```

[Federal Register Volume 80, Number 81 (Tuesday, April 28, 2015)]
[Rules and Regulations]
[Pages 23643-23671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09755]

[[Page 23643]]

Vol. 80

Tuesday,

No. 81

April 28, 2015

Part II

Department of Education

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34 CFR Part 300

Assistance to States for the Education of Children With Disabilities; 
Final Rule

Federal Register / Vol. 80 , No. 81 / Tuesday, April 28, 2015 / Rules 
and Regulations

[[Page 23644]]

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DEPARTMENT OF EDUCATION

34 CFR Part 300

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

Assistance to States for the Education of Children With 
Disabilities

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

ACTION: Final rule.

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SUMMARY: The Secretary of Education (Secretary) amends regulations for 
Part B of the Individuals with Disabilities Education Act (Part B or 
IDEA). These regulations govern the Assistance to States for the 
Education of Children with Disabilities program and the Preschool 
Grants for Children with Disabilities program. These amendments revise 
the regulations governing the requirement that local educational 
agencies maintain fiscal effort.

DATES: These regulations are effective on July 1, 2015.
    Applicability dates: The Subsequent Years rule for Fiscal Years 
2014 and 2015, stated in final Sec.  300.203(c)(1), reiterates the 
relevant provision of the 2014 Appropriations Act and the 2015 
Appropriations Act, respectively. As explained in the Effective Date 
section of the Analysis of Comments and Changes, the 2014 and 2015 
Appropriations Acts made the Subsequent Years rule applicable for IDEA 
Part B grants awarded on July 1, 2014, and July 1, 2015, respectively.

FOR FURTHER INFORMATION CONTACT: Mary Louise Dirrigl, U.S. Department 
of Education, 550 12th Street SW., Potomac Center Plaza, Room 5156, 
Washington, DC 20202-2641. Telephone: (202) 245-7324. If you use a 
telecommunications device for the deaf (TDD) or a text telephone (TTY), 
you may call the Federal Relay System (FRS) at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: We amend the regulations governing the 
Assistance to States for Education of Children with Disabilities 
program and the Preschool Grants for Children with Disabilities 
program.
    On September 18, 2013, the Secretary published a notice of proposed 
rulemaking (NPRM) in the Federal Register (78 FR 57324) to amend the 
regulations in 34 CFR part 300 governing these programs. In the 
preamble to the NPRM, the Secretary discussed the changes being 
proposed to the regulations governing the requirement that LEAs 
maintain effort, specifically: (1) The compliance standard; (2) the 
eligibility standard; (3) the level of effort required of an LEA in the 
year after it fails to maintain effort; and (4) the consequence for a 
failure to maintain local effort. These final regulations adopt the 
proposed amendments with modifications to improve organization, 
clarity, and flexibility for LEAs.

Major Changes in the Regulations

    The following is a summary of the major changes in these final 
regulations from the regulations proposed in the NPRM. The rationale 
for each of these changes is discussed in the Analysis of Comments and 
Changes section of this preamble.
     We moved the regulations governing eligibility for an IDEA 
Part B subgrant (sections 611 and 619 of the IDEA) from proposed Sec.  
300.203(b) to Sec.  300.203(a).
     We added language to the eligibility standard in Sec.  
300.203(a)(1) to clarify the four methods that LEAs may use to meet 
this standard: (1) Local funds only, (2) the combination of State and 
local funds, (3) local funds only on a per capita basis, or (4) the 
combination of State and local funds on a per capita basis.
     We changed the language in the eligibility standard in 
Sec.  300.203(a)(1) to provide that the comparison year is the most 
recent fiscal year for which information is available, regardless of 
which method an LEA uses to establish eligibility.
     We added language in the eligibility standard in Sec.  
300.203(a)(2) to provide that, when determining the amount of funds 
that the LEA must budget to meet the requirement in paragraph Sec.  
300.203(a)(1), the LEA may take into consideration, to the extent the 
information is available, the exceptions and adjustment provided in 
Sec. Sec.  300.204 (exceptions for local changes) and 300.205 
(adjustment for Federal increase) that the LEA: (i) Took in the 
intervening year or years between the most recent fiscal year for which 
information is available and the fiscal year for which the LEA is 
budgeting; and (ii) reasonably expects to take in the fiscal year for 
which the LEA is budgeting.
     We added language in Sec.  300.203(a)(3) to clarify that 
expenditures made from funds provided by the Federal government for 
which the State educational agency (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 eligibility standard in Sec.  
300.203(a)(1).
     We moved the regulations governing compliance from 
proposed Sec.  300.203(a) to Sec.  300.203(b).
     We changed the language in the compliance standard in 
Sec.  300.203(b)(1) to state that the comparison year is the preceding 
fiscal year, regardless of which method an LEA uses to establish 
compliance.
     We added language to the compliance standard in Sec.  
300.203(b)(2) to clarify the four methods that LEAs may use to meet 
this standard: (1) Local funds only, (2) the combination of State and 
local funds, (3) local funds only on a per capita basis, or (4) the 
combination of State and local funds on a per capita basis.
     We replaced proposed Sec.  300.203(c) with three 
paragraphs--Sec.  300.203(c)(1), (2), and (3)--to improve clarity and 
readability.
     The new Sec.  300.203(c)(1) implements the requirement in 
the Consolidated Appropriations Act, 2014 (2014 Appropriations Act) and 
the Consolidated and Further Continuing Appropriations Act, 2015 (2015 
Appropriations Act) that, for the fiscal years beginning on July 1, 
2014, and on July 1, 2015, respectively, the level of effort an LEA 
must meet in the fiscal year after it fails to maintain effort is the 
level of effort that would have been required in the absence of that 
failure, not the LEA's reduced level of expenditures.
     The new Sec.  300.203(c)(2) is applicable to any fiscal 
year beginning on or after July 1, 2015, and addresses the level of 
effort an LEA must maintain in a fiscal year after it fails to maintain 
effort, and the LEA is relying on local funds only, or local funds only 
on a per capita basis. The level of expenditures required of the LEA is 
the amount that would have been required under paragraph (b)(2)(i) or 
(iii) in the absence of that failure, not the LEA's reduced level of 
expenditures.
     The new Sec.  300.203(c)(3) is applicable to any fiscal 
year beginning on or after July 1, 2015, and addresses the level of 
effort an LEA must maintain in a fiscal year after it fails to maintain 
effort, and the LEA is relying on a combination of State and local 
funds, or the combination of State and local funds on a per capita 
basis. The level of expenditures required of the LEA is the amount that 
would have been required under paragraph (b)(2)(ii) or (iv) in the 
absence of that failure, not the LEA's reduced level of expenditures.
     We added language in Sec.  300.203(d) to clarify that, if 
an LEA fails to

[[Page 23645]]

maintain its level of expenditures for the education of children with 
disabilities, the SEA is liable in a recovery action for either the 
amount by which the LEA failed to maintain its level of expenditures in 
that fiscal year or the amount of the LEA's Part B subgrant in that 
fiscal year, whichever is lower.
     We made conforming changes to Sec. Sec.  300.204, 300.205, 
and 300.208.
     We added a new ``Appendix E to Part 300-Local Educational 
Agency Maintenance of Effort Calculation Examples''.

Public Comment

    In response to our invitation in the NPRM, more than 300 parties 
submitted comments on the proposed regulations. The perspectives of 
parents, individuals with disabilities, teachers, related services 
providers, State and local officials, and others were very important in 
helping us identify where changes to the proposed regulations were 
necessary and in formulating those changes.

Analysis of Comments and Changes

    An analysis of the comments and of any changes in the regulations 
since publication of the NPRM follows. We group comments and our 
responses to them by these subjects and sections:

THE SUBSEQUENT YEARS RULE, Sec.  300.203(c)
EFFECTIVE DATE
LEA COMPLIANCE, Sec.  300.203(b)
    Compliance Standard and Methodology
    Comparison Year
    Exceptions and Adjustment
    Data Retention and Administration
LEA ELIGIBILITY, Sec.  300.203(a)
    Eligibility Standard and Methodology
    Comparison Year
    Exceptions and Adjustment
    SEA Review
    Ineligibility
FAILURE TO MAINTAIN EFFORT AND CONSEQUENCE, Sec.  300.203(d)
    Legal Authority
    Burden on SEAs
    Calculating Penalties
MISCELLANEOUS COMMENTS

    Generally, we do not address:
    (a) Minor changes, including technical changes made to the language 
published in the NPRM;
    (b) Suggested changes the Secretary is not legally authorized to 
make under applicable statutory authority;
    (c) Suggested changes that are beyond the scope of the changes 
proposed in the NPRM, including comments and suggestions relating to 
the scope and meaning of the exceptions and adjustment in Sec. Sec.  
300.204 and 300.205, except as those issues are directly related to the 
NPRM; and
    (d) Comments that express concerns of a general nature about the 
U.S. Department of Education (Department) or other matters that are not 
germane, such as requests for information about innovative 
instructional methods or matters that are within the purview of State 
and local decision-makers. However, the Department intends to issue 
guidance on LEA maintenance of effort (MOE) and to continue to provide 
technical assistance to States to address State-specific concerns.

The Subsequent Years Rule, Sec.  300.203(c)

    Throughout the Analysis of Comments and Changes, we reference the 
Subsequent Years rule. The rule, as provided in final Sec.  300.203(c), 
applies to LEAs that fail to maintain effort and provides that, in the 
fiscal year after an LEA fails to maintain effort, the level of effort 
the LEA must meet under Sec.  300.203 is the level of effort that would 
have been required in the absence of that failure, not the LEA's actual 
reduced level of expenditures.
    Comment: Some commenters supported the Subsequent Years rule, which 
provides that, in the fiscal year after an LEA fails to maintain 
effort, the level of effort it must meet under Sec.  300.203 is the 
level of effort that would have been required in the absence of that 
failure, not the LEA's actual reduced level of expenditures. Other 
commenters disagreed and asserted that the intent of the IDEA was to 
ensure that LEAs not reduce their level of expenditures for the 
education of children with disabilities from the preceding fiscal year, 
regardless of whether the LEA maintained effort in the preceding fiscal 
year.
    Some commenters expressed concern that the Subsequent Years rule 
does not address the flexibility LEAs need as State and Federal funding 
levels shrink and as the demographics and educational needs of their 
students vary from year to year. These commenters recommended revising 
the proposed regulation to permit an LEA to use the preceding fiscal 
year as the comparison year to meet the compliance standard, regardless 
of whether the LEA met the compliance standard in that year.
    In addition, a few of these commenters stated that the Subsequent 
Years rule is inconsistent with the IDEA and referenced the Subsequent 
Years provision in another section of the IDEA related to State 
financial support. Section 612(a)(18)(D) of the IDEA (20 U.S.C. 
1412(a)(18)(D)). These commenters stated that, while Congress provided 
an explicit requirement for maintenance of State financial support in 
any fiscal year following a fiscal year in which a State failed to 
maintain State financial support, Congress did not address what happens 
in a fiscal year after an LEA fails to maintain effort. The commenters, 
therefore, concluded that Congress did not intend to provide for a 
Subsequent Years rule applicable to LEA MOE.
    Discussion: The Department continues to believe that when an LEA 
fails to maintain its required level of expenditures, the level of 
expenditures required in future fiscal years is the amount that would 
have been required in the absence of that failure, and not the LEA's 
actual expenditures in the fiscal year in which it failed to meet the 
compliance standard. We formally adopted this interpretation in April 
2012, and it is based on a careful consideration of the statutory 
language, structure, and purpose. See April 4, 2012, letter to Ms. 
Kathleen Boundy, available at http://www2.ed.gov/policy/speced/guid/idea/letters/2012-2/index.html.
    Section 613(a)(2)(B) and (C) of the IDEA (20 U.S.C. 1413(a)(2)(B) 
and (C)) provides four exceptions and an adjustment that permit an LEA 
to lawfully reduce its expenditures for the education of children with 
disabilities when compared to the preceding fiscal year. The absence of 
an exception in the statute for the failure of an LEA to meet the 
compliance standard in the preceding fiscal year strongly supports that 
such a failure does not reduce the level of expenditures required in 
future years. In light of the detail with which other exceptions are 
laid out in the statute, we believe that the IDEA's silence on the 
level of expenditures required in the fiscal year after an LEA has 
failed to meet the compliance standard does not reflect an intent by 
Congress to permit LEAs to benefit from a violation of the IDEA. 
Indeed, Congress included the Subsequent Years rule in the 2014 
Appropriations Act, Public Law 113-76, 128 Stat. 5, 394 (2014), and in 
the 2015 Appropriations Act, Public Law 113-235, 128 Stat. 2130, 2499 
(2014) and used language substantially similar both to the language the 
Department used in the NPRM and to the language in the Subsequent Years 
subparagraph of the maintenance of State financial support provision in 
section 612(a)(18)(D) of the IDEA. These factors strongly support the 
Department's conclusion that the Subsequent Years rule reflects 
congressional intent.
    Furthermore, allowing an LEA to permanently reduce spending for the 
education of children with disabilities by failing to comply with the 
IDEA in a preceding fiscal year is inconsistent with the purpose of the 
MOE

[[Page 23646]]

requirement, which is to ensure a continuation of at least a certain 
level of non-Federal expenditures for the education of children with 
disabilities, and would provide a long-term financial incentive for 
noncompliance.
    We also believe that permitting an LEA to reduce expenditures for 
the education of children with disabilities for reasons not 
specifically stated in the exceptions and adjustment in section 
613(a)(2)(B) and (C) of the IDEA (20 U.S.C. 1413(a)(2)(B) and (C)) 
would likely have a negative effect on the amount and type of special 
education and related services available for children with 
disabilities. 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.'' Section 601(d) 
of the IDEA (20 U.S.C. 1401(d)).
    To provide additional clarity on the Subsequent Years rule and 
other issues raised in comments the Department received, we have 
included a number of tables in the Analysis of Comments and Changes. In 
addition, we are including all of the tables in a new Appendix E in 
order to ensure that they will be included when these final regulations 
are published in the Code of Federal Register. Tables 1 through 4 
provide examples of how an LEA may comply with the Subsequent Years 
rule. Figures are in $10,000s. In Table 1, for example, an LEA spent $1 
million in Fiscal Year (FY) 2012-2013 on the education of children with 
disabilities.\1\ The following year, the LEA was required to spend at 
least $1 million but spent only $900,000. In FY 2014-2015, therefore, 
the LEA is required to spend $1 million, the amount it was required to 
spend in 2013-2014, not the $900,000 it actually spent.
---------------------------------------------------------------------------

    \1\ All references to a ``fiscal year'' in these regulations 
refer to the fiscal year covering that school year, unless otherwise 
noted.

 Table 1--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following a Year in Which
                                   LEA Failed To Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................  ..............             100  Required level of effort is $100
                                                                              despite LEA's failure in 2013-
                                                                              2014.
----------------------------------------------------------------------------------------------------------------

    Table 2 shows how to calculate the required level of effort when 
there are consecutive fiscal years in which an LEA does not meet MOE.

Table 2--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Consecutive Years
                               in Which LEA Failed To Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................  ..............             100  Required level of effort is $100
                                                                              despite LEA's failure in 2013-2014
                                                                              and 2014-2015.
----------------------------------------------------------------------------------------------------------------

    Table 3 shows how to calculate MOE in a fiscal year after which an 
LEA spent more than the required amount on the education of children 
with disabilities. This LEA spent $1.1 million in FY 2015-2016 though 
only $1 million was required. The required level of effort in FY 2016-
2017, therefore, is $1.1 million.

Table 3--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Year in Which LEA
                                           Met MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................             110             100  LEA met MOE.
2016-2017..................................  ..............             110  Required level of effort is $110
                                                                              because LEA expended $110, and met
                                                                              MOE, in 2015-2016.
----------------------------------------------------------------------------------------------------------------

    Table 4 shows the same calculation when, in an intervening fiscal 
year, 2016-2017, the LEA did not maintain effort.

[[Page 23647]]

Table 4--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Year in Which LEA
                                      Did Not Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................             110             100  LEA met MOE.
2016-2017..................................             100             110  LEA did not meet MOE. Required
                                                                              level of effort is $110 because
                                                                              LEA expended $110, and met MOE, in
                                                                              2015-2016.
2017-2018..................................  ..............             110  Required level of effort is $110,
                                                                              despite LEA's failure in 2016-
                                                                              2017.
----------------------------------------------------------------------------------------------------------------

    To increase understanding of, and therefore compliance with, the 
Subsequent Years rule, and to address Congress's adoption of it for FYs 
2014 and 2015 (the fiscal years beginning on July 1, 2014 and July 1, 
2015, respectively) in the 2014 Appropriations Act and 2015 
Appropriations Act, we divided proposed Sec.  300.203(c) into three 
paragraphs.
    The first, Sec.  300.203(c)(1), states the Subsequent Years rule 
for FYs 2014 and 2015, respectively, as provided by the 2014 and 2015 
Appropriations Acts. Section 300.203(c)(1) states that if, in the 
fiscal year beginning on July 1, 2013 or July 1, 2014, an LEA fails to 
meet the requirements of Sec.  300.203 in effect at that time, the 
level of expenditures required of the LEA for the fiscal year 
subsequent to the year of the failure is the amount that would have 
been required in the absence of that failure, not the LEA's reduced 
level of expenditures. In short, the 2014 Appropriations Act requires 
the LEA to maintain effort, in 2014-2015, at the level that the LEA 
maintained in 2013-2014, unless the LEA did not meet the effort 
required in that year. If it did not, the LEA must maintain effort at 
the level that the LEA should have maintained in 2013-2014, which is 
the level from the preceding fiscal year, 2012-2013. Similarly, the 
2015 Appropriations Act requires the LEA to maintain effort, in 2015-
2016, at the level that the LEA maintained in 2014-2015, unless the LEA 
did not meet the effort required in that year. If it did not, the LEA 
must maintain effort at the level that the LEA should have maintained 
in 2014-2015, which is the level from the preceding fiscal year, 2013-
2014.
