Dated 6/27/02

[By Overnight Delivery]{.underline}

Dina O. Harris, Esq.

John F. Walsh, Esq.

Best Best & Krieger LLP

402 West Broadway, 13^th^ Floor

San Diego, California 92101-3542

Kacey Gregson

Assistant Attorney General

1275 West Washington, ACD/EHS

Phoenix, Arizona 85007

Re: [In the Matter of ABC Alternative Learning Center d/b/a Central
City]{.underline}

> [Academy v. State of Arizona, Arizona State Superintendent of
> Public]{.underline}
>
> [Instruction, and Arizona Department of Education]{.underline} (IDEA-B
> Appeal)

Dear Counsel:

Enclosed please find a copy of the decision of the Assistant Secretary
of Special Education and Rehabilitative Services in the above-referenced
matter.

> Sincerely,
>
> /s/
>
> Stephanie S. Lee
>
> Director
>
> Office of Special Education Programs

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

\*

IN RE APPEAL OF \*

\*

ABC Alternative \*

Learning Center \* IDEA-B Appeal

\*

d/b/a \*

\*

Central City Academy \*

\*

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

DECISION OF THE ASSISTANT SECRETARY

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

I. [INTRODUCTION]{.underline}.

The ABC Alternative Learning Center (ABC) --- a public charter school
operating in the State of Arizona as a local educational agency (LEA)
--- has appealed to the United States Department of Education (ED),
pursuant to 34 C.F.R. § 76.401(d)(5), the Arizona Department of
Education's (SEA's) decision to withhold from ABC funds under Part B of
the Individuals with Disabilities Education Act (IDEA-B), 20 U.S.C. §
1411 -- 1420.[^1] We have concluded that the SEA's decision in this
matter is supported by substantial evidence and consistent with the
IDEA-B and its implementing regulations. Specifically, the SEA's
decision was necessary to ensure the provision of a free appropriate
public education (FAPE) to a student with disabilities and compliance
with the SEA's Letter of Findings issued pursuant to a complaint
investigation. The SEA's decision, therefore, is affirmed.

II\. [PROCEDURAL AND FACTUAL BACKGROUND]{.underline}.

This appeal concerns the provision of special education and related
services under IDEA-B to a student with disabilities enrolled at
ABC.[^2] As a charter school operating as an LEA, ABC is eligible to
receive funding under the IDEA-B for the children with disabilities it
provides with special education and related services. ABC, however, is
responsible for ensuring that all requirements of the IDEA-B are met. 34
C.F.R. § 300.312(b). Similarly, children with disabilities attending
charter schools, and their parents, retain all their rights under the
IDEA-B. 34 C.F.R. § 300.312(a).

The Student was determined to be eligible for special education due to a
speech and language impairment coupled with a specific learning
disability in reading, math, and language. [Exhibit 1 to the
Administrative Record \[Ex.1 to A.R.\]]{.underline} at page 1, paragraph
3. An Impartial Due Process Hearing Decision and Order (Due Process
Hearing Decision) issued on July 26, 1999 required ABC to provide the
Student with a compensatory communications program and occupational
therapy and enroll the Student in a communications program consistent
with the Student's individualized education program (IEP) on or before
August 13, 1999. This communications program was to be provided at a
site other than ABC because of ABC's inability to develop such a program
in a timely manner. [Id]{.underline}. at pages 1-2, paragraph 4. The
Arizona Office of Administrative Hearings and Appeals affirmed this Due
Process hearing decision on November 29, 1999. [Exhibit 2 to
AR]{.underline} at page 13. ABC, however, did not comply with the Due
Process Hearing Decision's order to place the student in a
communications program at a site other than ABC. [Exhibit 1 to
AR]{.underline} at page 2, paragraph 6. Subsequently, in March 2000, the
Student was placed at Summit Elementary Charter School (Summit) at the
request of his parents. [Id]{.underline}. and [Exhibit 3 to
AR]{.underline} at page 6.

On March 17, 2000, the Student's parents filed, pursuant to 34 C.F.R. §
§ 300.660 -- 300.662, a formal complaint with the SEA that alleged that
ABC had failed to comply with the Due Process decision. [Exhibit 1 to
AR]{.underline} at page 2, paragraph 7. Based on that complaint, the SEA
investigated the parent's allegations and, on November 30, 2000, issued
a Letter of Findings to ABC. [Exhibit 3 to AR]{.underline}. The SEA
concluded, among other things, that ABC had not complied with the Due
Process Hearing Decision's order to place the Student at a
communications program at a site other than ABC. [Id]{.underline}. at
2-7. ABC was required to work out a contractual arrangement with Summit
for providing compensatory educational services to the Student. If ABC
and Summit could not agree on the amount of payment for services to the
Student, ABC was ordered to reimburse Summit at a rate of \$2,500 per
month for those services. In addition, ABC was required to compensate
Summit for services provided to the Student from March 8, 2000 until the
end of the 2000-2001 school year. [Id]{.underline}. at 12.

