Honorable Sandy Garrett
          Superintendent
          Oklahoma Department of Education
          2500 North Lincoln Boulevard
          Oklahoma City, Oklahoma 73105-4599

Dear Superintendent Garrett:

I am responding to the letter from Dr. Katie Dunlap to Cheri Yecke            dated October 4, 2002, in which Dr. Dunlap requested a waiver of the            maintenance of effort requirements in the Elementary and Secondary Education            Act (ESEA), as amended by the No Child Left Behind Act of 2001, as they            affect funds local educational agencies (LEAs) receive under Title II,            Part A of the ESEA. I regret the delay in responding to this request,            but I know that our staffs have had useful discussions about these matters.            With Dr. Dunlap's departure from your agency, I thought it best to reply            to you directly.

Maintenance of effort refers to the need of each LEA, as a condition            of receiving funds under any "covered program" (identified            in ESEA section 9101(13)), to have maintained in the previous fiscal            year at least 90 percent of the level of State and local expenditures            for K-12 education, in the aggregate or on a per-pupil basis, that the            district expended in the second preceding fiscal year. (See ESEA section            9521.) If an LEA fails to maintain effort, ESEA section 9521(b) requires            your agency to reduce ESEA funding to that LEA under Title II-A and            other covered programs. This reduction must be in exact proportion to            the percentage by which the LEA has failed to meet the 90-percent level            of State and local expenditures (on a per-pupil or aggregate basis,            whichever is more favorable to the LEA). In addition, section 9521(c)            authorizes the Secretary to waive these requirements if the Secretary            determines that doing so would be "equitable due to (1) exceptional            or uncontrollable circumstances, such as a natural disaster; or (2)            a precipitous decline in the financial resources of the [LEA]."

From the context of Dr. Dunlap's letter and discussions with staff            of your agency, we have learned of the significant impact that State            funding cuts of over 11 percent in the past two years have had on Oklahoma            LEAs and the resources they have available for K-12 education. We also            have learned that, in view of this severe revenue shortfall, your agency's            primary interest in requesting this waiver is to enable LEAs to use            their Title II-A program funding to pay for positions and services that,            in past years, were paid with State or local resources. Because the            ability to do so concerns application of the ESEA's "supplement,            not supplant requirement" as well as maintenance of effort, we            will discuss both of these ESEA provisions.

Maintenance of Effort. Because the maintenance of effort requirement            in section 9521 applies to individual LEAs, we cannot grant a blanket            waiver to the State. Rather we must consider the waiver requests for            specific LEAs that have failed to maintain effort. Thus, before we are            able to evaluate your agency's request more thoroughly, we will need            to receive specific information for each Oklahoma LEA that did not meet            the 90-percent threshold regarding (1) the separate amounts of State            and local resources that it had available in each of the past two fiscal            years, and (2) the reasons for the LEA's inability to make up for State            revenue shortfalls with local resources. (In this regard, any reduction            in the amount of State and local resources that an LEA expends this            year for free public education, and that causes it to fail to maintain            effort, would only begin to create consequences in the amount of ESEA            program funding that the Department will be able to make available to            Oklahoma and other States beginning July 1, 2004.) Upon receipt of these            data, we will let you know if we need any further information.

Supplement, Not Supplant. The supplement, not supplant requirement            prohibits the use of funds provided under Title II-A to pay for services            that, in the absence of these funds, would be paid from State or local            funds. It is a basic requirement of Title II-A and most other ESEA programs,            and is one that ESEA section 9401(c)(4) specifically prohibits the Secretary            from waiving.

However, we do want to help your agency and Oklahoma LEAs to determine            when their use of Title II-A and other ESEA funds to pay the costs of            salaries or other services previously paid with State or local funds            would legitimately supplement, rather than supplant, State and local            funds. With this in mind, we offer the following guidance.