    The second paragraph, Sec.  300.203(c)(2), is applicable beginning 
on July 1, 2015, and sets out the Subsequent Years rule for when an LEA 
failed to meet the compliance standard using local funds only, or local 
funds only on a per capita basis, in a preceding fiscal year, and the 
LEA is relying on the same method to meet the eligibility or compliance 
standard in a subsequent year.
    The third paragraph, Sec.  300.203(c)(3), is also applicable 
beginning on July 1, 2015, and sets out the Subsequent Years rule for 
when an LEA failed to meet the compliance standard using a combination 
of State and local funds, or a combination of State and local funds on 
a per capita basis, in a preceding fiscal year, and the LEA is relying 
on the same method to meet the eligibility or compliance standard in a 
subsequent year.
    Changes: We replaced proposed Sec.  300.203(c) with a clearer 
articulation of the Subsequent Years rule in three paragraphs, Sec.  
300.203(c)(1), (2), and (3). Final Sec.  300.203(c) accounts for the 
adoption of the Subsequent Years rule for FY 2014 in the 2014 
Appropriations Act, and, for FY 2015 in the 2015 Appropriations Act, 
but does not change the substance of the Subsequent Years rule from 
what was proposed in the NPRM.

Effective Date

    Comment: Some commenters requested that the effective date of these 
regulations be extended to a date later than July 1, 2014, because SEAs 
and LEAs will need additional time to revise their policies and 
procedures. Several commenters recommended that the effective date be 
removed altogether, because the proposed regulations did not change 
LEAs' existing obligation to maintain effort, which, some commenters 
stated, dates to 1997. Those commenters stated that the proposed July 
1, 2014, effective date would permit some LEAs that did not maintain 
effort in a fiscal year prior to the fiscal year that begins on July 1, 
2014, to take advantage of that failure.
    Discussion: There appears to have been confusion among some 
commenters about the effective date proposed in the NPRM. We proposed 
July 1, 2014, because that date was to be the beginning of the first 
grant award period after the date on which these regulations were 
published. The beginning of the first grant award period after 
publication of these regulations is now July 1, 2015. We have, 
therefore, made July 1, 2015, the effective date of these regulations. 
We believe this gives SEAs and LEAs sufficient time to revise their 
policies and procedures. This does not mean, however, that the 
obligation of an LEA to maintain effort, or to comply with the 
Subsequent Years rule, begins on that date.
    To the contrary, as we previously explained, the 2014 
Appropriations Act and the 2015 Appropriations Act made the Subsequent 
Years rule applicable for the grant year beginning on July 1, 2014, and 
July 1, 2015, respectively. On March 13, 2014, the Office of Special 
Education Programs (OSEP) issued a letter to Chief State School 
Officers explaining the relevant provision of the 2014 Appropriations 
Act related to the Subsequent Years rule, and stating that the 
provision was effective for Part B grants awarded on July 1, 2014. See 
March 13, 2014 letter to Chief State School Officers, available at 
http://www2.ed.gov/policy/speced/guid/idea/memosdcltrs/lea-moe-3-13-14.pdf.
    Prior to that, in 2012, OSEP issued the April 4, 2012, letter to 
Ms. Kathleen Boundy addressing this issue. In that letter, the 
Department set out the Subsequent Years rule, which stated that the 
level of effort that an LEA must meet in the year after it fails to 
maintain effort is the level of effort that it should have met in the 
preceding fiscal year and not the LEA's actual expenditures for that 
year. While these regulations codify this position, this has been the 
Department's interpretation of the statute since the letter to Ms. 
Boundy was issued. Therefore, the Department's expectation is that SEAs 
and LEAs have been complying with this interpretation since FY 2012-
2013.
    For FY 2012-2013, an LEA must have maintained at least the same 
level of expenditures as it did in the preceding fiscal year, FY 2011-
2012, unless it did

[[Page 23648]]

not meet the compliance standard in that year. If it did not, the LEA 
must determine what it should have spent in FY 2011-2012, which is the 
amount that it actually spent in the preceding fiscal year, FY 2010-
2011.
    The Department is unable, as some commenters suggest, to make these 
regulations effective back to 1997. The Department's guidance about MOE 
prior to April 2012 was not always consistent with the current 
interpretation. For example, our 2011 letter to Dr. Bill East offered 
different guidance on the Subsequent Years rule. See June 16, 2011, 
letter to Dr. Bill East, available at http://www2.ed.gov/policy/speced/guid/idea/letters/2011-2/east061611partbmoe2q2011.pdf We cannot now 
fault an SEA or an LEA for following the Department's earlier guidance, 
and therefore cannot extend the effective date of the rules back to 
1997.
    Changes: The effective date of these regulations is July 1, 2015.
    Comment: One commenter requested that we add a paragraph (d) to 
Sec.  300.203 that would, in effect, provide that States could not 
determine that LEAs were out of compliance with the MOE requirement for 
any fiscal year for which the State had previously determined the LEA 
to be in compliance.
    Discussion: Because the Department may not impose retroactive 
requirements on grantees, it is not necessary to include in the final 
regulations a separate provision indicating that States and LEAs that 
were determined to be in compliance with the regulations in effect at 
the time of the receipt of a grant or subgrant may rely on those 
determinations of compliance. The Department does not expect States to 
revisit their compliance determinations.
    Changes: None.

LEA Compliance, Sec.  300.203(b)

Compliance Standard and Methodology

    Comment: Some commenters suggested that the regulation be revised 
to reflect the order of the process so that the eligibility standard is 
set out before the compliance standard.
    Discussion: We agree that the eligibility standard should precede 
the compliance standard and that doing so will provide additional 
clarity. Therefore, we have set out the eligibility standard in Sec.  
300.203(a) and the compliance standard in Sec.  300.203(b).
    Changes: We have revised final Sec.  300.203(a) to specify the 
eligibility standard and final Sec.  300.203(b) to specify the 
compliance standard. We also have made conforming changes in Sec. Sec.  
300.203(c), 300.204, 300.205, and 300.208.
    Comment: Commenters raised many questions and concerns about the 
four methods by which an LEA may meet the compliance standard. One 
commenter requested that the proposed regulations specifically list the 
four methods available to LEAs. Some commenters requested that the 
Department clarify that SEAs are required to allow LEAs to meet the 
compliance standard using any of the four methods. Other commenters 
stated that the proposed regulations emphasize meeting the MOE 
requirement using local funds only.
    Discussion: We agree that additional clarification is needed 
regarding the four methods by which an LEA may meet the compliance 
standard. We also agree that listing the four methods individually in 
the compliance standard will make it easier to understand that an LEA 
may meet the compliance standard using any one of these four methods 
and that SEAs must permit LEAs to do so. Listing the four methods 
individually should also clarify that the regulations do not emphasize 
meeting the compliance standard using local funds only or local funds 
only on a per capita basis.
    Changes: We have revised final Sec.  300.203(b)(2) to clarify that 
an LEA meets the compliance standard if it does not reduce the level of 
expenditures for the education of children with disabilities made by 
the LEA from at least one of the following sources below the level of 
those expenditures from the same source for the preceding fiscal year: 
(i) Local funds only; (ii) the combination of State and local funds; 
(iii) local funds only on a per capita basis; or (iv) the combination 
of State and local funds on a per capita basis.
    Comment: A few commenters requested clarification regarding whether 
and how LEAs may change methods to establish compliance from one year 
to the next. A commenter asked whether an LEA must use the same method 
to meet the compliance standard in a fiscal year that it used to meet 
the eligibility standard for that same year.
    Discussion: LEAs may change methods to establish compliance from 
one year to the next. Many LEAs will meet the compliance standard for a 
fiscal year using more than one method. An LEA is not required to use 
the same method to meet the compliance standard in a fiscal year that 
it used to meet the eligibility standard for that same year. For 
example, if an LEA meets the eligibility standard for FY 2016-2017 
using local funds only, it is not required to meet the compliance 
standard for FY 2016-2017 using local funds only. Likewise, an LEA is 
not required to use the same method to meet the eligibility standard in 
a subsequent year that it used to meet the compliance standard in a 
preceding fiscal year. For example, if an LEA met the compliance 
standard for FY 2016-2017 using a combination of State and local funds, 
the LEA is not required to meet the eligibility standard for FY 2017-
2018 using a combination of State and local funds.
    An LEA may demonstrate that it meets the eligibility standard using 
any of the four methods. Similarly, during the course of an audit or 
other compliance review, the LEA may demonstrate that it met the 
compliance standard using any of the four methods. Selecting a 
particular method does not mean that the LEA did not meet the 
compliance standard using any of the other methods, or that the LEA 
cannot rely on those other methods to identify the amount of 
expenditures it must budget in order to meet the eligibility standard 
in a future fiscal year. It simply means that the LEA only has to meet 
the eligibility or compliance standard using one method.
    LEAs may meet the compliance standard using alternate methods from 
year to year. For example, an LEA met the compliance standard in FY 
2016-2017 using all four methods. During a compliance review, the LEA 
provided data to the SEA demonstrating that it met the compliance 
standard for that year using a combination of State and local funds on 
a per capita basis. This data would be sufficient for the SEA to find 
that the LEA met the compliance standard. Subsequently, the State 
conducts an audit to determine if the LEA met the compliance standard 
in the next year, FY 2017-2018. The LEA provides information to the 
auditor that demonstrates that it met the compliance standard in FY 
2017-2018 using local funds only. In order to demonstrate that it met 
the compliance standard using that method, the LEA provides to the 
auditor the amount of local funds only that the LEA spent for the 
education of children with disabilities in FY 2016-2017 and in FY 2017-
2018 so that the auditor is comparing each year's expenditures using 
the same method. A further example can be found in Table 5 below.
    Changes: None.
    Comment: Another commenter asked whether the LEA must use separate 
thresholds for compliance using local funds only as well as local funds 
only on a per capita basis.

[[Page 23649]]

    Discussion: The LEA would compare the amount of local funds only 
spent in the comparison year and the year for which it seeks to 
establish compliance. The LEA is not required to maintain effort on 
both an aggregate and a per capita basis. For example, if the LEA spent 
$100 in local funds only in FY 2016-2017 and had 10 children with 
disabilities, the LEA spent $10 in local funds only on a per capita 
basis. Assuming the LEA met MOE in FY 2016-2017 using those two 
methods, that is the amount ($10 per child with a disability) that the 
LEA would have to spend in FY 2017-2018 in order to meet the compliance 
standard using local funds only on a per capita basis, and $100 is the 
aggregate amount that the LEA would have to spend in FY 2017-2018 in 
order to meet the compliance standard using local funds only, assuming 
that, in FY 2017-2018, the LEA did not take any exceptions or 
adjustment in Sec. Sec.  300.204 and 300.205. As noted above, the LEA 
is required to meet the compliance standard using only one of the four 
methods.
    Changes: None.
    Comment: A commenter noted that the tables in the NPRM did not 
address the difficulties encountered by LEAs that wish to use the 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205, or use per 
capita methods.
    Discussion: Tables 5 through 9 address this comment. Table 5 
provides an example of how an LEA may meet the compliance standard 
using alternate methods from year to year without using the exceptions 
or adjustment in Sec. Sec.  300.204 and 300.205, and provides 
information on the following scenario. In FY 2015-2016, the LEA meets 
the compliance standard using all four methods. As a result, in order 
to demonstrate that it met the compliance standard using any one of the 
four methods in FY 2016-2017, the LEA must expend at least as much as 
it did in FY 2015-2016 using that same method. Because the LEA spent 
the same amount in FY 2016-2017 as it did in FY 2015-2016, calculated 
using a combination of State and local funds and a combination of State 
and local funds on a per capita basis, the LEA met the compliance 
standard using both of those methods in FY 2016-2017. However, the LEA 
did not meet the compliance standard in FY 2016-2017 using the other 
two methods-local funds only or local funds only on a per capita basis-
because it did not spend at least the same amount in FY 2016-2017 as it 
did in FY 2015-2016 using the same methods.
    In FY 2017-2018, the LEA may meet the compliance standard using any 
one of the four methods. To meet the compliance standard using a 
combination of State and local funds, or a combination of State and 
local funds on a per capita basis, the LEA must expend at least the 
same amount it did in FY 2016-2017 using either of those methods, since 
it met the compliance standard using those methods in FY 2016-2017. Or, 
if the LEA seeks to meet the compliance standard using the other two 
methods available, local funds only or local funds only on a per capita 
basis, in FY 2017-2018, it must expend at least as much as it did in FY 
2015-2016 using either of those methods. This is because the LEA did 
not meet the compliance standard using local funds only or local funds 
only on a per capita basis in FY 2016-2017. In FY 2016-2017, to 
demonstrate that it met the compliance standard using local funds only, 
or local funds only on a per capita basis, the LEA is required to spend 
at least the amount it expended in FY 2015-2016 from those sources. Per 
the Subsequent Years rule, the amount of expenditures from local funds 
only and local funds only on a per capita basis in FY 2015-2016 becomes 
the required level of effort in FY 2017-2018. Numbers are in $10,000s 
spent for the education of children with disabilities.

    Table 5--Example of How an LEA May Meet the Compliance Standard Using Alternate Methods From Year to Year
----------------------------------------------------------------------------------------------------------------
                                                                                    Combination  of
                                                   Combination of    Local funds       State and
            Fiscal year              Local funds  State and local   only on a  per  local funds  on  Child count
                                         only          funds        capita  basis    a per  capita
                                                                                         basis
----------------------------------------------------------------------------------------------------------------
2015-2016..........................       * $500           * $950            * $50            * $95           10
2016-2017..........................          400            * 950               40             * 95           10
2017-2018..........................        * 500              900             * 50               90           10
----------------------------------------------------------------------------------------------------------------
* LEA met compliance standard using this method.

    Changes: We have not changed the regulation but we have included 
Tables 5 through 9 to illustrate examples of how an LEA may meet the 
compliance or eligibility standard using alternate methods from year to 
year, either with or without using the exceptions or adjustment in 
Sec. Sec.  300.204 and 300.205.
    Comment: One commenter requested clarification of the two per 
capita methods, one based on local funds only and one based on a 
combination of State and local funds.
    Discussion: The regulations do not change the standards for meeting 
MOE using local funds only on a per capita basis or a combination of 
State and local funds on a per capita basis. The regulations continue 
to use the term ``per capita,'' which, in context, refers to the amount 
per child with a disability served by the LEA, either in local funds 
per child with a disability or a combination of State and local funds 
per child with a disability.
    When calculating the required level of effort on a per capita basis 
for the purpose of meeting the compliance standard, the LEA must 
determine the amount of local funds only (or a combination of State and 
local funds, as applicable) on a per capita basis that it expended for 
the education of children with disabilities, and reduce that amount by 
the exceptions or adjustment in Sec. Sec.  300.204 and 300.205 
calculated on a per capita basis. Specifically, the LEA must first 
divide the aggregate amount of exceptions and the adjustment it 
properly takes under Sec. Sec.  300.204 and 300.205 by the child count 
in the comparison year. The LEA must then subtract that result from the 
amount of local funds only (or a combination of State and local funds, 
as appropriate) on a per capita basis expended in the comparison year. 
Using other methods to determine the required level of effort (e.g., 
dividing the required level of aggregate effort using local funds only 
by the current year child count or dividing the exceptions and 
adjustment under Sec. Sec.  300.204 and 300.205 properly taken by an 
LEA by the current year child count) may result in an inaccurate 
calculation of the required level of effort.

[[Page 23650]]

    Table 6 provides an example of how an LEA may meet the compliance 
standard using alternate methods from year to year in years that the 
LEA used the exceptions or adjustment in Sec. Sec.  300.204 and 
300.205, including using the per capita methods. Numbers are in 
$10,000s spent for the education of children with disabilities.

  Table 6--Example of How an LEA May Meet the Compliance Standard Using Alternate Methods From Year to Year and
                      Using Exceptions or Adjustment Under Sec.  Sec.   300.204 and 300.205
----------------------------------------------------------------------------------------------------------------
                                                                                        Combination of
                                           Combination of     Local funds only on a    State and local    Child
    Fiscal year       Local funds only     State and local       per capita basis       funds on a per    count
                                                funds                                    capita basis
----------------------------------------------------------------------------------------------------------------
2015- 2016.........  $500 *............  $950 *............  $50 *..................  $95 *............       10
2016- 2017.........  $400..............  $950 *............  $40....................  $95 *............       10
2017-2018..........  $450 *............  $1,000 *..........  $45 *..................  $100 *...........       10
                     In 2017-2018, the                       In 2017-2018, the LEA
                      LEA was required                        was required to spend
                      to spend at least                       at least the same
                      the same amount                         amount in local funds
                      in local funds                          only on a per capita
                      only that it                            basis that it spent in
                      spent in the                            the preceding fiscal
                      preceding fiscal                        year, subject to the
                      year, subject to                        Subsequent Years rule.
                      the Subsequent                          Therefore, prior to
                      Years rule.                             taking any exceptions
                      Therefore, prior                        or adjustment in Sec.
                      to taking any                           Sec.   300.204 and
                      exceptions or                           300.205, the LEA was
                      adjustment in                           required to spend at
                      Sec.  Sec.                              least $50 in local
                      300.204 and                             funds only on a per
                      300.205, the LEA                        capita basis.
                      was required to                        In 2017-2018, the LEA
                      spend at least                          properly reduced its
                      $500 in local                           aggregate
                      funds only.                             expenditures, per an
                     In 2017-2018, the                        exception in Sec.