On June 20, 2001, the SEA issued a Notice of Intent to Withhold Funding
from ABC because, as of that date, ABC had not provided any payment to
Summit for services provided to the Student. [Exhibit 1 to
AR]{.underline}. ABC's appeal of this Notice was heard by a three
member-hearing panel appointed by the Arizona Superintendent of Public
Instruction. [Arizona Department of Education Hearing Appeal Panel
Proposed Decision]{.underline} at 1 (August 21, 2001)**.** On August 21,
2001, the hearing panel issued a proposed decision that upheld the
Notice of Intent to Withhold IDEA-B Funding from ABC. [Id]{.underline}.
at 14. The Arizona State Superintendent of Public Instruction accepted
that recommended decision on August 24, 2001. [August 24, 2001 Letter of
Jaime A. Molera, Arizona State Superintendent for Public
Instruction]{.underline}. ABC has appealed this decision to ED.

III\. [ANALYSIS]{.underline}

The Education Department General Administrative Regulations (EDGAR)
provide that the State's findings of fact in a decision to withhold
funds are final if supported by substantial evidence. 34 C.F.R. §
76.401(d)(5). In order to meet the substantial evidence test, there must
be such relevant evidence as a reasonable mind might accept as adequate
to support a conclusion [See]{.underline}, [e.g]{.underline}.,
[Universal Camera Corp. v. N.L.R.B.]{.underline}, 340 U.S. 474, 477
(1951) (citations omitted). Additionally, under EDGAR, the State's final
action is to be overturned only if it is "contrary to Federal statutes
or regulations that govern the applicable program." 34 C.F.R. §
75.401(d)(6)(ii).

The parties are in basic agreement on the facts of this case. ABC is
responsible for providing special education and related services under
the IDEA-B to Student. [Exhibit 8 to AR]{.underline}. A Due Process
Hearing Decision that was affirmed by the State required ABC, among
other things, to place the Student at a site other than ABC for a
communications program. The Student was placed at Summit for that
program. The dispute in this case, therefore, is not factual but legal
in nature. Specifically, the issue raised in this appeal is whether the
SEA acted properly in withholding ABC's IDEA-B funds because ABC had not
paid Summit for services provided to the Student.

ABC contends that the SEA withholding decision is improper because there
are no IDEA-B issues in this case due to the fact that the Student,
since being placed at Summit, is receiving FAPE. The actual issue in
this case, according to ABC, involves a contractual dispute between ABC
and Summit on payment for services that Summit has provided to the
Student. ABC contends that it would pay Summit \$2,500 a month for
services to the Student if Summit provided documentation supporting that
amount. In the absence of such supporting documentation, ABC contends
that it cannot pay the \$2,500 consistent with its obligation to ensure
that public funds are used properly and that the Student is receiving
proper special education and related services. [ABC's Opening
Brief]{.underline} at 1-2, and 15-17 (December 5, 2001).

The SEA contends that, contrary to ABC's assertions, this case is about
the provision of FAPE to the Student as required by the IDEA-B. The
Student, because ABC has failed to provide him with a communications
program at a site other than ABC, as required by the Due Process Hearing
Decision, was placed at Summit, where the required communications
program was provided. ABC, however, from March 8, 2000, the time the
Student was placed at Summit, until the present, has not paid Summit
anything for the services provided to the Student even though ABC has
been responsible for ensuring that the Student receives FAPE. The SEA's
decision to withhold funds was not designed to resolve a contract
dispute between Summit and ABC, but was the result of ABC's failure to
meet its responsibility to provide the Student with FAPE and comply with
the corrective action set out in a Letter of Finding issued by the SEA
pursuant to a complaint investigation. [SEA's Response to ABC's Opening
Brief]{.underline} at 1 (January 4, 2002).

We conclude that the SEA's withholding of funds from ABC is consistent
with the IDEA-B and its implementing regulations.[^3] ABC's effort to
construe this case as a contractual dispute that is unrelated to the
IDEA-B is unpersuasive because it attempts to separate ABC's obligation
to ensure FAPE for the Student from ABC's obligation to pay for the
services necessary to provide FAPE. This separation, however, is
untenable because the Student will not receive the special education and
related services required by the IDEA-B unless ABC provides the services
or pays a third party service provider to do so. Under ABC's
interpretation of an SEA's authority to withhold IDEA-B funds, an LEA
that failed to provide or pay for required services to a student with
disabilities could continue to receive IDEA-B funds as long as a third
party was willing to provide the required services without payment. This
outcome, if accepted by the Department, would render the IDEA-B's entire
system of enforcement untenable because that system ultimately depends
on an SEA's authority to withhold IDEA-B funds from an LEA that is not
meeting its obligation to ensure the provision of required services to a
student. Moreover the conclusion that ABC failed to provide FAPE to the
Student was the finding of a Due Process Hearing Decision. The SEA,
pursuant to its authority under 34 C.F.R. § § 300.660-662, found that
ABC failed to comply with the Due Process Hearing Decision and
specifically required ABC to pay Summit to provide services to the
Student in order to ensure that the Student received FAPE. To allow ABC
to disregard the SEA's findings and requirements would undermine the
State compliance process required by the IDEA-B regulations for
resolving disputes between parents and public agencies regarding the
provision of FAPE. For these reason, we do not accept ABC's assessment
of the issues in this case or its conclusions on the SEA's authority to
withhold funds.

