1474 Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Rules and Regulations

DEPARTMENT OF EDUCATION

34 CFR Part 300

RIN 1820–AB51

Assistance to States for the Education

of Children With Disabilities

AGENCY: Office of Special Education and

Rehabilitative Services, Department of

Education.

ACTION: Final regulations.

SUMMARY: The Secretary amends the

regulations for the Assistance to States

for the Education of Children with

Disabilities program under Part B of the

Individuals with Disabilities Education

Act (IDEA; Part B)). This amendment is

needed to implement the statutory

provision that for any fiscal year in

which the appropriation for section 611

ofthe IDEA exceeds $4.1 billion, a local

educational agency (LEA) may treat as

local funds up to 20 percent of the

amount it receives that exceeds the

amount it received during the prior

fiscal year. The amendment is intended

to ensure effective implementation of

the 20 percent rule by clarifying which

funds under Part B of IDEA can be

included in the 20 percent calculation,

and, as a result, to reduce the potential

for audit exceptions.

DATES: These regulations are effective—

February 9, 2001.

FOR FURTHER INFORMATION CONTACT:

JoLeta Reynolds (202) 205–5507. If you

use a telecommunication device for the

deaf (TDD), you may call the TDD

number at (202) 205–5465.

Individuals with disabilities may

obtain this document in an alternate

format (e.g., Braille, large print,

audiotape, or computer diskette) on

request to Katie Mimcey, Director of the

Alternate Formats Center. Telephone:

(202) 205–8113.

SUPPLEMENTARY INFORMATION: On May

10, 2000, the Secretary published a

notice of proposed rulemaking (NPRM)

in the Federal Register (65 FR 30314) to

amend the regulations governing the

Assistance to States for the Education of

Children with Disabilities program (34

CFR part 300). The NPRM proposed to

implement a statutory provision

regarding the permissive treatment of a

portion of Part B funds by LEAs in

certain fiscal years, as added by the

IDEA Amendments of 1997 (see section

613(a)(2)(C) of the Act and § 300.233 of

the regulations).

Under the new statutory provision, for

any fiscal year (FY) for which the

appropriation for section 611 of the

IDEA exceeds $4.1 billion, an LEA may

treat as local funds up to 20 percent of

the amount it receives that exceeds the

amount it received under Part B during

the prior year. By treating certain

Federal funds as local funds, and LEA

will be able to meet the maintenance of

effort requirement of § 300.231 even

though it reduces the amount of other

local or local and State funds, as the

case may be, by an amount equal to the

amount of Federal funds that may be

treated as local funds. The fiscal year

ending September 30, 1999 was the first

year that the Part B appropriation

exceeded $4.1 billion.

A key question the NPRM proposed to

resolve was whether only LEA subgrant

funds under section 611(g) of the Act or

LEA subgrant funds and other Part B

funding sources (i.e., subgrants to LEAs

for capacity-building and improvement

under section 611(f), other funds the

SEA may provide to LEAs under section

611(f) or preschool grant funds under

section 619) would be affected by the 20

percent rule in section 613(a)(2)(C) of

the Act (§ 300.233 of the regulations).

In the NPRM, we proposed that the 20

percent rule apply only to LEA subgrant

funds under section 611(g) of the Act

(§ 300.712 of the regulations), for the

reasons described in the preamble to the

NPRM. We believe that the position

taken in the NPRM is the most

appropriate and reasonable position to

follow in implementing the 20 percent

rule. Therefore, we have retained

proposed § 300.233(a)(1), without

change, in these final regulations.

There are only two significant

differences between the NPRM and

these final regulations:

• First, we have amended proposed

§ 300.233(a)(3) (which provided that if

funds are being withheld from an LEA,

those funds would not be included in

the 20 percent calculation) to clarify

that if funds that have been withheld are

subsequently released to the LEA, the

LEA may apply the 20 percent rule to

those funds.

• Second, we have added (in a new

Appendix C to the regulations for Part

300) information to assist LEAs in

implementing the 20 percent rule,

including a full, substantive description

of the provision (with examples) that is

similar to the information contained in

the Background section of the preamble

to the NPRM.

Analysis of Comments and Changes

In response to the Secretary’s

invitation in the NPRM, six parties

submitted comments on the proposed

regulations. An analysis of the

comments and of the changes in the

regulations since publication of the

NPRM follows. In the analysis, we

address substantive comments, but we

do not address comments that are not

directly relevant to these regulations.

