Office of Elementary and Secondary Education; Impact Aid Program

SUMMARY: The Secretary proposes to issue regulations governing the

Impact Aid Program under title VIII of the Elementary and Secondary

Education Act of 1965 (ESEA), as amended by the Improving America's

Schools Act of 1994 (IASA). The program, in general, provides

assistance for maintenance and operations costs to local educational

agencies (LEAs) that are affected by Federal activities. These proposed

regulations are needed to implement a number of changes from the

previous Impact Aid laws, Public Law 81-874 and Public Law 81-815,

which were repealed when title VIII of the ESEA was enacted, and

clarify and improve the administration of the program.

DATES: Written comments must be received on or before December 6, 1996.

ADDRESSES: All comments concerning the proposed regulations should be

addressed to Catherine Schagh, U.S. Department of Education, Impact Aid

Program, 600 Independence Avenue, S.W., Room 4200, Portals Building,

Washington, DC 20202-6244. The fax number for submitting these comments

is (202) 205-0088. Comments may also be sent through the Internet to

Catherine__S[email protected].

To ensure that public comments have maximum effect in developing

the final regulations, the Department urges that each comment clearly

identify the specific section or sections of the proposed regulations

that the comment addresses and that comments be in the same order as

the proposed regulations.

A copy of any comments that concern information collection

requirements should also be sent to the Office of Management and Budget

at the address listed in the Paperwork Reduction Act section of this

preamble.

FOR FURTHER INFORMATION CONTACT: For further information on this part,

please contact Catherine Schagh. Telephone: (202) 260-3858. Individuals

who use a telecommunications device for the deaf (TDD) may call the

Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8

a.m. and 8 p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: On October 20, 1994, the President signed

into law the IASA (Pub. L. 103-382). The IASA reauthorized the Impact

Aid Program as title VIII of the ESEA, and made a number of changes to

the program. Under the Impact Aid Program, assistance is provided for

maintenance and operations costs to LEAs affected by Federal

activities, including the presence of tax-exempt Federal property and

an increased student population due to Federal property ownership or

activities.

On March 4, 1995, President Clinton issued a regulatory reinvention

initiative directing heads of departments and agencies to review all

existing regulations to eliminate those that are outdated and modify

others to increase flexibility and reduce burden. The Department has

undertaken a thorough review of the existing Impact Aid Program

regulations in light of this initiative. In addition, Department staff

have met on numerous occasions with Impact Aid applicants and other

interested parties at National Association for Federally Impacted

Schools meetings to converse and solicit views about possible changes

to the current regulations due both to statutory changes and burden

reduction.

As a part of that process, the Secretary published in the Federal

Register on September 29, 1995, a final regulation removing regulations

that were obsolete due to changes made in the statute by the IASA, or

that were unnecessary because they simply repeated statutory

provisions. In addition, in that regulation, the Secretary reorganized,

streamlined, and revised the remaining regulations so that they were

more logically organized, clearly stated, and easier to use. Except

where changes were necessary to conform the previous regulations to the

new Impact Aid law (title VIII of the ESEA), and for a few minor

procedural changes, those final regulations contained the same

substantive provisions as the previous regulations.

The Secretary indicated in those technical regulations that he

intended to publish a notice of proposed rulemaking (NRPM) in the

future to implement provisions of the new law that were not included in

those final regulations, and to make any substantive changes that were

identified as needed under the Secretary's reinvention review. The

Secretary now is publishing this NPRM to accomplish those objectives.

Summary of Provisions

General

In subpart A (general provisions), Sec. 222.4 would be revised to

be consistent with the proof of mailing requirements under the

Education Department General Administrative Regulations that apply to

other Department programs. Under this provision, private metered

postmarks or mail receipts that are not dated by the U.S. Postal

Service would not be accepted as proof of mailing.

Implementation of New Statutory Provisions

1. Overpayment forgiveness provision (section 8012 of the ESEA).

New Secs. 222.12-222.15 would be added to subpart A to implement the

Secretary's new authority in section 8012 of the ESEA to forgive Impact

Aid overpayments under certain circumstances. Proposed Sec. 222.12

would specify what overpayments the Secretary considers eligible for

forgiveness under section 8012. As described in proposed

Sec. 222.12(a)(1), the provision generally would apply to funds

received by an LEA in excess of the amount the LEA was eligible to

receive under Pub. L. 81-874, Pub. L. 81-815, or title VIII of the

ESEA, but only to the extent that a balance is owed on or after the

effective date of the final regulations. The provision would apply to a

full overpayment under those laws (including any portion of the

overpayment that has been repaid) if the overpayment is the subject of

a written request for forgiveness filed by the LEA before the effective

date of the final regulations, or of a timely written request for an

administrative hearing or reconsideration. This is because these

requests generally preserve the full overpayment debt pending

resolution of the disputed action.

The Secretary would not extend application of this forgiveness

provision to the limited portions of the program that require LEAs to

expend the Federal funds for specific purposes other than general

maintenance and operations (such as for disaster assistance under

section 7 of Public Law 81-874 or section 16 of Public Law 81-815, or

to provide a free appropriate education for federally connected

children with disabilities under section 8003(d) of the ESEA or section

3(d)(2)(C) of Pub. L. 81-874). Unlike most other ESEA programs,

Congress has not granted authority in the Impact Aid program statute to

the Secretary to grant waivers of certain programmatic requirements,

such as for the required use of funds.

[[Page 52565]]

Accordingly, proposed Sec. 222.12(a)(2) specifies that the

provision would not apply to overpayments under section 7 of Public Law

81-874 or section 16 of Public Law 81-815 (disaster assistance

program). This is because these overpayments generally are due either

to an LEA's misexpenditure of funds or to its receipt of funds in

excess of its actual eligible disaster assistance costs. Likewise, this

provision would not apply to overpayments resulting from an LEA's

failure to expend or account for funds properly under section 8003(d)

of the ESEA (subpart D of the regulations) or its predecessor

provision, section 3(d)(2)(C) of Public Law 81-874, for certain

federally connected children with disabilities, or under section

8003(g) of the ESEA for certain federally connected children with

severe disabilities (subpart F of these proposed regulations).

Proposed Sec. 222.12(a)(2) also specifies that the forgiveness

provision would not apply to amounts received by an LEA that, as

determined under section 8003(g) of the ESEA (authorizing payments to

LEAs for costs associated with certain federally connected children

with severe disabilities), were in excess of the maximum basic support

payment for which the LEA was eligible under section 8003(b) of the

ESEA. Under section 8003(g), if an LEA receives Federal funds for

Impact Aid purposes from sources other than the Impact Aid program

(e.g., the Department of Defense), and the total of the funds from

other sources and the LEA's payment under section 8003(b) exceeds the

maximum basic support payment for which the LEA was eligible, the

excess amount must be made available for redistribution to LEAs that

provide an education to certain federally connected children with

severe disabilities.

Proposed Sec. 222.13 sets forth the basic requirements that an LEA

must meet for an eligible overpayment to be forgiven in whole or part.

Section 222.13(a)(1) provides that the Secretary would forgive an

eligible overpayment in whole or part only if an LEA timely files a

request for forgiveness and certain information and documentation. In

addition, as specified in proposed Sec. 222.13(a)(2), the Secretary

must determine in accordance with proposed Sec. 222.14, in the case

either of an LEA's or the Department's error, that repayment of the

LEA's total eligible overpayments will result in an undue financial

hardship on the LEA and seriously harm the LEA's educational program.

In the case of Department error, an overpayment also would qualify if

the Secretary determined, on a case-by-case basis, that repayment would

be manifestly unjust.

Proposed Sec. 222.13(b) specifies the time limits within which an

LEA must file its forgiveness request and supporting information and

documentation. Under that proposed provision, an LEA generally must

file a forgiveness request in writing within 30 days of its initial

receipt of a notice of an overpayment. For an overpayment for which an

LEA has submitted a written forgiveness request before the effective

date of the final regulations, the LEA would be required to file the

supporting information and documentation within 30 days from the

effective date of the regulations. For all other overpayments, proposed

Sec. 222.13(b)(3) specifies that an LEA would be required to provide

the specific information and documentation concerning financial

hardship within the same time period that applies to the forgiveness

request. In either case, the Secretary may grant a written extension of

the applicable time period for the submission of the information and

documentation due to lack of availability of that data.

Proposed Sec. 222.13(c)(1) specifies the types of information and

documentation that an LEA must provide in support of its written

forgiveness request. All LEAs would be required to provide the

following (as applicable) for the LEA's fiscal year preceding the date

of the request: A copy of the LEA's annual financial report to the

State; the LEA's local real property tax rate for current expenditure

purposes; the maximum local real property tax rate for current

expenditure purposes allowed by State law, or if there is no State

maximum, the average local real property tax rate of all LEAs in the

State; and the LEA's equalized assessed valuation of real property per

pupil (EAVPP) (or other measure of fiscal capacity as defined by the

State), and the average of that measure for all LEAs in the State. The

Secretary believes this is the minimum information necessary to

determine an LEA's eligibility for overpayment forgiveness under the

standard proposed in Sec. 222.14, and the amount to be forgiven under

proposed Sec. 222.15.

For an LEA whose boundaries are the same as a Federal military

installation, the LEA also would be required to provide the average per

pupil expenditure (PPE) of the LEA, and the average PPE in all LEAs in

the State. In addition, proposed Sec. 222.13(c)(2) requires an LEA

requesting forgiveness under the manifestly unjust repayment exception

(proposed Sec. 222.13(a)(2)(ii)), or based upon no present or

prospective ability to repay the debt (proposed Sec. 222.14(a)(2)), to

submit additional information and documentation in support of its

request for forgiveness under those special provisions.

Proposed Sec. 222.13(d)(1) clarifies that, like a request for

reconsideration, a request for forgiveness of an overpayment does not

extend the time within which an applicant must file an administrative

hearing request under Sec. 222.151, unless the Secretary (or

Secretary's delegatee) extends that time limit in writing. Similarly,

proposed Sec. 222.13(d)(2) provides that a request for an

administrative hearing or for reconsideration does not extend the time

within which an applicant must file a request for forgiveness under

Secs. 222.12-222.15, unless the Secretary (or the Secretary's

delegatee) extends that time limit in writing.

Proposed Sec. 222.14 describes how the Secretary will determine

whether repayment of an eligible overpayment would result in undue

financial hardship and seriously harm the LEA's educational program. It

is the Secretary's intent in publishing these regulations to establish

a reasonable measure of undue financial hardship that may be

objectively applied, and that fairly balances the competing interests

of applicants eligible for redistribution of overpaid Impact Aid funds

with the interests of those districts applying for forgiveness.

Comments and suggestions are invited on whether these proposed

regulations achieve that balance and reasonably measure undue financial

hardship.

As described in proposed Sec. 222.14(a)(1)(i), to meet this

standard the total eligible overpayments of the LEA must be at least

$10,000. The Secretary believes that an LEA could repay a total

eligible debt of less than $10,000, in installments if necessary,

without undue financial hardship.

In addition, under proposed Sec. 222.14(a)(1)(ii), for an LEA in a

State with a maximum local real property rate (other than an LEA with

boundaries that are the same as a Federal military installation), the

LEA's local real property tax rate for current expenditure purposes for

the preceding fiscal year would be required to be at least 90 percent

of the maximum rate allowed by State law. The Secretary believes that

this is a reasonable level of effort to require an LEA to make to repay

its debts. For such an LEA in a State without a maximum local real

property tax rate, the LEA's local real property tax rate for current

expenditure purposes, for the preceding fiscal year, would be required

to be at least equal to the State average local real property tax rate.

[[Page 52566]]

Under proposed Sec. 222.14(b), the Secretary would use the same

method to determine an LEA's tax rate for current expenditure purposes

as the Secretary uses for eligibility and payments under section

8003(f) of the Act (heavily impacted LEAs).

Because an LEA's capacity to raise local revenues is determined by

the level of the assessed values of its real property, as well as by

the tax rate it levies, the Secretary also would consider the fiscal

capacity of these LEAs under proposed Sec. 222.14(a)(1)(iii). The

Secretary would define ``fiscal capacity'' for this purpose (under

proposed Sec. 222.14(c)) to mean the equalized assessed valuation of

real property per pupil (EAVPP), unless otherwise defined by State law.

Under this proposed standard, the fiscal capacity of these LEAs for the

preceding fiscal year would be required to be below the State average.

