34 C.F.R. Appendix C to Part 300;—Implementation of the 20 Percebt Rule Under §300.233
Title 34 - Education
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 a provision related to the permissive treatment of a portion of Part B funds by LEAs for maintenance of effort and non-supplanting 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 carry-over 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 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). [66 FR 1476, Jan. 8, 2001]
Title 34: Education
PART 300—ASSISTANCE TO STATES FOR THE EDUCATION OF CHILDREN WITH DISABILITIES
Subpart G—Allocation of Funds; Reports
Appendix C to Part 300;—Implementation of the 20 Percebt Rule Under §300.233
