Deal or No Deal: ED’s new MOE interpretation

The U.S. Dept. of Education has provided new guidance on the IDEA provision regarding “maintenance of effort” (MOE) by local school districts.

The Background: The Individuals with Disabilities Education Act (IDEA) requires a local educational agency (LEA) to expend from local and state funds at least as much in the current year as it expended in the preceding year, except as provided in a very limited number of circumstances, expressly spelled out in the law and its regulations.  This provision is known as the maintenance of effort (MOE) requirement. It’s essentially a “deal” to ensure that local districts aren’t constantly changing their spending on special education.

One example, in which the LEA may reduce its MOE is in the highly unusual circumstances when there is in increase in federal funds from one year to the next, as occurred with the IDEA Recovery Act funds.  The only other instances in which an LEA may reduce its MOE is when it falls within one of the exceptions set out in law and regulation, e.g., when a child with significant disability related needs and who has incurred very high costs for FAPE has aged out or moved from the jurisdiction.

If an LEA does not come within the very limited exceptions allowed by statute and fails to maintain its level of local expenditures for special education, the state educational agency must pay the U.S. Department of Education from state funds an amount equal to the LEA’s shortfall in local fiscal effort. The LEA, in turn, may be required to reimburse the State, using only funds for which it is not accountable to the federal government.

The Question: According to OSEP, the IDEA regulations do not expressly address an LEA that did not come within one of the authorized exceptions and failed to meet its local MOE requirement in violation of IDEA, must the following year expend at least the amount it expended in the last prior year when it met the MOE requirement or the lower amount it expended in the immediate prior fiscal year when it failed the MOE requirement and violated IDEA.

Simply put, can an LEA that has violated the MOE provision, be permitted to benefit from its aberrant behavior and be found in compliance by remaining at the lower level of local spending? In short, “no deal?”

The Answer: In a June 16, 2011, response to an inquiry from Bill East, Executive Director of the National Association of State Directors of Special Education (NASDSE), the Office of Special Education Programs, U.S. Department of Education, issued a policy interpretation addressing this issue.

The response notes the IDEA does not contain a specific provision addressing this circumstance and states “…the Department must rely on the plain language of the statute and regulation…which provide that an LEA may not reduce its level of expenditures…below the level of those expenditures for the preceding fiscal year.” The letter continues, “It [the LEA] is not obligated to expend at least the amount it expended in the last fiscal year for which it met the maintenance of effort requirement. In other words, each year’s LEA maintenance of effort obligation is based on the amount expended in the immediate prior fiscal year.”

An LEA that fails to meet the MOE requirement is only required to expend from local and state funds the amount it expended in the immediate prior fiscal year. For example, if an LEA expended $650,000 from local and state funds in FY 2009 and only $600,000 in FY 2010 (without meeting any of the provisions for an allowable reduction) it failed the MOE requirement by $50,000.

Consistent with the OSEP policy interpretation, an LEA that failed to meet its MOE and did not fall within either exception is still only required to expend at least $600,000 in FY 2011, not the $650,000 the LEA expended when it last met the MOE requirement in FY 2009.

IDEA Money Watch response:

If ED’s interpretation is correct then the law would seem to create a major loophole for LEAs that could purposefully choose not to comply with its own local MOE standard and thus reduce at will their level of effort without having to come within any of the exceptions expressly set forth in 20 USC 1413(a)(2)(B); 34 CFR 300.204 or 20 USC 1413(a)(2)((C), 34 C.F.R. 300.205.

The former sets forth very limited exceptions for when an LEA may reduce its MOE, specifically in instances when there is evidence of voluntary departure or departure for ‘just cause’ of special education or related services personnel; decrease in the enrollment of SwDs; termination of an agency obligation to provide an exceptionally costly program to a child as a condition of FAPE when the child has left the jurisdiction, reached the age for which she is no longer entitled to receive services, or no longer needs the program of special education; the termination of costly expenditures for long-term purchases; the assumption of cost by the SEA’s high cost fund.

Sec. 300.205 identifies the very limited circumstance that we just experienced with ARRA payments and IDEA payments being allocated in the same fiscal year allowing certain LEAs to reduce the level of local expenditures up to 50% of the amount of any such excess of special education funding over that the LEA received the prior fiscal year. Reduction of local MOE is especially significant because unlike the State, once the local MOE is reduced, the LEA is not required to return to its prior spending level.

ED’s interpretation would swallow the exceptions….Why have we been arguing about whether an LEA is authorized by the State to take advantage of the up to 50% rule if it “meets requirements” based on “performance indicators” (our interpretation) in addition to “compliance indicators” (ED’s interpretation)?  Why would anyone care if, in fact, the LEA can merely choose NOT to meet its local MOE and drop its level of funding for special education –without falling into either of the statutorily recognized exceptions- and pay back the SEA for its default that year only (if the SEA elects to enforce) and thereafter, be held accountable only for sustaining the reduced level of spending that it has chosen to drop to.

Sounds like it’s “no deal!”

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