The Secretary believes that if an LEA's fiscal capacity is greater than

the State average, it would not be an undue financial burden on the LEA

to increase its local revenues to repay the Impact Aid debt. The

Secretary is interested in receiving comments on this fiscal capacity

measure and its threshold.

Under proposed Sec. 222.14(a)(1), an LEA with boundaries that are

the same as a Federal military installation (``coterminous LEA'') would

not be required to meet the local effort standards under proposed

Sec. 222.14(a)(1) (ii) and (iii). This is because most of the real

property in coterminous LEAs is not subject to local real property

taxes. Therefore, for these coterminous LEAs, the Secretary would

consider instead their average per pupil expenditure. Under proposed

Sec. 222.14(a)(1)(iv), a coterminous LEA would qualify only if its

average per pupil expenditure (PPE) for the preceding fiscal year did

not exceed 125 percent of the average PPE in all LEAs in the State for

that preceding fiscal year.

Finally, under proposed Sec. 222.14(a)(2), any LEA would meet the

undue financial hardship standard if the Secretary determined that

neither the successor nor the predecessor LEA has the present or

prospective ability to repay the eligible overpayment. The Secretary

anticipates that this provision will be applicable only in extremely

limited situations, such as when a debtor LEA has no present revenue

and is not expected to have any future revenue.

Proposed Sec. 222.15 describes the amount of an eligible

overpayment that the Secretary forgives once an LEA has timely filed a

forgiveness request and the required information and documentation.

Under Sec. 222.15(a), the Secretary would forgive an eligible

overpayment in whole if the Secretary has determined that the LEA meets

the undue financial hardship test under Sec. 222.14 and the LEA's

preceding year's current expenditure closing balance was five percent

or less of its preceding fiscal year's total current expenditures.

The Secretary considers five percent of an LEA's total current

expenditures to be a reasonable minimal amount for an LEA to carry over

for a smooth transition from the end of one year to the beginning of

the next. Unless an LEA has more than that amount of funds at the end

of the year, the Secretary believes that it would impose an undue

financial burden on the LEA to be required to repay the eligible

overpayment. Therefore, for an eligible LEA with five percent or less

in carryover funds at the end of the LEA's fiscal year preceding the

date of the forgiveness request, the Secretary would forgive an

eligible overpayment in whole.

In addition, under proposed Sec. 222.15(a) the Secretary would

forgive an eligible overpayment in whole if, in the case of an error by

the Secretary, the Secretary determines that repayment by the LEA would

be manifestly unjust. The Secretary anticipates that an LEA would

qualify for forgiveness in whole under this special provision only on

the rare occasion in which an LEA received an overpayment due to an

error on the part of the Secretary that an LEA could not reasonably be

expected to identify and report. For example, if the Secretary

calculated a payment for an LEA using an incorrect local contribution

rate, and the LEA did not know nor could it reasonably have known that

the local contribution rate was too high, the resulting overpayment

would be forgiven in whole by the Secretary under this standard.

Proposed Sec. 222.15(b)(1) specifies that the Secretary will

forgive an eligible overpayment in part if an LEA otherwise meets the

requirements for forgiveness and the undue financial hardship test, but

the LEA's preceding fiscal year's current expenditure closing balance

was more than five percent of its preceding fiscal year's total current

expenditures. In cases where an LEA has more than five percent

carryover at the end of its preceding fiscal year, the Secretary

believes that it would not be an undue financial burden for an LEA to

repay all or a portion of the excess Federal funds it received. Under

Sec. 222.15(b)(2), if an LEA qualifies for forgiveness of a debt in

part, the LEA would be expected to repay the amount by which its

preceding fiscal year's closing balance exceeded five percent of its

preceding fiscal year's total current expenditures. The Secretary would

forgive the remaining amount of the LEA's eligible overpayment balance.

2. Payments for Federal property (section 8002 of the ESEA). In

subpart B, the Secretary proposes two revisions to Sec. 222.22, a

portion of which implements the new statutory requirement that the

Secretary must deduct from an LEA's section 8002 payment the amount of

revenue that an LEA received during the previous fiscal year from

activities conducted on eligible Federal property. The Secretary is

proposing these revisions in response to public request for

clarification. Paragraph (c) would be revised to clarify that the

Secretary deducts these revenues from the LEA's section 8002 maximum

payment amount, rather than from an LEA's section 8002 payment after

any proration due to insufficient appropriations. Paragraph (d) would

be revised to clarify that the Secretary does not consider Federal

payments-in-lieu-of-taxes (PILOT or PILT), such as PILTs for Federal

entitlement lands under Public Law 97-258 (31 U.S.C. 6901-6906), to be

revenues from activities on Federal property for the purpose of this

section. This is because, historically in the Impact Aid Program,

Congress has not considered these types of payments as revenue

resulting from activities conducted on Federal property.

In addition, a new Sec. 222.23 would be added to subpart B to

implement the new statutory method in section 8002(b)(3) of the ESEA

for valuing the Federal property that is the basis for payments under

section 8002 (previously section 2 of Public Law 81-874). Under section

8002(b)(3), the aggregate assessed value of eligible Federal property

must be determined, by the local official responsible for assessing the

value of real property in the LEA, on the basis of the current

``highest and best use'' of taxable properties ``adjacent'' to the

parcel of eligible Federal property.

Proposed Sec. 222.23(a) would require a local official first to

determine a fair market value for the eligible Federal property based

upon the highest and best use of the adjacent taxable parcels. The

official then would be required to adjust that fair market value by any

percentage, ratio, index, or other factor that the official would use,

if the eligible Federal property were taxable, to determine its

assessed value for the purpose of generating local real property tax

revenues for current expenditures. The proposed regulation also

clarifies that the official may assume that there was a transfer of

ownership of the

[[Page 52567]]

eligible Federal property for the year for which the section 8002

assessed value is being determined.

Numerous section 8002 applicants have requested the Department to

establish regulatory parameters for the ``highest and best use''

standard. In response to that request, proposed Sec. 222.23(b) would

define the terms ``adjacent'' and ``highest and best use.''

In doing so, the proposed regulation provides maximum flexibility

to States and localities by basing the local official's determination

of fair market value upon State or local law or guidelines if

available, and by allowing consideration of the most developed and

profitable use for which adjacent taxable property is physically

adaptable and for which there is a need or demand for such use in the

near future. The standards for ``highest and best use'' in these

proposed regulations are based upon the Uniform Appraisal Standards for

Federal Land Acquisitions (Washington, D.C.: U.S. Printing Office,

1992), which are developed by the Interagency Land Acquisition

Conference and establish guidelines for Federal land acquisitions

appraisals.

To address concerns articulated by applicants that this degree of

flexibility could be subject to abuse by applicants, in accordance with

the Uniform Appraisal Standards the proposed regulation also provides

that a local official may not consider speculative or remote potential

uses of adjacent property. In addition, if the highest and best uses of

all adjacent properties are not the same, Sec. 222.23(b) would require

the local official to take into consideration the different potential

uses of adjacent properties. For example, an official could not base

the valuation of the entire Federal property only on the highest valued

adjacent property (such as commercial property) if other adjacent

properties had different potential uses (such as residential or

agricultural property).

3. Payments for children with severe disabilities (section 8003(g)

of the ESEA). A new subpart F would be added to implement the new

authority in section 8003(g) of the ESEA for payments to certain LEAs

for children with severe disabilities. In that subpart, proposed

Sec. 222.80 defines ``children with severe disabilities'' in a manner

consistent with the definition of the term in 34 CFR Sec. 315.4(d) of

the regulations implementing the Individuals with Disabilities

Education Act. Proposed Sec. 222.81 describes the requirements that an

LEA must meet to be eligible for and receive a payment under section

8003(g), including that the LEA must be eligible for a payment under

section 8003(d) of the ESEA (payments for federally connected children

with disabilities) for those children to be claimed as the basis for a

payment under section 8003(g). Section 8003(g) specifies that eligible

children must have a parent on active duty in the uniformed services

with a compassionate post assignment. However, proposed Sec. 222.81

does not include the term ``compassionate post assignment'' because no

standard policy or definition regarding that term could be ascertained.

Comments are invited on any measurable standard that could be used for

the term.

Proposed Sec. 222.82 explains how the Secretary would calculate the

total amount of funds available for payments under section 8003(g)

under the limited circumstances in which those funds are available.

Proposed Sec. 222.83 provides that the Secretary will give written

notice to all potentially eligible LEAs if funds are available for

payments under section 8003(g), and explains how an LEA would apply to

the Secretary for those funds. Under this proposed regulation, to apply

for section 8003(g) funds, an LEA would be required to submit

documentation to the Secretary, within 60 days of the date of the

Secretary's notice to the LEA that funds are available, detailing the

total costs to the LEA of providing a free appropriate public education

for the eligible children with severe disabilities.

Proposed Sec. 222.84 establishes how the Secretary would calculate

an LEA's payment under section 8003(g). Under that method, to avoid

double payment for the same child, the Secretary would subtract the

amount that the LEA received under section 8003(d) of the ESEA for that

child. Finally, proposed Sec. 222.85 clarifies that an LEA must use the

funds it receives under section 8003(g) for the reimbursement of total

costs, reported in its section 8003(g) application, of providing an

educational program outside the schools of the LEA for the federally

connected children with severe disabilities claimed under section

8003(g).

4. Withholding and related procedures for Indian policies and

procedures (sections 8004(d)(2) and 8004(e) (8)-(9) of the ESEA).

Proposed Secs. 222.114-222.122 would be added to subpart G to implement

the Secretary's expanded enforcement authority for Indian policies and

procedures in sections 8004(d)(2) and 8004(e) (8)-(9) of the ESEA.

Section 8004(a) of the ESEA, like the previous Impact Aid law, requires

LEAs to establish certain Indian policies and procedures (IPPs),

including policies and procedures to ensure that children residing on

Indian lands participate in programs and activities on an equal basis

with all other children, and that parents of the children residing on

Indian lands and Indian tribes have an opportunity to present their

views on those programs and activities.

Section 8004(d)(2) has expanded the Secretary's previous authority

to enforce the implementation of IPPs. Under section 8004(d)(2), the

Secretary may now take any appropriate action to enforce the IPP

requirements, including withholding section 8003 funds from the LEA,

after affording an opportunity for interested parties to present their

views. In addition, section 8004(e)(8) has expanded the Secretary's

previous withholding authority by requiring the Secretary to withhold

an LEA's entire section 8003 payment, rather than only the portion of

that payment that represents an increase due to a federally connected

child's residence on Indian lands.

Because most IPP issues are resolved through technical assistance

provided by the Impact Aid Program, the Secretary does not believe that

it will be necessary to exercise this withholding authority in most

cases. However, the Secretary's intent in publishing these regulations

is to adopt clear and fair withholding procedures for LEAs and Indian

tribes in the event of a withholding action. Comments and suggestions

are invited on whether these proposed regulations are clear and whether

they could be simplified.

To implement these expanded enforcement provisions, the Secretary

proposes to revise Sec. 222.95(g) of the current regulations, and to

add new Secs. 222.114-222.122. Section 222.95(g) currently requires an

LEA that amends its IPPs following its annual review of those policies

and procedures to send a copy of the amended IPPs to the Impact Aid

Program Director for approval and to the affected tribe or tribes. That

section would be revised to establish a definite time limit within

which the LEA must send a copy of the amended IPPs to the Director and

affected tribe or tribes, which would be within 30 days of the LEA's

amendment.

New Secs. 222.114-222.122 would describe withholding procedures

implementing sections 8004(d)(2) and 8004(e)(8) of the ESEA. Proposed

Sec. 222.114 provides that the Assistant Secretary uses any appropriate

actions to enforce IPP statutory and regulatory requirements, including

the withholding of funds in accordance with Secs. 222.115-222.122,

after affording an opportunity to the affected LEA, parents, and Indian

tribe or tribes to present their views.

[[Page 52568]]

Proposed Sec. 222.115 describes the circumstances under which the

Assistant Secretary will withhold payments that an LEA otherwise is

eligible to receive under section 8003 of the Act. As described in

proposed Sec. 222.115(a), payments are withheld if the Assistant

Secretary determines it is necessary to enforce IPP statutory or

regulatory requirements. In addition, where a tribal complaint has

resulted in an IPP hearing, proposed Sec. 222.115(b) explains that the

Assistant Secretary withholds payments if an LEA rejects the final

determination of the Assistant Secretary, or refuses to implement the

required remedy within the time established and the Assistant Secretary

determines that the LEA would not otherwise undertake the required

remedy within a reasonable time.

