PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 12-1764

SOUTH CAROLINA DEPARTMENT OF EDUCATION; SOUTH CAROLINA 

STATE SUPERINTENDENT OF EDUCATION MITCHELL ZAIS,

Petitioners,

v.

ARNE DUNCAN, Secretary of Education; UNITED STATES 

DEPARTMENT OF EDUCATION,

Respondents.

On Petition for Review of an Order of the Department of 

Education. (EDUC-1)

Argued: March 22, 2013 Decided: April 26, 2013

Before NIEMEYER, AGEE, and THACKER, Circuit Judges.

Petition for review granted and case remanded by published 

opinion. Judge Niemeyer wrote the opinion, in which Judge Agee

and Judge Thacker joined.

ARGUED: Shelly Bezanson Kelly, SOUTH CAROLINA DEPARTMENT OF 

EDUCATION, Columbia, South Carolina, for Petitioners. Alisa 

Beth Klein, UNITED STATES DEPARTMENT OF JUSTICE, Washington, 

D.C., for Respondents. ON BRIEF: Wendy Bergfeldt Cartledge, 

Barbara Drayton, Karla Hawkins, SOUTH CAROLINA DEPARTMENT OF 

EDUCATION, Columbia, South Carolina, for Petitioners. Philip H. 

Rosenfelt, Deputy General Counsel Delegated to Perform the 

Functions and Duties of the General Counsel, Joan DeLise Bardee, 

Attorney, Department of Education, Stuart F. Delery, Principal 

Deputy Assistant Attorney General, Mark B. Stern, Attorney, 
2

Appellate Staff, UNITED STATES DEPARTMENT OF JUSTICE, 

Washington, D.C., for Respondents.
3

NIEMEYER, Circuit Judge:

The Individuals with Disabilities Education Act (“IDEA”) 

provides for grants of federal funds to States for the education 

of disabled children. To meet the eligibility requirements for 

the full amount of funds allocated to a State, that State must 

not reduce the amount of its own financial support for special 

education “below the amount of that support [it provided] for 

the preceding fiscal year.” 20 U.S.C. § 1412(a)(18). If the 

State fails to meet this “maintenance-of-effort” condition, as 

it is referred to, the Secretary of the U.S. Department of 

Education (“USDOE”) must reduce the level of federal funding to 

the State in subsequent years by the amount of the funding 

shortfall. Id. Alternatively, the Secretary may grant a waiver

of the maintenance-of-effort condition if doing so “would be 

equitable due to exceptional or uncontrollable circumstances 

such as a natural disaster or a precipitous and unforeseen 

decline in the financial resources of the State.” Id.

South Carolina requested a waiver of its maintenance-ofeffort condition for approximately $67.4 million for its fiscal 

year ended 2010. The Secretary granted the waiver in part, but 

denied it to the extent of $36.2 million. Accordingly, he 

advised the State that the USDOE was reducing the State’s

allocation for fiscal year 2012 by $36.2 million. When South 

Carolina sought to have a hearing on the Secretary’s 
4

determination, the Secretary advised the State that the IDEA did 

not provide for such a hearing.

South Carolina filed this petition for review, challenging 

the Secretary’s denial of its request for a full waiver and its 

request for a hearing. The Secretary filed a motion to dismiss, 

contending that this court does not have jurisdiction to 

consider the State’s petition.