                      LEA properly                            300.204, by $50.
                      reduced its                            $50/10 children with
                      expenditures, per                       disabilities in the
                      an exception in                         comparison year (2015-
                      Sec.   300.204,                         2016) = $5 per capita
                      by $50, and                             allowable reduction
                      therefore, was                          per an exception under
                      required to spend                       Sec.   300.204.
                      at least $450 in                       $50 local funds only on
                      local funds only                        a per capita basis
                      ($500 from 2015-                        (from 2015-2016 per
                      2016 per                                Subsequent Years rule)-
                      Subsequent Years                        $5 allowable reduction
                      rule-$50                                per an exception under
                      allowable                               Sec.   300.204 = $45
                      reduction per an                        local funds only on a
                      exception under                         per capita basis to
                      Sec.   300.204).                        meet MOE.
2018-2019..........  $405..............  $1,000 *..........  $45 *..................  $111.11 *........        9
                     In 2018-2019, the   Because the LEA     In 2018-2019, the LEA    Because the LEA
                      LEA was required    did not reduce      was required to spend    did not reduce
                      to spend at least   its expenditures    at least the same        its expenditures
                      the same amount     from the            amount in local funds    from the
                      in local funds      comparison year     only on a per capita     comparison year
                      only that it        (2017-2018) using   basis that it spent in   (2017-2018)
                      spent in the        a combination of    the preceding fiscal     using a
                      preceding fiscal    State and local     year, subject to the     combination of
                      year, subject to    funds, the LEA      Subsequent Years rule.   State and local
                      the Subsequent      met MOE.            Therefore, prior to      funds on a per
                      Years rule.                             taking any exceptions    capita basis
                      Therefore, prior                        or adjustment in Sec.    ($1,000/9 =
                      to taking any                           Sec.   300.204 and       $111.11 and
                      exceptions or                           300.205, the LEA was     $111.11 > $100),
                      adjustment in                           required to spend at     the LEA met MOE.
                      Sec.  Sec.                              least $45 in local
                      300.204 and                             funds only on a per
                      300.205, the LEA                        capita basis.
                      was required to                        In 2018-2019, the LEA
                      spend at least                          properly reduced its
                      $450 in local                           aggregate
                      funds only.                             expenditures, per an
                     In 2018-2019, the                        exception in Sec.
                      LEA properly                            300.204 by $10 and the
                      reduced its                             adjustment in Sec.
                      expenditures, per                       300.205 by $10.
                      an exception in                        $20/10 children with
                      Sec.   300.204 by                       disabilities in the
                      $10 and the                             comparison year (2017-
                      adjustment in                           2018) = $2 per capita
                      Sec.   300.205 by                       allowable reduction
                      $10.                                    per an exception and
                     Therefore, the LEA                       the adjustment under
                      was required to                         Sec.  Sec.   300.204
                      spend at least                          and 300.205.
                      $430 in local                          $45 local funds only on
                      funds only. ($450                       a per capita basis
                      from 2017-2018-                         (from 2017-2018)-$2
                      $20 allowable                           allowable reduction
                      reduction per an                        per an exception and
                      exception and the                       the adjustment under
                      adjustment under                        Sec.  Sec.   300.204
                      Sec.  Sec.                              and 300.205 = $43
                      300.204 and                             local funds only on a
                      300.205).                               per capita basis
                                                              required to meet MOE.
                                                              Actual level of effort
                                                              is $405/9 (the current
                                                              year child count).
----------------------------------------------------------------------------------------------------------------
* LEA met MOE using this method.
Note: When calculating any exception(s) and/or adjustment on a per capita basis for the purpose of determining
  the required level of effort, the LEA must use the child count from the comparison year, and not the child
  count of the year in which the LEA took the exception(s) and/or adjustment. When determining the actual level
  of effort on a per capita basis, the LEA must use the child count for the current year. For example, in
  determining the actual level of effort in 2018-2019, the LEA uses a child count of 9, not the child count of
  10 in the comparison year.

    Changes: We have not changed the regulation but we have revised 
Table 6 to include the use of alternate methods from year to year to 
meet the MOE requirements in years where the LEA used the exceptions or 
adjustment.
    Comment: One commenter asked whether the LEA or the SEA selects the 
method by which an LEA met the compliance standard if the LEA in fact 
met the standard using more than one method. The commenter expressed 
concern that choosing one method over another will affect the 
comparison year to be used in the future.
    Discussion: The SEA is responsible for determining whether an LEA 
meets the MOE eligibility standard in Sec.  300.203(a) and for 
determining whether an LEA meets the MOE compliance standard in Sec.  
300.203(b). In order to make this determination, the SEA must permit 
the LEA to meet either standard using any of the four methods. If the 
LEA meets the standards using more than one method, the SEA may select 
the method it uses to determine that the LEA met the eligibility or 
compliance standard. Ultimately, however, regardless of the method used 
to make these determinations, an LEA is not precluded from selecting a 
different method to meet either the eligibility or compliance standard 
in a subsequent year.
    Changes: None.
    Comment: A commenter suggested that the per capita calculation be 
expanded to allow for either

[[Page 23651]]

``headcount'' or a full-time equivalent (FTE) because FTE is more 
closely related to the cost of services than headcount.
    Discussion: By referencing FTE, we assume that the commenter was 
referring to using a per capita method of calculating effort that 
measures the cost per hour of special education and related services an 
LEA provides to children with disabilities, rather than the amount 
spent per child with a disability, in a particular fiscal year. Using a 
measure that depends on the cost of FTEs could allow LEAs to meet MOE 
by reducing the number of hours of special education and related 
services an LEA provides to children with disabilities. We therefore 
decline to adopt this method of measuring effort. This decision is 
consistent with the position we have taken on the meaning of ``per 
capita.'' As explained in the Analysis of Comments and Changes in the 
preamble to the 2006 IDEA Part B regulations, ``[w]e do not believe it 
is necessary to include a definition of `per capita' . . . because we 
believe that, in the context of the regulations, it is clear that we 
are using this term to refer to the amount per child with a disability 
served by the LEA.'' See 71 FR 46540, 46624 (Aug. 14, 2006).
    Changes: None.
    Comment: Some commenters asked for clarification on how to 
determine the amount an LEA must spend in local funds only or local 
funds only on a per capita basis to meet the compliance and eligibility 
standards if the LEA has never spent local funds for the education of 
children with disabilities in the past. The commenters asked whether 
these LEAs may use ``zero'' local funds as the amount spent in the 
comparison year and noted that, if this is the case, these LEAs will 
always meet the compliance and eligibility standards using local funds 
only, even in years when the level of expenditures for the education of 
children with disabilities made from a combination of State and local 
funds, or a combination of State and local funds on a per capita basis, 
is lower than the level of those expenditures in the comparison year.
    Discussion: LEAs, including an LEA that has not spent any local 
funds for the education of children with disabilities since the MOE 
requirement was enacted in 1997, are permitted to use any of the four 
methods to meet the compliance and eligibility standards. An LEA that 
has spent $0 in local funds for the education of children with 
disabilities can meet the compliance and eligibility standards by 
continuing to budget and spend $0 in local funds for the education of 
children with disabilities. However, the Department believes that there 
are very few instances where LEAs have expended $0 in local funds for 
the education of children with disabilities. We remind LEAs that, when 
demonstrating that they meet the compliance and eligibility standards 
using any of the four methods, they must be able to provide auditable 
data regarding their expenditures from the relevant sources in all 
relevant years. Simply because an LEA does not account for local funds 
separately from State funds does not mean that the LEA expends $0 in 
local funds for the education of children with disabilities. We also 
remind LEAs that, regardless of which method they use to demonstrate 
that they meet the standards, they must continue to make a free 
appropriate public education (FAPE) available to all eligible children 
with disabilities.
    Changes: None.
    Comment: One commenter suggested that the MOE requirement be 
changed from a dollar requirement to a requirement that LEAs maintain 
only the same percentage of expenditures for the education of children 
with disabilities compared to the overall education budget.
    Discussion: Section 613(a)(2)(A)(iii) of the IDEA (20 U.S.C. 
1413(a)(2)(A)(iii)) states that, except as provided in section 
613(a)(2)(B) and (C) of the Act, 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. Substituting a requirement 
that an LEA not reduce the percentage of its total budget spent for the 
education of children with disabilities would not ensure that the LEA 
would meet the requirement in the statute, which prohibits a reduction 
in the level of expenditures for the education of children with 
disabilities, and not a percentage of the overall education budget. In 
addition, this approach does not provide protection for children with 
disabilities when the overall amount of the education budget drops. 
Therefore, the Department declines to make this change.
    Changes: None.
    Comment: A commenter stated that the Subsequent Years rule does not 
permit an LEA to take into account that the LEA met the compliance 
standard using a different method in a preceding fiscal year and would, 
for example, prevent an LEA from meeting the compliance standard using 
local funds only on a per capita basis if the LEA had used a different 
method in the preceding fiscal year.
    Discussion: The Subsequent Years rule does not prevent an LEA from 
using any of the four methods to meet the compliance standard in Sec.  
300.203(b), as demonstrated in Table 5. However, an LEA that wishes to 
meet the compliance standard in a fiscal year using one particular 
method must be able to identify the amount of funds that the LEA 
expended in the most recent fiscal year in which the LEA met the 
compliance standard using that same method.
    In the hypothetical posed by the commenter (in which an LEA wished 
to meet the compliance standard using local funds only on a per capita 
basis), the LEA would look to the preceding fiscal year and determine 
the amount of expenditures for the education of children with 
disabilities made by the LEA with local funds only on a per capita 
basis. If the LEA could have met the compliance standard using that 
method in the preceding fiscal year, the amount expended by the LEA 
using local funds only on a per capita basis in the preceding fiscal 
year is the minimum amount that the LEA must spend in order to meet the 
compliance standard in the current year using that method.
    However, if the LEA could not have met the compliance standard 
using local funds only on a per capita basis in the preceding fiscal 
year, the Subsequent Years rule applies. In that case, the LEA must 
determine the amount of local funds only on a per capita basis that the 
LEA should have spent in the preceding fiscal year in order to have met 
the compliance standard in that year. That is the amount of local funds 
only on a per capita basis that the LEA will need to spend in the 
current year to meet the compliance standard.
    Changes: None.
    Comment: A commenter suggested we reverse the order of the 
compliance standard in proposed Sec.  300.203(a)(2)(i) and (ii) so that 
the methods that reference local funds only precede the methods that 
reference State and local funds. Another commenter recommended that the 
compliance standard in proposed Sec.  300.203(a)(2) be rephrased in 
affirmative language.
    Discussion: As previously stated, we have revised final Sec.  
300.203(b)(2) (proposed Sec.  300.203(a)(2)(i) and (ii)). Therefore, 
the suggestion to reverse the order of proposed Sec.  300.203(a)(2)(i) 
and (ii) is no longer applicable. These comments and analyses use 
affirmative language where appropriate. In addition, the Department 
intends to issue guidance on these regulations and plans to provide 
examples in that guidance using affirmative language.

[[Page 23652]]

    Changes: None.
    Comment: One commenter recommended that the determination that an 
LEA receives pursuant to section 616 of the IDEA (20 U.S.C. 1416) be 
considered when deciding whether an LEA met the MOE compliance standard 
because that determination is based on IDEA Part B compliance 
requirements and is an indication that the LEA implemented the 
requirements of the IDEA.
    Discussion: Section 616 of the IDEA includes provisions related to 
monitoring, technical assistance, and enforcement of the IDEA. Pursuant 
to section 616(a)(1)(C) of the IDEA and 34 CFR 300.600(a), each State 
must determine annually whether an LEA meets the requirements and 
purposes of the IDEA. The commenter's suggestion is not consistent with 
section 613(a)(2)(A)(iii) of the IDEA (20 U.S.C. 1413(a)(2)(A)(iii)), 
which requires LEAs to maintain effort. Compliance with the MOE 
provision is a distinct requirement that cannot be met through 
compliance with other IDEA requirements or through meeting results 
targets.
    Changes: None.
    Comment: One commenter recommended that we add a new subsection to 
proposed Sec.  300.203 entitled ``Budget and Expenditure Categories'' 
that would define or reference the terms ``education'' and ``related 
services.'' The commenter recommended that the regulations allow LEAs 
to compare either ``education'' expenditures or ``education and related 
services'' expenditures to meet the compliance and eligibility 
standards. The commenter stated that, in States where certain 
federally-defined ``related services'' are considered ``education'' 
pursuant to State law, an annual MOE comparison of ``education and 
related services'' may be preferable. The commenter stated that, in 
that instance, the match provided in order to receive the Federal 
Medicaid reimbursement should be included in the calculation.
    Discussion: The Department disagrees that the regulations should 
include definitions of these terms. The terms ``special education'' and 
``related services'' are defined in Sec. Sec.  300.39 and 300.34, 
respectively. When calculating the amount an LEA spends for the 
education of children with disabilities, the LEA must include 
expenditures for related services, regardless of whether a State 
considers certain federally-defined related services as education 
pursuant to State law. LEAs must include the amount of local only, or 
State and local, funds spent for the education of children with 
disabilities when calculating the level of effort required to meet the 
eligibility and compliance standards, even if those local only, or 
State and local, funds are also used to meet a matching requirement in 
the Medicaid program. We believe the regulations adequately address the 
expenditures that may be included in the MOE calculations, and 
therefore decline to add a new subsection addressing specific budget 
and expenditure categories.
    Changes: None.

Comparison Year

    Comment: We received many comments about proposed Sec.  
300.203(a)(2)(ii), which provided that the comparison year for an LEA 
that seeks to establish compliance using local funds only, or local 
funds only on a per capita basis, is ``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. . . .'' Some commenters stated that the 
comparison year must always be the ``preceding fiscal year'' because 
that is the language in the statute. Other commenters suggested that 
proposed subsection (a)(1) include the language ``even if the LEA also 
met the MOE compliance standard based on State and local funds. . . .'' 
A few commenters stated that, in almost all circumstances, the baseline 
for MOE when using expenditures of local funds only will be the year of 
the highest level of expenditures of local funds only, even if that 
level was not from the preceding fiscal year, and even if the LEA met 
MOE in the preceding fiscal year using a different method.
    Discussion: We agree with the commenters that, when an LEA seeks to 
meet the compliance standard using local funds only, or local funds 
only on a per capita basis, the comparison year should align with the 
language in section 613(a)(2)(A)(iii) of the IDEA (20 U.S.C. 
1413(a)(2)(A)(iii)), which is ``the preceding fiscal year.'' Using the 
same comparison year for local funds only and for State and local funds 
will simplify the requirement for LEAs, SEAs, and auditors, which 
should result in increased compliance and enforcement. Therefore, we 
changed the comparison year for meeting the compliance standard using 
local funds only in proposed Sec.  300.203(a)(2)(ii) to ``the preceding 
fiscal year'' from ``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.''
    However, because we are adopting the Subsequent Years rule in Sec.  
300.203(c), the Department is, in effect, defining ``the preceding 
fiscal year'' to mean the last fiscal year in which the LEA met MOE, 
regardless of whether the LEA is seeking to establish compliance based 
on local funds only, or based on State and local funds. Because our 
change affects the comparison year for the MOE calculation using local 
funds only, the provision in proposed Sec.  300.203(a)(2)(iii), which 
addresses the comparison year if the LEA has not previously met the MOE 
compliance standard based on local funds only, is no longer necessary.
    With regard to the comment that the comparison year when using 
local funds only, or local funds only on a per capita basis, will 
usually be the year of the highest level of local funds only 
expenditures, the final regulations at Sec.  300.203(b)(2) provide 
that, regardless of the method used, the comparison year is always the 
preceding fiscal year. However, the comparison year is subject to the 
Subsequent Years rule in Sec.  300.203(c), which means that, if the LEA 
did not maintain effort in the preceding fiscal year using local funds 
only, the required amount to meet the MOE compliance standard using 
local funds only is the amount that would have been required in the 
absence of that failure, and not the LEA's reduced level of local funds 
only expenditures.
    Changes: We have revised final Sec.  300.203(b)(2) to specify that 
the comparison year, regardless of the method used, is the preceding 
fiscal year. We also removed proposed Sec.  300.203(a)(2)(iii).
    Comment: One commenter questioned the language in proposed Sec.  
300.203(a)(2)(i) and (ii) that permitted LEAs to meet the compliance 
standard using local funds only and the combination of State and local 
funds. The commenter stated that having two standards imposes an 
unnecessary burden on SEAs and LEAs, which could result in additional 
misapplication of the MOE compliance standard.
    Discussion: The Department agrees that proposed Sec.  
300.203(a)(2)(i) and (ii) could benefit from additional clarification 
and that confusion will not promote compliance. Therefore, we have 
revised final Sec.  300.203(b)(2) (proposed Sec.  300.203(a)(2)(i) and 
(ii)) to state the compliance standard more clearly.
    However, the option to meet the compliance standard based on local 
funds only or a combination of State and local funds is not new. The 
1999 IDEA Part B regulations provided additional flexibility to LEAs in 
the

[[Page 23653]]

event of increased funding from State sources by permitting LEAs to 
meet MOE based on State and local funds, and the 2006 IDEA Part B 
regulations maintained that language. As explained in the Analysis of 
Comments and Changes in the preamble to the 1999 IDEA Part B 
regulations, if a State increases funding to LEAs to reduce the fiscal 
burden on local government, an LEA may not need to continue to put the 
same amount of local funds toward expenditures for the education of 
children with disabilities in order to meet the MOE requirement. See 64 
FR 12406, 12571 (Mar. 12, 1999). However, if a State increases funding 
to an LEA, the LEA should not be able to replace any or all of its 
local funds with State funds unless the combination of State and local 
funds is not at least equal to the amount expended from the same source 
in a preceding fiscal year (subject to the Subsequent Years rule), as 
this would result in reductions in expenditures not contemplated by the 
statute.