Proposed Sec. 222.115 also clarifies that, with either type of a

withholding action (that is, with or without a previous IPP hearing),

the Assistant Secretary would not withhold payments under the specific

circumstances described in proposed Sec. 222.120. Those circumstances

would include: (1) where the LEA has received a waiver from compliance

with the IPP requirements from the affected tribe or tribes because of

satisfaction with the LEA's provision of educational services to its

federally connected children (Sec. 222.120(a)); where the tribe submits

to the Assistant Secretary a written request not to withhold the LEA's

section 8003 payments (Sec. 222.120(b)); where the Assistant Secretary

determines that withholding section 8003 payments during the course of

the school year would substantially disrupt the educational programs of

the LEA (Sec. 222.120(c)); or where the LEA rejects the final

determination of the Assistant Secretary and the tribe elects to have

educational services provided by a Bureau of Indian Affairs School but

some Indian students remain at the LEA (Sec. 222.120(d)).

Proposed Sec. 222.116 describes how the Assistant Secretary

initiates an IPP withholding proceeding. Under the proposed process,

the Assistant Secretary would send a written notice of intent to

withhold payments to the LEA and the affected Indian tribe or tribes,

describing how the LEA has failed to comply with the applicable IPP

requirements and advising the LEA of its rights under the withholding

procedures.

Proposed Sec. 222.117 describes the procedures the Assistant

Secretary follows after issuing a notice of intent to withhold payments

to an LEA. Proposed Sec. 222.117(b) clarifies that an LEA that receives

a notice of intent to withhold payments from the Assistant Secretary is

not entitled to an administrative hearing under section 8011 of the

ESEA and subpart J of the regulations.

Proposed Sec. 222.117(c) provides that an LEA that already has

participated in an IPP hearing, but rejects or refuses to implement the

Assistant Secretary's final determination, would have the opportunity

to justify by a timely filed written explanation with the Assistant

Secretary why that withholding should not occur. The written

explanation and any supporting documentation would be required to be

filed within 10 days from the date of the LEA's receipt of the

Assistant Secretary's written notice of intent to withhold funds.

On the other hand, if an LEA has not yet participated in a hearing

concerning its compliance with IPP requirements, Sec. 222.117(d) would

permit the LEA an opportunity for a withholding hearing. An LEA would

be required to file a written hearing request within 30 days from the

date of its receipt of the Assistant Secretary's notice of intent to

withhold funds.

Proposed Sec. 222.118 describes how IPP withholding hearings will

be conducted, which will be by a hearing examiner, with the opportunity

for the parties to present their views in writing or orally. Under

these procedures, the hearing examiner would make an initial

withholding decision based upon written findings, which would be sent

to both parties and to the affected tribe or tribes (Sec. 222.118(f)).

That initial withholding determination would constitute the Secretary's

final withholding decision without any further proceedings, unless one

of the parties to the withholding hearing requests the Secretary's

review of the hearing examiner's initial decision or the Secretary

otherwise determines to review the decision.

Proposed Sec. 222.119 describes which payments are subject to being

withheld due to noncompliance with IPP requirements. Once a final

withholding decision has been issued, all of an LEAs section 8003

payments would be withheld under this provision, regardless of fiscal

year, until the LEA either documents compliance, or exemption from

compliance under proposed Sec. 222.120.

As discussed previously, proposed Sec. 222.120 clarifies the

circumstances that exempt an LEA from a withholding action. One of

those circumstances arises if the affected tribe or tribes files a

written request that an LEA's section 8003 payments not be withheld.

The Secretary encourages Indian tribes to make any such request as

promptly as possible after receiving a notice of intent of withholding,

to avoid any unnecessary administrative withholding proceedings and

possible disruption to the LEAs payments. If an Indian tribe wishes to

make such a request, proposed Sec. 222.121 explains the requirements

that apply.

Finally, proposed Sec. 222.122 clarifies the procedures that are

followed if the Assistant Secretary determines not to withhold an LEAs

funds. The Assistant Secretary would notify the LEA and the affected

Indian tribe or tribes in writing that the payments will be not be

withheld, with an explanation of the reasons for that decision.

5. Determinations under section 8009 of the ESEA. Section 222.161

of subpart K would be revised to implement new terms used in section

8009 of the ESEA by adding definitions of the following three terms:

local tax revenues, local tax revenues covered under a State

equalization program, and total local tax revenues. Under section 8009,

a State may take into consideration certain Impact Aid payments in

allocating State aid if the Secretary determines that the State has a

State aid program that is designed to equalize expenditures among the

LEAs in the State.

The term ``local tax revenues'' would be defined to mean compulsory

charges levied by an LEA, intermediate school district or other local

governmental entity on behalf of an LEA for current expenditures for

educational services. The term would be defined to include the proceeds

of ad valorem taxes, sales and use taxes, income taxes and other taxes

and, where a State funding formula requires a local contribution

equivalent to a specified mill tax levy on taxable real or personal

property, any revenues recognized by the State as satisfying that local

contribution requirement.

In addition, the term ``local tax revenues covered under a State

equalization program'' would be defined as local tax revenues

contributed to or taken into consideration in a State aid program, but

excluding all revenues from State and Federal sources. Finally, a

definition would be added of the term ``total local tax revenues'' to

mean all local tax revenues including revenues for education programs

for children needing special services, vocational education,

transportation, and the like but excluding all revenues from State and

Federal sources.

Administrative Procedures

1. Administrative hearings and judicial review (section 8011 of the

ESEA). Several changes would be made in subpart J to improve or clarify

the administration of Impact Aid

[[Page 52569]]

administrative hearings. Section 222.151 would be revised to require an

applicant's written request for an administrative hearing following an

adverse action to be filed within 30 days of notice of that action,

rather than within 60 days as is currently allowed. This change is

proposed to expedite the Department's debt collection process so that

the recovered funds can be redistributed more quickly to all eligible

Impact Aid applicants. Because this provision would limit the current

time period in which applicants adversely affected by Departmental

action must file a hearing request, but could provide an overall

benefit to all eligible Impact Aid applicants, the Secretary is

particularly interested in receiving comments on this proposed

provision.

Section 222.152, concerning requested reconsiderations, would be

revised to clarify that either the Secretary, or the Secretary's

delegate (such as the Assistant Secretary for Elementary and Secondary

Education or the Director of the Impact Aid Program), could make

reconsideration determinations. In addition, Sec. 222.154 would be

revised to require any party filing a written submission by facsimile

transmission (FAX) in the course of an Impact Aid administrative

hearing proceeding to file a follow-up hard copy within a reasonable

period of time. This is a change from the current regulations, which

permit the Secretary or an administrative law judge (ALJ) to request

such a copy, but do not require a hard copy in all instances. The

change is proposed to facilitate the operation of Impact Aid

administrative hearing procedures and ensure that original signed

documents are consistently in the hearing record.

Section 222.157 would be revised in paragraph (a) to require an ALJ

to issue an initial, rather than a recommended, decision. This is a

change from the current regulations, which allow an ALJ to issue either

an initial decision that becomes final without further Secretarial

review (in the absence of an appeal or independent Secretarial review),

or a recommended decision requiring Secretarial review. This change

would expedite the administrative hearing process for applicants and

provide more consistency to the administrative hearing procedures,

while still preserving the parties' appeal rights. Section 222.157(a)

also would clarify that when an initial decision becomes final without

Secretarial review, the Department's Office of Hearings and Appeals

will notify the parties of the finality of that decision. In addition,

in accordance with the Department's longstanding policy,

Sec. 222.157(b) would be revised to clarify that any party (not just

the applicant) may request Secretarial review of an initial decision.

Finally, Sec. 222.158 would be revised correspondingly to reflect

that the Secretary's review would be of an ALJ's initial decision, and

to clarify that the Secretary mails to each party written notice of the

final decision.

2. Determinations under section 8009 of the ESEA. Subpart K of the

regulations (Determinations under Section 8009 of the Act) would be

revised to clarify the specific procedures to be followed when a

proceeding is initiated under section 8009 of the ESEA. Section 222.164

would be amended in paragraph (a)(2) to provide that whenever a

proceeding is initiated under section 8009 of the ESEA, the initiating

party would be required to give adequate notice to the State and all

LEAs in the State and provide them with a complete copy of the

submission initiating the proceeding. In addition, the party initiating

the proceeding would be required to notify the State and all LEAs in

the State of their right to request from the Secretary, within 30 days

of the initiation of a proceeding, the opportunity to present their

views before the Secretary makes a determination.

These steps would enable the Department to make more timely

certification determinations. Section 8009(b)(1) of the ESEA is changed

from the previous Impact Aid law (section 5(d)(2) of Pub. L. 81-874),

in that section 8009(b)(1) prohibits a State from reducing its State

aid payments due to Impact Aid before certification by the Secretary.

Therefore, to enable States to make timely State aid payments to LEAs

without unnecessary adjustments, it is essential that the Department

make certification determinations as rapidly as possible once a

proceeding is initiated.

Section 222.164(b)(5) would be revised to clarify the

predetermination procedures that the Secretary follows when a party

requests the opportunity to present views before the Secretary makes a

determination. Specifically, upon receipt of a timely request for a

predetermination hearing, the Secretary would notify all LEAs and the

State of the time and place of the predetermination hearing. The

proposed regulation clarifies that predetermination hearings are

informal and any LEA and the State are free to participate whether or

not they requested the predetermination hearing. Under this proposed

regulation, at the conclusion of the predetermination hearing, the

Secretary would hold the record open for 15 days for the submission of

post-hearing comments. The Secretary could extend the period for post-

hearing comments for good cause for up to an additional 15 days.

In addition, the proposed revisions to Sec. 222.164(b)(5) would

clarify the Secretary's flexible approach to predetermination hearings

for States and local school districts, under which an alternative to a

predetermination hearing is allowed for the presentation of views,

under certain circumstances, before the Secretary makes a

determination. Under this alternative procedure, if the party or

parties requesting the predetermination hearing agree, they may present

their views to the Secretary exclusively in writing. This procedure

saves the State and LEAs both time and cost, and reflects the current

practice of the Secretary. Under this proposed regulation, the

Secretary would notify all LEAs and the State that this alternative

procedure is being followed. The proposed regulation would give those

LEAs and the State up to 30 days from the date of the notice in which

to submit their views in writing. Any LEA or the State would be

permitted to submit its views in writing within the specified time,

regardless of whether it requested the opportunity to present its

views.

Finally, proposed Sec. 222.165, concerning administrative appeals

of section 8009 determinations, would be revised. Section 222.165(e)

would be revised in accordance with applicable legal principles to

specify that the ALJ conducting the appeal is bound by all applicable

statutes and regulations and may neither waive them nor rule them

invalid.

Section 222.165(f) would be revised to clarify that a follow-up

hard copy of a facsimile transmission must be filed within a reasonable

period of time following that transmission. Currently there is no time

requirement for the filing of a follow-up hard copy. This change is

proposed to be consistent with other Impact Aid facsimile transmission

filing requirements.

In addition, Sec. 222.165(h) would be revised generally to provide

a more expedited hearing process for States and LEAs, and at the same

time preserve their appeal rights. That provision would specify that

appeals to the Secretary of initial decisions and the finality of

initial decisions under section 8009 of the ESEA would be governed by

Secs. 222.157(b), 222.158 and 222.159 of the general Impact Aid

administrative hearing procedures in subpart J. Under those procedures,

an ALJ's initial decision automatically constitutes the Secretary's

final decision

[[Page 52570]]

without any further proceedings unless the decision is appealed by a

party or the Secretary decides to review the initial decision. This

would be a change from current hearing practice under section 5(d)(2)

of Pub. L. 81-874 and section 8009 of the ESEA, under which an ALJ's

decision must be certified to the Secretary before it becomes final.

Executive Order 12866

1. Assessment of Costs and Benefits

These proposed regulations have been reviewed in accordance with

Executive Order 12866. Under the terms of the order, the Secretary has

assessed the potential costs and benefits of this regulatory action.

The potential costs and benefits associated with the proposed

regulations are minimal and to the extent there are costs, the costs

result from the statutory requirements and regulations determined by

the Secretary to be necessary for administering these programs

effectively and efficiently.