We conclude that the Secretary’s action in partially 

denying South Carolina’s request for a waiver was a 

determination made “with respect to the eligibility of the 

State” for funding and that therefore we have jurisdiction to 

consider the State’s petition for review. See 20 U.S.C. §

1416(e)(8)(A). We also conclude that the Secretary’s denial of 

the State’s request for a full waiver was a determination that 

South Carolina was “not eligible to receive a grant” in the 

amount of $36.2 million and that therefore the Secretary was 

required to provide the State with notice and an opportunity for 

a hearing before he made a final determination with respect to

the waiver request. Id. § 1412(d)(2). Accordingly, we grant 

the petition for review and remand to allow the Secretary to

provide South Carolina with notice and an opportunity for a 

hearing before he makes a final determination on South 

Carolina’s waiver request.
5

I

The IDEA provides federal funding to States for the 

education of disabled children. To be eligible for this

funding, a State must submit a plan to the Secretary of the 

USDOE that “provides assurances to the Secretary that the State

has in effect policies and procedures to ensure that the State

meets each of [25 stated] conditions.” 20 U.S.C. § 1412(a). In 

addition to requiring that the State provide an appropriate 

public education to all children with disabilities, the 

conditions require that the State “not reduce the amount of 

State financial support for special education and related 

services for children with disabilities . . . below the amount 

of that support for the preceding fiscal year.” Id. §

1412(a)(18)(A). This maintenance-of-effort condition, however, 

may be waived under two circumstances, including if the 

Secretary determines that doing so “would be equitable due to 

exceptional or uncontrollable circumstances such as a natural 

disaster or a precipitous and unforeseen decline in the 

financial resources of the State.”1 Id. § 1412(a)(18)(C)(i). 

Without such a waiver, the statute provides that “[t]he 

 1 The Secretary may also waive the maintenance-of-effort 

requirement if “the State provides clear and convincing evidence 

that all children with disabilities have available to them a 

free appropriate public education.” 20 U.S.C. § 1412(a)(17)(C). 

South Carolina did not seek a waiver under this standard.
6

Secretary shall reduce the allocation of funds . . . for any 

fiscal year following the fiscal year in which the State fails 

to comply with [the maintenance-of-effort condition] by the same 

amount by which the State fails to meet the requirement.” Id. §

1412(a)(18)(B).

After experiencing “severe and precipitous” reductions in 

state tax revenues, South Carolina advised the USDOE of the 

reduced revenues and South Carolina’s need to reduce funding for 

special education by $67.4 million. In a letter to the agency,

dated February 26, 2010, South Carolina requested a waiver of 

the maintenance-of-effort condition for fiscal year 2010. The 

State also provided the agency with supporting financial 

information.

In an eight-page opinion letter dated June 17, 2011, thenAssistant Secretary for Special Education and Rehabilitative 

Services Alexa Posny found that the submitted financial 

information indicated that “the State did not treat special 

education and related services in an equitable manner when 

compared to State agencies as a whole.” She noted that the 

State reduced its support for special education by 12.02%, 

whereas its average reduction in appropriations across all 

agencies was 7.55%. For this reason, she denied the request for 

a waiver of the full $67.4 million amount. After recalculating 

the reductions in an “equitable” manner, however, Posny granted
7

the State’s waiver request to the extent of $31.2 million and 

denied it to the extent of $36.2 million. She stated:

The State’s submissions to the [USDOE] in support of 

its waiver request establish that it has failed to 

maintain financial support for special education and 

related services for FY 2010 by $36,202,909 . . . . 

Thus, the State has a $36,202,909 shortfall in the 

amount of State financial support for FY 2010.

The letter encouraged the State “to take action to restore 

funding for special education and related services for FY 2011.” 

On South Carolina’s request for reconsideration, Deputy 

Secretary Anthony Miller affirmed the decision.