    Changes: We have revised final Sec.  300.203(b)(2) to state the 
compliance standard more clearly and to specify that the comparison 
year, regardless of the method used, is the preceding fiscal year.

Exceptions and Adjustment

    Comment: One commenter asked for clarification of the relationship 
between the amount by which an LEA is permitted to reduce its 
expenditures pursuant to Sec. Sec.  300.204 and 300.205 and the amount 
the LEA must spend to meet the compliance standard in a future fiscal 
year. The commenter asked how the threshold for future compliance using 
local funds only or a combination of State and local funds is affected 
if an LEA reduces its expenditures in an amount less than the maximum 
amount permitted by Sec. Sec.  300.204 and 300.205.
    Discussion: The LEA's actual level of expenditures for the 
education of children with disabilities in a preceding fiscal year, and 
not the reduced level of expenditures that the LEA could have spent had 
it taken all of the exceptions and the adjustment permitted by 
Sec. Sec.  300.204 and 300.205, is the level of expenditures required 
of the LEA in a future fiscal year (which may be affected by the 
Subsequent Years rule in Sec.  300.203(c)). For example, in FY 2015-
2016, an LEA could have reduced its expenditures by $100,000 (from 
$2,100,000 to $2,000,000) by taking all of the exceptions permitted by 
Sec.  300.204. However, this LEA actually spent $2,025,000 in FY 2015-
2016. Therefore, this LEA only reduced its expenditures by $75,000. In 
FY 2016-2017, the LEA must spend at least $2,025,000 if it chooses to 
use the same method of measuring expenditures (before calculating any 
exceptions or adjustment in Sec. Sec.  300.204 and 300.205 that it 
takes in FY 2016-2017).
    Changes: None.
    Comment: A commenter asked whether exceptions taken pursuant to 
Sec.  300.204 have to be specifically identified as reductions to State 
or local expenditures and whether all exceptions are allowable against 
local expenditures.
    Discussion: An LEA need not identify the exceptions and adjustment 
in Sec. Sec.  300.204 and 300.205 as applying specifically against 
State or local expenditures. An LEA may apply the exceptions and the 
adjustment in Sec. Sec.  300.204 and 300.205 to meet the compliance 
standard using any of the four methods. For an example of this 
calculation, see Table 6.
    Changes: None.
    Comment: One commenter requested that the Department allow an LEA 
to reduce its required level of expenditures if the increase in 
expenditures with State and local funds, or local funds only, in the 
preceding fiscal year was caused by a reduction in IDEA Part B funds. 
Some commenters stated that, as Federal funding fluctuates, LEAs need 
additional flexibility to move dollars in and out of programs.
    Discussion: While it is unusual for IDEA Part B funds to be 
reduced, the Department recognizes that this has occurred in the past. 
Nevertheless, reductions in expenditures, other than those permitted by 
the exceptions and adjustment in Sec. Sec.  300.204 and 300.205, are 
not permissible under the statute and regulations, even if the LEA 
experienced decreased revenues. LEAs, therefore, must meet the 
eligibility and compliance standards regardless of the amount of their 
IDEA Part B subgrant.
    Changes: None.
    Comment: A few commenters requested that the Department consider a 
provision in the regulations that would permit a waiver of the MOE 
requirement, and they noted that the IDEA does not specifically 
prohibit MOE waivers.
    Discussion: The statute does not include a waiver provision for LEA 
MOE. Therefore, we believe that adding such a waiver would be 
inconsistent with the language and purpose of the MOE requirement in 
section 613(a)(2)(A)(iii) of the IDEA (20 U.S.C. 1413(a)(2)(A)(iii)). 
In addition, the Department believes that the exceptions and adjustment 
in Sec. Sec.  300.204 and 300.205, and the ability to meet the MOE 
eligibility and compliance standards using any of the four methods, 
provide adequate flexibility to LEAs. Therefore, these regulations do 
not provide for waivers of LEA MOE.
    Changes: None.

Data Retention and Administration

    Comment: Commenters raised many questions and concerns about 
whether the proposed regulations would require LEAs and SEAs to 
maintain data and information on expenditures. Some commenters raised 
concerns or questions about the number of years for which LEAs and SEAs 
would have to maintain information related to meeting the eligibility 
and compliance standards. One of these commenters questioned how the 
MOE requirement interacts with State and local data retention policies 
because, without established time limits on how long the data must be 
maintained, the requirement may conflict with those policies. Several 
commenters expressed concern about the requirement for LEAs and SEAs to 
have systems that maintain information on the reductions an LEA took 
pursuant to Sec. Sec.  300.204 and 300.205. Commenters were concerned 
about LEAs' ability to track the allowable exceptions and adjustment 
every year, and the cost of doing so, even if LEAs meet the MOE 
requirement, and particularly if they are required to go back an 
indefinite number of years to examine information. Some commenters 
stated that the proposed regulations would increase administrative 
costs if LEAs are required to track expenses by local and State sources 
separately. A few commenters asked what circumstances an LEA may take 
into account if it is required to go back more than five years to 
compare its expenditures (e.g., population shifts; State changes in 
funding formulas for special education; changes in poverty levels; 
statutory structural changes that shift pension or health care 
contributions from the employer (LEA) to the employees).
    Discussion: As an initial matter, in accordance with 34 CFR 76.731, 
SEAs and LEAs must keep records to show their compliance with program 
requirements, including the MOE requirement in Sec.  300.203 and the 
provisions for exceptions and adjustment permitted in Sec. Sec.  
300.204 and 300.205. SEAs and LEAs are subject to the record retention 
requirements in 2 CFR 200.333, under which records must generally be 
retained for three years from the day the grantee or subgrantee submits 
to the awarding agency its single or last expenditure report for that 
period. Under 34 CFR 76.709, if SEAs or LEAs do not obligate all of 
their IDEA

[[Page 23654]]

Part B grant or subgrant funds by the end of the fiscal year for which 
Congress appropriated the funds, they may obligate those funds during a 
carryover period of one additional year. Therefore, SEAs and LEAs must 
generally keep records to show compliance with the MOE requirement for 
a minimum of five years. SEAs and LEAs have the discretion to keep the 
records longer than the required retention period if necessary to meet 
State and local data retention requirements.
    The Department recognizes that there is confusion about the 
information and data that LEAs and SEAs must maintain in order to meet 
the eligibility and compliance standards. In addition to the minimum 
five-year record retention requirement discussed above, an LEA that 
wishes to retain the flexibility to use any of the four methods to meet 
the MOE requirement in a particular fiscal year must have data and 
information that allow the LEA to determine the amount of expenditures 
it made in the relevant comparison year using that same method.
    An LEA that wishes to reduce its expenditures pursuant to the 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205 must have 
data and information that demonstrate the LEA properly took the 
exceptions and adjustment.
    Unless the LEA failed to meet the compliance standard in the 
preceding fiscal year, the LEA will need information only from the 
preceding fiscal year to demonstrate compliance with the MOE 
requirement. However, if the LEA did not meet the compliance standard 
in the preceding fiscal year, the LEA will have to determine the proper 
comparison year. To do so, the LEA must use the Subsequent Years rule 
in Sec.  300.203(c) and have information for that fiscal year, even if 
that fiscal year falls outside of the five years required for record 
retention.
    For example, an LEA that wishes to meet the compliance standard in 
FY 2016-2017 using a combination of State and local funds must have 
information on the amount of State and local funds it expended for the 
education of children with disabilities in the preceding fiscal year, 
which is FY 2015-2016. If the LEA did not meet the compliance standard 
using that method in FY 2015-2016, it must have information from the 
proper comparison year. Since the Subsequent Years rule requirement is 
effective, at the earliest, for FY 2012-2013, the earliest fiscal year 
for which the LEA must have information is FY 2010-2011. This is 
because, in FY 2012-2013, the LEA must have spent at least the same 
amount for the education of children with disabilities as it spent in 
FY 2011-2012. If the LEA did not meet the compliance standard in FY 
2011-2012, the LEA must, using that same method, determine what it 
should have spent in FY 2011-2012, which is what it actually spent in 
FY 2010-2011. In addition, in this hypothetical, if the LEA reduces 
expenditures in FY 2016-2017 based on an exception or adjustment 
permitted in Sec. Sec.  300.204 and 300.205, the LEA must have 
documentation that it properly took the exception or adjustment.
    Finally, neither the proposed nor the final regulations change the 
circumstances under which an LEA may use the exceptions and adjustment 
in Sec. Sec.  300.204 and 300.205, nor do they impose additional data 
retention requirements on LEAs. The change in circumstances raised by 
commenters, such as shifts in funding formulas, or changes that shift 
pension or health care contributions from the State or LEA to the 
employee, are not exceptions to the MOE requirement, and LEAs, 
therefore, would not be required to retain this information to 
demonstrate compliance with the MOE requirement.
    Changes: None.
    Comment: One commenter stated that, if an LEA does not have 
information on the amount of ``local funds only'' expended for the 
education of children with disabilities for a specified time period, 
the LEA should not be able to use the ``local funds only'' option to 
meet the eligibility and compliance standards for that same time 
period.
    Discussion: We understand that, due to State or local fiscal 
systems, some LEAs cannot distinguish between expenditures made with 
State funds and those made with local funds. While the regulations 
permit LEAs to use any one of the four methods, the regulations do not 
require an LEA to separately account for expenditures made with local 
funds and those made with State funds. However, regardless of the 
method used, LEAs must be able to provide auditable data to document 
that they met the eligibility and/or compliance standards using that 
method. Therefore, LEAs that are unable to account for local funds 
only, or local funds only on a per capita basis, or that choose not to 
retain those records, will be unable to use those methods to meet the 
eligibility and compliance standards and instead must meet the 
eligibility and compliance standards using either the combination of 
State and local funds or the combination of State and local funds on a 
per capita basis.
    Changes: None.
    Comment: One commenter expressed concern that the proposed changes 
to the regulations will require significant revision of training 
materials and documentation that some States have used for at least 15 
years.
    Discussion: We understand that the changes to the MOE regulations 
may require changes to States' policies and procedures and may 
therefore also require revisions to their training materials and 
documentation practices. However, we believe that the changes we are 
making to the regulations are necessary to increase understanding of, 
and compliance with, the MOE requirement. The Department will provide 
guidance on these regulations that will assist States in training LEAs 
on the documentation needed to demonstrate compliance with the MOE 
requirement.
    Changes: None.

LEA Eligibility, Sec.  300.203(a)

Eligibility Standard and Methodology

    Comment: Commenters raised many questions and concerns related to 
the four methods by which an LEA may meet the eligibility standard. One 
commenter requested that the regulations specifically list the four 
methods available to LEAs. Some commenters requested that the 
Department clarify that SEAs are required to allow LEAs to meet the 
eligibility standard using all four methods. Other commenters stated 
that the proposed regulations emphasize meeting the MOE requirement 
using local funds only, rather than clarifying that an LEA may meet the 
requirement through any of the four methods.
    Discussion: We agree that additional clarification is needed 
regarding the four methods by which an LEA may meet the eligibility 
standard. We also agree that listing the four methods individually in 
the eligibility standard will clarify that an LEA may meet the 
eligibility standard using any one of these four methods, and that SEAs 
must permit LEAs to do so. Listing the four methods individually should 
also clarify that the regulations do not give preference or greater 
weight to any of the four methods.
    Changes: We have revised final Sec.  300.203(a)(1) (proposed Sec.  
300.203(b)) to specify that, for purposes of establishing an LEA's 
eligibility for an award for a fiscal year, the SEA must determine that 
the LEA budgets, for the education of children with disabilities, at 
least the same amount, from at least one 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; (iii) local funds only 
on

[[Page 23655]]

a per capita basis; or (iv) the combination of State and local funds on 
a per capita basis.
    Comment: One commenter recommended that the Department retain the 
language in current Sec.  300.203(b)(1) requiring ``at least the same 
total or per capita amount . . . the LEA spent . . . for the most 
recent prior year for which information is available.'' The commenter 
objected that replacing ``the most recent prior year'' with ``the most 
recent fiscal year'' would narrow the regulation and not give LEAs the 
opportunity to submit allowable exceptions for reduced expenditures 
that may have taken place multiple fiscal years ago. Other commenters 
supported the change from ``most recent prior year'' to ``most recent 
fiscal year'' because the latter provides more clarity.
    Discussion: We do not believe that the change from ``most recent 
prior year'' to ``most recent fiscal year'' has the effect on 
demonstrating eligibility that the commenter attributes to it. The 
change is not a substantive change, and merely aligns the language of 
the regulation to the language of the statute, which uses ``fiscal 
year'' and does not use ``prior year.'' Section 613(a)(2)(A)(iii) of 
the IDEA (20 U.S.C. 1413(a)(2)(A)(iii)). Nothing in this language 
prevents an LEA from reducing the amount of funds expended for the 
education of children with disabilities pursuant to the exceptions in 
Sec.  300.204 or adjustment in Sec.  300.205. However, an LEA may not 
look back to a previous fiscal year and claim exceptions for that 
fiscal year that it did not actually take during that fiscal year. For 
example, an LEA expended $10,000 for the education of children with 
disabilities in FY 2014-2015. During that fiscal year, the LEA could 
have properly reduced its expenditures pursuant to exceptions in Sec.  
300.204 by $500 but chose not to do so. In January 2016, the LEA is 
budgeting for the expenditures for the education of children with 
disabilities in order to demonstrate eligibility for an IDEA Part B 
subgrant for FY 2016-2017. The most recent fiscal year for which the 
LEA has information is FY 2014-2015. The LEA must budget $10,000 for 
the education of children with disabilities, and not $9,500. This is 
not a change in current law.
    Changes: None.

Comparison Year

    Comment: The Department received many comments about the comparison 
year an LEA must use when meeting the eligibility standard. Some 
commenters supported a comparison year that is the same regardless of 
which of the four methods the LEA uses to meet the eligibility 
standard.
    Discussion: The Department appreciates the comments and questions 
that we received about the comparison year for the eligibility 
standard. We agree that the comparison year should be the same 
regardless of the method an LEA uses to meet the eligibility standard.
    Using the same comparison year for local funds only and for the 
combination of State and local funds will simplify the requirement for 
LEAs, SEAs, and auditors, and therefore should result in increased 
compliance and enforcement. In addition, this is consistent with how we 
changed the comparison year for the compliance standard using local 
funds only. Therefore, we have changed the comparison year for meeting 
the eligibility standard using local funds only in proposed Sec.  
300.203(b)(2) from ``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'' to ``the most recent fiscal year for which 
information is available'' in final Sec.  300.203(a)(1). However, 
because we are adopting the Subsequent Years rule in Sec.  300.203(c), 
the Department is, in effect, defining ``the most recent fiscal year 
for which information is available'' to mean the most recent fiscal 
year in which the LEA met MOE and for which it has information 
available, regardless of whether the LEA is seeking to meet the 
eligibility standard based on local funds only, or based on the 
combination of State and local funds. Because we have changed the 
comparison year for local funds only, the provision in proposed Sec.  
300.203(b)(3), which addresses the comparison year if the LEA has not 
previously met the MOE compliance standard based on local funds only, 
is no longer necessary.
    Changes: We have revised final Sec.  300.203(a)(1) (proposed Sec.  
300.203(b)(2)) to specify that the comparison year, regardless of the 
method used, is the most recent fiscal year for which information is 
available. We also removed proposed Sec.  300.203(b)(3).
    Comment: Some commenters sought a comparison year for the 
eligibility standard that is the ``preceding fiscal year'' and objected 
to making the comparison year ``the most recent fiscal year for which 
information is available.'' These commenters stated that the proposed 
regulation leaves open the possibility that the comparison year will be 
so far in the past that it will not provide a meaningful comparison. 
Similarly, other commenters recommended including language that limits 
how far back SEAs and LEAs must look as a reference point for 
comparison.
    Discussion: We do not agree with commenters who stated that the 
comparison year should be ``the preceding fiscal year'' because, at the 
time most LEAs are budgeting for the next fiscal year (the ``budget 
year''), the fiscal year preceding the budget year has not yet ended. 
Therefore, the LEA must look to the amount actually spent in ``the most 
recent fiscal year for which information is available'' to determine 
the amount it must budget to meet the eligibility standard.
    We anticipate that ``the most recent fiscal year for which 
information is available'' will be two years before the budget year and 
therefore will not be so far in the past as to preclude a meaningful 
comparison. We assume, for example, that when an LEA is budgeting for 
FY 2016-2017, the most recent fiscal year for which final expenditure 
data are available would be FY 2014-2015. However, because 
circumstances in individual LEAs may vary, the Department declines to 
include language in the regulations that limits how far back SEAs and 
LEAs must go to identify a comparison year.
    Changes: None.
    Comment: A commenter asked what comparison year an LEA would use to 
meet the eligibility standard in a fiscal year subsequent to a fiscal 
year (or years) when the LEA was not eligible for, or did not receive, 
an IDEA Part B subgrant.
    Discussion: An LEA that seeks to establish eligibility in a fiscal 
year subsequent to a fiscal year (or years) when the LEA was not 
eligible, or did not receive, an IDEA Part B subgrant, must use the 
comparison year in Sec.  300.203(a)(1), which is ``the most recent 
fiscal year for which information is available.'' This is the case even 
if the most recent fiscal year for which information is available is a 
fiscal year during which the LEA was not eligible for, or did not 
receive, an IDEA Part B subgrant.
    Changes: None.
    Comment: A commenter asked whether, in order to meet the 
eligibility standard, an LEA must use the same method it used to meet 
the compliance standard in the most recent fiscal year for which 
information is available.
