1. HOW SEA S MAY COMPLY WITH IDEA’ S MFS, MOE, AND SNS REQUIREMENTS TIFFANY R. WINTERS, ESQ. TWINTERS@BRUMAN.COM BONNIE GRAHAM, ESQ. BGRAHAM@BRUMAN.COM BRUSTEIN & MANASEVIT, PLLC FALL FORUM 2015

2. TOPICS  State MFS  The South Carolina Story  LEA MOE  New Regulations  SNS  Indirect Costs BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 2

3. STATE MAINTENANCE OF FINANCIAL SUPPORT (MFS) REQUIREMENTS BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.3

4. MAINTENANCE OF STATE FINANCIAL SUPPORT (MFS) 300.163(a)  A State must not reduce the amount of State financial support for special education and related services for children with disabilities, or otherwise made available because of the excess costs of educating those children, below the amount of that support for the preceding fiscal year.  Includes ALL State funds!! BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 4

5. FAILURE TO MEET STATE MFS 300.163(b)  Consequences for failure to maintain support:  ED reduces allocation for any FY following the FY in which the State fails to comply.  Reduction is the same amount by which the State fails to meet the requirement. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 5

6. FAILURE TO MEET STATE MFS: SUBSEQUENT YEARS 300.163(d)  Consequences for failure to maintain support (or if a waiver is received):  The following year MFS required shall be the amount that would have been required in the absence of that failure and not the reduced level of the State’s support. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 6

7. STATE MFS WAIVERS 300.163(c)  The Secretary may waive the MFS requirement for one fiscal year at a time if:  Granting a waiver would be equitable due to exceptional or uncontrollable circumstances such as natural disaster or precipitous and unforeseen decline in the financial resources of the State; or  The State meets the SNS standard under 300.164.  Must provide clear and convincing evidence that all children with disabilities have been provided a FAPE). BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 7

8. STATE MFS REDUCTION 300.230  SEAs may reduce MFS:  For any fiscal year for which the IDEA allotment received by a State exceeds the amount the State received for the previous fiscal year; and  The State pays or reimburses all LEAs within the State from State revenue 100% of the non-Federal share of the costs of special education and related services; then  The SEA may reduce the level of expenditures from State sources for education of children with disabilities by not more than 50% of the amount of such access.  Subject to certain restrictions (200.230(b)-(e)) BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 8

9. STATE MFS REDUCTION (CONT.) 300.230 This reduction, however, does not alter the MFS standard for future years.  When a State exercises flexibility to reduce its expenditures in a given year under 20 U.S.C. § 1413, this does not reduce the State's required level of financial support made available through appropriations for special education for the following fiscal year  Flexibility permits a reduction in actual expenditures, but not in budgeted amounts  Secretary Decision (Oct. 8, 2015): http://oha.ed.gov/secretarycases/2013-41-O-S.pdf http://oha.ed.gov/secretarycases/2013-41-O-S.pdf BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 9

10. IN OTHER WORDS, STATES CAN INCREASE, BUT NEVER DECREASE THEIR MFS STANDARD  May get a single-year waiver, but revert to previous MFS standard in subsequent year.  May reduce MFS under State Flexibility provision, but again, revert to previous MFS standard in subsequent year. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 10

11. THE SOUTH CAROLINA MFS STORY BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 11

12. SCDE’S MFS WAIVER REQUEST  February 26, 2010: SCDE requested a waiver of its MFS for FY 10 (2009-2010)  May 9, 2011: Final waiver requests were submitted (after working with OSEP):  FY 09 ($20,312,122)  FY 10 ($67,402,525)  FY 11 ($75,343,070)  Total request: $163,057,717 12 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

13. USDE DECISION June 17, 2011 SCDE Received OSERS’s Proposed Determination:  FY 09 ($20,312,122) - Granted  FY 10 ($67,402,525) - Granted in Part, $36,202,909 Denied  FY 11 ($75,343,070) - Denied  SCDE requested that the SC General Assembly (SCGA) allocate $75,343,070 to school districts. His request was granted, and funds were allocated to school districts on the last day of the fiscal year.  Thereafter, USDE deemed the SCDE met MSFS for the 2010 – 11 fiscal year. 13 BRUSTEIN & MANASEVIT, PLLC © 205. ALL RIGHTS RESERVED.