Comment: The comments generally

acknowledged the need for having the

proposed regulation, but were varied in

their recommendations for change. With

respect to which funds under section

611 of the Act apply in determining the

amount of money that will be treated as

local funds, one commenter agreed with

the position in the NPRM (i.e., that the

funds should be limited to LEA

subgrants under section 611(g)

(§ 300.712 of the regulations)). Two

commenters recommended that the

provision be expanded to also include

funds for local capacity-building and

improvement under section 611(f) of the

Act (§ 300.622 of the regulations).

Another commenter noted that States

routinely flow through additional Part B

(section 611) funds beyond the required

LEA subgrants under section 611(g), and

recommended that the regulations

clarify that the 20 percent rule applies

to all section 611 funds LEAs receive,

including funds that are not retained by

States for administrative purposes and

other State-level activities specified

under section 611(f).

Discussion: We believe that the

position taken in the NPRM—that the

money that may be treated by LEAs as

local funds under the section 611

appropriation should be limited to

statutory subgrant funds under section

611(g)—is the most appropriate and

reasonable position to follow in

implementing section 613(a)(2)(C) of the

Act (§ 300.233 of the regulations). There

were no compelling reasons presented

by commenters to do otherwise.

Therefore, we have retained proposed

§ 300.233(a)(1), without change, in these

final regulations. The reasons for taking

this position were specified in the

preamble to the NPRM (and are also

included in a new Appendix C to these

Part 300 regulations). We believe that

the regulations clearly indicate that,

while States may provide additional

funds to LEAs from their section 611(f)

set-aside, only section 611(g) funds are

subject to the 20 percent rule.

Changes: None.

Comment: A commenter noted that

the NPRM did not indicate at what

point in the year an LEA should make

its calculation (e.g., at the beginning of

the year or at another time), and added

that the point in time when the

determination is made could have an

impact on the LEA, especially if the

LEA has had funds withheld that are

later restored. The commenter further

requested that the background section

from the NPRM be expanded to include

more complex examples for calculating

Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Rules and Regulations 1475

the 20 percent formula, and to specify

resources in the Department that LEAs

might turn to for assistance in this

regard.

Discussion: The LEA may make its

calculation—and spend the 20 percent

of the increase in the Federal grant as

local funds—at any point from the time

the LEA receives its grant under section

611(g) of the Act (§ 300.712 of the

regulations), to the end of the period

that these funds are available for

obligation. Thus, if an LEA’s Federal

fiscal year 2001 funds were withheld at

the beginning of a school year, but were

subsequently released by the SEA on

January 1, 2002, the LEA could do the

calculation and spend those funds any

time between January 1, 2002 and

September 30, 2003.

We agree with the commenter’s

request for additional examples. We also

believe that it is important to retain, on

a permanent basis, the background

section from the NPRM related to the 20

percent rule (along with the examples),

so that school officials at both the State

and local levels will have a technical

assistance source to turn to regarding

implementation of that provision. Thus,

we have included the basic content of

the background section in the NPRM

(with examples) in a new Appendix C

to the regulations for this part.

With respect to providing technical

assistance on the 20 percent rule at the

Federal level, we believe that it would

be more appropriate for LEAs to seek

advice and guidance from the SEA

within each State regarding

implementation of the 20 percent rule,

rather than directly seeking assistance

from the Department. Because each SEA

is responsible for monitoring an LEA’s

compliance with the Part B

requirements (including the 20 percent

rule), it would not be appropriate for the

Department to provide direct assistance

to individual LEAs on this provision.

On the other hand, if the SEA, in

assisting an LEA to apply the 20 percent

rule, needs policy guidance regarding

the provision, it would be appropriate

for the SEA to contact the Department

for that assistance.

Changes: A new Appendix C has been

added to the regulations, as described in

the preceding discussion.

Comment: One commenter stated that

the preamble to the NPRM suggests that

the 20 percent rule would be

implemented beginning with fiscal year

(FY) 2000, even though FY 1999 was the

first year in which the section 611

appropriation exceeded $4.1 billion.

The commenter added that the statutory

authority relating to this provision was

established by the IDEA Amendments of

1997, and, therefore, it would be

inappropriate for the regulation to

exclude the FY 1999 appropriation.

