Impact Aid Program

DEPARTMENT OF EDUCATION

Office of Elementary and Secondary Education

34 CFR Part 222

RIN 1810-AA84

Impact Aid Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary issues regulations governing the Impact Aid

Program under title VIII of the Elementary and Secondary Education Act

of 1965 (ESEA or Act), 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 regulations implement a

number of changes from the previous Impact Aid laws, Pub. L. 81-874 and

Pub. L. 81-815, which were repealed when title VIII of the ESEA was

enacted, and clarify and improve the administration of the program. In

addition, these regulations make technical amendments to implement

legislative changes made to title VIII of the ESEA by the Impact Aid

Technical Amendments of 1996 (Pub. L. 104-195) and the National Defense

Authorization Act for Fiscal Year 1997 (Pub. L. 104-201).

These regulations cover the following subjects: Application

requirements, overpayment forgiveness (section 8012 of the Act),

payments for Federal property (section 8002 of the Act), payments for

children with severe disabilities (section 8003(g) of the Act),

withholding and related procedures for Indian policies and procedures

(sections 8004(d)(2) and 8004(e) (8) and (9) of the Act),

determinations under section 8009 of the Act, and administrative

hearings and judicial review (section 8011 of the Act).

EFFECTIVE DATE: These regulations take effect on July 31, 1997.

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.

Generally, in implementing the IASA, the Department is issuing

regulations only where absolutely necessary, or to provide increased

flexibility or reduce burden. As a part of that process, the Secretary

published in the Federal Register on September 29, 1995, a final Impact

Aid 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. 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.

On October 7, 1996, the Secretary published an NPRM to accomplish

those objectives (61 FR 52564). These final regulations, which contain

the following provisions, are substantially similar to that NPRM:

In subpart A (General), existing Sec. 222.4 is amended to

conform the proof of mailing requirements to those accepted under other

Department programs, which do not accept private metered postmarks or

mail receipts that are not dated by the U.S. Postal Service, and new

Secs. 222.12-222.18 are added to implement the authority in section

8012 of the Act for forgiveness of certain Impact Aid overpayments;

In subpart B (Payments for Federal Property under Section

8002 of the Act), existing Sec. 222.22 is amended to provide

clarification about the treatment of revenues from activities conducted

on Federal property, and a new Sec. 222.23 is added to implement the

new statutory method for valuing Federal property.

A new subpart F is added (Payments to Local Educational

Agencies for Children with Severe Disabilities under Section 8003(g) of

the Act--Secs. 222.80-222.85) to implement the authority in section

8003(g) for supplemental payments for children with severe

disabilities;

In subpart G (Special Provisions for Local Educational

Agencies that Claim Children Residing on Indian Lands), new

Secs. 222.114-222.122 are added 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 Act;

In subpart J (Impact Aid Administrative Hearings and

Judicial Review under Section 8011 of the Act), changes are made to

Secs. 222.151, 222.152, 222.157, and 222.158, including, in

Sec. 222.151, the adoption of a shortened time for filing

administrative appeals (30 days from the adverse action, rather than

the current 60 days) to expedite the redistribution of recovered

overpayments to all applicants;

In subpart K (Determinations under section 8009 of the

Act), Sec. 222.161 is revised to implement new terms used in section

8009 of the Act, Sec. 222.164 is revised regarding notification

procedures for a party initiating a proceeding, Sec. 222.164(b)(5) is

revised to explain the Secretary's flexible predetermination

procedures, and Sec. 222.165 is revised regarding administrative

appeals of section 8009 determinations to include, in part, a more

expedited hearing process.

In addition, the following technical amendments are made. In

subpart C, Sec. 222.36(b) (1) and (2) is amended to conform to

legislative changes in section 8003 of the Act made by section 376 of

the National Defense Authorization Act for Fiscal Year 1997 (Pub. L.