14. APPEAL OF PROPOSED DETERMINATION SCDE was told by USDE’s attorney that there was no right to appeal this decision under the IDEA.  August 1, 2011: SCDE filed an appeal with the Office of Hearings and Appeals  September 28, 2011: SCDE filed request for reconsideration  December 15, 2011: Deputy Secretary upheld waiver and advised no right to hearing  May 22, 2012: Secretary Duncan decided no right to appeal  Decision: http://oha.ed.gov/secretarycases/2012-South_Carolina.pdfhttp://oha.ed.gov/secretarycases/2012-South_Carolina.pdf  SCDE then filed a petition for review with the Fourth Circuit 14 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

15. 4 TH CIRCUIT RULING  “[W]e do agree that in this case, the partial denial of the maintenance-of-effort waiver not only provides us with jurisdiction under Section 1416(e)(8) but also amounts to a ‘determination that a State is not eligible’ for funding under Section 1412(d)(2), albeit only to the extent of $36.2 million.”  “Thus, under Section 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.”  South Carolina Dep’t of Education v. Duncan, 714 F.3d 249, 257 (4 th Cir. 2013) 15 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

16. IDEA MFS HEARING RIGHTS 34 CFR § 300.179 Notice and hearing before determining that a State is not eligible to receive a grant. (a) General. (1) The Secretary does not make a final determination that a State is not eligible to receive a grant under Part B of the Act until providing the State— (i) With reasonable notice; and (ii) With an opportunity for a hearing. (2) In implementing paragraph (a)(1)(i) of this section, the Secretary sends a written notice to the SEA by certified mail with return receipt requested. 16 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

17. SC’s other battle… the reduction of funds. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 17

18. IMPACT OF FUNDING REDUCTIONS 34 CFR § 300.163(b) states:  Reduction of funds for failure to maintain support. The Secretary reduces the allocation of funds under section 611 of the Act for any fiscal year following the fiscal year in which the State fails to comply with the requirement of paragraph (a) of this section by the same amount by which the State fails to meet the requirement. 18 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

19. IMPACT OF FUNDING REDUCTIONS (CONT.)  The USED interpreted this language to mean that the funding reduction would be in perpetuity.  The SCDE did not have a chance to challenge this interpretation because Congress acted to limit the reduction in funds to one year, in the Consolidated and further Continuing Appropriations Act, 2013. (H.R. 933) 19 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

20. WHERE ARE WE NOW?  June 17, 2013: pursuant to the 4th Circuit’s decision, OSERS issued a notice of proposed determination to reduce the amount of SCDE’s Section 611 allocation by $36,202,909 for FY 2010.  July 16, 2013: SCDE again requested a hearing.  Before OHA under IDEA regulations.  September 17, 2015: OSERS withdraws its proposed determination. 20 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

21. WHERE ARE WE NOW? (CONT.)  September 17, 2015: OSERS provides SC with an amended proposed determination.  Now finds SCDE failed to meet MFS by $51,336,578.  September 28, 2015: OSERS files motion to dismiss appeal of the June 17, 2013 proposed determination.  October 1, 2015: ALJ dismisses case with prejudice.  October 15, 2015: SCDE requests hearing on September 17, 205 proposed determination but states case should be moot given motion to dismiss.  Case is currently stayed pending appeal. 21BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

22. LOCAL MAINTENANCE OF EFFORT (MOE) REQUIREMENTS AND NEW REGULATIONS BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 22

23. LOCAL-LEVEL MAINTENANCE OF EFFORT (MOE) The general rule:  An LEA may not reduce the amount of local, or state and local, funds that it spend for the education of CWDs below the amount it spent for the preceding fiscal year. Two components:  Eligibility standard  Compliance standard BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 23

24. LOCAL-LEVEL MOE (CONT.) 300.203(a) Eligibility standard:  For purposes of eligibility, the SEA must determine that the LEA has budgeted for the education of CWDs at least the same total or per capita amount from either local funds only or state and local funds as the LEA spent for that purpose from the same source for the most recent prior year for which information is available BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 24

25. LOCAL-LEVEL MOE (CONT.) 300.203(b) Compliance standard:  An LEA must not reduce the level of expenditures for the education of CWDs made by the LEA below the level of those expenditures from the same source for the preceding fiscal year.  Four calculation options:  (1) Local funds only  (2) State and local funds  (3) Local funds only on per capita basis  (4) State and local funds on per capita basis BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.25

26. LOCAL-LEVEL MOE (CONT.) 300.203(c) Subsequent years rule:  If LEA fails to meet MOE requirements, 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. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 26

27. LOCAL-LEVEL MOE (CONT.) 300.203(d) Consequences of failure to maintain effort:  If an LEA fails to maintain its level of expenditures for the education of CWDs under the compliance standard, the SEA is liable in a recovery action under GEPA section 452.  Must return to ED, using nonfederal funds, amount equal to the amount by which the LEA failed to maintain its level of expenditures, or the amount of the LEA’s Part B subgrant, whichever is lower. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 27

28. OSEP FAQS  May an LEA meet the compliance and/or eligibility standards using local funds only if it spent zero local dollars in the comparison year?  Yes, but….  Very few instances where LEAs have expended $0  Don’t forget about FAPE  No accounting tricks; must account for local funds separately from State funds BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 28