    Discussion: When establishing eligibility, an LEA is not required 
to use the same method it used to meet the compliance standard in the 
most recent

[[Page 23656]]

fiscal year for which information is available. When an LEA is 
budgeting for the education of children with disabilities, the LEA 
selects a method by which it intends to meet the eligibility standard. 
The LEA identifies the amount it spent for the education of children 
with disabilities using that same method in the most recent fiscal year 
for which information is available. If the LEA met the compliance 
standard using the same method in the most recent fiscal year for which 
information is available, the LEA must budget at least that amount 
(after taking into consideration the exceptions and adjustment in 
Sec. Sec.  300.204 and 300.205, as permitted by Sec.  300.203(a)(2)) in 
order to meet the eligibility standard.
    Pursuant to the Subsequent Years rule in Sec.  300.203(c), if the 
LEA did not meet the compliance standard using that method in the most 
recent fiscal year for which information is available, the LEA 
determines the amount that the LEA should have spent for the education 
of children with disabilities using that same method in the most recent 
fiscal year for which information is available. In that case, the LEA 
must budget at least that amount (after taking into consideration the 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205, as 
permitted by Sec.  300.203(a)(2)) in order to meet the eligibility 
standard.
    Tables 7 and 8 demonstrate how an LEA could meet the eligibility 
standard over a period of years using different methods from year to 
year. These tables assume that the LEA did not take any of the 
exceptions or adjustment in Sec. Sec.  300.204 and 300.205. Numbers are 
in $10,000s budgeted and spent for the education of children with 
disabilities.

                          Table 7--Example of How an LEA May Meet the Eligibility Standard in 2016-2017 Using Different Methods
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Combination
                                                              Combination  Local funds    of State
                                                 Local funds    of State    only on a    and local
                  Fiscal year                        only      and local    per capita   funds on a  Child count                   Notes
                                                                 funds        basis      per capita
                                                                                           basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014-2015......................................       * $500     * $1,000        * $50       * $100           10
2015-2016......................................  ...........  ...........  ...........  ...........  ...........  Final information not available at
                                                                                                                   time of budgeting for 2016-2017.
How much must the LEA budget for 2016-2017 to            500        1,000           50          100  ...........  When the LEA submits a budget for 2016-
 meet the eligibility standard in 2016-2017?                                                                       2017, the most recent fiscal year for
                                                                                                                   which the LEA has information is 2014-
                                                                                                                   2015. It is not necessary for the LEA
                                                                                                                   to consider information on
                                                                                                                   expenditures for a fiscal year prior
                                                                                                                   to 2014-2015 because the LEA
                                                                                                                   maintained effort in 2014-2015.
                                                                                                                   Therefore, the Subsequent Years rule
                                                                                                                   in Sec.   300.203(c) is not
                                                                                                                   applicable.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The LEA met the compliance standard using all 4 methods.

 Table 8--Example of How an LEA May Meet the Eligibility Standard in 2017-2018 Using Different Methods and the Application of the Subsequent Years Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Combination
                                                              Combination  Local funds    of State
                                                 Local funds    of State    only on a    and local
                  Fiscal year                        only      and local    per capita   funds on a  Child count                   Notes
                                                                 funds        basis      per capita
                                                                                           basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014-2015......................................       * $500     * $1,000        * $50       * $100           10
2015-2016......................................          450      * 1,000           45        * 100           10  ......................................
2016-2017......................................  ...........  ...........  ...........  ...........  ...........  Final information not available at
                                                                                                                   time of budgeting for 2017-2018.
How much must the LEA budget for 2017-2018 to            500        1,000           50          100  ...........  If the LEA seeks to use a combination
 meet the eligibility standard in 2017-2018?                                                                       of State and local funds, or a
                                                                                                                   combination of State and local funds
                                                                                                                   on a per capita basis, to meet the
                                                                                                                   eligibility standard, the LEA does
                                                                                                                   not consider information on
                                                                                                                   expenditures for a fiscal year prior
                                                                                                                   to 2015-2016 because the LEA
                                                                                                                   maintained effort in 2015-2016 using
                                                                                                                   those methods.

[[Page 23657]]

 
                                                 ...........  ...........  ...........  ...........  ...........  However, if the LEA seeks to use local
                                                                                                                   funds only, or local funds only on a
                                                                                                                   per capita basis, to meet the
                                                                                                                   eligibility standard, the LEA must
                                                                                                                   use information on expenditures for a
                                                                                                                   fiscal year prior to 2015-2016
                                                                                                                   because the LEA did not maintain
                                                                                                                   effort in 2015-2016 using either of
                                                                                                                   those methods, per the Subsequent
                                                                                                                   Years rule. That is, the LEA must
                                                                                                                   determine what it should have spent
                                                                                                                   in 2015-2016 using either of those
                                                                                                                   methods, and that is the amount that
                                                                                                                   the LEA must budget in 2017-2018.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* LEA met MOE using this method.

    Changes: None.
    Comment: A commenter stated that because the SEA is responsible for 
paying back funds if an LEA fails to maintain effort, it is better left 
to the SEA to determine how LEAs must demonstrate eligibility for an 
IDEA Part B subgrant.
    Discussion: Section 613(a) of the IDEA (20 U.S.C. 1413(a)) provides 
the standard for an LEA's eligibility for an IDEA Part B subgrant. An 
LEA is eligible for assistance under IDEA Part B in a fiscal year only 
if it submits a plan that provides assurances to the SEA that the LEA 
meets each of the conditions in section 613(a) of the IDEA, including 
an assurance that amounts provided to the LEA will not be used, except 
as provided in the statutory exceptions and adjustment, 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. In addition, for the purpose of 
establishing an LEA's eligibility for an IDEA Part B subgrant in Sec.  
300.203(a), the SEA must determine that the LEA budgets for the 
education of children with disabilities at least the same total or per 
capita amount as the LEA spent for that purpose from the same source 
for the most recent fiscal year for which information is available. 
Because the IDEA statute and regulations specify that LEAs must meet 
these eligibility requirements, it would be inconsistent with the IDEA 
to allow SEAs to use different eligibility requirements. The fact that 
an SEA would be liable in a recovery action pursuant to section 452 of 
the General Education Provisions Act (GEPA) (20 U.S.C. 1234a) does not 
affect the Department's responsibility to interpret the statute and 
issue regulations on the MOE requirement or the State's responsibility 
to ensure that LEAs meet the eligibility requirements.
    Changes: None.

Exceptions and Adjustment

    Comment: Many commenters objected to the eligibility standard in 
proposed Sec.  300.203(b)(1), which would require an LEA to budget, for 
the education of children with disabilities, at least the same total or 
per capita amount as the LEA spent for that purpose from the same 
source for the most recent fiscal year for which information is 
available without permitting LEAs to take into consideration the 
exceptions and adjustment permitted in Sec. Sec.  300.204 and 300.205. 
Some of these commenters recommended that proposed Sec.  300.203(b)(1) 
make explicit reference to the authorized exceptions and adjustment in 
Sec. Sec.  300.204 and 300.205. In addition, some commenters asked the 
Department to clarify how an LEA may consider the exceptions and 
adjustment in Sec. Sec.  300.204 and 300.205 when budgeting for the 
expenditures for the education of children with disabilities.
    Discussion: The commenters appear to have partially misread 
proposed Sec.  300.203(b)(1), which did permit an LEA to take into 
consideration the exceptions and adjustment that the LEA actually took 
in the comparison year, as permitted in Sec. Sec.  300.204 and 300.205, 
when calculating the amount of expenditures for the education of 
children with disabilities in the most recent fiscal year for which 
information is available. The final regulations at Sec.  300.203(a)(1) 
continue to permit an LEA to take into consideration the exceptions and 
adjustment, as permitted in Sec. Sec.  300.204 and 300.205.
    What the proposed rule did not do, however, was permit an LEA to 
take into consideration exceptions or an adjustment taken in the 
intervening fiscal year(s) between the budget year and the comparison 
year. The proposed rule also did not permit an LEA to consider the 
exceptions and adjustment that it reasonably anticipates taking in the 
budget year but that have not yet occurred.
    We understand that an LEA will have information about exceptions 
and an adjustment that it took in the intervening year(s), even if the 
LEA does not have final information on expenditures for that year(s). 
For example, when an LEA is budgeting for FY 2016-2017, the LEA knows 
that it took an exception under Sec.  300.204 in FY 2015-2016 that will 
permissibly lower the amount the LEA was otherwise required to spend 
for the education of children with disabilities in FY 2015-2016 when 
compared to FY 2014-2015 (the most recent fiscal year for which the LEA 
has information). The LEA may also reasonably anticipate that it will 
take an exception under Sec.  300.204 in FY

[[Page 23658]]

2016-2017, the budget year. We agree with the commenters that the 
eligibility standard should permit LEAs to take into consideration the 
exceptions and adjustment in the intervening fiscal year(s) and the 
budget year. Table 9 provides an example of how an LEA may consider the 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205 when 
budgeting for the expenditures for the education of children with 
disabilities.

     Table 9--Example of How an LEA May Meet the Eligibility Standard Using Exceptions and Adjustment in Sec.  Sec.   300.204 and 300.205, 2016-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Combination
                                                        Combination  Local funds    of State
                                           Local funds    of State    only on a    and local
               Fiscal year                     only      and local    per capita   funds on a           Child count                     Notes
                                                           funds        basis      per capita
                                                                                     basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual 2014-2015 expenditures............       * $500     * $1,000        * $50       * $100  10..........................  The LEA met the compliance
                                                                                                                              standard using all 4
                                                                                                                              methods.*
Exceptions and adjustment taken in 2015-           -50          -50           -5           -5  ............................  LEA uses the child count
 2016.                                                                                                                        number from the comparison
                                                                                                                              year (2014-2015).
Exceptions and adjustment the LEA                  -25          -25        -2.50        -2.50  ............................  LEA uses the child count
 reasonably expects to take in 2016-2017.                                                                                     number from the comparison
                                                                                                                              year (2014-2015).
How much must the LEA budget to meet the           425          925        42.50        92.50  ............................  When the LEA submits a
 eligibility standard in 2016-2017?                                                                                           budget for 2016-2017, the
                                                                                                                              most recent fiscal year
                                                                                                                              for which the LEA has
                                                                                                                              information is 2014-2015.
                                                                                                                              However, if the LEA has
                                                                                                                              information on exceptions
                                                                                                                              and adjustment taken in
                                                                                                                              2015-2016, the LEA may use
                                                                                                                              that information when
                                                                                                                              budgeting for 2016-2017.
                                                                                                                              The LEA may also use
                                                                                                                              information that it has on
                                                                                                                              any exceptions and
                                                                                                                              adjustment it reasonably
                                                                                                                              expects to take in 2016-
                                                                                                                              2017 when budgeting for
                                                                                                                              that year.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    However, we caution that, when taking into consideration the 
exceptions and adjustment that the LEA took in the intervening fiscal 
year(s) for the purpose of meeting the eligibility standard in the 
budget year, the LEA does so without having final information on its 
expenditures for the education of children with disabilities in the 
intervening fiscal year(s). That intervening fiscal year will be the 
comparison year (subject to the Subsequent Years rule) for the purpose 
of meeting the compliance standard in the budget year. Accordingly, 
LEAs should also take into consideration information related to 
increased expenditures for the education of children with disabilities 
in the intervening fiscal year(s) that would affect the amount the LEA 
must spend in the budget year in order to meet the compliance standard 
in the budget year. Otherwise, the LEA may budget less for the 
education of children with disabilities than it will need to expend in 
order to meet the compliance standard in that year.
    Changes: We added new Sec.  300.203(a)(2), which permits an LEA to 
take into consideration, to the extent the information is available, 
the exceptions and adjustment provided in Sec. Sec.  300.204 and 
300.205 that the LEA: (i) Took in the intervening year or years between 
the most recent fiscal year for which information is available and the 
fiscal year for which the LEA is budgeting; and (ii) reasonably expects 
to take in the fiscal year for which the LEA is budgeting.

SEA Review

    Comment: A few commenters objected to the language in the NPRM that 
``States will need to carefully review LEA applications, and compare 
amounts budgeted to amounts expended in prior years.'' These commenters 
stated that section 613(a) of the IDEA (20 U.S.C. 1413(a)) requires 
only assurances in an LEA's application to the State, rather than 
information that demonstrates its compliance with the MOE requirement, 
and that the requirement that an LEA have on file with the SEA 
information to demonstrate that the eligibility requirement has been 
met was intentionally removed from the IDEA Part B regulations after 
the 2004 reauthorization of the IDEA. Moreover, these commenters stated 
that requiring LEAs to submit a budget as part of the eligibility 
process imposes undue burden on SEAs and LEAs, creating additional 
paperwork and requiring more staff to provide oversight. One commenter 
stated that the Department

[[Page 23659]]

must clarify whether a State must receive a detailed special education 
budget from each LEA outlining how the LEA has taken the exceptions and 
adjustment in Sec. Sec.  300.204 and 300.205 or whether the State must 
receive an overall budgeted amount from the LEA for the education of 
children with disabilities for the upcoming fiscal year.
    Discussion: The requirement that, in order to find an LEA eligible 
for an IDEA Part B subgrant award for a fiscal year, an SEA must 
determine that the LEA has budgeted sufficient funds to meet the MOE 
eligibility standard is a regulatory requirement that has been in 
effect since 1999 and was not removed from the 2006 IDEA Part B 
regulations implementing the 2004 amendments to the IDEA. In 2006, the 
Department did remove the requirement that an LEA have information on 
file with the SEA to demonstrate that the LEA actually met the MOE 
compliance standard. That regulatory change was based on the statutory 
change to section 613(a) made by the 2004 IDEA Amendments to require 
LEAs to provide assurances, rather than information demonstrating, that 
the LEA meets each of the conditions in section 613(a) of the IDEA. 
However, in Sec.  300.203(b)(1) of the 2006 IDEA Part B regulations, 
the Department maintained the regulatory requirement that the SEA 
determine whether the LEA has met the MOE eligibility standard (i.e., 
has budgeted sufficient funds for the education of children with 
disabilities). The Department continues to believe that the MOE 
eligibility standard is necessary because an LEA that has met the 
eligibility standard for a fiscal year is more likely to meet the MOE 
compliance standard for that same fiscal year.
    We do not believe that this requirement imposes an undue burden on 
SEAs or LEAs. Some SEAs already use the IDEA Part B subgrant 
application process to collect compliance data on MOE, and the 
Department has learned through fiscal monitoring that most SEAs already 
require LEAs to submit budget information and are not relying on an 
assurance to determine whether an LEA has budgeted sufficient funds. In 
addition, the SEA has the discretion to determine the type and amount 
of information that it must review in order to be able to determine 
that the LEA has budgeted sufficient funds to meet the MOE eligibility 
standard. It is not necessary for the SEA to review a detailed budget, 
so long as the SEA has sufficient information to determine if the LEA 
meets the eligibility standard. For example, these regulations do not 
require LEAs to submit budgets broken down by object codes or line 
items. The Department intends to issue guidance following the 
publication of these regulations and will include information regarding 
the eligibility standard.
    Changes: None.
    Comment: A commenter urged the Department to clarify that, when 
reviewing an LEA's application for an IDEA Part B subgrant, an SEA may 
rely on information on expenditures for the most recent fiscal year for 
which information is available at the time the LEA submits its 
application, rather than requiring the SEA to review information on 
expenditures for a more recent fiscal year than the one for which the 
LEA submits information to the SEA during the review of the LEA's 
application.
    Discussion: The Department understands that, in some States, 
because of the timing of their fiscal years or for other State- or LEA-
specific reasons, after an LEA submits its application for an IDEA Part 
B subgrant, the LEA submits information on expenditures for a more 
recent fiscal year than the one for which it provided information in 
its application. SEAs need not make multiple determinations of an LEA's 
eligibility for an IDEA Part B subgrant for a given fiscal year. 
However, the SEA must use, as a comparison year for the purpose of 
determining an LEA's eligibility, the most recent fiscal year for which 
the LEA has information. Accordingly, if, before the SEA determines the 
LEA's eligibility for a given fiscal year, the LEA submits to the SEA 
information on expenditures for a more recent fiscal year, the SEA must 
use that information in determining the LEA's eligibility.
    Changes: None.
    Comment: A commenter noted that budget data submitted with an LEA's 
application for an IDEA Part B subgrant are often preliminary, and 
that, therefore, by the time the SEA determines eligibility for an IDEA 
Part B subgrant, the LEA's budget may have changed.
    Discussion: We recognize that, at the time some LEAs submit their 
applications to the SEA for an IDEA Part B subgrant, their budgets may 
be preliminary. The SEA has the discretion to determine, based on the 
patterns and practices of its LEAs, whether an LEA submitted reasonable 
budget data with its application. If, before it determines an LEA's 
eligibility for an IDEA Part B subgrant, an SEA finds that the budget 
data have changed substantially, we expect the SEA would require the 
LEA to update its application.
    Changes: None.
    Comment: One commenter asked if an LEA must submit budget 
amendments to the SEA if its expenditures change during the year.
    Discussion: No. Once an SEA has determined an LEA's eligibility for 
an IDEA Part B subgrant, the LEA does not need to provide amendments 
that reflect changes in expenditures in order to remain eligible for 
that year.
    Changes: None.
    Comment: One commenter asked whether an LEA must describe in its 
IDEA Part B subgrant application the method it will use to meet the MOE 
eligibility standard.
    Discussion: Although these regulations do not require an LEA to 
describe in its application the method that it will use to meet the MOE 
eligibility standard, an SEA may require this information, and the LEA 
is not prohibited from providing that information in its application. 
The SEA must be able to determine that the LEA meets the eligibility 
standard using at least one of the four permissible methods. As stated 
above, regardless of which method it uses to meet the MOE eligibility 
standard, the LEA may use a different method to meet the eligibility 
standard in a subsequent fiscal year.