Discussion: Because funds for FY

1999 had already been received (and, in

many cases already obligated by LEAs),

we believed that it would be

inappropriate to apply this amendment

to § 300.233 retroactively to FY 1999

funds). Therefore, we proposed to apply

the amended regulation to FY 2000

funds and thereafter. In the NPRM, we

should have definitively stated that the

FY 1999 appropriation was not affected

by the proposed regulations, and,

therefore, States and LEAs could apply

a broader interpretation of section

613(a)(2)(C) of the Act (§ 300.233 of the

regulations) to the funds they received

from that appropriation.

Changes: None.

Comment: A commenter disagreed

with the interpretation of the year by

year applicability of the 20 percent rule

in the NPRM, and stated that the

provision should apply throughout the

entire period of appropriations

availability, including the carryover

year authorized by the Tydings

Amendment. The commenter further

recommended that the regulation be

revised to allow for the 20 percent rule

to be applied on a cumulative basis, so

that (for example) if there is no increase

in appropriations for FY 2002 from the

prior year, an LEA that has not used the

20 percent rule in fiscal years 1999,

2000, and 2001 would be allowed to

take advantage of the appropriations

increases received in those prior years

for local budgetary relief.

Discussion: An LEA can take

advantage of the 20 percent rule at any

point throughout the period in which

the LEA can use its section 611(g) funds,

including the carryover year under the

Tydings Amendment. (The Tydings

Amendment allows States to obligate

their grant funds for one additional year

after the initial period of availability.

See General Education Provisions Act,

section 421.) However, there is no

statutory authority to allow the

provision to be applied on a cumulative

basis. The Act makes it clear that the

provision applies only on a year to year

basis (i.e., section 613(a)(2)(C) specifies

that, for any fiscal year for which the

amounts appropriated to carry out

section 611 exceeds $4.1 billion, an LEA

‘‘may treat as local funds * * * up to

20 percent of the amount of funds it

receives under this part that exceeds the

amount it received under this part for

the previous fiscal year.’’). Emphasis

added.

Changes: None.

Comment: A commenter stated that

§ 300.233(a)(3) of the NPRM—which

provides that an LEA is not eligible to

receive funds that have been withheld

under § 300.197 or § 300.587—is

overbroad, and ignores the fact that

funds that have been withheld may

subsequently be released when

compliance has been achieved. The

commenter recommended that the

provision be deleted, noting, further,

that it does not coincide with section

613(a)(2)(C)(ii) of the Act (§ 300.233(b)

of the regulations), which provides that

an SEA may prohibit an LEA from

applying the 20 percent rule only if it

is authorized to do so by State

constitution or statute.

Discussion: We agree with the

commenter that proposed new

§ 300.233(a)(3) does not appropriately

reflect the requirements of the Act. It

should have indicated that funds that

have been withheld may subsequently

be released when compliance has been

achieved, and that the 20 percent rule

may be applied to those funds during

their period of availability. This is

consistent with our intent in the NPRM.

However, we continue to believe that it

is necessary to provide guidance in this

area.

Upon further review of proposed

§ 300.233(a)(3), we believe that it needs

to be revised to clarify that during any

period in which Part B funds are

withheld from an LEA because of a

finding of noncompliance under

§ 300.197 or § 300.587, the LEA may not

implement the 20 percent rule.

However, if the funds are subsequently

released to the LEA during the grant

award period, the LEA may spend those

funds consistent with the 20 percent

rule.

Changes: Section 300.233(c) has been

amended, consistent with the preceding

discussion.

Executive Order 12866

We have reviewed these final

regulations in accordance with

Executive Order 12866. Under the terms

of the order, we have assessed the

potential costs and benefits of this

regulatory action.

The potential costs associated with

the final regulations are those we have

determined as necessary for

administering these programs effectively

and efficiently. Elsewhere in this

SUPPLEMENTARY INFORMATION section, we

identify and explain any burdens

specifically associated with the

information collection requirements.

See the heading Paperwork Reduction

Act of 1995.

In assessing the potential costs and

benefits—both quantitative and

1476 Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Rules and Regulations

qualitative—of this regulatory action,

we have determined that the benefits

would justify the costs.

We summarized the potential costs

and benefits of these final regulations in

the preamble to the NPRM (65 FR

30314).

We have also determined that this

regulatory action would not unduly

interfere with State, local, and tribal

governments in the exercise of their

governmental functions.

