal 
years 2007, 2008, 2010, and 2011 (to the extent available) were 
generally consistent with the findings for 2009.
    Another source of information for estimating the likelihood of 
future MOE violations are data on the extent to which LEAs have reduced 
expenditures pursuant to the new flexibility provided in the 2004 
amendments to the IDEA. Under section 613(a)(2)(C), for any fiscal year 
in which an LEA receives an allocation under section 611(f) that 
exceeds its allocation for the previous fiscal year, an LEA may reduce 
the level of expenditures otherwise required to meet the MOE 
requirement by not more than 50 percent of the amount of the increased 
allocation. Since May 2011, States have been reporting the amount each 
LEA received in an IDEA subgrant under section 611 or section 619, 
whether the State had determined that the LEA or educational service 
agency (ESA) had met the requirements of Part B of IDEA, and whether 
each LEA or ESA had reduced its expenditures pursuant to Sec.  
300.205.\5\
---------------------------------------------------------------------------

    \5\ Data are available online at www.ideadata.org/PartBMaintenance_asp (Table 8 LEA-level files, revised 2/29/12, 
Accessed 5/15/12).
---------------------------------------------------------------------------

    The data we have collected to date include reductions taken in the 
year in which LEAs were most likely to make reductions because of the 
availability of an additional $11.3 billion for formula grant awards 
under the Grants to States program provided under the American Recovery 
and Reinvestment Act of 2009 (ARRA). Since these additional funds 
increased the annual allocation to most LEAs in FFY 2009 relative to 
FFY 2008, LEAs meeting conditions established by the State and the 
Department were permitted to reduce the level of support they would 
otherwise be required to provide during SY 2009-2010 by up to 50 
percent of the amount of the increase.
    Of the 14,936 LEAs that received allocations under section 611 in 
FFY 2008 and FFY 2009, States reported that 12,061 received increased 
allocations under section 611 and met other conditions such that they 
were eligible to reduce their level of effort. Notably, only 4,237 LEAs 
(or 36 percent) reported that they reduced their level of effort. If 
they met the conditions, LEAs were permitted to reduce effort by up to 
50 percent of the increase in their allocation, but they typically 
reduced spending only by 38 percent.
    Larger LEAs were more likely to reduce expenditures than LEAs in 
general. For the 100 largest LEAs, based on their FFY 2008 allocations 
under section 611, 31 of the 51 LEAs that were eligible to reduce 
expenditures actually did so and these LEAs reduced expenditures by an 
average of 73 percent of the allowable amount.
    Of the 4,237 LEAs overall that reported reducing expenditures, only 
32 had been determined to have not met the requirements of Part B of 
the IDEA and may have violated the MOE requirements, unless one of the 
exceptions to the MOE requirements in Sec.  300.204 (exceptions for 
local changes) were applicable. The combined amount of MOE reductions 
for these LEAs was $19,304,506, with a median reduction of $745. One of 
these LEAs reported a reduction of $18,358,631, which represents 41 
percent of the increase in that LEA's allocation from the previous 
year; but the reductions that were taken by the remaining LEAs were 
relatively small.
    The combined amount by which eligible LEAs in the 50 States, 
Washington, DC, and Puerto Rico could have reduced their level of 
effort in SY

[[Page 57334]]

2009-2010 was $5.6 billion, but the combined amount of actual reduction 
was only 27 percent of that amount or $1.5 billion. Because most LEAs 
did not reduce expenditures when they had a legitimate opportunity to 
do so and thereby reduce the level of effort required in future years, 
it is reasonable to assume that a smaller number of LEAs would 
undertake reductions that constitute violations of the MOE 
requirements. We believe it is highly unlikely that the 4,205 LEAs that 
met the requirements of section 613(a)(2)(C) of the Act and reduced 
their level of effort would seek further reductions that would violate 
the MOE requirements since they legitimately lowered their own required 
level of effort when they made those previous reductions.
    Based on available audit findings and data, the Department believes 
that LEAs generally are unlikely to reduce expenditures in violation of 
the MOE requirements. Moreover, we believe that the requirement that 
LEAs provide FAPE for all eligible children with disabilities provides 
another critical protection against unwarranted reductions of 
expenditures to support special education and related services for 
children with disabilities. However, to ensure that State policy and 
administration of the MOE requirements is consistent with the 
Department's position on the required level of future expenditures in 
cases of LEA violations, we think it is critical to change the 
regulations, as we have proposed, to clearly articulate the 
Department's interpretation of the law in this regard.

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (use of 
headings, paragraphing, etc.) aid or reduce their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  300.203 Maintenance of effort.)
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand see the instructions in 
the ADDRESSES section.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities.
    The U.S. Small Business Administration (SBA) Size Standards define 
``small entities'' as for-profit or nonprofit institutions with total 
annual revenue below $7,000,000 or, if they are institutions controlled 
by small governmental jurisdictions (that are comprised of cities, 
counties, towns, townships, villages, school districts, or special 
districts), with a population of less than 50,000. These proposed 
regulations would affect all local educational agencies, including the 
estimated 12,358 LEAs that meet the definition of small entities. 
However, we have determined that the proposed regulations would not 
have a significant economic impact on these small entities. This 
regulatory action would have the effect of increasing costs for small 
LEAs that have either violated the local MOE requirements and are not 
seeking to restore funding in the subsequent year to the level they 
should have maintained in the prior year or incorrectly calculated MOE 
in a previous year due to confusion. However, this regulation could 
also potentially decrease the costs for small LEAs to the extent that 
increased understanding of LEA MOE requirements and use of all four 
tests to demonstrate LEAs met MOE would result in States making fewer 
repayments to the Department and seeking fewer recoveries from LEAs. 
Based on the limited information available, the Secretary does not 
believe that the effect would be significant. We do not have any 
evidence that LEAs generally are likely to violate the MOE requirements 
and we have no reason to believe that small LEAs are more likely to 
violate the local MOE requirements than larger LEAs. There are no 
increased costs associated with this regulatory action for LEAs that do 
not violate the MOE requirement.