    Changes: None.
    Comment: A commenter stated that the proposed regulations created a 
new requirement for auditors to compare the amounts budgeted to meet 
the MOE eligibility standard in a given fiscal year to the amounts 
spent in the comparison year to meet the MOE compliance standard. This 
commenter expressed concern that anticipated budget amounts might not 
align with prior expenditures.
    Discussion: Neither the proposed nor the final regulations create a 
new audit standard. The eligibility standard has always required a 
comparison of amounts budgeted in a given fiscal year to amounts 
expended in the comparison year.
    Changes: None.

Ineligibility

    Comment: A few commenters requested clarification on the 
consequence of not meeting the MOE eligibility standard. One commenter 
asked if an SEA would be required to find an LEA ineligible for its 
IDEA Part B subgrant if the proposed LEA budget does not meet the MOE 
eligibility standard. Another commenter asked for clarification on what 
happens to the IDEA Part B funds that are not awarded to an LEA.

[[Page 23660]]

    Discussion: If an SEA determines that an LEA does not meet the MOE 
eligibility standard using any of the four methods in final Sec.  
300.203(a) (proposed Sec.  300.203(b)), the SEA must provide notice 
that the LEA is not eligible for an IDEA Part B subgrant, as required 
by Sec.  300.221(a). The SEA must also provide the LEA with reasonable 
notice and an opportunity for a hearing, pursuant to Sec.  300.221(b). 
If the SEA determines that the LEA is not eligible to receive a Part B 
subgrant for that fiscal year, the SEA retains the amount of Part B 
funds that the LEA would have received. 34 CFR 300.227(a)(1). The SEA 
would then be required to provide special education and related 
services directly to children with disabilities residing in the area 
served by that LEA. 34 CFR 300.227(a)(1).
    Changes: None.
    Comment: None.
    Discussion: Current Sec.  300.203(b)(3) provides that SEAs and LEAs 
may not consider any expenditures made from funds provided by the 
Federal government for which the SEA and LEA are required to account to 
the Federal government in determining an LEA's compliance with current 
Sec.  300.203(a). While the proposed regulations included this 
requirement in the compliance standard in proposed Sec.  300.203(a)(3), 
the proposed regulations did not include this requirement in the 
eligibility standard. This was an oversight. To ensure that this 
requirement applies to both the eligibility and compliance standards, 
we added Sec.  300.203(a)(3).
    Changes: We added new Sec.  300.203(a)(3) to require that 
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 eligibility standard in Sec.  300.203(a)(1).

Failure To Maintain Effort and Consequence, Sec.  300.203(d)

Legal Authority

    Comment: One commenter stated that proposed Sec.  300.203(d) is 
based on a misreading of section 452 of GEPA (20 U.S.C. 1234a). The 
commenter stated that it is the responsibility of the LEA, rather than 
the SEA, to return any funds. Another commenter asked if an SEA has the 
right to seek recovery of funds from the LEA and requested that this 
right be included in the final regulation.
    Discussion: The liability of the SEA in a recovery action if an LEA 
fails to meet the compliance standard is not new. The SEA is 
responsible for ensuring that LEAs receiving an IDEA Part B subgrant 
comply with all applicable requirements of that statute and its 
implementing regulations, including the MOE requirement. If an LEA 
fails to meet the MOE requirement in a particular fiscal year, the 
Department has authority to take steps to recover the appropriate 
amount of funds from the SEA.
    Section 452(a)(1) of GEPA (20 U.S.C. 1234a(a)(1)) provides that the 
Department may recover funds if a grantee has made an unallowable 
expenditure of funds or has otherwise failed to discharge its 
obligation to account properly for funds under the grant. Under IDEA 
Part B, it is the State (operating through the SEA), and not the LEA, 
that is the Department's grantee. As such, the authority granted to the 
Department pursuant to GEPA specifically authorizes recovery of funds 
from the SEA. Section 453(a)(1) of GEPA (20 U.S.C. 1234b(a)(1)) 
provides that the measure of recovery in such a circumstance is an 
amount that is proportionate to the extent of the harm that the 
violation caused to an identifiable Federal interest associated with 
the program under which the recipient received the award. An 
identifiable Federal interest includes, but is not limited to, 
compliance with expenditure requirements and conditions, such as 
maintenance of effort. Section 453(a)(2) of GEPA (20 U.S.C. 
1234b(a)(2)). Accordingly, when an SEA fails to ensure that an LEA has 
met the compliance standard in final Sec.  300.203(b), the SEA, not the 
LEA, is liable in a recovery action under these provisions for the 
amount by which the LEA failed to maintain its level of expenditures, 
or the amount of the LEA's Part B IDEA subgrant, whichever is lower.
    The SEA, in turn, following applicable State procedures, could seek 
reimbursement from the LEA. See July 26, 2006, letter to Ms. Carol Ann 
Baglin, available at http://www2.ed.gov/policy/speced/guid/idea/letters/2006-3/baglin072606moe3q2006.pdf. The Department has not 
included a provision permitting SEAs to seek reimbursement from LEAs 
because that is a matter of State law.
    Changes: None.

Burden on SEAs

    Comment: Some commenters objected to proposed Sec.  300.203(d) and 
stated that the consequence for a failure to meet the MOE compliance 
standard should fall on the LEA and not the SEA. These commenters 
stated that while an SEA is able, through its oversight 
responsibilities, to identify that an LEA has failed to meet its MOE 
obligation, SEAs have no control over local budgets, and not all States 
have the fiscal resources to provide State funds to help an LEA meet 
its MOE obligation. Some commenters stated that if an LEA fails to 
maintain effort and is not able to pay back funds to the SEA, the SEA 
will be required to absorb the financial loss and has no recourse 
because Federal funding cannot be reduced or withheld from the LEA.
    Discussion: The Department appreciates the concern of some 
commenters that SEAs should not be liable in a recovery action to 
return non-Federal funds because of an LEA's failure to meet the MOE 
compliance standard. However, as noted in the Legal Authority section 
of the Analysis of Comments and Changes, the SEA (acting on behalf of 
the State), not the LEA, is the grantee in the IDEA Part B program. As 
a condition of eligibility for an IDEA Part B grant, States must 
provide an assurance to the Department that the SEA is responsible for 
ensuring that, among other things, all requirements of Part B are met. 
Section 612(a)(11)(A)(i) of the IDEA (20 U.S.C. 1412(a)(11)(A)(i)). 
SEAs can minimize LEA noncompliance by carefully reviewing an LEA's 
application for an IDEA Part B subgrant to determine if the LEA meets 
the MOE eligibility standard, by monitoring for compliance on a regular 
basis, and by providing technical assistance to LEAs. SEAs that find an 
LEA is failing to comply with the MOE requirement may take further 
enforcement action as provided in Sec.  300.222.
    With respect to the concern raised by some commenters that some 
SEAs may be unable to absorb the loss because they do not have 
sufficient State funds, or because the SEA may not withhold Federal 
funds to an LEA that has failed to meet the MOE compliance standard, we 
remind States that they may seek reimbursement of these amounts from 
the LEA, to the extent permitted under State law. Whether a State seeks 
recovery from an LEA is at the discretion of the State.
    Changes: None.
    Comment: Some commenters stated that SEAs will be required to spend 
additional administrative time collecting funds, accounting for the 
collection in their financial systems, and returning funds to the 
Department. One of these commenters requested clarification about the 
timeframe within

[[Page 23661]]

which funds must be returned to the Department and the process for 
returning funds (such as what identifying information to include on the 
check, where to send it, and what supporting documentation to include).
    Discussion: There should be no additional burden on, or expense to, 
an SEA as a result of codifying the Department's long-standing 
practice, which is consistent with GEPA, into final Sec.  300.203(d). 
We added this provision to the final regulations not because this is a 
change in law, but because the Department believes that some SEAs and 
LEAs were not aware of the consequence of an LEA's failure to meet the 
MOE compliance standard. We acknowledge that those SEAs that were not 
aware of this requirement may need additional time to set up a process 
for returning funds to the Department and taking any associated actions 
against an LEA that the SEA wishes to take. However, this is a long-
standing requirement, and therefore, we expect that SEAs already have a 
process in place. The Department believes that enforcement of the MOE 
requirement is critical to ensuring compliance.
    The Department intends to provide guidance on the process for 
returning funds but does not believe it is appropriate or necessary to 
include administrative details in these regulations.
    Changes: None.

Calculating Penalties

    Comment: A few commenters requested clarification of the definition 
of the ``amount equal to the amount by which the LEA failed to maintain 
its level of expenditures'' in proposed Sec.  300.203(d). One commenter 
asked how to determine the amount of the penalty if an LEA failed to 
meet the MOE compliance standard. The commenter asked whether the SEA 
should determine the amount of the failure to be the lesser amount 
generated by the four methods (after accounting for the allowed 
exceptions and adjustment).
    Discussion: The ``amount equal to the amount by which an LEA failed 
to maintain its level of expenditures'' is determined by calculating 
the amount by which the LEA failed to meet the MOE compliance standard. 
Before determining the amount of the failure, the SEA must permit the 
LEA to use any one of the four methods and to take the exceptions and 
the adjustment in Sec. Sec.  300.204 and 300.205, where permissible. 
The amount of the failure, therefore, would be the smallest amount 
generated by the four methods (after accounting for the allowed 
exceptions and adjustment).
    Changes: None.
    Comment: A commenter asked if the amount by which an LEA failed to 
meet the compliance standard could exceed the amount of the LEA's IDEA 
Part B subgrant received in the year of the failure.
    Discussion: While it is possible that the amount of a failure to 
meet the compliance standard may exceed the amount of the LEA's IDEA 
Part B subgrant for the fiscal year in question, the SEA's liability to 
the Department cannot. This is because, as discussed earlier, section 
453(a)(1) of GEPA (20 U.S.C. 1234b(a)(1)) provides that the measure of 
recovery in such a circumstance is proportionate to the extent of the 
harm that the violation caused to an identifiable Federal interest 
associated with the program under which the recipient received the 
award. Under this circumstance, the Federal interest associated with 
the IDEA Part B program is limited to the amount of the LEA's IDEA Part 
B subgrant (the total amount of the LEA's subgrants under sections 611 
and 619 of the IDEA).
    Table 10 provides examples of how to calculate the amount by which 
an LEA failed to maintain its level of expenditures and of the amount 
of non-Federal funds that an SEA must return to the Department on 
account of that failure.

Table 10--Example of How to Calculate the Amount of an LEA's Failure To Meet the Compliance Standard in 2016-2017 and the Amount That an SEA Must Return
                                                                    to the Department
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Combination
                                    Local funds    of State    Local funds only on a per   Combination of State and                Amount of IDEA Part B
            Fiscal year                 only      and local          capita basis            local funds on a per     Child count         subgrant
                                                    funds                                        capita basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015-2016.........................       * $500       * $950  $50 *.....................  $95 *.....................  ...........  Not relevant.
2016-2017.........................          400          750  $40.......................  $75.......................           10  $50.
Amount by which an LEA failed to            100          200  $100 (the amount of the     $200 (the amount of the
 maintain its level of                                         failure equals the amount   failure equals the amount
 expenditures in 2016-2017.                                    of the per capita           of the per capita
                                                               shortfall ($10) times the   shortfall ($20) times the
                                                               number of children with     number of children with
                                                               disabilities in 2016-2017   disabilities in 2016-2017
                                                               (10)).                      (10)).
--------------------------------------------------------------------------------------------------------------------------------------------------------
The SEA determines that the amount of the LEA's failure is $100 using the calculation method that results in the lowest amount of a failure. The SEA's
 liability is the lesser of the four calculated shortfalls and the amount of the LEA's Part B subgrant in the fiscal year in which the LEA failed to
 meet the compliance standard. In this case, the SEA must return $50 to the Department because the LEA's IDEA Part B subgrant was $50, and that is the
 lower amount..
--------------------------------------------------------------------------------------------------------------------------------------------------------
* LEA met MOE using this method.

    Changes: We added language in Sec.  300.203(d) to clarify that, if 
an LEA fails to maintain its level of expenditures for the education of 
children with disabilities, the SEA is liable in a recovery action for 
the amount by which the LEA failed to maintain its level of 
expenditures in that fiscal year, or the amount of the LEA's Part B 
subgrant in that fiscal year, whichever is lower.
    Comment: A commenter suggested that the phrase ``up to the amount 
of IDEA funds spent in that year'' be added to the end of proposed 
Sec.  300.203(d) because section 613(a)(2)(A)(iii) of the IDEA (20 
U.S.C. 1413(a)(2)(A)(iii)) states that an LEA shall not use these funds 
to reduce its level of expenditures for the education of children with 
disabilities below the level of those expenditures for the preceding 
fiscal year; therefore, the penalty should be no more than the IDEA 
Part B funds that the LEA spent in a particular fiscal year.
    Discussion: The Department disagrees with the commenter who 
recommended that Sec.  300.203(d) be changed to limit the amount of the 
penalty to the amount of

[[Page 23662]]

IDEA Part B funds actually spent by the LEA in the fiscal year in which 
the LEA failed to meet the compliance standard. Once an LEA accepts an 
IDEA Part B subgrant, the LEA is required to meet the compliance 
standard in Sec.  300.203(b), and the amount of IDEA Part B funds spent 
by the LEA in that fiscal year is not relevant to the calculation of 
the MOE penalty.
    Changes: None.
    Comment: Many commenters requested that proposed Sec.  300.203(d) 
incorporate language from the July 26, 2006, letter to Baglin, which 
stated, ``Faced with a history of noncompliance with the MOE 
requirement, however, the SEA would need to carefully determine whether 
the LEA will meet the MOE requirement in the coming year (in which case 
a grant should be made), or whether the SEA should begin an 
administrative withholding action [consistent with section 613(c) and 
(d) of the IDEA] because it is not convinced that the LEA will meet the 
MOE requirement for the new year.'' The commenters stated that this 
language would underscore the importance of SEA monitoring and 
oversight to ensure implementation and compliance with the MOE 
requirement. Another commenter suggested that the Department add a 
specific consequence for LEAs that fail to comply with MOE for more 
than one fiscal year.
    Discussion: The Department agrees that SEAs have a responsibility 
to ensure that LEAs meet the MOE eligibility and compliance standards. 
However, Sec. Sec.  300.221 and 300.222 address what procedures the SEA 
must follow if the SEA determines that the LEA is not eligible or that 
an eligible LEA is failing to comply with the MOE requirement, and it 
is not necessary to duplicate those provisions in Sec.  300.203(d). We 
believe that Sec.  300.203(d) provides an appropriate consequence for 
MOE failures that occur in more than one fiscal year, because the 
penalty in Sec.  300.203(d) applies in each fiscal year in which the 
LEA fails to maintain effort. Therefore, it is not necessary to add an 
additional consequence for such LEAs.
    Changes: None.
    Comment: Some commenters stated that LEAs should not be penalized 
for MOE violations in the absence of evidence that the LEA has failed 
to make FAPE available. Another commenter questioned the effectiveness 
of the consequence for MOE violations. Specifically, the commenter 
asked what evidence demonstrates that repayment of Federal funds by an 
LEA leads to increased compliance with the IDEA or a greater ability to 
maintain effort in future years. In addition, the commenter questioned 
whether losing access to Federal dollars will be an incentive for LEAs 
to use sound financial practices that are fair to all the students they 
serve and to be better positioned to provide FAPE in the least 
restrictive environment for children with disabilities.
    Discussion: The Department appreciates, but disagrees with, these 
comments. LEAs that receive an IDEA Part B subgrant must meet both the 
FAPE obligation and the MOE requirement separately; the two provisions 
are not contingent on each other. Regarding the comment questioning the 
effectiveness of the consequence for failure to maintain effort, the 
Department notes that the requirement to return funds based on an LEA's 
failure to maintain effort is a statutory requirement. Consistent with 
sections 452(a)(1) and (a)(2) and 453(a)(1) of GEPA (20 U.S.C. 
1234a(a)(1) and (a)(2) and 1234b(a)(1)) and long-standing Department 
practice, an SEA is liable in a recovery action 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 actually did expend. Section 453(a)(1) of GEPA (20 U.S.C. 
1234b(a)(1)) provides that the measure of recovery in such a 
circumstance is an amount that is proportionate to the extent of the 
harm that the violation caused to an identifiable Federal interest 
associated with the program under which the recipient received the 
award. An identifiable Federal interest includes, but is not limited 
to, compliance with expenditure requirements and conditions, such as 
maintenance of effort. Section 453(a)(2) of GEPA (20 U.S.C. 
1234b(a)(2)). Because the SEA in such a recovery action is required to 
return non-Federal funds, and not Federal funds, the SEA and LEA are 
not losing access to Federal IDEA Part B funds. See 2 CFR 200.441.
    Changes: None.

Miscellaneous Comments

    Comment: A few commenters stated that, because the Department 
acknowledged that MOE violations have not been extensive, a more 
restrained regulatory approach is justified.
    Discussion: We disagree. In determining whether there was a need to 
revise the MOE regulations, OSEP found that at least 40 percent of 
States have policies and procedures that are not consistent with the 
MOE requirement. For example, many States have not permitted LEAs to 
use all four methods to meet the eligibility or compliance standard. 