Regulatory Flexibility Act Certification

The Secretary certifies that these final

regulations will not have significant

economic impact on a substantial

number of small entities. The small

entities affected will be small LEAs. The

regulations will benefit the small

entities affected by clarifying the

statutory requirements and reducing the

possibility of audit exceptions. By

ensuring consistency, the regulations

will promote more effective and

efficient program administration.

Paperwork Reduction Act of 1995

These final regulations do not contain

any information collection

requirements.

Intergovernmental Review

This program is subject to the

requirements of Executive Order 12372

and the regulations in 34 CFR part 79.

The objective of the Executive order is

to foster an intergovernmental

partnership and a strengthened

federalism by relying on processes

developed by State and local

governments for coordination and

review of proposed Federal financial

assistance.

In accordance with the order, we

intend this document to provide early

notification of our specific plans and

actions for this program.

Federalism

Executive Order 13132 requires us to

ensure meaningful and timely input by

State and local elected officials in the

development of regulatory policies that

have federalism implications.

‘‘Federalism implications’’ means

substantial direct effects on the States,

on the relationship between the

National Government and the States, or

on the distribution of power and

responsibilities among the various

levels of government.

Since these regulations relate solely to

implementation of the statutory 20

percent rule, we do not believe these

regulations have federalism

implications as defined in Executive

Order 13132. In addition, these

regulations do not preempt State law.

Accordingly, the Secretary has

determined that these final regulations

do not contain policies that have

federalism implications or that preempt

State law.

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.

Electronic Access to this Document

You may view this document, as well

as all other Department of Education

documents published in the Federal

Register, in text or Adobe Portable

Document Format (PDF) on the Internet

at either of the following sites:

http://ocfo.ed.gov/fedreg.htm

http://www.ed.gov/news.html

To use the PDF you must have Adobe

Acrobat Reader Program, which is

available free at either of the previous

sites. If you have questions about using

the PDF, call the U.S. Government

Printing Office (GPO), toll free, at 1–

800–293–6498; or in the Washington,

DC area, at (202) 512–1530.

Note: 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 on GPO

Access at:

http://www.access.gpo.gov/nara/

index.html

(Catalog of Federal Domestic Assistance

Number: 84.027 Assistance to States for the

Education of Children with Disabilities)

List of Subjects

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: December 12, 2000.

Richard W. Riley,

Secretary of Education.

For the reasons described in the

preamble, the Secretary amends title 34,

part 300, of the Code of Federal

Regulations as follows:

PART 300—ASSISTANCE TO STATES

FOR THE EDUCATION OF CHILDREN

WITH DISABILITIES PROGRAM

1. The authority citation for part 300

continues to read as follows:

Authority: 20 U.S.C. 1411—1420, unless

otherwise noted.

2. Section 300.233 is amended by

revising paragraph (a)(1), and by adding

a new paragraph (a)(3), to read as

follows:

§ 300.233 Treatment of Federal funds in

certain fiscal years.

(a)(1) Subject to paragraphs (a)(2),

(a)(3), and (b) of this section, for any

fiscal year for which amounts

appropriated to carry out section 611 of

the Act exceed $4.1 billion, an LEA may

treat as local funds up to 20 percent of

the amount of funds it is eligible to

receive under § 300.712 from that

appropriation that exceeds the amount

from funds appropriated for the

previous fiscal year that the LEA was

eligible to receive under § 300.712.

* * * * *

(3) For purposes of this section:

(i)(A) An LEA is not eligible to receive

funds during any period in which those

funds under this part are withheld from

the LEA because of a finding of

noncompliance under § 300.197 or

§ 300.587.

(B) An LEA is eligible to receive funds

that have been withheld under

§ 300.197 or § 300.587 but are

subsequently released to the LEA within

the period of the funds availability.

(ii) An LEA is not eligible to receive

funds that have been reallocated to

other LEAs under § 300.714.

3. Part 300 is further amended by

adding a new Appendix C—

Implementation of the 20 Percent Rule

under § 300.233, to read as follows:

APPENDIX C TO PART 300—

IMPLEMENTATION OF THE 20

PERCENT RULE UNDER § 300.233

This appendix is intended to assist States

and LEAs to implement the ‘‘20 percent rule’’

under Part B (section 613(a)(2)(C)) of the

Individuals with Disabilities Education Act

(IDEA), and, specifically, the regulation

implementing that provision in § 300.233.