104-201). Previously, section 8003(a)(3) of the Act provided that, for

a school district to be eligible to receive a payment for federally

connected children under section 8003(a)(1) (F) or (G) (formerly

identified as ``civilian b's''), those children had to number at least

2000 in average daily attendance (ADA) and 15 percent of the school

district's total

[[Page 35407]]

ADA. The children described in subparagraph 8003(a)(1) (F) or (G),

respectively, are those children who reside on Federal property but

whose parents neither work on Federal property nor are on active duty

in the military, or children who do not reside on Federal property but

reside with civilian parents employed on Federal property in the same

State. Section 222.36(b) (1) and (2) of the existing regulations

contains parallel requirements. Effective for fiscal year (FY) 1997,

the National Defense Authorization Act for Fiscal Year 1997 modified

the threshold eligibility requirement in section 8003(a)(3) to require

a school district's section 8003(a)(1) (F) and (G) children to number

at least 1000 in ADA or 10 percent of the school district's total ADA.

A corresponding amendment is made to Sec. 222.36(b) (1) and (2) of

these final regulations.

In subpart K, a technical amendment is made to conform

Sec. 222.162(a) to legislative changes in section 8009 of the Act made

by section 10 of the Impact Aid Technical Amendments Act of 1996 (Pub.

L. 104-195). Previously, section 8009 of the Act specified that, to be

certified, a State must have a disparity percentage of no more than 25

percent for FYs 1995, 1996, and 1997, and no more than 20 percent for

FYs 1998 and 1999. Section 222.162 of the existing regulations contains

parallel requirements. The Impact Aid Technical Amendments Act of 1996

modified section 8009 of the Act to continue the 25 percent standard

for FYs 1998 and 1999, rather than implement a new 20 percent standard.

These final regulations implement this change by revising

Sec. 222.162(a) to eliminate the 20 percent requirement for FYs 1998

and 1999 because that requirement is no longer authorized by section

8009 of the Act.

Finally, for consistency purposes, a technical amendment is made to

remove from the Impact Aid regulations unnecessary citations to the

Secretary's general rulemaking authority (20 U.S.C. 1221e-3 and 20

U.S.C. 1221e-3(a)(1)).

Significant Changes

In addition to minor editorial, clarifying, and technical

revisions, the following significant changes from the NPRM are made in

these final regulations.

1. Sections 222.12-222.18. The regulatory sections that implement

the Secretary's authority in section 8012 of the Act to forgive certain

Impact Aid overpayments are reorganized in response to public comment

to make them shorter and easier to follow. As a consequence of this

reorganization, three new sections are added. Substantive changes from

the NPRM concerning the overpayment forgiveness provisions are

described separately below.

2. Section 222.16 (Sec. 222.13(c) in the NPRM). The requirements

for information and documentation to be submitted by LEAs requesting

overpayment forgiveness are simplified and changed. LEAs will not be

required to submit maximum local real property tax rate data, or data

regarding the equalized assessed valuation of real property per pupil

(EAVPP). Instead, any LEA requesting forgiveness, not just LEAs whose

boundaries are the same as a Federal military installation, will be

required to submit its average per pupil expenditure (APPE) data, and

the APPE figure for its State (in addition to local real property tax

rate data that most LEAs also will submit).

3. Section 222.17 (Sec. 222.14 in the NPRM). The criteria that the

Secretary will use to determine what constitutes undue financial

hardship and serious harm to an LEA's educational program are

simplified, by reducing them to three measures: The total amount of the

LEA's eligible overpayments on the date of its forgiveness request; the

LEA's local real property tax rate in comparison to the State average

local real property tax rate; and the LEA's APPE in comparison to the

State APPE. For LEAs whose boundaries are the same as a Federal

military installation, and for other LEAs with no or minimal local real

property tax revenues in comparison to other LEAs in the State, the

Secretary will use only an APPE measure in addition to the amount of

the LEA's total eligible overpayments.

4. Section 222.18 (Sec. 222.15 in the NPRM). The portion of the

total eligible overpayment that the Secretary may forgive is increased,

by raising the carryover amount that is allowed before repayment is

required from five percent to 10 percent of the LEA's preceding year's

total current expenditures.

Analysis of Comments and Changes

In response to the Secretary's invitation to comment in the NPRM,

the Department received eight letters, which were from State and local

officials and the National Association for Federally Impacted Schools

(NAFIS). Several commenters indicated their support of a number of

aspects of the proposed regulations. Most of the letters contained

multiple comments and addressed the proposed overpayment forgiveness

provisions. An analysis of the comments, and the Secretary's responses

to those comments, is presented below.