In assessing the potential costs and benefits--both quantitative

and qualitative--of these proposed regulations, the Secretary has

determined that the benefits of the proposed regulations justify the

costs. A further discussion of the potential costs and benefits of

these proposed regulations is contained in the summary below.

The Secretary also has determined that this regulatory action does

not unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

To assist the Department in complying with the specific

requirements of Executive Order 12866, the Secretary invites comments

on whether there may be further opportunities to reduce any potential

costs or increase potential benefits resulting from these proposed

regulations without impeding the effective and efficient administration

of the program.

Summary of Potential Costs and Benefits of Regulatory Provisions

Discussed Above

The following is a summary of the potential costs and benefits of

these proposed regulations:

Overpayment Forgiveness Requests (Sec. 222.13(c))

This proposed provision would require an LEA seeking forgiveness of

an overpayment to provide certain financial and real property taxation

information in support of its request. The statutory authority to

forgive Impact Aid overpayments applies only in exceptional

circumstances--error of the Secretary, or error of an LEA where

repayment would result in undue financial hardship and seriously harm

the LEA's educational program. In exercising this permissive authority,

it is important for all applicants that the Secretary establish a

reasonable test to measure undue hardship and financial harm that may

be objectively and uniformly applied.

Many alternative and complex standards could be proposed. However,

because most LEAs derive revenue from real property taxes, the proposed

test (where possible) focuses simply on an LEA's ability to raise to

revenues from real property taxation to repay the debt, and requests

the minimum data necessary for the Secretary to make a decision on that

basis. The potential benefit to an LEA of this provision, which is the

partial or total forgiveness of a debt owed to the Department, far

outweighs the minimal burden of providing this information.

Valuation of Federal Property for Section 8002 Purposes (Sec. 222.23)

This proposed regulation standardizes the method local officials to

use in valuing Federal property for the purposes of an LEA's section

8002 application. The statute requires that the aggregate assessed

value of the Federal property be determined by a local official on the

basis of the current highest and best of the adjacent property and

provided to the Secretary.

Section 8002 applicants have expressed significant concern to the

Department that there is no consistent method for local officials to

follow in valuing the Federal property in their various jurisdictions,

and that the limited section 8002 funds therefore will be inequitably

distributed. This regulation addresses the concerns of those LEAs by

providing a standard method for local officials to follow in

determining the aggregate assessed value of the Federal property, and

standard definitions for two critical terms, ``adjacent'' and ``highest

and best use.'' In defining the latter term, the proposed regulation

provides maximum flexibility to States and localities by basing the

local official's determination of fair market value upon State or local

guidelines if available.

Although there may some increased burden on local officials if they

are not currently using any particular method to arrive at a valuation

of the Federal property, the benefit to all section 8002 applicants in

having a minimally uniform standard that allows for local differences

and will result in a fair distribution of funds far outweighs any

potential burden on those local officials.

Withholding and Related Procedures for Indian Policies and Procedures

(Secs. 222.114-222.122)

These proposed regulations implement the Secretary's expanded

enforcement authority for Indian policies and procedures in sections

8004(a)(2) and 8004(e)(8)-(9) of the ESEA, which includes the authority

to withhold section 8003 payments from LEAs under certain

circumstances. On September 29, 1995, the Secretary published final

technical rules in the Federal Register (60 FR 50774-50800), which

contained detailed rules governing IPPs. Those rules included complaint

and hearing procedures (Secs. 222.102-222.113) that are available to

Indian tribes if an LEA has not complied with IPP requirements. They

did not provide specific procedures for the Secretary to follow,

however, if it became necessary to withhold section 8003 payments from

an LEA to obtain that compliance.

Because the Impact Aid Program provides technical assistance to

LEAs, parents, and Indian tribes to assure compliance with IPP

requirements, the Secretary does not anticipate that it will be

necessary to use these proposed withholding procedures in most cases.

In the past, few complaints have been filed and all have been resolved

without the necessity for reaching a withholding determination.

In the unlikely event that it becomes necessary for the Secretary

to issue a withholding determination, however, these procedures would

be necessary so that the affected LEA and Indian tribe or tribes

clearly know what procedures to follow. Any burden caused by these

procedures is outweighed by the benefit to both LEAs and Indian tribes

of having these procedures in place.

Requests for an Administrative Hearing Following an Adverse Action

(Sec. 222.151)

This provision would change the time within which an LEA may file a

request for an administrative hearing following an adverse action from

60 days to 30 days. This change is being proposed to expedite the

Department's debt collection process so that funds recovered from

Impact Aid overpayments may be redistributed more rapidly to all

eligible Impact Aid applicants. Thirty days is a reasonable time period

for LEAs to preserve their appeal rights, and any burden caused by this

shorter period is outweighed by the benefit to all applicants of

receiving a more rapid redistribution of funds.

[[Page 52571]]

Notification of Initiation of Section 8009 Proceeding

(Sec. 222.164(a)(2))

This proposed regulation would require any party initiating a

certification determination under section 8009 of the ESEA to give

notice of the initiation of that proceeding to the State and LEAs in

the State, and to provide those entities with a complete copy of the

submission initiating the proceeding. Currently, when a proceeding is

initiated, the Impact Aid Program provides notice of the initiation,

and any interested LEA (or State) must contact the initiating party

independently to obtain a copy of the initiating submission (including

the equalization data). This process can be cumbersome and time-

consuming.

The statute now has been amended to prohibit a State from reducing

its State aid payments due to Impact Aid before certification by the

Secretary. Therefore, to enable States to make timely State aid

payments to LEAs without unnecessary adjustments, it is essential that

the Department make certification determinations as rapidly as possible

once a proceeding is initiated. Although requiring the initiating party

to provide notice of that initiation and a copy of its submission to

the State and all LEAs will cause some burden, that burden is

outweighed by more rapid certification determinations and the

consequent ability of the State to make State aid payments on a more

timely basis.

2. Clarity of the Regulations

Executive Order 12866 requires each Federal agency to write

regulations that are easy to understand.

The Secretary invites comment on how to make these regulations

easier to understand, including answers to questions such as the

following: (1) Are the requirements in the regulations clearly stated?

(2) Do the regulations contain technical terms or other wording that

interferes with the clarity? (3) Does the format of the regulations

(grouping and order of sections, use of headings, paragraphing, etc.)

aid or reduce their clarity? Would the regulations be easier to

understand if they were divided into more (but shorter) sections? (A

``section'' is preceded by the symbol ``Sec. '' and a numbered heading;

for example ``Sec. 222.1 What is the scope of this part?'') (4) Is the

description of the proposed regulations in the ``Supplementary

Information'' section of this preamble helpful in understanding the

proposed regulations? How could this description be more helpful in

making the proposed regulations easier to understand? (5) What else

could the Department do to make the regulations easier to understand?

A copy of any comments that concern whether these proposed

regulations are easy to understand should also be sent to Stanley M.

Cohen, Regulations Quality Officer, U.S. Department of Education, 600

Independence Avenue, S.W. (Room 5121, FOB-10), Washington, DC, 20202-

2241.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not

have a significant economic impact on a substantial number of small

entities.

The small entities that would be affected by these proposed

regulations are small LEAs receiving Federal funds under this program.

The proposed regulations would not have a significant economic impact

on the small entities affected because the proposed regulations would

not impose excessive regulatory burdens or require unnecessary Federal

supervision. The proposed regulations would impose minimal requirements

to ensure the proper expenditure of program funds.

Paperwork Reduction Act of 1995

As described below, proposed Secs. 222.83(b) and (c), 222.95(g),

and 222.164(a)(2) and (b), contain information collection requirements.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),

the Department of Education has submitted a copy of these sections to

the Office of Management and Budget (OMB) for its review under that

Act.

Collection of Information: Impact Aid: Payments to Local

Educational Agencies for Children with Severe Disabilities under

Section 8003(g) of the Act (Part 222, Subpart F): Under proposed

Sec. 222.83(b) and (c) (How does an eligible LEA apply for a payment

under section 8003(g)?), an LEA that wishes to apply under section

8003(g) of the ESEA for special funds that may be available for certain

federally connected children with severe disabilities is required to

submit to the Secretary information detailing the total costs to the

LEA of providing a free appropriate public education for those

children. That information may include: (1) for the costs of the

outside entity providing the educational program for those children,

copies of invoices, vouchers, tuition contracts, and other similar

documents showing the signature of an official or authorized employee

of the outside entity; and (2) for the additional costs, if any, of the

LEA related to that educational program, copies of invoices, check

receipts, contracts, and other similar documents showing the signature

of an official or authorized employee of the LEA.

The likely respondents to this collection of information are LEAs

that have federally connected children with severe disabilities whose

parents are on active duty in the uniformed services and the outside

entity or institution providing the educational program for those

children. The information submitted is used to calculate the amount of

the LEA's payment under section 8003(g) of the Act.

We estimate that approximately 24 LEAs may apply for funds under

section 8003(g), and each application will take an average of 2 hours

to prepare. Therefore, the total annual reporting and recordkeeping

burden that will result from the collection of this information is 48

burden hours (24 LEAs, multiplied by 1 application, multiplied by 2

burden hours for preparing each application).

Collection of Information: Impact Aid: Special Provisions for Local

Educational Agencies that Claim Children Residing on Indian Lands (Part

222, Subpart G): An LEA is required, as a part of its application for

funds under section 8003 of the ESEA, to submit certain policies and

procedures in accordance with section 8004 of the ESEA to ensure equal

participation of Indian children and consultation with and involvement

of their parents and Indian tribes (IPPs). Under proposed

Sec. 222.95(g) (How are Indian policies and procedures reviewed to

ensure compliance with the requirements in section 8004(a) of the

Act?), an LEA would have 30 days to send a copy of any amendment to its

IPPs to the Director of the Impact Aid Program and the affected Indian

tribe or tribes. This provision would not change the paperwork burden

for IPPs, which was approved previously as a part of the section 8003

application under OMB #1810-0036 (942,915 total annual hours for all

applicants, as revised downward due to changes in the Impact Aid law

(based upon an average of .109 annual hours per parent response per

child, and an average of 303 annual hours per LEA annual response per

application)).

Collection of Information: Impact Aid: Determinations under Section

8009 of the Act (Part 222, Subpart K): Under proposed

Sec. 222.164(a)(2) (What procedures does the Secretary follow in making

a determination under section 8009?), the party initiating an

equalization proceeding under section 8009 of the ESEA must provide the

State and all LEAs in the State with a complete copy of the submission

initiating the proceeding. In addition, the party initiating the

proceeding must notify the State and all LEAs in the State

[[Page 52572]]

of their right to request from the Secretary the opportunity to present

their views to the Secretary before the Secretary makes a

determination.

The likely respondents to these third-party disclosure requirements

are States and LEAs that may initiate equalization proceedings. The

information that they are required to disclose is used by interested

parties to determine whether to request the opportunity to present

their views as to whether the State meets the statutory equalization

criteria. If a State meets that criteria, it may reduce State aid

payments to LEAs that receive Impact Aid funds.

We estimate that equalization proceedings will be initiated in an

average of four States per year, which have an average of 125 LEAs to

which the required information must be disclosed, and that the

disclosure will require an average of .02 hour per disclosure to

prepare and mail. Therefore, the total annual reporting and

recordkeeping burden that will result from this disclosure requirement

is 10.0 burden hours (4 States, multiplied by 125 LEAs, multiplied by

.02 hour for preparing and mailing each notice).

In addition, when an equalization proceeding is initiated, certain

information must be submitted to the Secretary under proposed

Sec. 222.164(b) to enable the Secretary to determine whether the State

meets the statutory standard for certification. The likely respondents

to this collection requirement are States seeking certification of

their equalization plans. The information that they are required to

submit is used by the Secretary to determine whether the State's

equalization plan meets the statutory requirements for certification so

that the State may take Impact Aid payments into account in

distributing State aid.

We estimate that equalization proceedings will be initiated in an

average of 4 States per year, and that the data submission to the

Secretary will require an average of 45.25 hours per collection.

Therefore, the total annual reporting and recordkeeping burden that

will result from this collection requirement is 181.0 burden hours (4

States, multiplied by 1 annual submission, multiplied by 45.25 hours

for preparation and mailing of each submission).

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

Information and Regulatory Affairs, OMB, Room 10235, New Executive

Office Building, Washington, DC 20503; Attention: Desk Officer for U.S.