29. OSEP FAQS  May LEAs use their local, or State and local, funds to meet both LEA MOE requirements and a matching or MOE requirement for a separate federal program (e.g., Medicaid or Voc Rehab)?  Yes!  In fact, LEAs must include these funds when calculating the IDEA MOE eligibility and compliance standards. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 29

30. OSEP FAQS  What is the comparison year?  It depends. Different for the eligibility standard and the compliance standard. Also, is impacted by the subsequent years rule. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 30

31. COMPARISON YEAR: ELIGIBILITY STANDARD  “The most recent fiscal year for which information is available”  Subject to the subsequent year rule  For example:  LEA met the compliance standard under all 4 methods in 2014-2015. Final info for 2015-2016 is not available at time of budgeting for 2016- 2017. Eligibility standard for 2016-2017 uses 2014-2015 as the comparison year.  Because LEA met all 4 methods in 14-15, the subsequent years rule is not applicable. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 31

32. COMPARISON YEAR: COMPLIANCE STANDARD  “The preceding fiscal year”  Due to the Subsequent Years rule, the Department effectively defines “preceding fiscal year” to mean the last fiscal year in which the LEA met MOE under each method.  For example, if the LEA last met MOE using aggregate local funds only in 12-13, and the LEA wants to use aggregate local funds only to meet the standard in 16-17, the comparison year is 12-13. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 32

33. COMPARISON YEAR: COMPLIANCE STANDARD Fiscal YearActual level of effort Required level of effort Met/Failed 12-13$100 Met 13-14$90$100Failed 14-15$90$100Failed 15-16$110$100Met 16-17$100$110Failed BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 33

34. OSEP FAQS  Must the LEA use the same method to meet the eligibility standard and compliance standard?  No, the LEA may use any of the 4 methods available to meet either standard.  Can the LEA switch methods from year to year to meet MOE standards?  Yes, as long as it uses the correct comparison year and has auditable data to document that it met the standard under the relied-on method in that year. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 34

35. CONSEQUENCE OF THE MOVING COMPARISON YEAR…  LEAs may need to keep “auditable data” on MOE indefinitely  E.g. Must use the last year in which the LEA met the standard under a particular method as the comparison year – even if that was 10 + years ago! BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 35

36. NOW ITS YOUR TURN… LEA MOE Worksheet BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 36

37. FAILING THE ELIGIBILITY STANDARD  If the SEA determines an LEA fails to meet MOE eligibility standard using any of the 4 methods, the SEA must provide notice and opportunity for a hearing.  If, after the hearing, the LEA is not eligible, the SEA retains the Part B subgrant and is required to provide SPED and related services directly to CWDs in the LEA. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 37

38. FAILING THE COMPLIANCE STANDARD  SEA payback to ED with nonfederal funds:  Lesser of the amount of the failure, or the LEA’s entire Part B subgrant for that fiscal year  Can use most favorable method  SEA can use State procedures to recover funds from LEA BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 38

39. OSEP FAQS  Have the revised LEA MOE regulations modified ED’s position on the consequences of an LEA’s failure to maintain effort?  “No.”  Added “to highlight the importance of the LEA MOE requirement and the significance of the remedies for a failure to comply.”  But…  Recently, OSEP has been aggressively pursuing State recoveries for failing MFS – will we see similar actions taken re: LEA MOE failures? BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 39

40. THE GOOD NEWS: GAO REPORT  According to State survey, nearly all LEAs are meeting MOE requirement.  Only 5 States reported less than 98% of the districts met MOE in 12-13;  The lowest percentage reported was 89.8%  However, most States reported that some or many of their districts face challenges in meeting MOE. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 40

41. ALLOWABLE EXCEPTIONS TO LEA MOE 300.204  (1) voluntary departure or departure for just cause, of special education or related services personnel  (2) decrease in the enrollment of CWDs  (3) CWD with an exceptionally costly program (as determined by SEA) left the LEA, aged out, or no longer needs the program  (4) termination of costly expenditures for long-term purchases (equipment, construction, etc.)  (5) assumption of cost by the high cost fund operated by the SEA BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.41

42. OSEP FAQS  May an LEA reduce its required level of expenditures by taking more than one exception in the same fiscal year?  Yes BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 42

43. OSEP FAQS  How does taking an exception in 300.204 affect the required amount of expenditures that an LEA must make in a subsequent year?  LEA can use the reduced level to meet MOE in subsequent years!  Assumes LEA spent the minimum required. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 43

44. LEA FLEXIBILITY ADJUSTMENT TO MOE 300.205  For any fiscal year in which the LEA’s allocation exceeds the amount the LEA received in the previous year, the LEA may reduce the level of expenditures required by MOE by not more than 50% of the amount of that excess.  LEA must use the amount of local funds equal to the reduction for allowable ESEA activities  The amount of funds spent on CEIS counts toward the maximum amount of expenditures the LEA may reduce under this flexibility BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 44