Clarity of Regulations

Comment: One commenter indicated that the regulatory requirements

were not clearly stated because they refer to numeric sections of the

law with which most people are unfamiliar, so that applicants are

required to reread sections of the law to understand the effect of the

regulations. In addition, the commenter stated that the regulations

would be more understandable if shorter sections were used and that the

numeric and alphabetical subsection labelling is confusing.

Discussion: In keeping with the Administration's regulatory reform

initiatives, the Department is committed to reducing the volume of

regulations. Thus, for example, the Department often avoids repeating

in regulations those provisions of law that are clear in their

statutory form. While acknowledging that this policy may require a

reader to refer to two documents, rather than one, the Department

believes that the benefits of this approach outweigh any disadvantage

with respect to the Impact Aid regulations.

Applicants for Federal financial assistance under a particular

program are urged to familiarize themselves with the statute governing

that program, as well as the regulations. Copies of the current Impact

Aid statute are available upon request from the Department's Impact Aid

Program office. In addition, a citation to the portion of the Impact

Aid law, as published in the United States Code, relating to each

regulation follows each section of the program regulations. An

applicant needing clarification of a regulatory or statutory

requirement is invited to communicate with the departmental

representative listed in this preamble under the heading ``For Further

Information Contact.''

In preparing regulations and other documents for publication in the

Federal Register, the Department adheres to requirements prescribed by

the Office of the Federal Register. These requirements--applied

uniformly to all Federal Departments and Agencies--govern such matters

as the lettering and numbering of paragraphs, the order of that

lettering and numbering, and indentation of paragraphs. The Department

has submitted a copy of this comment to the Office of the Federal

Register for the information and use of that Office.

Subject to the Federal Register requirements, the Department's

policy is to draft regulatory sections that are short, clear, and as

readable as possible.

[[Page 35408]]

As a part of this policy, on September 29, 1995, the Secretary

published comprehensive final regulations for the Impact Aid Program

that reorganized and streamlined the existing regulations to be

logically organized, clearly stated, and easier to use. These final

regulations are designed to fit into that streamlined reorganization.

In addition, changes have been made in the overpayment forgiveness

provisions of this final regulation (Secs. 222.12-222.18) to shorten

and simplify those individual regulatory sections.

Changes: The overpayment forgiveness provisions (originally

Secs. 222.12-222.15 in the NPRM) have been reorganized to shorten

individual regulatory sections, resulting in the addition of three new

sections (now Secs. 222.12-222.18). The regulatory language also has

been simplified and condensed where possible.

Subpart A--General

Application Filing Requirements (Sec. 222.4)

Comment: One commenter believed that not being able to use private

metered postmarks for applications will cause unnecessary hardship to

districts and discriminate against law-abiding districts for the misuse

of a few other districts that, in any event, already are regulated by

the U.S. Postal Service. Another commenter agreed with the Department's

proposal not to accept private metered postmarks.

Discussion: Changing to a proof of mailing standard that does not

accept private metered postmarks or mail receipts that are not dated by

the U.S. Postal Service is consistent with the standards of other

Department programs. Although the U.S. Postal Service does regulate in

this area, the Impact Aid Program has received applications in the past

with private postmark dates that were manipulated without detection by

the U.S. Postal Service. This regulation does not prohibit districts

from using private meter postage for mailing applications. Rather, the

purpose of the provision is to ensure that districts are aware that

private meter postage alone will not be sufficient proof of mailing

should application receipt issues arise after a deadline has passed.

Changes: None.

Comment: One commenter suggested that the Department accept

electronic mail as an alternative means of application receipt.

Discussion: As a goal, the Department strongly supports electronic

transmission as an alternative means of submitting an application for

Federal financial assistance, and has begun investigating appropriate

methods and necessary technology support systems to accomplish that

objective on a Department-wide basis. As part of this process, the

Department is participating in an interagency working group on the

issue, and currently uses electronic transmission and receipt for

documents in several areas, including small purchase contracts and data

transmission for postsecondary education grants. At this time the

Department is not able to accept Impact Aid applications that have been

transmitted electronically, but continues to move ahead on this matter

to prepare for future acceptance of electronic submissions.