Department of Education.

The Department considers comments by the public on these proposed

collections of information in:

Evaluating whether the proposed collections of information

are necessary for the proper performance of the functions of the

Department, including whether the information will have practical

utility;

Evaluating the accuracy of the Department's estimate of

the burden of the proposed collections of information, including the

validity of the methodology and assumptions used;

Enhancing the quality, usefulness, and clarity of the

information to be collected; and

Minimizing the burden of the collection of information on

those who are to respond, including through the use of appropriate

automated, electronic, mechanical, or other technological collection

techniques or other form of information technology; e.g., permitting

electronic submission of responses.

OMB is required to make a decision concerning the collection of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register.

Therefore, a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of publication. This does not affect

the deadline for the public to comment to the Department on the

proposed regulations.

Invitation to Comment: Interested persons are invited to submit

comments and recommendations regarding these proposed regulations. The

Secretary is particularly interested in comments on proposed

Secs. 222.12-222.15 (implementing the overpayment forgiveness

provision), Sec. 222.81 (describing eligibility standards for payments

for children with severe disabilities); Secs. 222.114-222.122

(implementing Indian policy and procedures withholding proceedings),

and Sec. 222.151(b)(1) (changing the time within which an

administrative hearing request must be filed from 60 to 30 days

following an adverse action).

All comments submitted in response to these proposed regulations

will be available for public inspection during and after the comment

period, in Room 4200, Portals Building, 1250 Maryland Avenue, S.W.,

Washington, DC., between the hours of 8:30 a.m. and 4 p.m., Monday

through Friday of each week except Federal holidays.

List of Subjects in 34 CFR Part 222

Education, Education of children with disabilities, Elementary and

secondary education, Federally affected areas, Grant programs--

education, Indians--education, Public housing, Reports and

recordkeeping requirements, School construction.

Dated: October 1, 1996.

(Catalog of Federal Domestic Assistance Number 84.041, Impact Aid)

Richard W. Riley,

Secretary of Education.

The Secretary proposes to amend Part 222 of Title 34 of the Code of

Federal Regulations as follows:

PART 222--IMPACT AID PROGRAMS

1.-2. The authority citation for Part 222 continues to read as

follows:

Authority: 20 U.S.C. 7701-7714, unless otherwise noted.

3. Section 222.4 is revised to read as follows:

Sec. 222.4 How does the Secretary determine when an application is

timely filed?

(a) To be timely filed under Sec. 222.3, an application must be

received by the Secretary, or mailed, on or before the applicable

filing date.

(b) An applicant must show one of the following as proof of

mailing:

(1) A legibly dated U.S. Postal Service postmark.

(2) A legible mail receipt with the date of mailing stamped by the

U.S. Postal Service.

(3) A dated shipping label, invoice, or receipt from a commercial

carrier.

(4) Any other proof of mailing acceptable to the Secretary.

(c) If an application is mailed through the U.S. Postal Service,

the Secretary does not accept either of the following as proof of

mailing:

(1) A private metered postmark.

(2) A mail receipt that is not dated by the U.S. Postal Service.

(Authority: 20 U.S.C. 7705)

Note to Paragraph (b)(1): The U.S. Postal Service does not

uniformly provide a dated postmark. Before relying on this method,

an applicant should check with its local post office.

Sec. 222.11 [Amended]

4. In Sec. 222.11, the introductory language is amended by removing

``Except as otherwise provided in section 8012'', and by adding in its

place ``Except as otherwise provided in Sec. 222.12,''.

5. Section 222.13 is redesignated as Sec. 222.16, and new

Secs. 222.12-222.15 are added to read as follows:

[[Page 52573]]

Sec. 222.12 What overpayments are eligible for forgiveness under

section 8012 of the Act?

(a)(1) Except as provided in paragraph (a)(2) of this section, the

Secretary considers the following overpayments as eligible for

forgiveness under section 8012 of the Act (``eligible overpayment''):

(i) An overpayment balance that remains owing on or after [insert

the 30th day from the date of publication of the final regulations in

the Federal Register], and that is more than a local educational agency

(LEA) was eligible to receive for a particular fiscal year under Public

Law 81-874, Public Law 81-815, or the Act.

(ii) An overpayment amount that is more than an LEA was eligible to

receive for a particular fiscal year under Public Law 81-874, Public

Law 81-815, or the Act, and that--

(A) Is the subject of a written request for forgiveness filed by

the LEA before [insert the 30th day from the date of publication of the

final regulations in the Federal Register]; or

(B) Is the subject of a timely written request for an

administrative hearing or reconsideration, and has not previously been

reviewed under Secs. 222.12-222.15.

(2) The Secretary does not consider the following overpayments to

be eligible for forgiveness under section 8012 of the Act:

(i) Any overpayment under section 7 of Public Law 81-874 or section

16 of Public Law 81-815.

(ii) An amount received by an LEA, as determined under section

8003(g) of the Act, which authorizes payments to LEAs for certain

federally connected children with severe disabilities (implemented in

subpart F of these regulations), that exceeds the LEA's maximum basic

support payment under section 8003(b) of the Act.

(iii) Any overpayment received under the following provisions that

was caused by an LEA's failure to expend or account for funds properly

in accordance with the applicable law and regulations:

(A) Section 8003(d) of the Act (implemented in subpart D of these

regulations) or section 3(d)(2)(C) of Public Law 81-874 for certain

federally connected children with disabilities.

(B) Section 8003(g) of the Act.

(b) The Secretary applies Secs. 222.13-222.15 in forgiving, in

whole or part, an LEA's obligation to repay an eligible overpayment

that resulted from error either by the LEA or the Secretary.

(Authority: 20 U.S.C. 7712)

Sec. 222.13 What requirements must a local educational agency meet for

an eligible overpayment to be forgiven in whole or part?

(a) The Secretary forgives an eligible overpayment, in whole or

part as described in Sec. 222.15, if--

(1) The LEA files, in accordance with paragraph (b) of this

section--

(i) A request for forgiveness; and

(ii) The information and documentation described in paragraph (c)

of this section; and

(2)(i) The Secretary determines under Sec. 222.14, in the case

either of an LEA's or the Department's error, that repayment of the

LEA's total eligible overpayments will result in an undue financial

hardship on the LEA and seriously harm the LEA's educational program;

or

(ii) In the case of the Department's error, the Secretary

determines on a case-by-case basis that repayment would be manifestly

unjust (``manifestly unjust repayment exception'').

(b)(1) Except for an overpayment described in paragraph (2) of this

section, an LEA must submit to the Impact Aid Program a written request

for forgiveness no later than 30 days from the LEA's initial receipt of

a written notice of the overpayment.

(2) For an overpayment for which an LEA has submitted a written

request for forgiveness before [insert the 30th day from the date of

publication of the final regulations in the Federal Register], the

information and documentation described in paragraph (c) of this

section must be submitted no later than [insert the 60th day from the

date of publication of the final regulations in the Federal Register].

(3) An LEA must submit the information and documentation described

in paragraph (c) of this section no later than the applicable time

limits described in paragraph (b)(1) or (2) of this section, or other

time limit established in writing by the Secretary due to lack of

availability of the information and documentation.

(c)(1) Every LEA requesting forgiveness must submit the following

information and documentation (as applicable) for the fiscal year

immediately preceding the date of the request for forgiveness

(``preceding fiscal year''):

(i) A copy of the LEA's annual financial report to the State.

(ii) The LEA's local real property tax rate for current expenditure

purposes, as described in Sec. 222.14(b).

(iii) The maximum local real property tax rate for current

expenditure purposes allowed by State law, or if there is no State

maximum, the average local real property tax rate of all LEAs in the

State.

(iv) For an LEA whose boundaries are the same as a Federal military

installation--

(A) The average per pupil expenditure (PPE) of the LEA; and

(B) The average PPE in all LEAs in the State.

(v) The equalized assessed valuation of real property per pupil

(EAVPP) (or other measure of fiscal capacity as defined by the State)

for the LEA, and the average of that measure for all LEAs in the State.

(2) An LEA requesting forgiveness under Sec. 222.13(a)(2)(ii)

(manifestly unjust repayment exception), or Sec. 222.14(a)(2) (no

present or prospective ability to repay), must submit written

information and documentation (in addition to that described in

paragraph (c)(1) of this section) in support of its request for

forgiveness under those provisions.

(d)(1) A request for forgiveness of an overpayment under this

section does not extend the time within which an applicant must file a

request for an administrative hearing under Sec. 222.151, unless the

Secretary (or the Secretary's delegatee) extends that time limit in

writing.

(2) A request for an administrative hearing under Sec. 222.151, or

for reconsideration under Sec. 222.152, does not extend the time within

which an applicant must file a request for forgiveness under this

section, unless the Secretary (or the Secretary's delegatee) extends

that time limit in writing.

(Authority: 20 U.S.C. 7712)

Sec. 222.14 How does the Secretary determine undue financial hardship

and serious harm to a local educational agency's educational program?

(a) The Secretary determines that repayment of an eligible

overpayment will result in undue financial hardship on the LEA and

seriously harm its educational program if the LEA meets the

requirements in paragraph (a)(1) or (2) of this section:

(1) An LEA qualifies under paragraph (a) of this section if--

(i) The sum of the LEA's eligible overpayments on the date of its

request is at least $10,000;

(ii)(A) For an LEA in a State with a maximum local real property

tax rate (except for an LEA described in paragraph (a)(1)(iv) of this

section), the LEA's local real property tax rate for current

expenditure purposes, for the preceding fiscal year, is at least 90% of

the maximum rate allowed by State law; or

[[Page 52574]]

(B) For an LEA in a State without a maximum local real property tax

rate (except for an LEA described in paragraph (a)(1)(iv) of this

section), the LEA's local real property tax rate for current

expenditure purposes, for the preceding fiscal year, is at least equal

to the State average local real property tax rate;

(iii) For an LEA described in paragraph (a)(1)(ii) of this section,

the LEA's fiscal capacity, for the preceding fiscal year, is below the

State average; and

(iv) For an LEA with boundaries that are the same as a Federal

military installation, the average per pupil expenditure (PPE) of the

LEA for the preceding fiscal year does not exceed 125% of the average

PPE in all LEAs in the State for that preceding fiscal year.

(2) In the alternative, an LEA qualifies under paragraph (a) of

this section if neither the successor nor the predecessor LEA has the

present or prospective ability to repay the eligible overpayment.

(b) The Secretary uses the following methods to determine a tax

rate for the purposes of paragraph (a)(1) (ii) and (iii) of this

section:

(1) If an LEA is fiscally independent, the Secretary uses actual

tax rates if all the real property in the taxing jurisdiction of the

LEA is assessed at the same percentage of true value. In the

alternative, the Secretary may compute a tax rate for fiscally

independent LEAs by using the methods described in Secs. 222.67-222.69.

(2) If an LEA is fiscally dependent, the Secretary imputes a tax

rate using the method described in Sec. 222.70(b).

(c) ``Fiscal capacity'' for the purpose of paragraph (a)(1)(v) of

this section means the equalized assessed valuation of real property

per pupil (EAVPP), unless otherwise defined by the State.

(Authority: 20 U.S.C. 7712)

Sec. 222.15 What amount does the Secretary forgive?

For an LEA that meets the requirements of Sec. 222.13(b) (timely

filed forgiveness request and information and documentation), the

Secretary forgives an eligible overpayment as follows:

(a) Forgiveness in whole. The Secretary forgives the eligible

overpayment in whole if the Secretary determines that the LEA meets--

(1) The requirements of Sec. 222.14 (undue financial hardship), and

the LEA's current expenditure closing balance for the LEA's fiscal year

immediately preceding the date of its request for forgiveness

(``preceding fiscal year'') is five percent or less of its total

current expenditures (TCE) for that year; or

(2) The manifestly unjust repayment exception in

Sec. 222.13(a)(2)(ii).

(b) Forgiveness in part. (1) The Secretary forgives the eligible

overpayment in part if the Secretary determines that the LEA meets the

requirements of Sec. 222.14 (undue financial hardship), but the LEA's

preceding fiscal year's current expenditure closing balance is more

than five percent of its total current expenditures (TCE) for that

year.