The SEA's position in this matter and its decision to withhold ABC's
IDEA-B funds, by contrast, are consistent with the applicable statutory
and regulatory provisions. ABC can receive IDEA-B funds but must provide
FAPE for all students with disabilities it is responsible for serving.
34 C.F.R. § § 300.312(b), 300.220(a), and 300.121. In this instance, ABC
did not, after being required to do so by a Due Process Hearing
Decision, provide the Student with a communications program at a site
other than ABC. Subsequently, after the Student was finally placed in a
communications program at Summit on March 8, 2000, ABC did not, as
required by part of the corrective action in a Letter of Findings issued
by the SEA, either work out an agreement for compensating Summit for
services provided to the Student or pay Summit \$2,500 a month for those
services.

Under the IDEA-B, the SEA, as part of its general supervisory
responsibility for special education in the State, must ensure that all
IDEA-B requirements, including the provision of FAPE to all students
with disabilities, are met. 34 C.F.R. § 300.600(a)(1). If the SEA
determines that an LEA is not meeting its obligation to provide FAPE to
all the students with disabilities it is responsible for serving, the
SEA shall, after a reasonable notice and opportunity for a hearing
"reduce or not provide any further payments to the LEA." 34 C.F.R. §
300.197. The IDEA-B regulations specifically provide that:

> An SEA shall use the payments that would otherwise have been available
> to an LEA or to a State agency to provide special education and
> related services directly to children with disabilities residing in
> the area served by that local agency, or for whom that State agency is
> responsible, if the SEA determines that the LEA or State agency ‑
>
> \(1\) Has not provided the information needed to establish the
> eligibility of the agency under Part B of the Act;
>
> \(2\) [Is unable to establish and maintain programs of FAPE that meet
> the requirements of this part]{.underline};
>
> \(3\) Is unable or unwilling to be consolidated with one or more LEAs
> in order to establish and maintain the programs; or
>
> \(4\) Has one or more children with disabilities who can best be
> served by a regional or State program or service‑delivery system
> designed to meet the needs of these children.

34 C.F.R. § 300.360(a) (emphasis supplied). Finally, the SEA is required
to adopt written procedures to resolve complaints that a public agency
has violated the IDEA-B. 34 C.F.R. § § 300.660-300.662.

The SEA's withholding action fits securely within this regulatory
scheme. ABC, by not paying Summit \$2,500 a month for services provided
to the Student, defaulted on both its obligation to provide FAPE and to
comply with the corrective action required by a Letter of Finding issued
by the SEA on November 30, 2000 pursuant to a complaint investigation
carried out under 34 C.F.R. § 300.660-300.662. The SEA, therefore, was
authorized by the IDEA-B to withhold funds from ABC to ensure FAPE for
the Student and compliance with its November 30, 2000 Letter of
Findings. Moreover, the IDEA-B regulations specifically provide for an
SEA using the funds withheld from ABC to pay Summit for the special
education and related services provided to the Student. We therefore
conclude that the SEA's decision to withhold IDEA-B funds is based on
substantial evidence and consistent with the IDEA-B and its implementing
regulations.

IV\. [CONCLUSION]{.underline}.

The SEA's decision to withhold IDEA-B funds from ABC is hereby affirmed.

> /s/
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Robert H. Pasternack, Ph.D.
>
> [Assistant Secretary for Special Education and Rehabilitative
> Services]{.underline}.

DATED: \_\_\_\_[June 27, 2002]{.underline}\_\_

[^1]: Responsibility for appeals under 34 C.F.R. § 76.401(d)(5) that
    involve IDEA-B has been delegated to the Assistant Secretary for
    Special Education and Rehabilitative Services (Assistant Secretary).

[^2]: During the administrative proceedings conducted by the SEA, the
    parties agreed that, because the student is a minor, the student's
    identity would be protected. To accomplish that purpose, the student
    was referred to as "Student" and the father of the Student was
    referred to as "Father." That practice will be followed in this
    [Decision]{.underline}.

[^3]: ABC, in contesting the SEA's withholding decision, also argues
    that the required payment of \$2,500 to Summit per month for
    services to Student, in the absence of appropriate documentation,
    could result in ABC violating a provision of Arizona's State
    Constitution, the anti-gift clause, and possible liability under
    audits required by State law. [Appellant's Opening
    Brief]{.underline} at 15-17. These issues involve matters of State
    law, not the IDEA-B, and will not, as a consequence, be addressed in
    this [Decision]{.underline}.