Changes: None.

Overpayment Forgiveness Provisions (Secs. 222.12-222.15 in the NPRM;

Sec. 222.12-222.18 in these final regulations)

General.

Comment: One commenter, an LEA, believed that it was not affected

by the overpayment forgiveness provisions because the district was in

an equalized State that reduced State aid by an amount equal to 100

percent of the district's Impact Aid.

Discussion: Even if an LEA's State aid were reduced by an amount

equal to 100 percent of the LEA's Impact Aid payment, it could benefit

from the overpayment forgiveness provisions. This is because, unless

its overpayment were forgiven, the LEA would still be responsible for

repayment to the Federal Government of any Federal funds received by

the district for which the district was not eligible.

Moreover, when making reductions in State aid, States that are

certified as equalized States qualified to make reductions in State aid

under section 8009(b) of the Act are required to set aside and not

consider certain of an LEA's Impact Aid receipts, including funds under

section 8003(f) for heavily impacted districts. See section

8009(d)(1)(B) of the Act and 34 CFR 222.161(a)(1)(iii) and 222.163. The

most recent data available to the Department from the commenter's State

indicate that the State is properly setting aside the appropriate

categories and amounts of Impact Aid and that a reduction in State aid

equal to less than 100 percent of the commenter's Impact Aid was in

fact made. Reductions in excess of the amounts authorized in section

8009(d)(1)(B) of the Act and 34 CFR 222.161(a)(1)(iii) and 222.163

would be unlawful.

Changes: None.

Comment: One commenter stated that the proposed overpayment

forgiveness provisions are too strict, and that no repayment should be

sought if the overpayment was due to the error of the Department or the

State educational agency, particularly if the error concerned local

contribution rates (LCRs).

In addition, the commenter believed that overpayments should be

forgiven in full if the Department did not discover the error in the

same fiscal year in which the affected payment was made. In particular,

the commenter believed that the Department should review claims for

federally connected children with disabilities promptly to catch any

errors made by school districts in their claims of those children.

Discussion: The proposed overpayment forgiveness provisions include

flexibility for the Secretary to forgive an overpayment in whole if the

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

manifestly unjust (Secs. 222.13(a)(2)(ii) and 222.15(a)(2) in the NPRM;

Secs. 222.14(c)(2) and 222.18(a)(2) in the final regulations). As

indicated in the preamble to the NPRM (61 FR 52566), the Secretary

anticipates that this special provision will be used only on the rare

occasion when an overpayment was due to an error on the part of the

Department that an LEA could not reasonably be expected to identify and

report. An example of a rare occasion when this paragraph would apply

is a case in which a calculation of an LEA's payment was made by the

Department using the wrong LCR and the LEA could not have known that

the LCR was too high.

Because payments based upon federally connected children under

section 8003 of the Act now are based upon preceding year student count

data, the Impact Aid Program normally would have time to discover any

errors in those reported student counts before making payments based

upon those children. However, because the Department cannot verify the

data in every application each year prior to making payments, it is

important that applicants carefully read and follow the application

instructions to ensure that only eligible federally connected children,

including eligible federally connected children with disabilities, are

included in their student counts.

Changes: None.

Comment: One commenter stated that the overpayment forgiveness

provisions should not be applied retroactively, and that forgiveness

requests filed before the effective date of the final regulations

should be considered only under the

[[Page 35409]]

provisions of the law in effect at the time the request was filed.

Discussion: In reauthorizing the Impact Aid Program, Congress

provided authority to the Secretary to forgive overpayments owed by

LEAs when it enacted section 8012 of the Act. This unique and limited

authority requires, by its very nature, the careful balancing of

competing interests of Impact Aid recipients. The competing interests

involved in deciding overpayment forgiveness requests specifically

noted by the Secretary in the preamble to the NPRM are the interests of

the districts applying for forgiveness and the interests of those

applicants eligible for redistribution of the overpaid Impact Aid

funds. Rather than undertake the difficult balancing of these competing

interests solely on the basis of statutory authority that lacks

specific measures, and in a hasty and relatively uninformed manner, the

Secretary through this rulemaking proceeding sought to obtain

information and views from all of the affected parties about how best

to implement the new legislation.