(2) For an eligible overpayment that is forgiven in part, the

Secretary--

(i) Requires the LEA to repay the amount by which the LEA's

preceding fiscal year's current expenditure closing balance exceeded

five percent of its preceding fiscal year's total current expenditures

(``calculated repayment amount''); and

(ii) Forgives the difference between the calculated repayment

amount and the LEA's total overpayments.

(3) For the purposes of this section, ``current expenditure closing

balance'' means an LEA's closing balance before any revocable transfers

to non-current expenditure accounts, such as capital outlay or debt

service accounts.

Example: An LEA that timely requests forgiveness has two

overpayments of which portions remain owing on the date of its

request--one of $200,000 and one of $300,000. Its preceding fiscal

year's closing balance is $250,000 (before a revocable transfer to a

capital outlay or debt service account); and 5 percent of its TCE

for the preceding fiscal year is $150,000.

The Secretary calculates the amount that the LEA must repay by

determining the amount by which the preceding fiscal year's closing

balance exceeds 5 percent of the preceding year's TCE. This

calculation is made by subtracting 5 percent of the LEA's TCE

($150,000) from the closing balance ($250,000), resulting in a

difference of $100,000 that the LEA must repay. The Secretary then

totals the eligible overpayment amounts ($200,000 + $300,000),

resulting in a total amount of $500,000. The Secretary subtracts the

calculated repayment amount ($100,000) from the total of the two

overpayment balances ($500,000), resulting in $400,000 that the

Secretary forgives.

(Authority: 20 U.S.C. 7712)

6. Section 222.22 is amended by revising paragraphs (c) and (d) to

read as follows:

Sec. 222.22 How does the Secretary treat compensation from Federal

activities for purposes of determining eligibility and payments?

* * * * *

(c) If an LEA described in paragraph (a) of this section received

revenue described in paragraph (b)(1) of this section during the

preceding fiscal year that is less than the maximum payment amount

under section 8002(b) for the fiscal year for which the LEA seeks

assistance, the Secretary reduces that maximum payment amount by the

amount of that revenue received by the LEA.

(d) For purposes of this section, the amount of revenue that an LEA

receives during the previous fiscal year from activities conducted on

Federal property does not include the following:

(1) Payments received by the agency from the Secretary of Defense

to support--

(i) The operation of a domestic dependent elementary or secondary

school; or

(ii) The provision of a free public education to dependents of

members of the Armed Forces residing on or near a military

installation.

(2) Federal payments-in-lieu-of-taxes (PILOTs or PILTs), including

PILTs for Federal entitlement lands authorized by Public Law 97-258, 31

U.S.C. Secs. 6901-6906.

* * * * *

7. A new Sec. 222.23 is added to read as follows:

Sec. 222.23 How does a local official determine the aggregate assessed

value of eligible Federal property for the purpose of a local

educational agency's section 8002 payment?

(a) The aggregate assessed value of eligible Federal property for

the purpose of an LEA's section 8002 payment must be determined, by a

local official responsible for assessing the value of real property

located in the jurisdiction of the LEA for the purpose of levying a

property tax, as follows:

(1) The local official first determines a fair market value (FMV)

for the eligible Federal property in each Federal installation or other

federally owned property (e.g., Federal forest), based on the highest

and best use of taxable properties adjacent to the eligible Federal

property.

(2) The local official then determines a section 8002 assessed

value for each Federal installation or federally owned property by

adjusting the FMV established in paragraph (a)(1) of this section by

any percentage, ratio, index, or other factor that the official would

use, if the eligible Federal property were taxable, to determine its

assessed value for the purpose of generating local real property tax

revenues for current expenditures. In making this adjustment, the

official may assume that there was a transfer of ownership of the

eligible Federal property for the year for which the section 8002

assessed value is being determined.

[[Page 52575]]

(3) The local assessor then calculates the aggregate section 8002

assessed value for all eligible Federal property in the LEA by adding

the section 8002 assessed values for each different Federal

installation or federally owned property determined in paragraph (a)(2)

of this section.

Example: Two different Federal properties are located within a

LEA--a Federal forest, and a naval facility. Based upon the highest

and best use of taxable properties adjacent to the eligible Federal

property, the local assessor establishes an FMV for the Federal

forest of $1 million (woodland), and an FMV for the naval facility

of $3 million (50 percent residential and 50 percent commercial/

industrial). Assessed values in that taxing jurisdiction are

determined by multiplying the FMV of property by an assessment

ratio--the assessment ratio for woodland property is 30 percent of

FMV, for residential 60 percent of FMV, and for commercial 75

percent of FMV.

To determine the section 8002 assessed value of the Federal

forest, the assessor multiplies the FMV for that property

($1,000,000) by 30 percent (the assessment ratio for woodland

property), resulting in a section 8002 assessed value of $300,000.

To determine the section 8002 assessed value for the naval

facility, the assessor first must determine the portion of the total

FMV attributable to each property type if that portion has not

already been established. To make this determination for the

residential portion, the assessor could multiply the total FMV

($3,000,000) for the naval facility by 50 percent (the portion of

residential property), resulting in a $1.5 million FMV for the

residential property. To determine a section 8002 assessed value for

this residential portion, the assessor then would multiply the $1.5

million by 60 percent (assessment ratio for residential property),

resulting in $900,000.

Similarly, to determine the portion of the FMV for the naval

facility attributable to the commercial/industrial property, the

assessor could multiply the total FMV ($3,000,000) by 50 percent

(the portion of commercial/industrial property), resulting in $1.5

million. To determine the section 8002 assessed value for this

commercial/industrial portion, the official then would multiply the

$1.5 million by 75 percent (the assessment ratio for commercial/

industrial property), resulting in $1,025,000. The assessor then

must add the section 8002 assessed value figures for the residential

portion ($900,000) and for the commercial/industrial portion

($1,025,000), resulting in a total section 8002 assessed value for

the entire naval facility of $1,925,000.

Finally, the assessor determines the aggregate section 8002

assessed value for the LEA by adding the section 8002 assessed value

for the Federal forest ($300,000), and the section 8002 assessed

value for the naval facility ($1,925,000), resulting in an aggregate

assessed value of $2,325,000.

(b) For the purpose of this section, the terms listed below have

the following meanings:

(1) ``Adjacent'' means next to or close to the eligible Federal

property. In most cases, this will be the closest taxable parcels.

(2)(i) ``Highest and best use'' of a parcel of adjacent property

means the FMV of that parcel determined based upon a ``highest and best

use'' standard in accordance with State or local law or guidelines if

available. To the extent that State or local law or guidelines are not

available, ``highest and best use'' generally will be a reasonable fair

market value based upon the current use of those properties. However,

the local official may also consider the most developed and profitable

use for which the adjacent taxable property is physically adaptable and

for which there is a need or demand for that use in the near future.

(ii) A local official may not base the ``highest and best use''

value of adjacent taxable property upon potential uses that are

speculative or remote.

(iii) If the taxable properties adjacent to the eligible Federal

property have different highest and best uses, these different uses

must enter into the local official's determination of the FMV of the

eligible Federal property under paragraph (a)(1) of this section.

Example: If a portion of a Federal installation to be valued has

road or highway frontage with adjacent properties that are used for

residential and commercial purposes, but the rest of the Federal

installation is rural and vacant with adjacent properties that are

agricultural, the local official must take into consideration the

various uses of the adjacent properties (residential, commercial,

and agricultural) in determining the FMV of the Federal property

under paragraph (a)(1) of this section.

(Authority: 20 U.S.C. 7702)

8. New Secs. 222.80 through 222.85 are added as subpart F (Payments

to Local Educational Agencies for Children with Severe Disabilities

under Section 8003(g) of the Act) to read as follows:

Subpart F--Payments to Local Educational Agencies for Children with

Severe Disabilities under Section 8003(g) of the Act

222.80 What definitions apply to this subpart?

222.81 What requirements must a local educational agency meet to be

eligible for a payment under section 8003(g) of the Act?

222.82 How does the Secretary calculate the total amount of funds

available for payments under section 8003(g)?

222.83 How does an eligible local educational agency apply for a

payment under section 8003(g)?

222.84 How does the Secretary calculate payments under section

8003(g) for eligible local educational agencies?

222.85 How may a local educational agency use funds that it

receives under section 8003(g)?

Subpart F--Payments to Local Educational Agencies for Children with

Severe Disabilities under Section 8003(g) of the Act

Sec. 222.80 What definitions apply to this subpart?

(a) The definitions in Secs. 222.2 and 222.50 apply to this

subpart.

(b) In addition, the following term applies to this subpart:

Children with severe disabilities means children with disabilities

who because of the intensity of their physical, mental, or emotional

problems, need highly specialized education, social, psychological, and

medical services in order to maximize their full potential for useful

and meaningful participation in society and for self-fulfillment. The

term includes those children with disabilities with severe emotional

disturbance (including schizophrenia), autism, severe and profound

mental retardation, and those who have two or more serious disabilities

such as deaf-blindness, mental retardation and blindness, and cerebral-

palsy and deafness.

(Authority: 20 U.S.C. 1400 et seq., 7703(g))

Sec. 222.81 What requirements must a local educational agency meet to

be eligible for a payment under section 8003(g) of the Act?

An LEA is eligible for a payment under section 8003(g) of the Act

if it--

(a) Is eligible for and receives a payment under section 8003(d) of

the Act for children identified in paragraph (b) of this section and

meets the requirements of Secs. 222.52 and 222.83(b) and (c); and

(b) Incurs costs of providing a free appropriate public education

to at least two children with severe disabilities whose educational

program is being provided by an entity outside the schools of the LEA,

and who each have a parent on active duty in the uniformed services.

(Authority: 20 U.S.C. 1221e-3, 1400 et seq., 7703(a), (d), (g))

Sec. 222.82 How does the Secretary calculate the total amount of funds

available for payments under section 8003(g)?

(a) In any fiscal year in which Federal funds other than funds

available under the Act are provided to an LEA to meet the purposes of

the Act, the Secretary--

(1) Calculates the sum of the amount of other Federal funds

provided to an LEA to meet the purposes of the Act and the amount of

the payment that the LEA

[[Page 52576]]

received for that fiscal year under section 8003(b) of the Act; and

(2) Determines whether the sum calculated under paragraph (a)(1) of

this section exceeds the maximum basic support payment for which the

LEA is eligible under section 8003(b), and, if so, subtracts from the

amount of any payment received under section 8003(b), any amount in

excess of the maximum basic support payment for which the LEA is

eligible.

(b) The sum of all excess amounts determined in paragraph (a)(2) of

this section is available for payments under section 8003(g) to

eligible LEAs.

(Authority: 20 U.S.C. 7703(b), (g))

Sec. 222.83 How does an eligible local educational agency apply for a

payment under section 8003(g)?

(a) In fiscal years in which funds are available for payments under

section 8003(g), the Secretary provides notice to all potentially

eligible LEAs that funds will be available.

(b) An LEA applies for a payment under section 8003(g) by

submitting to the Secretary documentation detailing the total costs to

the LEA of providing a free appropriate public education to the

children identified in Sec. 222.81, during the LEA's preceding fiscal

year, including the following:

(1) For the costs of the outside entity providing the educational

program for those children, copies of all invoices, vouchers, tuition

contracts, and other similar documents showing the signature of an

official or authorized employee of the outside entity; and

(2) For any additional costs (such as transportation) of the LEA

related to providing an educational program for those children in an

outside entity, copies of invoices, check receipts, contracts, and

other similar documents showing the signature of an official or

authorized employee of the LEA.

(c) An LEA applying for a payment must submit to the Secretary the

information required under paragraph (b) of this section within 60 days

of the date of the notice that funds will be available.

(Authority: 20 U.S.C. 1221e-3, 7703(g)(2))

Sec. 222.84 How does the Secretary calculate payments under section

8003(g) for eligible local educational agencies?

For any fiscal year in which the Secretary has determined, under

Sec. 222.82, that funds are available for payments under section

8003(g), the Secretary calculates payments to eligible LEAs under

section 8003(g) as follows:

(a) For each eligible LEA, the Secretary subtracts an amount equal

to that portion of the payment the LEA received under section 8003(d)

of the Act for that fiscal year, attributable to children described in

Sec. 222.81, from the LEA's total costs of providing a free appropriate

public education to those children, as submitted to the Secretary

pursuant to Sec. 222.83(b). The remainder is the amount that the LEA is

eligible to receive under section 8003(g).