Even though the USDOE informed South Carolina that it was 

not entitled to a hearing, South Carolina filed an appeal from 

Assistant Secretary Posny’s decision on August 1, 2011, with the 

Office of Hearings and Appeals, requesting a hearing. After 

receiving no status reports or information regarding the appeal, 

South Carolina filed a motion to expedite. When the request for 

a hearing was presented to the Secretary, he issued an order 

dated May 22, 2012, denying the request for a hearing and 

explaining that while the IDEA provides for notice and an 

opportunity for a hearing “prior to (1) issuance of the 

Department’s final agency decision rejecting the eligibility of 

a State for IDEA grant funding or (2) a withholding of IDEA 

funds,” (emphasis added), the agency’s partial denial of South 

Carolina’s request for a waiver was neither a decision rejecting 
8

eligibility nor a decision withholding funds. Thus, he ruled, 

“no right to a hearing attached.” The Secretary’s opinion 

reasoned that because South Carolina was not challenging the 

conclusion that it did not meet the maintenance-of-effort 

condition and because South Carolina was never deemed ineligible 

for a grant, this was not a case of an agency decision rejecting 

eligibility. He also stated that the agency decision did not 

involve a “withholding” of grant funds under the IDEA because 

“[s]uch a withholding action can only occur after [the Office of 

Special Education and Rehabilitative Services] has made a 

determination that a State has substantially failed to comply 

with an IDEA eligibility condition.” But here “[that Office] 

never determined the State substantially failed to comply with 

the IDEA’s [maintenance-of-effort] requirement -- the State

concedes that it did not.” Finally, the Secretary noted that 

the General Education Provisions Act (“GEPA”), 20 U.S.C. §

1234d(b) (requiring a hearing before the Secretary withholds 

payment under an education program), does not provide South 

Carolina with a right to a hearing because the specific terms of 

the IDEA, which require a reduction of funds, supersede the 

general terms of the GEPA.

The South Carolina Department of Education and its 

Superintendent, Mitchell Zais, filed this petition for review of 

the Secretary’s denial of South Carolina’s request for a waiver 
9

and request for a hearing, naming the Secretary and the USDOE as 

respondents. In its petition, South Carolina also requested an 

order that the Secretary restore, during the pendency of the 

hearing procedures, the $36.2 million in funding that the 

Secretary reduced from South Carolina’s fiscal year 2012 

allocation. In addition to its petition, South Carolina filed a 

motion to stay the reduction of its IDEA funds pending appeal.

The USDOE filed a motion to dismiss the petition for lack 

of jurisdiction, contending that its waiver determination was a 

final agency action subject to review only in the district court 

under the Administrative Procedure Act, not in the court of 

appeals under the IDEA or GEPA.

By order dated August 13, 2012, we denied the State’s 

motion for a stay pending appeal and deferred ruling on the 

USDOE’s motion to dismiss until after oral argument.

In this appeal, we are thus presented with two procedural 

questions: (1) whether we have jurisdiction to consider South 

Carolina’s petition for review, and (2) whether South Carolina 

is entitled to an opportunity for a hearing on the USDOE’s 

determinations that South Carolina had “failed to maintain 

financial support for special education and related services for 

FY 2010 by $36,202,909” and consequently that South Carolina’s 

grant for fiscal year 2012 be reduced by that amount.
10

II

To justify our jurisdiction over its petition for review, 

South Carolina relies principally on IDEA’s provision

authorizing a State to file a petition for review in a court of 

appeals when the “State is dissatisfied with the Secretary’s 

action with respect to the eligibility of the State under 

section 1412 of this title.” 20 U.S.C. § 1416(e)(8)(A). 

Alternatively, it relies on the GEPA’s provision for review by 

courts of appeals of agency decisions to withhold payments for 

failing to comply substantially with any requirement of law 

applicable to such funds. Id. § 1234g.

Although South Carolina contends that both the IDEA and 

GEPA provide subject-matter jurisdiction over its petition, we 

will look first to the IDEA, the more specific statute and the 

statute pursuant to which the underlying action in this case was 

taken. Cf. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 

384 (1992) (looking to ERISA instead of the more general Federal 

Aviation Act saving clause because “it is a commonplace of 

statutory construction that the specific governs the general”).

Under the IDEA, any State “dissatisfied with the 

Secretary’s action with respect to the eligibility of the State

under section 1412 of this title . . . may . . . file with the 

United States court of appeals for the circuit in which such 

State is located a petition for review of that action.” 20 
11

U.S.C. § 1416(e)(8)(A). Our jurisdiction under this provision

thus turns on whether South Carolina is appealing an “action 

with respect to . . . eligibility.” Because South Carolina 

seeks review of the USDOE’s decision denying a full waiver of 

the maintenance-of-effort condition for fiscal year 2010 imposed 

by § 1412(a)(18) (as well as the Secretary’s decision not to 

grant South Carolina a hearing before making that decision), we 

must evaluate whether the maintenance-of-effort waiver 

determination was an “action with respect to eligibility.”