The appropriateness of seeking comments on this unprecedented

authority is reflected in the facts that the proposed overpayment

forgiveness provisions garnered more public comments than the other

provisions of the NPRM and that the Secretary has made significant

changes as a result of those comments. Deciding overpayment forgiveness

requests solely on the basis of the statute without regard to the

information and views expressed during the rulemaking proceeding would,

in the Secretary's view, result in uninformed and inappropriate

decisions being made without the benefit of the knowledge acquired in

the rulemaking proceeding.

The Secretary has received a number of overpayment forgiveness

requests, both before and after the statutory authority was enacted.

For reasons of fairness, the Secretary concludes that it would be

inappropriate to subject some overpayment requests to the statutory

standard without benefit of implementing regulations, but consider

other overpayment requests under the more fully developed standards.

Therefore, all of those requests will be decided using the same

consistent and uniform measures that are published in these final

regulations.

Changes: None.

``Manifestly Unjust'' Provision (Sec. 222.13(a)(2)(ii) in the NPRM;

Sec. 222.14(c)(2) in the final regulations)

Comment: One commenter stated that the manifestly unjust provision

is too vague and needs clarification as to the types of Department

errors that are covered and how the Department will determine what

overpayments qualify under that special provision.

Discussion: The special provision that allows the Secretary to

forgive an overpayment if it is determined, on a case-by-case basis,

that the repayment would be ``manifestly unjust,'' is designed to allow

the Secretary flexibility to forgive overpayments caused by Department

error in future unanticipated situations. It would defeat the flexible

nature of this provision to speculate about the possible situations

that might occur and limit its applicability to those situations. As

the Secretary indicated in the preamble to the NPRM, however, the

Secretary anticipates applying this provision only on the rare occasion

in which an LEA could not reasonably be expected to identify and report

the overpayment when it is made.

Changes: None.

Filing Deadlines (Sec. 222.13(b) in the NPRM; Sec. 222.14 (a) and (b)

in the final regulations)

Comment: One commenter stated that the time limit for filing a

forgiveness request should be changed from 30 to 60 days because of the

slow receipt of mail by rural Indian school districts. The commenter

believed that 30 days would not give these districts sufficient time to

prepare a reply and submit the required supporting documentation.

Discussion: The time limit for filing a forgiveness request is

determined for all school districts from their date of receipt of the

overpayment notice, not from the date of mailing of that document.

Therefore, differences in the length of time that it takes for various

school districts to receive the overpayment notices should not affect

the amount of time available to respond with an overpayment forgiveness

request. The Secretary believes that 30 days is a reasonable amount of

time to allow for a school district to submit a forgiveness request. If

that is not sufficient time for the districts also to gather the

required supporting documentation, the regulations allow a district to

request an extension of time for the submission of that information

(Sec. 222.13(b)(3) in the NPRM; Sec. 222.14(b) in the final

regulations).

Changes: None.

Required Information and Documentation (Sec. 222.13(c) in the NPRM;

Sec. 222.16 in the final regulations)

Comment: One commenter stated that per pupil expenditure (PPE) data

should be required from all school districts, rather than just from

school districts with boundaries that are the same as a Federal

military installation (``coterminous'' districts). Another commenter

believed that PPE data should be treated similarly for coterminous

school districts as for other school districts that have real property

taxing authority. To accomplish this result, the commenter believed

that PPE data for coterminous districts must exclude certain

expenditures such as repair, renovation, and building maintenance to

Federal buildings, expenditures for construction of new buildings,

school bus purchases, and capital outlay, because a ``taxing LEA''

could fund those expenditures through bonded debt that would not be

included in its PPE figure.

Discussion: The Secretary agrees that the PPE figure is a good

measure (in addition to others) to use for all school districts in

determining whether a district has the fiscal capacity to repay an

overpayment. Therefore, as discussed below, changes have been made in

the standards that the Secretary will apply to determine whether

repayment of an overpayment would cause undue financial hardship and

serious harm to a district's educational program. A corresponding

change has been made in the data that an LEA is required to submit, to

require every LEA requesting forgiveness to submit its average PPE

(APPE) data and the APPE figure for its State.