(b) If the total of the amounts for all eligible LEAs determined in

paragraph (a) of this section is equal to or less than the amount of

funds available for payment as determined in Sec. 222.82, the Secretary

provides each eligible LEA with the entire amount that it is eligible

to receive, as determined in paragraph (a) of this section.

(c) If the total of the amounts for all eligible LEAs determined in

paragraph (a) of this section exceeds the amount of funds available for

payment as determined in Sec. 222.82, the Secretary ratably reduces

payments under section 8003(g) to eligible LEAs.

(d) If the total of the amounts for all eligible LEAs determined in

paragraph (a) of this section is less than the amount of funds

available for payment as determined in Sec. 222.82, the Secretary pays

the remaining amount to LEAs under section 8003(d). An LEA that

receives such a payment shall use the funds for expenditures in

accordance with the requirements of section 8003(d) and subpart D of

these regulations.

(Authority: 20 U.S.C. 1221e-3, 7703(d) and (g))

Sec. 222.85 How may a local educational agency use funds that it

receives under section 8003(g)?

An LEA that receives a payment under section 8003(g) shall use the

funds for reimbursement of costs reported in the application that it

submitted to the Secretary under Sec. 222.83(b).

(Authority: 20 U.S.C. 7703(g)(2))

9. Section 222.95 is amended by revising the paragraph (g)

introductory text to read as follows:

Sec. 222.95 How are Indian policies and procedures reviewed to ensure

compliance with the requirements in section 8004(a) of the Act?

* * * * *

(g) An LEA that amends its IPPs shall, within 30 days, send a copy

of the amended IPPs to--

* * * * *

10. New Secs. 222.114 through 222.122 are added to subpart G, with

a heading preceding them, to read as follows:

Withholding and Related Procedures for Indian Policies and Procedures

222.114 How does the Assistant Secretary implement the provisions

of this subpart?

222.115 When does the Assistant Secretary withhold payments from a

local educational agency under this subpart?

222.116 How are withholding procedures initiated under this

subpart?

222.117 What procedures are followed after the Assistant Secretary

issues a notice of intent to withhold payments?

222.118 How are withholding hearings conducted in this subpart?

222.119 What is the effect of withholding under this subpart?

222.120 When is a local educational agency exempt from withholding

of payments?

222.121 How does the affected Indian tribe or tribes request that

payments to a local educational agency not be withheld?

222.122 What procedures are followed if it is determined that the

local educational agency's funds will not be withheld under this

subpart?

222.123-222.129 [Reserved]

Withholding and Related Procedures for Indian Policies and

Procedures

Sec. 222.114 How does the Assistant Secretary implement the provisions

of this subpart?

The Assistant Secretary implements section 8004 of the Act and this

subpart through such actions as the Assistant Secretary determines to

be appropriate, including the withholding of funds in accordance with

Secs. 222.115-222.122, after affording the affected LEA, parents, and

Indian tribe or tribes an opportunity to present their views.

(Authority: 20 U.S.C. 7704(d)(2), (e)(8)-(9))

Sec. 222.115 When does the Assistant Secretary withhold payments from

a local educational agency under this subpart?

Except as provided in Sec. 222.120, the Assistant Secretary

withholds payments to an LEA if--

(a) The Assistant Secretary determines it is necessary to enforce

the requirements of section 8004 of the Act or this subpart; or

(b) After a hearing has been conducted under section 8004(e) of the

Act and Secs. 222.102-222.113 (IPP hearing)--

(1) The LEA rejects the final determination of the Assistant

Secretary; or

(2) The LEA fails to implement the required remedy within the time

established and the Assistant Secretary determines that the required

remedy will not be undertaken by the LEA even if the LEA is granted a

reasonable extension of time.

(Authority: 20 U.S.C. 7704(a), (b), (d)(2), (e)(8)-(9))

[[Page 52577]]

Sec. 222.116 How are withholding procedures initiated under this

subpart?

(a) If the Assistant Secretary decides to withhold an LEA's funds,

the Assistant Secretary issues a written notice of intent to withhold

the LEA's payments.

(b) In the written notice, the Assistant Secretary--

(1) Describes how the LEA failed to comply with the requirements at

issue; and

(2)(i) Advises an LEA that has participated in an IPP hearing that

it may request, in accordance with Sec. 222.117(c), that its payments

not be withheld; or

(ii) Advises an LEA that has not participated in an IPP hearing

that it may request a withholding hearing in accordance with

Sec. 222.117(d).

(c) The Assistant Secretary sends a copy of the written notice of

intent to withhold payments to the LEA and the affected Indian tribe or

tribes by certified mail with return receipt requested.

(Authority: 20 U.S.C. 1221e-3(a)(1); 20 U.S.C. 7704(a), (b), (d)(2),

and (e)(8)-(9))

Sec. 222.117 What procedures are followed after the Assistant

Secretary issues a notice of intent to withhold payments?

(a) The withholding of payments authorized by section 8004 of the

Act is conducted in accordance with section 8004(d)(2) or (e)(8)-(9) of

the Act and the regulations in this subpart.

(b) An LEA that receives a notice of intent to withhold payments

from the Assistant Secretary is not entitled to an Impact Aid hearing

under the provisions of section 8011 of the Act and subpart J of these

regulations.

(c) After an IPP hearing. (1) An LEA that rejects or fails to

implement the final determination of the Assistant Secretary after an

IPP hearing has 10 days from the date of the LEA's receipt of the

written notice of intent to withhold funds to provide the Assistant

Secretary with a written explanation and documentation in support of

the reasons why its payments should not be withheld. The Assistant

Secretary provides the affected Indian tribe or tribes with an

opportunity to respond to the LEA's submission.

(2) If after reviewing an LEA's written explanation and supporting

documentation, and any response from the Indian tribe or tribes, the

Assistant Secretary determines to withhold an LEA's payments, the

Assistant Secretary notifies the LEA and the affected Indian tribe or

tribes of the withholding determination in writing by certified mail

with return receipt requested prior to withholding the payments.

(3) In the withholding determination, the Assistant Secretary

states the facts supporting the determination that the LEA failed to

comply with the legal requirements at issue, and why the provisions of

Sec. 222.120 (provisions governing circumstances when an LEA is exempt

from the withholding of payments) are inapplicable. This determination

is the final decision of the Department.

(d) An LEA that has not participated in an IPP hearing.

(1) An LEA that has not participated in an IPP hearing has 30 days

from the date of its receipt of the Assistant Secretary's notice of

intent to withhold funds to file a written request for a withholding

hearing with the Assistant Secretary. The written request for a

withholding hearing must--

(i) Identify the issues of law and facts in dispute; and

(ii) State the LEA's position, together with the pertinent facts

and reasons supporting that position.

(2) If the LEA's request for a withholding hearing is accepted, the

Assistant Secretary sends written notification of acceptance to the LEA

and the affected Indian tribe or tribes and forwards to the hearing

examiner a copy of the Assistant Secretary's written notice, the LEA's

request for a withholding hearing, and any other relevant documents.

(3) If the LEA's request for a withholding hearing is rejected, the

Assistant Secretary notifies the LEA in writing that its request for a

hearing has been rejected and provides the LEA with the reasons for the

rejection.

(4) The Assistant Secretary rejects requests for withholding

hearings that are not filed in accordance with the time for filing

requirements described in paragraph (d)(1) of this section. An LEA that

files a timely request for a withholding hearing, but fails to meet the

other filing requirements set forth in paragraph (d)(1) of this

section, has 30 days from the date of receipt of the Assistant

Secretary's notification of rejection to submit an acceptable amended

request for a withholding hearing.

(e) If an LEA fails to file a written explanation in accordance

with paragraph (c) of this section, or a request for a withholding

hearing or an amended request for a withholding hearing in accordance

with paragraph (d) of this section, the Secretary proceeds to take

appropriate administrative action to withhold funds without further

notification to the LEA.

(Authority: 20 U.S.C. 1221e-3; 7704(a), (b), (d)(2), and (e)(8)-(9))

Sec. 222.118 How are withholding hearings conducted in this subpart?

(a) Appointment of hearing examiner. Upon receipt of a request for

a withholding hearing that meets the requirements of Sec. 222.117(d),

the Assistant Secretary requests the appointment of a hearing examiner.

(b) Time and place of the hearing. Withholding hearings under this

subpart are held at the offices of the Department in Washington, D.C.,

at a time fixed by the hearing examiner, unless the hearing examiner

selects another place based upon the convenience of the parties.

(c) Proceeding. (1) The parties to the withholding hearing are the

Assistant Secretary and the affected LEA. An affected Indian tribe is

not a party, but, at the discretion of the hearing examiner, may

participate in the hearing and present its views on the issues relevant

to the withholding determination.

(2) The parties may introduce all relevant evidence on the issues

stated in the LEA's request for withholding hearing or other issues

determined by the hearing examiner during the proceeding. The Assistant

Secretary's notice of intent to withhold, the LEA's request for a

withholding hearing, and all amendments and exhibits to those

documents, must be made part of the hearing record.

(3) Technical rules of evidence, including the Federal Rules of

Evidence, do not apply to hearings conducted under this subpart, but

the hearing examiner may apply rules designed to assure production of

the most credible evidence available, including allowing the cross-

examination of witnesses.

(4) Each party may examine all documents and other evidence offered

or accepted for the record, and may have the opportunity to refute

facts and arguments advanced on either side of the issues.

(5) A transcript must be made of the oral evidence unless the

parties agree otherwise.

(6) Each party may be represented by counsel.

(7) The hearing examiner is bound by all applicable statutes and

regulations and may neither waive them nor rule them invalid.

(d) Filing requirements. (1) All written submissions must be filed

with the hearing examiner by hand-delivery, mail, or facsimile

transmission. The Secretary discourages the use of facsimile

transmission for documents longer than five pages.

(2) If agreed upon by the parties, a party may serve a document

upon the other party by facsimile transmission.

[[Page 52578]]

(3) The filing date for a written submission under this subpart is

the date the document is--

(i) Hand-delivered;

(ii) Mailed; or

(iii) Sent by facsimile transmission.

(4) A party filing by facsimile transmission is responsible for

confirming that a complete and legible copy of the document was timely

received by the hearing examiner.

(5) Any party filing a document by facsimile transmission must file

a follow-up hard copy by hand-delivery or mail within a reasonable

period of time.

(e) Procedural rules. (1) If the hearing examiner determines that

no dispute exists as to a material fact or that the resolution of any

disputes as to material facts would not be materially assisted by oral

testimony, the hearing examiner shall afford each party an opportunity

to present its case--

(i) In whole or in part in writing; or

(ii) In an informal conference after affording each party

sufficient notice of the issues to be considered.

(2) With respect to withholding hearings involving a dispute as to

a material fact the resolution of which would be materially assisted by

oral testimony, the hearing examiner shall afford to each party--

(i) Sufficient notice of the issues to be considered at the

hearing;

(ii) An opportunity to present witnesses on the party's behalf; and

(iii) An opportunity to cross-examine other witnesses either orally

or through written interrogatories.

(f) Decision of the hearing examiner. (1) The hearing examiner--

(i) Makes written findings and an initial withholding decision

based upon the hearing record; and

(ii) Forwards to the Secretary, and mails to each party and to the

affected Indian tribe or tribes, a copy of the written findings and

initial withholding decision.

(2) A hearing examiner's initial withholding decision constitutes

the Secretary's final withholding decision without any further

proceedings unless--

(i) Either party to the withholding hearing, within 30 days of the

date of its receipt of the initial withholding decision, requests the

Secretary to review the decision and that request is granted; or

(ii) The Secretary otherwise determines, within the time limits

stated in paragraph (g)(2)(ii) of this section, to review the initial

withholding decision.

(3) When an initial withholding decision becomes the Secretary's

final decision without any further proceedings, the Department notifies

the parties and the affected Indian tribe or tribes of the finality of

the decision.

(g) Administrative appeal of an initial decision.

(1)(i) Any party may request the Secretary to review an initial

withholding decision.

(ii) A party must file this request for review within 30 days of

the party's receipt of the initial withholding decision.

(2) The Secretary may--

(i) Grant or deny a timely request for review of an initial

withholding decision; or

(ii) Otherwise determine to review the decision, so long as that

determination is made within 45 days of the date of receipt of the

initial decision by the Secretary.

(3) The Secretary mails to each party and the affected Indian tribe

or tribes, by certified mail with return receipt requested, written

notice of--

(i) The Secretary's action granting or denying a request for review

of an initial decision; or

(ii) The Secretary's determination to review an initial decision.