Another State did not allow LEAs to include local funds spent for the 
education of children with disabilities in its MOE calculations if the 
LEA was also required to spend those funds to meet a Medicaid matching 
requirement. These actions restrict the ability of LEAs to meet the MOE 
requirement and may result in a finding of noncompliance by LEAs where 
none exists. Moreover, the Department learned through fiscal monitoring 
that some States, prior to awarding IDEA Part B subgrants, were not 
requiring LEAs to demonstrate that they met the MOE eligibility 
standard. In addition, as we stated in the NPRM, some States identified 
noncompliance by LEAs with the MOE requirement and returned non-Federal 
funds to the United States Treasury in the amount of that failure but 
did not inform the Department of the failures, indicating that the 
number of failures to comply with the MOE requirement may be 
undercounted. Moreover, the Department learned, through its review of 
comments received in response to the NPRM, that some States were not 
aware that, if an LEA failed to meet the MOE compliance standard, the 
SEA was liable in a recovery action to return non-Federal funds to the 
Department in the amount of the failure. Accordingly, the Department 
does not believe that the lack of documentation of widespread MOE 
noncompliance necessarily leads to the conclusion that States and LEAs 
understand and comply with the MOE requirement.
    Changes: None.
    Comment: Many commenters supported the proposed changes to the MOE 
regulations because the changes would provide necessary clarification. 
Other commenters stated that the proposed regulations did not clarify 
the MOE requirement. A few commenters stated that the MOE requirement 
should be imposed only after the Department and Congress make an effort 
to compensate school districts for the 40 percent of special education 
costs that the commenters say the States were promised when the IDEA 
was enacted.
    Discussion: We believe that the final regulations and the tables 
provided here clarify the MOE requirement. We disagree with the view 
expressed by commenters that the Department should not issue and 
enforce MOE regulations until the maximum amount of the grant a State 
receives is 40 percent of the average per-pupil expenditure in public 
elementary and secondary schools in the United States. The Department 
has no legal authority to condition

[[Page 23663]]

compliance with the MOE requirement on Congress's providing a 
particular level of appropriations. The IDEA requires that amounts 
provided to LEAs shall not be used, except as allowed by the exceptions 
and adjustment in Sec. Sec.  300.204 and 300.205, 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.
    The Department believes that the MOE regulations provide necessary 
clarification on, and therefore will increase understanding by States 
and LEAs of, the MOE requirement, including: The Subsequent Years rule, 
the eligibility and compliance standards, the four methods available to 
LEAs to meet the eligibility and compliance standards, and the existing 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205. The 
Department also believes that the MOE requirement is consistent with, 
and promotes, the requirement that LEAs make FAPE available to all 
eligible children with disabilities.
    Changes: None.
    Comment: Several commenters objected generally to the MOE 
requirement and raised a variety of concerns, including that the 
proposed regulations encourage fraud, waste, and abuse because they 
encourage LEAs to spend funds to meet the MOE requirement rather than 
to ensure that children with disabilities receive FAPE. Other 
commenters stated a concern that LEAs will submit budgets that have 
inflated or non-existent costs simply to demonstrate eligibility for an 
IDEA Part B subgrant. A few commenters also stated that the proposed 
regulations create a disincentive for LEAs that wish to increase their 
expenditures for the education of children with disabilities for one-
time, high-cost initiatives, because the district would be forced to 
continue spending the same amount of funds in future years after the 
initiative is completed.
    Discussion: We do not believe that the regulations encourage fraud, 
waste, and abuse because they encourage LEAs to spend funds to meet the 
MOE requirement rather than to ensure that children with disabilities 
receive FAPE. State and local funds spent on the education of children 
with disabilities meet both the requirement to maintain effort and the 
requirement to make FAPE available to children with disabilities.
    With respect to the comment that the MOE regulations create a 
disincentive for LEAs that wish to implement temporary initiatives for 
the education of children with disabilities because doing so will 
increase the LEA's required level of effort in future years, section 
613(a)(2)(B) of the IDEA and its implementing regulations in Sec.  
300.204 include five exceptions that permit an LEA to reduce its 
required level of expenditures. We believe these exceptions, such as 
the termination of costly expenditures for long-term purchases, and the 
adjustment in Sec.  300.205 provide LEAs sufficient flexibility to 
adjust their required level of effort based on changed circumstances.
    Changes: None.
    Comment: Some commenters stated that the MOE regulations do not 
take into account the variety of fiscal systems in States and LEAs. The 
commenters expressed concern over the many State-specific issues that 
need to be independently addressed by OSEP or that fall outside the 
scope of the proposed regulation.
    Discussion: We believe that the regulations provide sufficient 
direction to States and LEAs regardless of their fiscal systems. State-
specific issues will be addressed by OSEP as needed. In addition, the 
Department intends to issue guidance on the MOE requirement and will 
continue to provide technical assistance to States to address State-
specific concerns, including those related to the specifics of 
financial systems. One source of technical assistance will be the new 
Center for IDEA Fiscal Reporting that OSEP awarded under the FY 2014 
competition CFDA 84.373F. OSEP awarded the grant to WestEd. The Center 
for IDEA Fiscal Reporting can be found at http://cifr.wested.org/. This 
center will improve the capacity of State staff to collect and report 
accurate fiscal data to meet the data collection requirements related 
to LEA MOE Reduction and Coordinated Early Intervening Services (CEIS) 
and State Maintenance of Financial Support (State MFS); and increase 
States' knowledge of the underlying fiscal requirements and the 
calculations necessary to submit valid and reliable data on LEA MOE/
CEIS and State MFS.
    Changes: None.
    Comment: One commenter asked whether the requirement regarding CEIS 
will be affected by the proposed regulations.
    Discussion: The provisions regarding CEIS in Sec. Sec.  300.205(d) 
and 300.226 are not affected by these regulations.
    Changes: None.
    Comment: A few commenters recommended that the Department issue 
additional guidance to accompany the final regulations. Suggestions 
included: A detailed checklist of what needs to be accounted for in 
LEAs' budgets, a chart that lays out how to meet the MOE requirement, 
and examples that use specific numbers.
    Discussion: We appreciate the commenters' suggestions for 
additional guidance. This Analysis of Comments and Changes includes 
several tables to assist States and LEAs. These tables also have been 
included in new Appendix E to the regulations. In addition, the 
Department intends to issue guidance on the MOE requirement.
    Changes: We have redesignated current Appendix E as new Appendix F. 
We have added new Appendix E to include Tables 1 through 10, which are 
included in the Analysis of Comments and Changes. This appendix will be 
published in the Code of Federal Regulations.

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.
    This final regulatory action is a significant regulatory action 
subject to review by OMB under section 3(f) 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--

[[Page 23664]]

    (1) Propose or adopt regulations only on 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;
    (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 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 final regulations only on a reasoned 
determination that their benefits 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 final 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, or 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, both quantitative and 
qualitative, 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 changes could result in reduced costs for States and 
LEAs to the extent that increased understanding of the MOE requirement 
and use of all four methods to demonstrate that LEAs met MOE would 
result in States making fewer repayments to the Department and seeking 
fewer recoveries from LEAs. However, there is also the potential for 
additional costs for States and LEAs to the extent that LEAs are 
required to increase expenditures in the year following a failure to 
meet the MOE provisions under Part B of the Act or if a State or LEA 
incorrectly calculated MOE in a preceding year. 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 MOE requirement in the preceding year 
and do not plan to restore funding in the subsequent year to the level 
they should have maintained in the preceding year.

Section 300.203

    The effect of the final regulations on LEAs will depend on: (1) The 
degree of understanding by States and LEAs about the eligibility and 
compliance standards and the ability that the LEAs have to meet one of 
four methods; and (2) the likelihood that LEAs would violate the MOE 
requirement in any given year 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 final regulations on 
LEAs is data on previous findings of LEA violations. However, as 
described in the Analysis of Comments and Changes section, the 
Department has limited information on LEA violations. States are 
responsible for monitoring LEA compliance with the MOE requirement and 
resolving any audit findings in this area, but States are not required 
to report the number of LEAs that violated the MOE requirement, the 
basis of the violations, or the amount of funding involved.
    Other sources of information on the likely effects of the final 
regulations are audit reports and OSEP's fiscal monitoring of States' 
implementation of the current regulations. OSEP's fiscal monitoring, in 
conjunction with the Department's Office of Inspector General's (OIG) 
audit findings and reports, have identified a number of problems with 
State administration of the MOE requirement under the current 
regulations, suggesting that there is confusion about the MOE 
requirement 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 for, or compliance with, the MOE requirement. 
Most notably, it appears that some States have not allowed LEAs to use 
all four methods to demonstrate that they have met the MOE requirement 
for purposes of eligibility or compliance determinations, including the 
method that allows the LEA to demonstrate that it met the MOE 
requirement on the basis of local funds only. There is also some 
indication that States may have used an incorrect comparison year when 
LEAs made a local-to-local comparison.
    In years in which States did not allow the LEAs to use all four 
methods 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 that they had flexibility to use any of the four 
methods. In these instances, the clarification made in the final 
regulations will 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 any of the four methods in meeting 
MOE, the State may have sought to recover funds from LEAs or made 
unnecessary repayments to the Department. Clarifying that all four 
methods may be used for MOE determinations should 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 when using the local funds only 
method, clarifying the comparison year may result in increased 
expenditures by 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 MOE compliance. According to 
that memorandum, the State used an incorrect comparison year when 
determining that two LEAs met the MOE requirement using local funds 
only method. 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 expenditures made with local funds only to the preceding 
fiscal year. In this case, the clarification made by the final 
regulations will 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

[[Page 23665]]

would be required under the final regulations, or, alternatively, the 
extent to which using the incorrect comparison year has resulted in 
higher expenditures. However, in general, the findings made during 
fiscal monitoring demonstrating that States are providing less 
flexibility to LEAs than is allowable under the law suggest that the 
clarifications included in these regulations would reduce costs for 
both LEAs and States.
    The regulations also specifically address the level of expenditures 
required by an LEA in the fiscal years following a fiscal year in which 
an LEA violated the MOE requirement. Specifically, the final 
regulations clarify that, in a fiscal year following a fiscal year in 
which the LEA failed to meet MOE, the required level of expenditures is 
the level of expenditures in the last fiscal year in which the LEA met 
the MOE requirement, not the reduced level of expenditures in the 
preceding fiscal year (the Subsequent Years rule).
    We believe that this clarification in the regulations will improve 
State administration of the program, and that it is consistent with the 
IDEA and in the best interest of children with disabilities. We do not 
expect this change to have a significant impact on LEA expenditures in 
the near term based on available data concerning the extent of LEA 
violations and the likelihood of future violations. However, this 
change would eliminate the risk, under the current regulations, that 
State policy could permit LEAs that reduce spending in violation of the 
MOE requirement 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 MOE rather than specific 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 IDEA Part B due to audit findings that 76 
LEAs had not met their required level of effort for funds in Federal 
fiscal Year (FFY) 2003. In School Year (SY) 2009-2010, Oklahoma 
reported having 532 LEAs; accordingly, approximately 14 percent of the 
State's LEAs were 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, the Department 
reduced the amount of its determination to $289,501.76. The final claim 
against Oklahoma was settled for $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 Office of Management and Budget 
(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 section 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 these findings do not necessarily represent all violations of 
the MOE requirement, both the small number and size of questioned costs 
related to failure to meet this requirement suggest that 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. Pursuant to section 613(a)(2)(C) of the IDEA, 
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 that otherwise meets the requirements of the IDEA may 
reduce the level of expenditures that are 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 that 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 
the IDEA, and whether each LEA or ESA had reduced its expenditures 
pursuant to Sec.  300.205. Data are available at http://tadnet.public.tadnet.org/pages/712 (Table 8 LEA-level files, revised 2/
29/12, accessed 11/03/14).
    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). Because these additional funds 
increased the annual allocation to most LEAs in FFY 2009 over 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 so 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 that reported reducing expenditures, only 32 had 
been determined to have not met the requirements of IDEA Part B and may 
have violated the MOE requirement, unless one of the exceptions to the 
MOE requirement in Sec.  300.204 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

[[Page 23666]]

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, the 
District of Columbia, and Puerto Rico could have reduced their level of 
effort in SY 2009-2010 was $5.6 billion, but the actual combined 
reduction was only 27 percent of that amount, or $1.5 billion. Because 
most LEAs did not reduce expenditures when they had an opportunity to 
do so, which would have led to an allowable reduction of their 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 requirement. We believe that it is highly 
unlikely that the 4,205 LEAs that met the requirement of section 
613(a)(2)(C) of the IDEA and reduced their level of effort would seek 
further reductions that would violate the MOE requirement because 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 requirement. Moreover, we believe that the requirement that 
LEAs make FAPE available to all eligible children with disabilities 
provides another critical protection against unwarranted reductions of 
expenditures to support education for children with disabilities. 
However, to ensure that State policy and administration of the MOE 
requirement are consistent with the Department's position on the 
required level of future expenditures in cases of LEA violations, we 
think that it is critical to change the regulations to clearly 
articulate the Department's interpretation of the law.

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 the requirements of 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 the NPRM we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not 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 program contact 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.
    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. You may also view this document in text or PDF at 
the following site: idea.ed.gov.

(Catalog of Federal Domestic Assistance Number 84.181)

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: April 9, 2015.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary amends 
part 300 of title 34 of the Code of Federal Regulations as follows:

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

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

    Authority:  20 U.S.C. 1221e-3, 1406, 1411-1419, 3474, unless 
otherwise noted.

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

Sec.  300.203  Maintenance of effort.

    (a) Eligibility standard. (1) For purposes of establishing the 
LEA's eligibility for an award for a fiscal year, the SEA must 
determine that the LEA budgets, for the education of children with 
disabilities, at least the same amount, from at least one 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;
    (iii) Local funds only on a per capita basis; or
    (iv) The combination of State and local funds on a per capita 
basis.
    (2) When determining the amount of funds that the LEA must budget 
to meet the requirement in paragraph (a)(1) of this section, the LEA 
may take into consideration, to the extent the information is 
available, the exceptions and adjustment provided in Sec. Sec.  300.204 
and 300.205 that the LEA:
    (i) Took in the intervening year or years between the most recent 
fiscal year for which information is available and the fiscal year for 
which the LEA is budgeting; and
    (ii) Reasonably expects to take in the fiscal year for which the 
LEA is budgeting.
    (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

[[Page 23667]]

Federal government directly or through the SEA may not be considered in 
determining whether an LEA meets the standard in paragraph (a)(1) of 
this section.
    (b) 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 reduce the level of 
expenditures for the education of children with disabilities made by 
the LEA from at least one of the following sources below the level of 
those expenditures from the same source for the preceding fiscal year, 
except as provided in Sec. Sec.  300.204 and 300.205:
    (i) Local funds only;
    (ii) The combination of State and local funds;
    (iii) Local funds only on a per capita basis; or
    (iv) The combination of State and local funds on a per capita 
basis.
    (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 paragraphs (b)(1) and (2) of this 
section.
    (c) Subsequent years. (1) If, in the fiscal year beginning on July 
1, 2013 or July 1, 2014, an LEA fails to meet the requirements of Sec.  
300.203 in effect at that time, the level of expenditures required of 
the LEA for the fiscal year subsequent to the year of the failure is 
the amount that would have been required in the absence of that 
failure, not the LEA's reduced level of expenditures.
    (2) If, in any fiscal year beginning on or after July 1, 2015, an 
LEA fails to meet the requirement of paragraph (b)(2)(i) or (iii) of 
this section and the LEA is relying on local funds only, or local funds 
only on a per capita basis, to meet the requirements of paragraph (a) 
or (b) of this section, the level of expenditures required of the LEA 
for the fiscal year subsequent to the year of the failure is the amount 
that would have been required under paragraph (b)(2)(i) or (iii) in the 
absence of that failure, not the LEA's reduced level of expenditures.
    (3) If, in any fiscal year beginning on or after July 1, 2015, an 
LEA fails to meet the requirement of paragraph (b)(2)(ii) or (iv) of 
this section and the LEA is relying on the combination of State and 
local funds, or the combination of State and local funds on a per 
capita basis, to meet the requirements of paragraph (a) or (b) of this 
section, the level of expenditures required of the LEA for the fiscal 
year subsequent to the year of the failure is the amount that would 
have been required under paragraph (b)(2)(ii) or (iv) in the absence of 
that failure, 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 (b) of this section, the SEA 
is liable in a recovery action under section 452 of the General 
Education Provisions Act (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 (b) of this section in that fiscal year, or the amount of the 
LEA's Part B subgrant in that fiscal year, whichever is lower. 
(Approved by the Office of Management and Budget under control number 
1820-0600)

(Authority: 20 U.S.C. 1413(a)(2)(A), Pub. L. 113-76, 128 Stat. 5, 
394 (2014), Pub. L. 113-235, 128 Stat. 2130, 2499 (2014))

Sec.  300.204  [Amended]

0
3. Section 300.204 is amended by removing, from the introductory text, 
the citation ``Sec.  300.203(a)'' and adding, in its place, the 
citation ``Sec.  300.203(b)''.

Sec.  300.205  [Amended]

0
4. Section 300.205 is amended by removing, from paragraph (a), both 
instances of the citation ``Sec.  300.203(a)'', and adding, in both 
places, the citation ``Sec.  300.203(b)''.

Sec.  300.208  [Amended]

0
5. Section 300.208 is amended by removing, from paragraph (a), the 
citation ``300.203(a)'' and adding, in its place, the citation 
``300.203(b)''. Appendix E to Part 300 [Redesignated as Appendix F to 
Part 300]

0
6. Appendix E to part 300 is redesignated as Appendix F to part 300.

0
7. A new Appendix E is added to read as follows:

Appendix E To Part 300--Local Educational Agency Maintenance of Effort 
Calculation Examples

    The following tables provide examples of calculating LEA MOE. 
Figures are in $10,000s. All references to a ``fiscal year'' in 
these tables refer to the fiscal year covering that school year, 
unless otherwise noted.