South Carolina’s primary argument on why a maintenance-ofeffort waiver determination is an eligibility determination is 

that “[maintenance-of-effort] is one of the twenty-five 

eligibility requirements” and therefore “[b]y not waiving [the 

maintenance-of-effort condition] for the 2009-10 year, the 

Secretary found that South Carolina did not meet the eligibility 

requirements for a grant.”

The USDOE argues to the contrary, contending that “South 

Carolina [had already been] found eligible for grants under IDEA 

Part B because its State’s plan provided the required 

assurances” and, instead, that the cut in funding was due to a 

“[f]ailure to administer the grant in compliance with grant 
12

assurances.” (Emphasis added).2 It argues that South Carolina 

was not found ineligible for a grant under the IDEA because, had 

it been so found, it would not have received any funding.

The USDOE’s position rests ultimately on the distinction 

between a finding of ineligibility and a finding of noncompliance. Explaining the difference, it states:

If South Carolina had not provided one or more of the 

required assurances [contained in § 1412(a)], the 

[USDOE] would have found the State ineligible for a 

grant and would have provided the State with notice 

and opportunity for a hearing in connection with that 

finding. The State’s failure to comply with any of 

these grant assurances in the administration of its 

federal grant is a basis for finding of noncompliance 

and may cause the Department to take enforcement 

action. But, under the IDEA’s direct-review 

provision, only a finding of ineligibility is subject 

to direct review in the court of appeals.

The distinction that the USDOE makes is indeed meaningful. 

A condition of eligibility looks forward such that its failure 

leads to ineligibility. A finding of non-compliance, on the 

other hand, is an evaluation that looks backward in an 

assessment of performance.

Thus, as § 1412(a) sets forth the conditions to 

eligibility, it includes the forward-looking consequence of fund 

reductions, albeit not necessarily a complete funding reduction. 

 2 The USDOE also contends that its interpretation is 

entitled to deference under Chevron, U.S.A., Inc. v. Natural 

Resources Defense Council, Inc., 467 U.S. 837 (1984). Because 

we find the statute to be clear, however, we do not reach the 

question of deference.
13

Section 1412(a) provides that the consequence for failing to 

satisfy the maintenance-of-effort condition is a directly 

related reduction in the future allocation of grant funds. See

20 U.S.C. § 1412(a)(18)(B). The requirement thus operates an

ongoing condition as to the State’s eligibility for allocated 

grant funds, and as a condition of eligibility, a failure to 

satisfy the condition leads to proportionate ineligibility. In 

this manner, a failure to meet the maintenance-of-effort

condition to the extent of $1,000 leads to a comparable

reduction of future funds in the amount of $1,000. Noncompliance, on the other hand, is addressed in § 1416 pursuant 

to an evaluation of past performance following the State’s 

submission of a “performance plan.” Id. § 1416(b). The finding 

of a compliance failure under § 1416 can lead to the Secretary’s 

provision of “assistance,” “intervention,” “substantial 

intervention,” or even “withholding funds.” Id. § 1416(e).

To be sure, a State’s failure to appropriate funds for 

special education as provided in the IDEA might lead either to 

the failure of a condition to funding eligibility under § 1412

or to non-compliance enforcement under § 1416. Consequently, it 

is necessary to determine the precise course that is implicated

by either the State or the USDOE’s actions and to apply the 

procedures that Congress prescribed for that course.
14

The course implicated in this case is not in question. 