Paperwork Reduction Act of 1995

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), we 
have assessed the potential information collections in these proposed 
regulations that would be subject to review by OMB (Report on IDEA Part 
B Maintenance of Effort Reduction (Sec.  300.205(a)) and Coordinated 
Early Intervening Services (Sec.  300.226)) (Information Collection 
1820-0689). In conducting this analysis, the Department examined the 
extent to which the amended regulations would add information 
collection requirements for public agencies. Based on this analysis, 
the Secretary has concluded that these amendments to the Part B 
regulations would not impose additional information collection 
requirements.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of the Department's 
specific plans and actions for this program.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the person listed under FOR 
FURTHER INFORMATION CONTACT.
    Electronic Access to this Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.

[[Page 57335]]

    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

(Catalog of Federal Domestic Assistance Number 84.027, Assistance to 
States for Education of Children with Disabilities)

List of Subjects in 34 CFR Part 300

    Administrative practice and procedure, Education of individuals 
with disabilities, Elementary and secondary education, Equal 
educational opportunity, Grant programs--education, Privacy, Private 
schools, Reporting and recordkeeping requirements.

    Dated: September 13, 2013.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary proposes 
to amend 34 CFR part 300 as follows:

PART 300--ASSISTANCE TO STATES FOR THE EDUCATION OF CHILDREN WITH 
DISABILITIES

0
1. The authority citation for part 300 continues to read as follows:

     Authority:  20 U.S.C. 1221e-3, 1406, 1411-1419, unless 
otherwise noted.

0
2. Section 300.203 is revised to read as follows:


Sec.  300.203  Maintenance of effort.

    (a) Compliance standard. (1) Except as provided in Sec. Sec.  
300.204 and 300.205, funds provided to an LEA under Part B of the Act 
must not be used to reduce the level of expenditures for the education 
of children with disabilities made by the LEA from local funds below 
the level of those expenditures for the preceding fiscal year.
    (2) An LEA meets this standard if it does not--
    (i) Reduce the level of expenditures for the education of children 
with disabilities made by the LEA from State and local funds, either in 
total or per capita, below the level of those expenditures for the 
preceding fiscal year, except as provided in Sec. Sec.  300.204 and 
300.205;
    (ii) Reduce the level of expenditures for the education of children 
with disabilities made by the LEA from local funds, either in total or 
per capita, below the level of those expenditures for the most recent 
fiscal year for which the LEA met the MOE compliance standard based on 
local funds only, even if the LEA also met the MOE compliance standard 
based on State and local funds, except as provided in Sec. Sec.  
300.204 and 300.205; or
    (iii) Reduce the level of expenditures for the education of 
children with disabilities made by the LEA from local funds, either in 
total or per capita, below the level of those expenditures for the 
preceding fiscal year if the LEA has not previously met the MOE 
compliance standard based on local funds only, except as provided in 
Sec. Sec.  300.204 and 300.205.
    (3) Expenditures made from funds provided by the Federal Government 
for which the SEA is required to account to the Federal Government or 
for which the LEA is required to account to the Federal Government 
directly or through the SEA may not be considered in determining 
whether an LEA meets the standard in this paragraph.
    (b) Eligibility standard. (1) Except as provided in paragraph 
(b)(2) of this section, the SEA must determine that an LEA complies 
with paragraph (a) of this section for purposes of establishing the 
LEA's eligibility for an award for a fiscal year if the LEA budgets, 
for the education of children with disabilities, at least the same 
total or per capita amount from either of the following sources as the 
LEA spent for that purpose from the same source for the most recent 
fiscal year for which information is available:
    (i) Local funds only.
    (ii) The combination of State and local funds.
    (2) An LEA that relies on paragraph (b)(1)(i) of this section for 
any fiscal year must ensure that the amount of local funds it budgets 
for the education of children with disabilities in that year is at 
least the same, either in total or per capita, as the amount it spent 
for that purpose in the most recent fiscal year for which information 
is available and the LEA met the MOE compliance standard based on local 
funds only, even if the LEA also met the MOE compliance standard based 
on State and local funds.
    (3) An LEA that relies on paragraph (b)(1)(i) of this section for 
any fiscal year and has not previously met the MOE compliance standard 
based on local funds only must ensure that the amount of local funds it 
budgets for the education of children with disabilities in that year is 
at least the same, either in total or per capita, as the amount it 
spent from local funds for that purpose in the most recent fiscal year 
for which information is available.
    (c) Subsequent years. If, for any fiscal year, an LEA fails to meet 
the requirement of paragraph (a) of this section, the level of 
expenditures required of the LEA for any fiscal year beginning on or 
after July 1, 2014 under paragraphs (a) and (b) of this section is the 
amount that would have been required in the absence of that failure and 
not the LEA's reduced level of expenditures.
    (d) Consequence of failure to maintain effort. If an LEA fails to 
maintain its level of expenditures for the education of children with 
disabilities in accordance with paragraph (a) of this section, the SEA 
is liable in a recovery action under 20 U.S.C. 1234a to return to the 
Department, using non-Federal funds, an amount equal to the amount by 
which the LEA failed to maintain its level of expenditures in 
accordance with paragraph (a) of this section.

(Approved by the Office of Management and Budget under control 
number 1820-0600)

(Authority: 20 U.S.C. 1413(a)(2)(A))

[FR Doc. 2013-22668 Filed 9-17-13; 8:45 am]
BILLING CODE 4000-01-P