The same definition of APPE for an LEA, which is based upon the

definition of ``current expenditures'' as defined in section 8013 of

the Act, applies to all school districts, and excludes capital outlay

expenditures. Thus, if a coterminous school district has extensive

repair or renovation costs, those costs likely would be classified as

capital outlay expenditures and excluded from the district's current

expenditures (and its APPE), whether or not they are funded through

debt service. Likewise, the purchase of replacement equipment, such as

school buses, is treated as a capital outlay and excluded from current

expenditures and APPE figures if the State treats those purchases as a

capital outlay.

Changes: A change is made to require all LEAs requesting

overpayment forgiveness to submit APPE data for the preceding year,

rather than requiring only coterminous districts to submit those data.

Comment: One commenter stated that the Secretary should not require

LEAs to submit information about a State's maximum local real property

tax rate or the equalized assessed valuation of real property per pupil

(EAVPP), because

[[Page 35410]]

that information should not be used to determine whether repayment of

an overpayment would cause undue financial hardship and serious harm to

an LEA's educational program.

Discussion: The Secretary has decided to use standards other than a

State's maximum local real property tax rate and a district's EAVPP in

determining whether the district has the fiscal capacity to repay an

overpayment, and, as discussed below, will not apply these measures to

determine whether repayment of an overpayment would cause undue

financial hardship and serious harm to a district's educational

program. Accordingly, LEAs will not be required to submit data on these

measures.

Changes: A change has been made by removing the requirement that an

LEA requesting overpayment forgiveness must submit State maximum local

real property tax rate and EAVPP data (Sec. 222.13(c)(1) (iii) and (v)

in the NPRM; Sec. 222.16(a) in the final regulations).

Determination of Undue Financial Hardship and Serious Harm to an LEA's

Educational Program (Sec. 222.14 in the NPRM; Sec. 222.17 in the final

regulations)

Comment: Two commenters believed that the Secretary should change

the measures used to determine undue financial hardship and serious

harm to an LEA's educational program by removing the State maximum

local real property tax rate and EAVPP measures, and using instead a

State average local real property tax rate measure and a PPE measure.

One of those commenters stated that a State maximum tax rate measure

was not a good indicator of local effort because an LEA might be

levying a tax rate significantly above the State average, but still

fail to be at 90 percent of the State maximum. In addition, that

commenter indicated that the State maximum measure should not be used

because annual changes by the State to that measure could result in

arbitrary results, and State limitations on tax increases could

prohibit LEAs from being able to raise their tax levies sufficiently to

meet the standard. The second commenter also believed that the State

maximum measure would unfairly affect Indian districts that did not

have a sufficient tax base or number of taxpayers to absorb a large tax

increase.

As an alternative, both of these commenters suggested using a State

average tax rate measure for all LEAs, instead of for coterminous

districts only, because it would be a more consistent standard

nationwide and a better measure of local effort. One of these

commenters believed that it would be reasonable to consider that an LEA

had met the standard if the LEA were levying a local real property tax

that was at least 90 percent of the State average local real property

tax rate. A third commenter stated, however, that the State average

local real property tax rate, although it can be calculated, is not a

good measure for ``unequalized'' States such as New York, and that a

``local contribution rate'' measure should be used instead.

Finally, two commenters believed that the EAVPP standard should be

eliminated because it is too subject to manipulation, and is not a good

measure of an LEA's financial capacity because it ignores other

available revenues. If the EAVPP standard were retained, one of the

commenters believed that some consideration also should be given to

other financial resources of an LEA because some States make

adjustments in State aid for LEAs with a low EAVPP.

The commenters suggested as a substitute for EAVPP that, in

addition to the tax rate standard, a lower-than-average PPE standard

generally should be applied, and that the Secretary also should

consider an LEA's ability to raise additional revenues by increasing

its local real property tax levy.

For coterminous districts, one commenter agreed with the NPRM

provision that the PPE standard would be met if the LEA's APPE was no

more than 125 percent of the State APPE. That commenter indicated that

the same standard should be extended as well to heavily impacted Indian

lands LEAs with little local real property tax revenue capacity. In

addition, that commenter suggested that, for those special districts,

the Secretary should retain the flexibility to adjust the tax rate

percentage, or waive it altogether, if the Secretary believed that the

educational program of the district otherwise would suffer.