(h) Secretary's review of an initial withholding decision.

(1) When the Secretary reviews an initial withholding decision, the

Secretary notifies each party and the affected Indian tribe or tribes

in writing, by certified mail with return receipt requested, that it

may file a written statement or comments; and

(2) Mails to each party and to the affected Indian tribe or tribes,

by certified mail with return receipt requested, written notice of the

Secretary's final withholding decision.

(Authority: 20 U.S.C. 7704)

Sec. 222.119 What is the effect of withholding under this subpart?

(a) The withholding provisions in this subpart apply to all

payments that an LEA is otherwise eligible to receive under section

8003 of the Act for any fiscal year.

(b) The Assistant Secretary withholds funds after completion of any

administrative proceedings under Secs. 222.116-222.118 until the LEA

documents either compliance or exemption from compliance with the

requirements in section 8004 of the Act and this subpart.

(Authority: 20 U.S.C. 7704(a), (b), (d)(2), (e)(8)-(9))

Sec. 222.120 When is an LEA exempt from withholding of payments?

Except as provided in paragraph (d)(2) of this section, the

Assistant Secretary does not withhold payments to an LEA under the

following circumstances:

(a) The LEA documents that it has received a written statement from

the affected Indian tribe or tribes that the LEA need not comply with

section 8004 (a) and (b) of the Act, because the affected Indian tribe

or tribes is satisfied with the provision of educational services by

the LEA to the children claimed on the LEA's application for assistance

under section 8003 of the Act.

(b) The Assistant Secretary receives from the affected Indian tribe

or tribes a written request that meets the requirements of Sec. 222.121

not to withhold payments from an LEA.

(c) The Assistant Secretary, on the basis of documentation provided

by the LEA, determines that withholding payments during the course of

the school year would substantially disrupt the educational programs of

the LEA.

(d)(1) The affected Indian tribe or tribes elects to have

educational services provided by the Bureau of Indian Affairs under

section 1101(d) of the Education Amendments of 1978.

(2) For an LEA described in paragraph (d)(1) of this section, the

Secretary recalculates the section 8003 payment that the LEA is

otherwise eligible to receive to reflect the number of students who

remain in attendance at the LEA.

(Authority: 20 U.S.C. 7703(a), 7704(c),(d)(2) and (e)(8))

Sec. 222.121 How does the affected Indian tribe or tribes request that

payments to a local educational agency not be withheld?

(a) The affected Indian tribe or tribes may submit to the Assistant

Secretary a formal request not to withhold payments from an LEA.

(b) The formal request must be in writing and signed by the tribal

chairman or authorized designee.

(Authority: 20 U.S.C. 7704(d)(2) and (e)(8))

Sec. 222.122 What procedures are followed if it is determined that the

local educational agency's funds will not be withheld under this

subpart?

If the Secretary determines that an LEA's payments will not be

withheld under this subpart, the Assistant Secretary notifies the LEA

and the affected Indian tribe or tribes, in writing, by certified mail

with return receipt requested, of the reasons why the payments will not

be withheld.

(Authority: 20 U.S.C. 7704(d)-(e))

Sec. 222.150 [Amended]

11. In Sec. 222.150, paragraph (b)(1) is amended by removing

``Secs. 222.90-222.114'', and adding in its place ``Secs. 222.90-

222.122''.

[[Page 52579]]

12. Section 222.151 is amended by revising the title and paragraph

(b)(1) to read as follows:

Sec. 222.151 When is an administrative hearing provided to a local

educational agency?

* * * * *

(b) * * *

(1) The applicant files a written request for an administrative

hearing within 30 days of its receipt of written notice of the adverse

action; and

* * * * *

13. Section 222.152 is amended by revising paragraphs (b) and (c)

to read as follows:

Sec. 222.152 When may a local educational agency request

reconsideration of a determination?

* * * * *

(b) The Secretary's (or the Secretary's delegatee's) consideration

of a request for reconsideration is not prejudiced by a pending request

for an administrative hearing on the same matter, or the fact that a

matter has been scheduled for a hearing. The Secretary (or the

Secretary's delegatee) may, but is not required to, postpone the

administrative hearing due to a request for reconsideration.

(c) The Secretary (or the Secretary's delegatee) may reconsider any

determination under the Act or Pub. L. 81-874 concerning a particular

party unless the determination has been the subject of an

administrative hearing under this part with respect to that party.

(Authority: 20 U.S.C. 7711(a))

14. Section 222.154 is amended by revising paragraph (e) to read as

follows:

Sec. 222.154 How must written submissions under this subpart be filed?

* * * * *

(e) Any party filing a document by facsimile transmission must file

a follow-up hard copy by hand-delivery or mail within a reasonable

period of time.

(Authority: 20 U.S.C. 7711(a))

Sec. 222.156 [Amended]

15. In Sec. 222.156, paragraph (g) is amended by removing ``hearing

examiner'', and adding in its place ``ALJ''.

16. Section 222.157 is amended by revising the title and paragraphs

(a) and (b)(1) to read as follows:

Sec. 222.157 What procedures apply for issuing or appealing an

administrative law judge's decision?

(a) Decision. (1) The ALJ--

(i) Makes written findings and an initial decision based upon the

hearing record; and

(ii) Forwards to the Secretary, and mails to each party, a copy of

the written findings and initial decision.

(2) An ALJ's initial decision constitutes the Secretary's final

decision without any further proceedings unless--

(i) A party, within the time limits stated in paragraph (b)(1) of

this section, requests the Secretary to review the decision and that

request is granted; or

(ii) The Secretary otherwise determines, within the time limits

stated in paragraph (b)(2)(ii) of this section, to review the initial

decision.

(3) When an initial decision becomes the Secretary's final decision

without any further proceedings, the Department's Office of Hearings

and Appeals notifies the parties of the finality of the decision.

(b) Administrative appeal of an initial decision.

(1)(i) Any party may request the Secretary to review an initial

decision.

(ii) A party must file such a request for review within 30 days of

the party's receipt of the initial decision.

* * * * *

17. In Sec. 222.158, the title, introductory language, and

paragraph (b), are revised to read as follows:

Sec. 222.158 What procedures apply to the Secretary's review of an

initial decision?

When the Secretary reviews an initial decision, the Secretary--

* * * * *

(b) Mails to each party written notice of the Secretary's final

decision.

(Authority: 20 U.S.C. 7711(a))

18. In Sec. 222.161, paragraph (c) is revised by removing the

paragraph designations before each definition, reordering the

definitions in alphabetical order, and adding in alphabetical order the

following new definitions of ``Local tax revenues,'' ``Local tax

revenues covered under a State equalization program,'' and ``Total

local tax revenues'':

Sec. 222.161 How is State aid treated under section 8009 of the Act?

* * * * *

(c) Definitions. * * *

* * * * *

Local tax revenues means compulsory charges levied by an LEA or by

an intermediate school district or other local governmental entity on

behalf of an LEA for current expenditures for educational services.

``Local tax revenues'' include the proceeds of ad valorem taxes, sales

and use taxes, income taxes and other taxes. Where a State funding

formula requires a local contribution equivalent to a specified mill

tax levy on taxable real or personal property or both, ``local tax

revenues'' include any revenues recognized by the State as satisfying

that local contribution requirement.

Local tax revenues covered under a State equalization program means

``local tax revenues'' as defined in paragraph (c) of this section

contributed to or taken into consideration in a State aid program

subject to a determination under this subpart, but excluding all

revenues from State and Federal sources.

* * * * *

Total local tax revenues means all ``local tax revenues'' as

defined in paragraph (c) of this section, including revenues for

education programs for children needing special services, vocational

education, transportation, and the like during the period in question

but excluding all revenues from State and Federal sources.

* * * * *

19. In Sec. 222.164, paragraphs (a)(2) and (b) are revised to read

as follows:

Sec. 222.164 What procedures does the Secretary follow in making a

determination under section

8009? (a) * * *

(2) Whenever a proceeding under this subpart is initiated, the

party initiating the proceeding shall give adequate notice to the State

and all LEAs in the State and provide them with a complete copy of the

submission initiating the proceeding. In addition, the party initiating

the proceeding shall notify the State and all LEAs in the State of

their right to request from the Secretary, within 30 days of the

initiation of a proceeding, the opportunity to present their views to

the Secretary before the Secretary makes a determination.

(b) Submission. (1) A submission by a State or LEA under this

section must be made in the manner requested by the Secretary and must

contain the information and assurances as may be required by the

Secretary in order to reach a determination under section 8009 and this

subpart.

(2)(i) A State in a submission shall--

(A) Demonstrate how its State aid program comports with

Sec. 222.162; and

(B) Demonstrate for each LEA receiving funds under the Act that the

proportion of those funds that will be taken into consideration

comports with Sec. 222.163.

(ii) The submission must be received by the Secretary no later than

120 calendar days before the beginning of the State's fiscal year for

the year of the

[[Page 52580]]

determination, and must include (except as provided in

Sec. 222.161(c)(2)) final second preceding fiscal year disparity data

enabling the Secretary to determine whether the standard in

Sec. 222.162 has been met. The submission is considered timely if

received by the Secretary on or before the filing deadline or if it

bears a U.S. Postal Service postmark dated on or before the filing

deadline.

(3) An LEA in a submission must demonstrate whether the State aid

program comports with section 8009.

(4) Whenever a proceeding is initiated under this subpart, the

Secretary may request from a State the data deemed necessary to make a

determination. A failure on the part of a State to comply with that

request within a reasonable period of time results in a summary

determination by the Secretary that the State aid program of that State

does not comport with the regulations in this subpart.

(5) Before making a determination under section 8009, the Secretary

affords the State, and all LEAs in the State, an opportunity to present

their views as follows:

(i) Upon receipt of a timely request for a predetermination

hearing, the Secretary notifies all LEAs and the State of the time and

place of the predetermination hearing.

(ii) Predetermination hearings are informal and any LEA and the

State may participate whether or not they requested the

predetermination hearing.

(iii) At the conclusion of the predetermination hearing, the

Secretary holds the record open for 15 days for the submission of post-

hearing comments. The Secretary may extend the period for post-hearing

comments for good cause for up to an additional 15 days.

(iv) Instead of a predetermination hearing, if the party or parties

requesting the predetermination hearing agree, they may present their

views to the Secretary exclusively in writing. In such a case, the

Secretary notifies all LEAs and the State that this alternative

procedure is being followed and that they have up to 30 days from the

date of the notice in which to submit their views in writing. Any LEA

or the State may submit its views in writing within the specified time,

regardless of whether it requested the opportunity to present its

views.

* * * * *

(Authority: 20 U.S.C. 7709)

20. In Sec. 222.165, paragraphs (e), (f), and (h) are revised to

read as follows:

Sec. 222.165 What procedures does the Secretary follow after making a

determination under section 8009?

* * * * *

(e) Proceedings. (1) The Secretary refers the matter in controversy

to an administrative law judge (ALJ) appointed under 5 U.S.C. 3105.

(2) The ALJ is bound by all applicable statutes and regulations and

may neither waive them nor rule them invalid.

(f) Filing requirements. (1) Any written submission under this

section must be filed by hand-delivery, mail, or facsimile

transmission. The Secretary discourages the use of facsimile

transmission for documents longer than five pages.

(2) If agreed upon by the parties, service of a document may be

made upon the other party by facsimile transmission.

(3) The filing date for a written submission under this section is

the date the document is--

(i) Hand-delivered;

(ii) Mailed; or

(iii) Sent by facsimile transmission.

(4) A party filing by facsimile transmission is responsible for

confirming that a complete and legible copy of the document was

received by the Department.

(5) Any party filing a document by facsimile transmission must file

a follow-up hard copy by hand-delivery or mail within a reasonable

period of time.

* * * * *

(h) Decisions. (1) The ALJ--

(i) Makes written findings and an initial decision based upon the

hearing record; and

(ii) Forwards to the Secretary, and mails to each party, a copy of

the written findings and initial decision.

(2) Appeals to the Secretary and the finality of initial decisions

under section 8009 are governed by Secs. 222.157(b), 222.158 and

222.159 of subpart J.

(Authority: 20 U.S.C. 7709)

[FR Doc. 96-25584 Filed 10-4-96; 8:45 am]

BILLING CODE 40000-01-W