    Tables 1 through 4 provide examples of how an LEA complies with 
the Subsequent Years rule. In Table 1, for example, an LEA spent $1 
million in Fiscal Year (FY) 2012-2013 on the education of children 
with disabilities. In the following year, the LEA was required to 
spend at least $1 million but spent only $900,000. In FY 2014-2015, 
therefore, the LEA was required to spend $1 million, the amount it 
was required to spend in FY 2013-2014, not the $900,000 it actually 
spent.

 Table 1--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following a Year in Which
                                   LEA Failed To Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................  ..............             100  Required level of effort is $100
                                                                              despite LEA's failure in 2013-
                                                                              2014.
----------------------------------------------------------------------------------------------------------------

    Table 2 shows how to calculate the required amount of effort 
when there are consecutive fiscal years in which an LEA does not 
meet MOE.

[[Page 23668]]

Table 2--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Consecutive Years
                               in Which LEA Failed To Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................  ..............             100  Required level of effort is $100
                                                                              despite LEA's failure in 2013-2014
                                                                              and 2014-2015.
----------------------------------------------------------------------------------------------------------------

    Table 3 shows how to calculate the required level of effort in a 
fiscal year after the year in which an LEA spent more than the 
required amount on the education of children with disabilities. This 
LEA spent $1.1 million in FY 2015-2016 though only $1 million was 
required. The required level of effort in FY 2016-2017, therefore, 
is $1.1 million.

Table 3--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Year in Which LEA
                                           Met MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................             110             100  LEA met MOE.
2016-2017..................................  ..............             110  Required level of effort is $110
                                                                              because LEA expended $110, and met
                                                                              MOE, in 2015-2016.
----------------------------------------------------------------------------------------------------------------

    Table 4 shows the same calculation when, in an intervening 
fiscal year, 2016-2017, the LEA did not maintain effort.

Table 4--Example of Level of Effort Required To Meet MOE Compliance Standard in Year Following Year in Which LEA
                                      Did Not Meet MOE Compliance Standard
----------------------------------------------------------------------------------------------------------------
                                              Actual level   Required level
                Fiscal year                     of effort       of effort                   Notes
----------------------------------------------------------------------------------------------------------------
2012-2013..................................            $100            $100  LEA met MOE.
2013-2014..................................              90             100  LEA did not meet MOE.
2014-2015..................................              90             100  LEA did not meet MOE. Required
                                                                              level of effort is $100 despite
                                                                              LEA's failure in 2013-2014.
2015-2016..................................             110             100  LEA met MOE.
2016-2017..................................             100             110  LEA did not meet MOE. Required
                                                                              level of effort is $110 because
                                                                              LEA expended $110, and met MOE, in
                                                                              2015-2016.
2017-2018..................................  ..............             110  Required level of effort is $110,
                                                                              despite LEA's failure in 2016-
                                                                              2017.
----------------------------------------------------------------------------------------------------------------

    Table 5 provides an example of how an LEA may meet the 
compliance standard using alternate methods from year to year 
without using the exceptions or adjustment in Sec. Sec.  300.204 and 
300.205, and provides information on the following scenario. In FY 
2015-2016, the LEA meets the compliance standard using all four 
methods. As a result, in order to demonstrate that it met the 
compliance standard using any one of the four methods in FY 2016-
2017, the LEA must expend at least as much as it did in FY 2015-2016 
using that same method. Because the LEA spent the same amount in FY 
2016-2017 as it did in FY 2015-2016, calculated using a combination 
of State and local funds and a combination of State and local funds 
on a per capita basis, the LEA met the compliance standard using 
both of those methods in FY 2016-2017. However, the LEA did not meet 
the compliance standard in FY 2016-2017 using the other two 
methods--local funds only or local funds only on a per capita 
basis--because it did not spend at least the same amount in FY 2016-
2017 as it did in FY 2015-2016 using the same methods.

    Table 5--Example of How an LEA May Meet the Compliance Standard Using Alternate Methods From Year to Year
----------------------------------------------------------------------------------------------------------------
                                                                                     Combination of
                                     Local funds   Combination of    Local funds    State and local
            Fiscal year                  only     State and local   only on a per    funds on a per  Child count
                                                       funds         capita basis     capita basis
----------------------------------------------------------------------------------------------------------------
2015-2016..........................       * $500           * $950            * $50            * $95           10
2016-2017..........................          400            * 950               40             * 95           10

[[Page 23669]]

 
2017-2018..........................        * 500              900             * 50               90           10
----------------------------------------------------------------------------------------------------------------
* LEA met compliance standard using this method.

    Table 6 provides an example of how an LEA may meet the 
compliance standard using alternate methods from year to year in 
years in which the LEA used the exceptions or adjustment in 
Sec. Sec.  300.204 and 300.205, including using the per capita 
methods.

  Table 6--Example of How an LEA May Meet the Compliance Standard Using Alternate Methods From Year to Year and
                      Using Exceptions or Adjustment Under Sec.  Sec.   300.204 and 300.205
----------------------------------------------------------------------------------------------------------------
                                                                                        Combination of
                                           Combination of     Local funds only on a    State and local    Child
    Fiscal year       Local funds only     State and local       per capita basis       funds on a per    count
                                                funds                                    capita basis
----------------------------------------------------------------------------------------------------------------
2015- 2016.........  $500 *............  $950 *............  $50 *..................  $95 *............       10
2016- 2017.........  400...............  950 *.............  40.....................  95 *.............       10
2017-2018..........  450 *.............  1,000 *...........  45 *...................  100 *............       10
                     In 2017-2018, the   ..................  In 2017-2018, the LEA    .................  .......
                      LEA was required                        was required to spend
                      to spend at least                       at least the same
                      the same amount                         amount in local funds
                      in local funds                          only on a per capita
                      only that it                            basis that it spent in
                      spent in the                            the preceding fiscal
                      preceding fiscal                        year, subject to the
                      year, subject to                        Subsequent Years rule.
                      the Subsequent                          Therefore, prior to
                      Years rule.                             taking any exceptions
                      Therefore, prior                        or adjustment in Sec.
                      to taking any                           Sec.   300.204 and
                      exceptions or                           300.205, the LEA was
                      adjustment in                           required to spend at
                      Sec.  Sec.                              least $50 in local
                      300.204 and                             funds only on a per
                      300.205, the LEA                        capita basis.
                      was required to                        In 2017-2018, the LEA
                      spend at least                          properly reduced its
                      $500 in local                           aggregate
                      funds only.                             expenditures, per an
                     In 2017-2018, the                        exception in Sec.
                      LEA properly                            300.204, by $50.
                      reduced its                            $50/10 children with
                      expenditures, per                       disabilities in the
                      an exception in                         comparison year (2015-
                      Sec.   300.204,                         2016) = $5 per capita
                      by $50, and                             allowable reduction
                      therefore, was                          per an exception under
                      required to spend                       Sec.   300.204.
                      at least $450 in                       $50 local funds only on
                      local funds only                        a per capita basis
                      ($500) from 2015-                       (from 2015-2016 per
                      2016 per                                Subsequent Years rule)
                      Subsequent Years                        - $5 allowable
                      rule - $50                              reduction per an
                      allowable                               exception under Sec.
                      reduction per an                        300.204 = $45 local
                      exception under                         funds only on a per
                      Sec.   300.204).                        capita basis to meet
                                                              MOE.
2018-2019..........  405...............  1,000 *...........  45 *...................  111.11 *.........        9
                     In 2018-2019, the   Because the LEA     In 2018-2019, the LEA    Because the LEA
                      LEA was required    did not reduce      was required to spend    did not reduce
                      to spend at least   its expenditures    at least the same        its expenditures
                      the same amount     from the            amount in local funds    from the
                      in local funds      comparison year     only on a per capita     comparison year
                      only that it        (2017-2018) using   basis that it spent in   (2017-2018)
                      spent in the        a combination of    the preceding fiscal     using a
                      preceding fiscal    State and local     year, subject to the     combination of
                      year, subject to    funds, the LEA      Subsequent Years rule.   State and local
                      the Subsequent      met MOE.            Therefore, prior to      funds on a per
                      Years rule.                             taking any exceptions    capita basis
                      Therefore, prior                        or adjustment in Sec.    ($1,000/9 =
                      to taking any                           Sec.   300.204 and       $111.11 and
                      exceptions or                           300.205, the LEA was     $111.11 > $100),
                      adjustment in                           required to spend at     the LEA met MOE.
                      Sec.  Sec.                              least $45 in local
                      300.204 and                             funds only on a per
                      300.205, the LEA                        capita basis.
                      was required to                        In 2018-2019, the LEA
                      spend at least                          properly reduced its
                      $450 in local                           aggregate
                      funds only.                             expenditures, per an
                     In 2018-2019, the                        exception in Sec.
                      LEA properly                            300.204 by $10 and the
                      reduced its                             adjustment in Sec.
                      expenditures, per                       300.205 by $10.
                      an exception in                        $20/10 children with
                      Sec.   300.204 by                       disabilities in the
                      $10 and the                             comparison year (2017-
                      adjustment in                           2018) = $2 per capita
                      Sec.   300.205 by                       allowable reduction
                      $10.                                    per an exception and
                     Therefore, the LEA                       the adjustment under
                      was required to                         Sec.  Sec.   300.204
                      spend at least                          and 300.205.
                      $430 in local                          $45 local funds only on
                      funds only. ($450                       a per capita basis
                      from 2017-2018 -                        (from 2017-2018) - $2
                      $20 allowable                           allowable reduction
                      reduction per an                        per an exception and
                      exception and the                       the adjustment under
                      adjustment under                        Sec.  Sec.   300.204
                      Sec.  Sec.                              and 300.205 = $43
                      300.204 and                             local funds only on a
                      300.205).                               per capita basis
                                                              required to meet MOE.
                                                              Actual level of effort
                                                              is $405/9 (the current
                                                              year child count).
----------------------------------------------------------------------------------------------------------------
* LEA met MOE using this method.
Note: When calculating any exception(s) and/or adjustment on a per capita basis for the purpose of determining
  the required level of effort, the LEA must use the child count from the comparison year, and not the child
  count of the year in which the LEA took the exception(s) and/or adjustment. When determining the actual level
  of effort on a per capita basis, the LEA must use the child count for the current year. For example, in 2018-
  2019, the LEA uses a child count of 9, not the child count of 10 in the comparison year, to determine the
  actual level of effort.

    Tables 7 and 8 demonstrate how an LEA could meet the eligibility 
standard over a period of years using different methods from year to 
year. These tables assume that the LEA did not take any of the 
exceptions or adjustment in Sec. Sec.  300.204 and 300.205. Numbers 
are in $10,000s budgeted and spent for the education of children 
with disabilities.

[[Page 23670]]

                          Table 7--Example of How an LEA May Meet the Eligibility Standard in 2016-2017 Using Different Methods
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Combination of
                                                         Combination of    Local funds      State and
              Fiscal year                  Local funds      State and     only on a per  local funds on    Child count                Notes
                                              only         local funds    capita basis    a per capita
                                                                                              basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014-2015..............................          * $500        * $1,000           * $50          * $100              10  The LEA met the compliance
                                                                                                                          standard using all 4 methods.*
2015-2016..............................  ..............  ..............  ..............  ..............  ..............  Final information not available
                                                                                                                          at time of budgeting for 2016-
                                                                                                                          2017.
How much must the LEA budget for 2016-              500           1,000              50             100  ..............  When the LEA submits a budget
 2017 to meet the eligibility standard                                                                                    for 2016-2017, the most recent
 in 2016-2017?                                                                                                            fiscal year for which the LEA
                                                                                                                          has information is 2014-2015.
                                                                                                                          It is not necessary for the
                                                                                                                          LEA to consider information on
                                                                                                                          expenditures for a fiscal year
                                                                                                                          prior to 2014-2015 because the
                                                                                                                          LEA maintained effort in 2014-
                                                                                                                          2015. Therefore, the
                                                                                                                          Subsequent Years rule in Sec.
                                                                                                                           300.203(c) is not applicable.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The LEA met the compliance standard using all 4 methods.

 Table 8--Example of How an LEA May Meet the Eligibility Standard in 2017-2018 Using Different Methods and the Application of the Subsequent Years Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Combination of
                                                         Combination of    Local funds      State and
              Fiscal year                  Local funds      State and     only on a per  local funds on    Child count                Notes
                                              only         local funds    capita basis    a per capita
                                                                                              basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014-2015..............................          * $500        * $1,000           * $50          * $100              10  ...............................
2015-2016..............................             450         * 1,000              45           * 100              10  ...............................
2016-2017..............................  ..............  ..............  ..............  ..............  ..............  Final information not available
                                                                                                                          at time of budgeting for 2017-
                                                                                                                          2018.
How much must the LEA budget for 2017-              500           1,000              50             100  ..............  If the LEA seeks to use a
 2018 to meet the eligibility standard                                                                                    combination of State and local
 in 2017-2018?                                                                                                            funds, or a combination of
                                                                                                                          State and local funds on a per
                                                                                                                          capita basis, to meet the
                                                                                                                          eligibility standard, the LEA
                                                                                                                          does not consider information
                                                                                                                          on expenditures for a fiscal
                                                                                                                          year prior to 2015-2016
                                                                                                                          because the LEA maintained
                                                                                                                          effort in 2015-2016 using
                                                                                                                          those methods.
                                                                                                                         However, if the LEA seeks to
                                                                                                                          use local funds only, or local
                                                                                                                          funds only on a per capita
                                                                                                                          basis, to meet the eligibility
                                                                                                                          standard, the LEA must use
                                                                                                                          information on expenditures
                                                                                                                          for a fiscal year prior to
                                                                                                                          2015-2016 because the LEA did
                                                                                                                          not maintain effort in 2015-
                                                                                                                          2016 using either of those
                                                                                                                          methods, per the Subsequent
                                                                                                                          Years rule. That is, the LEA
                                                                                                                          must determine what it should
                                                                                                                          have spent in 2015-2016 using
                                                                                                                          either of those methods, and
                                                                                                                          that is the amount that the
                                                                                                                          LEA must budget in 2017-2018.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* LEA met MOE using this method.

    Table 9 provides an example of how an LEA may consider the 
exceptions and adjustment in Sec. Sec.  300.204 and 300.205 when 
budgeting for the expenditures for the education of children with 
disabilities.

[[Page 23671]]

     Table 9--Example of How an LEA May Meet the Eligibility Standard Using Exceptions and Adjustment in Sec.  Sec.   300.204 and 300.205, 2016-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Combination
                                                              Combination     Local funds    of State and
                Fiscal year                   Local funds    of State and   only on a  per    local funds     Child count               Notes
                                                 only         local funds    capita  basis     on a per
                                                                                             capita basis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual 2014-2015 expenditures.............          * $500        * $1,000           * $50          * $100              10  The LEA met the compliance
                                                                                                                             standard using all 4
                                                                                                                             methods.*
Exceptions and adjustment taken in 2015-               -50             -50              -5              -5  ..............  LEA uses the child count
 2016.                                                                                                                       number from the comparison
                                                                                                                             year (2014-2015).
Exceptions and adjustment the LEA                      -25             -25           -2.50           -2.50  ..............  LEA uses the child count
 reasonably expects to take in 2016-2017.                                                                                    number from the comparison
                                                                                                                             year (2014-2015).
How much must the LEA budget to meet the               425             925           42.50           92.50  ..............  When the LEA submits a
 eligibility standard in 2016-2017?.                                                                                         budget for 2016-2017, the
                                                                                                                             most recent fiscal year for
                                                                                                                             which the LEA has
                                                                                                                             information is 2014-2015.
                                                                                                                             However, if the LEA has
                                                                                                                             information on exceptions
                                                                                                                             and adjustment taken in
                                                                                                                             2015-2016, the LEA may use
                                                                                                                             that information when
                                                                                                                             budgeting for 2016-2017.
                                                                                                                             The LEA may also use
                                                                                                                             information that it has on
                                                                                                                             any exceptions and
                                                                                                                             adjustment it reasonably
                                                                                                                             expects to take in 2016-
                                                                                                                             2017 when budgeting for
                                                                                                                             that year.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 10 provides examples both of how to calculate the amount 
by which an LEA failed to maintain its level of expenditures and of 
the amount of non-Federal funds that an SEA must return to the 
Department on account of that failure.

Table 10--Example of How To Calculate the Amount of an LEA's Failure to Meet the Compliance Standard in 2016-2017 and the Amount That an SEA Must Return
                                                                    to the Department
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Combination                              Combination  of State                   Amount of IDEA
             Fiscal year                 Local funds    of State and    Local funds  only on a    and  local funds  on a    Child count       Part B
                                            only         local funds       per capita  basis        per  capita basis                        subgrant
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015-2016............................          * $500          * $950  $50 *...................  $95 *..................  ..............   Not relevant.
2016-2017............................             400             750  40......................  75.....................              10             $50
Amount by which an LEA failed to                  100             200  100 (the amount of the    200 (the amount of the   ..............  ..............
 maintain its level of expenditures                                     failure equals the        failure equals the
 in 2016-2017.                                                          amount of the per         amount of the per
                                                                        capita shortfall ($10)    capita shortfall ($20)
                                                                        times the number of       times the number of
                                                                        children with             children with
                                                                        disabilities in 2016-     disabilities in 2016-
                                                                        2017 (10)).               2017 (10)).
--------------------------------------------------------------------------------------------------------------------------------------------------------
The SEA determines that the amount of the LEA's failure is $100 using the calculation method that results in the lowest amount of a failure. The SEA's
  liability is the lesser of the four calculated shortfalls and the amount of the LEA's Part B subgrant in the fiscal year in which the LEA failed to
  meet the compliance standard. In this case, the SEA must return $50 to the Department because the LEA's IDEA Part B subgrant was $50, and that is the
  lower amount.
* LEA met MOE using this method.

[FR Doc. 2015-09755 Filed 4-27-15; 8:45 am]
BILLING CODE 4000-01-P
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