The purposes of the appendix are to—(1)

provide background information about the 20

percent rule and its intended effect,

including specifying which funds under Part

B of the Act are covered by the provision (as

described in § 300.233), and the basis for the

Department’s decision regarding those funds;

and (2) include examples showing how the

20 percent rule would apply in several

situations.

A. Background

1. Purpose of 20 Percent Rule. The IDEA

Amendments of 1997 (Pub. L. 105–17) added

Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Rules and Regulations 1477

a provision related to the permissive

treatment of a portion of Part B funds by

LEAs for maintenance of effort and nonsupplanting purposes in certain fiscal years

(see section 613(a)(2)(C) of the Act and

§ 300.233). Under that provision, for any

fiscal year (FY) for which the appropriation

for section 611 of IDEA exceeds $4.1 billion,

an LEA may treat as local funds, for

maintenance of effort and non-supplanting

purposes, up to 20 percent of the amount it

receives that exceeds the amount it received

under Part B during the prior year.

Thus, under § 300.233, an LEA is able to

meet the maintenance of effort requirement

of § 300.231 and the non-supplanting

requirement of § 300.230(c) even though it

reduces the amount it spends of other local

or local and State funds, as the case may be,

by an amount equal to the amount of Federal

funds that may be treated as local funds.

2. 20 Percent Rule Applies Only to LEA

Subgrants. Following enactment of the IDEA

Amendments of 1997 (and publication of Part

B regulations on March 12, 1999), State and

local educational agency officials stated that

it is not clear from the Act and regulations

whether the funds affected by the 20 percent

rule are only those that an LEA receives

through statutory subgrants under section

611(g), or whether the provision also applies

to other Part B funding sources (i.e.,

subgrants to LEAs for capacity-building and

improvement under section 611(f)(4); other

funds the SEA may provide to LEAs under

section 611(f); or funds provided under

section 619 (Preschool Grants program)).

Further, because section 613(a)(2)(C) refers

to an amount of funds that an LEA ‘‘receives’’

in one fiscal year compared to the amount it

‘‘received’’ in the prior fiscal year (and

because agencies may, at any one point in

time, be using funds appropriated in several

Federal fiscal years), agency officials were

uncertain as to how to determine that an LEA

had ‘‘received’’ Federal funds.

Because the statute and regulations were

not sufficiently clear with respect to which

precise funds are affected by the 20 percent

rule, this could have resulted in the

provision being interpreted and applied

differently from LEA to LEA. If that situation

were to occur, it could result in a significant

increase in the number of audit exceptions

against LEAs.

Given the confusion about which funding

sources are affected by the 20 percent rule,

there was a critical need to set out in the

regulations a clear interpretation of section

613(a)(2)(C) in order to support its consistent

application across LEAs and States, and to

reduce the potential for audit exceptions.

Thus, on June 10, 2000, the Department

published a notice of proposed rulemaking

(NPRM) regarding this provision (65 FR

30314). The NPRM stated that—

In light of the statutory structure for

distribution of Federal funds to LEAs, we

believe that the most reasonable

interpretation is to apply that provision only

to subgrants to LEAs under section 611(g) of

the Act (§ 300.712 of the regulations) from

funds appropriated from one Federal fiscal

year compared to funds appropriated for the

prior Federal fiscal year. (Emphasis added.)

Thus, the NPRM proposed to exclude the

other Federal funds under Part B of the Act

(i.e., Subgrants to LEAs for capacity-building

and improvement under section 611(f)(4)

(§ 300.622); other funds the SEA may provide

to LEAs under section 611(f) (§ 300.602); and

preschool grant funds under section 619 (34

CFR part 301)) from the funds that could be

treated as local funds. The reasons for

excluding these other Part B funds were

stated in the NPRM, as follows:

• If IDEA funds that States have the

authority to provide to LEAs on a

discretionary basis (such as those identified

in the preceding paragraph) are included in

the 20 percent calculation, it would result in

some LEAs receiving a proportionately

greater benefit from this provision than other

LEAs, based on receipt of funds that may be

earmarked for a specific, time-limited

purpose. This would lead to inequitable

results of the § 300.233 exception across

LEAs in a State.

• Including section 619 formula grant

funds (34 CFR part 301) in the calculation

does not appear to be justified as the

‘‘trigger’’ appropriation amount applies only

with respect to the amount appropriated

under section 611.