There was no assessment of the State’s performance plan, nor was 

there any finding that the State needed assistance, 

intervention, or substantial intervention as would occur under §

1416(e)(1)-(3). Although a determination that a State failed to 

comply with its plan could lead to the USDOE, under §

1416(e)(3), to recover funds, using GEPA; to withhold funds 

(after a hearing); to refer the case to the USDOE’s Office of 

the Inspector General; or to refer the matter for appropriate 

enforcement action, no such actions were undertaken and none of 

the § 1416(e) remedies were invoked. Instead, South Carolina 

requested a waiver of the maintenance-of-effort condition to 

eligibility in § 1412(a)(18), and the USDOE acted accordingly. 

The USDOE addressed the request under § 1412(a)(18)(C) to 

determine whether the maintenance-of-effort condition should be 

waived.

More specifically, South Carolina requested a waiver of the 

maintenance-of-effort condition under § 1412(a)(18)(C)(i), which 

allows for a waiver based on “a precipitous and unforeseen 

decline in the financial resources of the State.” The Secretary 

responded to the request, applying the criteria provided by the 

same provision, finding that the State “had failed to maintain 

financial support for special education and related services for 

FY 2010 by $36,202,909” and reducing grant money for the 
15

following fiscal year to the same extent. Thus, both South 

Carolina’s request and the USDOE’s response employed § 1412, 

which in its entirety is directed to “State eligibility.” The 

Secretary’s waiver determination was accordingly (1) a 

determination whether to remove an eligibility condition, and 

(2) a reduction of the State’s eligibility for future funding.

Because removing an eligibility condition imposed by § 1412 

is an “action with respect to the eligibility of the State under 

section 1412,” we readily conclude that we have jurisdiction to 

consider South Carolina’s petition for review. 20 U.S.C. §

1416(e)(8)(A) (emphasis added).

The USDOE nonetheless argues that we lack jurisdiction 

because “South Carolina was not found ineligible for a grant 

under IDEA Part B” because, though funding for fiscal year 2012 

was reduced, South Carolina continued to receive some funding. 

The USDOE claims that “only a finding of ineligibility is 

subject to direct review in the court of appeals,” implying that 

the statute requires complete ineligibility before implicating 

our jurisdiction. But the text of § 1416(e)(8)(A) forecloses 

such a claim. Under that section, our jurisdiction does not 

depend on whether a State was found completely ineligible for 

funding. Rather, it depends on whether an action was taken 

“with respect to eligibility.” (Emphasis added). A partial 

reduction in funding based on the failure to satisfy an 
16

eligibility condition is as much an “action with respect to 

eligibility” as is a full reduction of funding. Here, the 

Secretary used § 1412(a)(18)(B)-(C) to conclude that South 

Carolina was ineligible to receive $36.2 million in federal 

funding.

We therefore have jurisdiction over South Carolina’s 

petition for review under § 1416(e)(8)(A) and need not reach 

South Carolina’s other jurisdictional arguments.

III

We turn next to South Carolina’s contention that it is 

entitled to notice and an opportunity for a hearing before the 

Secretary makes his final determination whether to grant South 

Carolina a full waiver of the maintenance-of-effort condition 

for fiscal year 2010. South Carolina contends that it is 

entitled to a hearing under either (1) IDEA § 1412(d)(2) because 

the Secretary found that the State was not eligible for the 

$36.2 million portion of its allocated grant under the IDEA; or 

(2) IDEA § 1416(e)(4)(A) and GEPA § 1234d(b) because the 

Secretary’s reduction of South Carolina’s grant following its 

denial of a full waiver was a “withholding.”

For the same reasons the USDOE gave in challenging our 

jurisdiction, it contends that the Secretary’s partial denial of 

South Carolina’s waiver request was not an eligibility 
17

determination and also that the consequent reduction of its 

grant to South Carolina was not a withholding under either the 

IDEA or the GEPA so as to trigger notice and an opportunity for 

a hearing.

Paralleling our jurisdictional analysis, we look first to 

the language of the IDEA, which is the more specific statute 

relevant to this issue.