1. In view of the financial difficulties they are facing, we understand            that many LEAs included in their consolidated local applications proposals            to use a portion of ESEA program funds to pay all or part of the costs            of certain personnel or services that, until now, they had paid with            State or local funds. The prior use of State or local funds in this            regard creates a presumption that the use of ESEA funds (in a program            to which a supplement, not supplant provision applies) this year impermissibly            supplants those funds. However, this presumption may be overcome by            documentation confirming that, in the absence of the Federal funds,            the LEA would not have maintained these personnel or services with State            or local funds. Given the State's fiscal situation, many Oklahoma State            and local officials appear to be facing difficult choices, but whether            a particular LEA is able to document compliance with the supplement,            not supplant requirement will depend upon its own unique factual circumstances.

2. It is important to understand the kinds of records that LEAs must            maintain to confirm that these expenditures are truly permissible ones            that supplement, rather than supplant State- or locally-paid services.            Generally, where they would spend ESEA funds this year on personnel            or services previously paid with non-Federal sources, LEAs will need            to maintain fiscal and programmatic records to confirm that, in the            absence of Title II-A and other ESEA funds, they would have eliminated            these staff or other services. For example, an LEA may have hired a            teacher to reduce class size whose salary previously was paid with State            or local funds. Finding that this year there are no State or local funds            available to pay this teacher's salary, the LEA proposes to use $50,000            of Title II-A funds to pay for this salary in order to retain the teacher.            The LEA would want to ensure that its records for the 2002-2003 school            year confirm:

> a. The reduced amount or lack of State and local funds available              to pay for this position, and
>             b. The LEA's decision to eliminate the position in the absence of              Federal funding, along with the reason(s) for that decision.

These kinds of records, for example, might explain what component(s)            of its educational program the LEA would have retained with State and            local resources, as well as the LEA's reasons for choosing to eliminate            support for the staff position with State and local funds (and to show            that it would not have paid for the position with State or local funds            in the absence of Federal funds).

Your agency should instruct those LEAs unable to so document that they            may not pay for these personnel or services with Title II-A or other            ESEA funds under a program to which a supplement, not supplant provision            applies. Of course, LEAs also would need to keep records to confirm            that Title II-A and other ESEA funds are obligated for costs that are            allowable under the program statutes. In this regard, Title II-A specifically            permits program funds to pay the salaries of teachers hired to reduce            class size. However, while an LEA may use Title II-A funds for pay supplements,            salary differentials, merit pay, and similar strategies for retaining            highly qualified teachers, the ESEA does not otherwise authorize an            LEA to use Title II-A funds to pay salaries of these teachers or other            school district staff.

3. Given the nature and importance of the supplement, not supplant            requirement as well as the analysis of it that we offer above, we also            urge your agency to inform LEAs that their authorization, if any, to            pay for these salaries and other services out of ESEA funds will apply            only to one school year at a time. A new decision should be made before            the beginning of each school year about whether, based on the availability            of State and local funds for that year's program and use of ESEA funds            that is otherwise authorized as described above, the LEAs' fiscal situation            compels the continued availability of ESEA funds for these personnel            and services.

Finally, it is possible that your auditors or others may question the            propriety of an LEA's use of any ESEA program funds for personnel or            other services previously paid with State or local funds. For reasons            explained above, an LEA's records should reasonably confirm that (1)            if it had received no ESEA funding the LEA would not have paid for the            personnel salaries or other services at issue with State or local funds,            and (2) the use of these ESEA funds is otherwise authorized. Where an            LEA retains these records and there are no other facts that indicate            that supplanting occurred, I fully expect that this Department would            support decisions made by both that LEA and your own agency.

I appreciate the significant fiscal challenges that your State and            its LEAs are now facing, and trust that this response will help to clarify            some of the flexibility the ESEA may offer to help LEAs meet these challenges.            If you have any additional questions or concerns about this response            please contact Bill Wooten at (202) 260-1922.

> 

Sincerely,
          /s/
          Eugene W. Hickok

|Last Modified: 09/15/2004
|-------------------------