The Department subsequently determined

that the position taken in the NPRM (that the

provision under § 300.233 should apply only

to LEA subgrant funds under section 611(g)

of the Act) is the most appropriate and

reasonable position to follow in

implementing the 20 percent rule. Therefore,

the proposed provision in § 300.233(a)(1) was

retained, without change, in the final

regulations.

B. Application of the 20 percent rule

1. Examples Related to Implementing the 20

percent rule

The following are examples showing how

the 20 percent provision would apply under

several situations:

• Example 1: An LEA receives $100,000 in

Federal LEA Subgrant funds under section

611(g) of the Act from the appropriation for

one fiscal year (FY–1), and $120,000 in

section 611(g) funds from the appropriation

for the following fiscal year (FY–2). The LEA

may spend and treat as local funds up to 20

percent of the $20,000 in section 611(g) funds

it receives from FY–2 (i.e., up to $4,000),

since this is the amount that exceeds the

amount it received from the prior year.

• Example 1–A: In Example 1, an LEA in

FY–2 is uncertain whether to exercise its

option to treat as local funds during FY–2 up

to $4,000 of its section 611(g) funds received

from FY–2, and wishes to wait until the

carry-over year to make a decision. If the LEA

decides to exercise its option during the

carry-over period regarding the $4,000 from

the FY–2 appropriation, it could do so as

long as those funds are used within the carryover period for FY–2.

• Example 1–B: An LEA receives $100,000

in section 611(g) funds from FY–1, $120,000

from FY–2 and $140,000 from FY–3. The

LEA may spend and treat as local funds up

to 20 percent of the $20,000 from FY–2 funds

and $20,000 of FY–3 funds (i.e., up to $4,000

for each year). Thus, if its FY–2 funds are not

used until FY–3, and the LEA so chooses, it

may spend and treat as local funds during

FY–3 a total of up to $8,000 in section 611(g)

funds (i.e., $4,000 from FY–2 and $4,000

from FY–3), provided those funds are

obligated by the end of FY–3.

• Example 2: An LEA from one fiscal year

(FY–1) receives $100,000 in section 611(g)

funds and $20,000 in SEA discretionary

funds under section 611(f) of the Act; and

from the following year (FY–2) receives

$120,000 in section 611(g) funds, but does

not receive any funds under section 611(f).

The LEA may spend and treat up to 20

percent of the $20,000 in section 611(g) funds

it receives from FY–2 (i.e. up to $4,000),

since $20,000 is the amount of section 611(g)

funds that exceeds the amount it received

from FY–1.

• Example 3: An LEA had all of its section

611(g) funds ($100,000) withheld from one

fiscal year (FY–1); but in the next fiscal year

(FY–2), the LEA received a total of $220,000

in section 611(g) funds (i.e., $100,000 from

FY–1, plus $120,000 from FY–2). Because the

LEA would have been entitled to $100,000 in

FY–1, the LEA may spend and treat as local

funds up to 20 percent of the $20,000 from

FY–2 that exceeded the FY–1 allotment (i.e.,

up to $4,000).

• Example 4: An LEA received $100,000

under section 611(g) from one fiscal year

(FY–1), and would have received $120,000 in

section 611(g) funds for the next fiscal year

(FY–2); but the LEA has had all of its section

611(g) funds withheld in FY–2 because of a

finding of noncompliance under § 300.197 or

§ 300.587. The LEA would have no section

611(g) funds that could be spent or treated as

local funds until those funds are released.

• Example 4–A: In example 4, the SEA

subsequently determines that the LEA is in

compliance, and releases the FY–2 funds to

the LEA later in that fiscal year. The LEA

could then spend and treat as local funds up

to 20 percent of the $20,000 that exceeds the

amount it received in FY–1 (i.e., up to

$4,000). Those funds could be used by the

LEA for the remainder of FY–2 and through

the end of the carry-over period for FY–2

funding.

2. Auditing for Compliance with § 300.231

and the 20 percent rule in § 300.233

The following provides guidance for use by

auditors in determining if LEAs are in

compliance with the maintenance of effort

requirement in § 300.231 and the 20 percent

rule in § 300.233:

a. Meeting the Maintenance of Effort

Requirement. In order to be eligible to receive

an IDEA-Part B subgrant in any particular

fiscal year, an LEA is required to demonstrate

that it has budgeted an amount of State and

local funds, or just local funds, to be spent

on special education and related services that

equals or exceeds (on either an aggregate or

per capita basis) the amount of those funds

spent by the LEA for those purposes in the

prior fiscal year, or in the most recent prior

fiscal year for which information is available.