The IDEA entitles a State to notice and an opportunity for 

a hearing in two situations, both of which South Carolina 

claims are relevant. First, § 1412(d)(2) mandates that “[t]he 

Secretary shall not make a final determination that a State is 

not eligible to receive a grant under this subchapter until 

after providing the State (A) with reasonable notice; and (B) 

with an opportunity for a hearing.” Similarly, § 1416(e)(4)(A) 

mandates notice and an opportunity for a hearing “[p]rior to 

withholding any funds under this section.” Because our 

jurisdiction exists on the basis of a decision made with respect 

to eligibility, we look first to whether § 1412(d)(2)’s hearing 

provision is applicable.

Both the basis for our jurisdiction and the basis for a 

right to a hearing depend on the Secretary’s making a 

determination relating to eligibility, but the IDEA uses 

slightly different language for each. As addressed in Part II 

above, we have jurisdiction over “the Secretary’s action[s] with 
18

respect to the eligibility of the State,” 20 U.S.C. §

1416(e)(8)(A) (emphasis added), but South Carolina is entitled 

to a hearing only when the Secretary “make[s] a final 

determination that a State is not eligible” for funding, id. §

1412(d)(2). At oral argument, the USDOE treated these two 

provisions as equivalent, stating that if we found that we had 

jurisdiction, we should also conclude that South Carolina was 

entitled to an opportunity for a hearing.

While the USDOE may be correct in that position, the 

distinction in statutory language persuades us not to adopt a 

blanket rule that if we have jurisdiction under 1416(e)(8), the 

State should also be entitled to notice and an opportunity for a 

hearing under § 1412(d)(2). Nonetheless, we do agree that in 

this case, the partial denial of the maintenance-of-effort 

waiver not only provides us with jurisdiction under § 1416(e)(8) 

but also amounts to a “determination that a State is not 

eligible” for funding under § 1412(d)(2), albeit only to the 

extent of $36.2 million.

Section 1412(a)(18)(B) provides for a reduction in the 

USDOE’s grant to a State when the State fails to meet its 

maintenance-of-effort condition, while § 1412(a)(18)(C) removes 

this consequence and allows the State to become eligible for 

funding despite its failure to satisfy the condition. When the 

USDOE decided that South Carolina was only entitled to a partial 
19

waiver under § 1412(a)(18)(C) and that its eligibility would 

therefore be partially reduced under § 1412(a)(18)(B), it made a 

determination that the “State [was] not eligible” for the

funding it otherwise would have received. 20 U.S.C. §

1412(d)(2). Thus, under § 1412(d)(2), South Carolina was 

entitled to notice and an opportunity to be heard before a final

determination on its waiver request was made. Id.

Because we conclude that the Secretary’s determination 

could not have been final until after the USDOE provided the 

State with notice and an opportunity for a hearing, we also 

conclude that South Carolina remains eligible for its full 

funding until that final determination is made. Only if and 

when the USDOE finally denies South Carolina’s waiver request

can it reduce the federal funding grant to South Carolina, and 

then it can implement the reduction in “any fiscal year

following [FY 2010].” 20 U.S.C. § 1412(a)(18)(B).

For the same reason, the Secretary may not, until he makes 

a final determination on the waiver request, redistribute to 

other States the amount of his proposed reduction of South 

Carolina’s grant for fiscal year 2012, as directed by § 1514 of 

the Consolidated and Further Continuing Appropriations Act, Pub. 

L. No. 113-6, 127 Stat. 198, 425 (2013) (providing that “the 

Secretary shall distribute to all other States . . . any amount 

by which a State’s allocation under [Part B] . . . is reduced 
20

under [the maintenance-of-effort penalty provision, §

1412(a)(18)(B)]”).

Because we conclude that South Carolina is entitled to an 

opportunity for a hearing on the waiver determination, it is 

premature for us to address its challenge to the Secretary’s 

decision to deny a full waiver. Likewise, we need not address 

South Carolina’s argument that denying a hearing was a violation 

of due process.

PETITION FOR REVIEW IS

GRANTED AND CASE REMANDED

WITH INSTRUCTIONS.