45. LEA FLEXIBILITY ADJUSTMENT TO MOE 300.205 For example:  LEA’s 2015-2016 Part B allocation is $100,000 greater than its 2014-2015 allocation. LEA spent $0 on CEIS.  LEA may reduce its required level of MOE by up to $50,000. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 45

46. LEA FLEXIBILITY ADJUSTMENT TO MOE 300.205 BUT….  If the LEA had spent $15,000 of its Part B allocation on CEIS, then the maximum the LEA could reduce its effort would be $35,000  If the LEA had spent more than $50,000 of its Part B allocation on CEIS, then it could not reduce its level of effort BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 46

47. OSEP FAQS  May an LEA use both allowable exceptions (300.204) and the local flexibility (300.205) to reduce its level of effort in the same fiscal year?  Yes. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 47

48. OSEP FAQS  May an LEA apply the exceptions and local flexibility for both the eligibility and compliance standards?  Yes  For the eligibility standard, the LEA may take into consideration the exceptions and adjustment that the LEA: (1) took in the intervening year or years between the most recent fiscal year for which info is available and the fiscal year for which the LEA is budgeting; and (2) reasonably expects to take in the fiscal year for which the LEA is budgeting BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 48

49. SUPPLEMENT NOT SUPPLANT BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 49

50. STATE LEVEL SUPPLEMENT NOT SUPPLANT 300.162(c)  Part B state-level funds must supplement federal, State and local funds expended for special education and related services to CWDs  Secretary may waive SNS requirement if all CWDs have FAPE available to them  34 CFR 300.164 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 50

51. STATE ADMIN AND STATE-LEVEL SET-ASIDES 300.704(d)  A State may use funds the State reserves under 300.704(a) (State administration) and 300.704(b) (State-level set-aside) without regard to the prohibition on supplanting other funds in 300.162 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 51

52. WHICH MEANS…  SEAs can use an “unrestricted” indirect cost rate for expenditures under IDEA State admin and State-level set- aside  Application of New York State Education Dept., Dkt. No. 91-81-R  SEA was able to use unrecovered indirect costs as an equitable offset to disallowed funds BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 52

53. LEA-LEVEL SUPPLEMENT NOT SUPPLANT 300.202  Amounts provided to LEAs under Part B must be used to supplement State, local and other federal funds, and not to supplant those funds. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 53

54. LEA-LEVEL SUPPLEMENT NOT SUPPLANT 300.202  OSEP issued guidance in 2009 stating that if LEA meets its MOE requirement, then the LEA also meets the supplement not supplant requirement; there is no specific cost test.  What happens if the LEA does not meet MOE? BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 54

55. LEA SUPPLEMENT NOT SUPPLANT (CONT.) 300.208 Notwithstanding 300.202 (SNS), 300.203 (MOE), and 300.162 (Commingling), funds provided to an LEA may be used for: Services and aids that also benefit nondisabled children Early intervening services High cost special education and related services 55 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

56. OSEP POLICY LETTER MN DOE, January 30, 2013  “The district would be required to demonstrate that the Federal IDEA, Part B funds they are requesting to be used for CEIS supplement and do not supplant existing State, local and other federal funds, including ESEA funds, the district is using for [its program].”  Citing 34 CFR 300.202. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 56

57. CEIS AND SUPPLEMENT NOT SUPPLANT 300.226  CEIS must supplement any ESEA activities or services.  Model example: 1. CEIS and local funds serve total population – CEIS for eligible CEIS students 2. Title I provides Response to Intervention to Title I students and CEIS supplements 57 BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.

58. SCHOOLWIDE PROGRAMS 300.206  Part B funds consolidated in a schoolwide program are exempt from IDEA supplement not supplant requirements (as well as excess cost and MOE). BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.58

59. Exceptions to SNS State Administrative Set-AsideIDEA Regs § 300.704(d) Other State-Level Activities Set-AsideIDEA Regs § 300.704(d) Equitable Services (reverse supplement not supplant)IDEA Regs § 300.133(d) Services and aids that also benefit nondisabled childrenIDEA Regs § 300.208(a)(1) Early Intervening ServicesIDEA Regs § 300.208(a)(2) High Cost FundIDEA Regs § 300.208(a)(3) Administrative Case ManagementIDEA Regs § 300.208(b) Schoolwide Funds (only amount consolidated)IDEA Regs § 300.206(a) BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.59

60. QUESTIONS BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED. 60

61. 61 This presentation is intended solely to provide general information and does not constitute legal advice or a legal service. This presentation does not create a lawyer-client relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct. Attendance at this presentation, a later review of any printed or electronic materials, or any follow- up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. BRUSTEIN & MANASEVIT, PLLC © 2015. ALL RIGHTS RESERVED.