34 CFR 300.231.

b. Auditing Compliance with § 300.231.

Auditors, in determining if an LEA has

complied with § 300.231 in any particular

fiscal year, review the actual level of

expenditures of State and local funds, or just

local funds, on special education and related

services for the year in question and the prior

1478 Federal Register / Vol. 66, No. 5 / Monday, January 8, 2001 / Rules and Regulations

year. For example, consider an LEA that, in

the LEA’s FY–1, spent a total of $1,000,000

of local funds on special education and

related services to serve 100 students with

disabilities. (For this discussion, assume that

the LEA does not receive any State funds for

any year for special education and related

services.) An auditor, in trying to determine

if the LEA, in its FY–2, had complied with

§ 300.231, would review the LEA’s

expenditure of local funds on special

education and related services. If, in the

LEA’s FY–2, the LEA served 100 students

with disabilities and spent $1,000,000 or

more in local funds on special education and

related services, it would have met the

requirements of § 300.231 for FY–2.

c. Application of the 20 percent rule to

§ 300.231. If the LEA in the preceding

example had spent only $996,000 of local

funds on special education and related

services for its 100 students with disabilities

in its FY–2 (not counting any section 611(g)

subgrant funds that could be considered local

funds under the 20 percent rule), then it

would have failed to meet its obligation

under § 300.231, and an auditor would

question $4,000 of the LEA’s IDEA-Part B

subgrant expenditures in that year.

This questioned cost, however, could be

avoided, if the LEA had available, and spent,

$4,000 of Federal funds under the 20 percent

rule during its FY–2. These funds may be

available from a variety of sources (see

Examples in paragraph 1). If, as described in

Example 1 of paragraph 1 the LEA had

received from the Federal FY–2

appropriation, a section 611(g) subgrant that

was $20,000 greater than the subgrant it

received from the Federal FY–1

appropriation, then up to $4,000 of that

subgrant could be treated as local funds. The

LEA, however, would have to spend at least

$4,000 of its Federal FY–2 section 611(g)

subgrant during its FY–2 in order for those

funds to count as part of its local

expenditures for that year for purposes of

§ 300.231.

In this example, if the LEA had carried

over all of its Federal FY–2 section 611(g)

subgrant to the LEA’s FY–3 (and thus did not

spend any of those funds during its FY–2),

then none of the section 611(g) subgrant

funds subject to the 20 percent rule could be

considered as local funds for purposes of

determining compliance with § 300.231. (The

reason for this is that auditors, in

determining an LEA’s compliance with

§ 300.231, examine State and local, or local

funds the LEA actually spent on special

education and related services, and not those

funds that the LEA could, but did not, spend

for those purposes.)

If the LEA, in its FY–2, spent $4,000 of its

Federal FY–2 section 611(g) subgrant, then

the LEA could count those expenditures and

bring itself into compliance with § 300.231

(i.e., $996,000 of the LEA’s own local funds

spent on special education and related

services plus the $4,000 of Federal FY–2

section 611(g) funds that can be counted as

local funds equals a total of $1,000,000 of

local expenditures on special education in its

FY–2—the amount of local expenditures

needed to comply with § 300.231). However,

if the LEA elected to take this step, it could

not count any of the Federal FY–2 section

611(g) subgrant funds that it will spend in its

FY–3 as local funds.

If the LEA, in its FY–2, spent only $3,000

of its Federal FY–2 section 611(g) subgrant

funds, then those funds could be counted by

the LEA as local funds in calculating its

compliance with § 300.231 for its FY–2. If the

remaining $1,000 of Federal FY–2 funds

available to be considered local funds were

spent in the LEA’s FY–3, those funds could

be considered in determining the LEA’s

compliance with § 300.231 for its FY–3.

(Note, However, that if in its FY–2 the LEA

had only spent $996,000 of local funds and

$3,000 of its Federal funds, it would not have

met the requirements of § 300.231. In this

case the auditor would have $1,000 of

questioned costs

($1,000,000¥[$996,000+$3,000]=$1,000) for

FY–2).

[FR Doc. 01–431 Filed 1–5–01; 8:45 am]

BILLING CODE 4000–01–U