Discussion: The Secretary agrees with the importance of using

uniform and consistent measures that can be applied nationwide, and

therefore eliminates the State maximum tax rate measure in these final

regulations because only some States have maximum tax rates. The

Secretary also agrees with the importance of considering all sources of

revenue, and therefore eliminates the EAVPP measure. In addition, the

Secretary agrees that good measures of an LEA's fiscal capacity are the

LEA's local effort as measured by its local real property tax rate in

comparison to the State average, and its per pupil expenditures in

comparison to the State average, and therefore generally adopts those

measures, combined with a minimum eligible overpayment balance, to

determine whether repayment would result in undue financial hardship

and serious harm to an LEA's educational program.

The Secretary also agrees, however, that it would be unfair to

impose a local effort measure on districts that have no or little

ability to raise local real property tax revenues in comparison with

other LEAs in their State. Therefore, for all of those districts, the

Secretary eliminates in these final regulations the use of a local

effort measure, and will use instead the PPE measure that was proposed

in the NPRM for coterminous districts (in addition to a minimum

eligible overpayment balance). That PPE measure is that the LEA's APPE

for the preceding year is no more than 125 percent of the State APPE.

The Secretary does not believe that a local contribution rate

measure is an appropriate substitute for a local real property tax rate

measure. For States in which tax rates are ``unequalized'' among school

districts, the Secretary expects the State to equalize those rates

before calculating a State average local real property tax rate in

order to remove any distortion of the resulting average.

Finally, the Secretary agrees that it also would be a good measure

of an LEA's fiscal capacity to consider the amount of additional

revenues that could be raised by the LEA through an increase in taxes.

However, that measure is not being adopted in these final regulations

because it may not be possible to apply it consistently across States.

The Department also believes that its application would impose a

significant administrative burden on some LEAs and States, and on the

Federal Government.

Changes: The State maximum local real property tax rate and EAVPP

measures of fiscal burden are eliminated, and the following three

measures adopted for all LEAs except those with no or little local real

property tax revenues: (1) The LEA's eligible overpayments on the date

of its request must total at least $10,000; (2) the LEA's local real

property tax rate for current expenditures for the preceding year must

be equal to or above the State average; and (3) the LEA's APPE for the

preceding year must be less than the State APPE. The measure for

coterminous LEAs is extended to apply as well to other LEAs with no or

minimal local real property tax revenues. That standard (in addition to

the total overpayment amount equalling or exceeding $10,000) is that

the LEA's APPE for the preceding fiscal year does

[[Page 35411]]

not exceed 125 percent of the State APPE.

Amount Forgiven (Sec. 222.15 in the NPRM; Sec. 222.18 in the final

regulations)

Comment: The NPRM proposed to determine the amount of the

overpayment to be forgiven depending on the amount of an LEA's closing

balance the previous year in comparison with its previous year's total

current expenditures (TCE). In cases where an LEA's carryover was more

than five percent of its previous year's TCE, the NPRM provided that

the LEA would repay all or a portion of the overpayment. One commenter

stated that, for LEAs with strict State budget limits that are required

to use closing balances to fund override expenditures because they have

very few taxpayers, the Secretary in determining the overpayment amount

to be forgiven should remove from the carryover balance the portion of

that balance needed to fund the override expenditures.

Two commenters believed that a five percent carryover was too

small, and that the allowed carryover should be increased to 25 percent

to allow LEAs a cash reserve to cover three months operating expenses.

In addition, one of those commenters indicated that, in determining the

amount to be forgiven, the Secretary should adopt a method that takes

into consideration an LEA's ability to raise taxes to repay the debt.

Under the proposed method suggested by that comment, all eligible LEAs

would repay the amount by which their closing balance exceeded 25

percent of the previous year's total current expenditures, and, in

addition, all LEAs would repay the lesser of the amount of local

revenue that could be raised with (1) a five percent tax increase, or

(2) the maximum tax rate increase that legally could have been adopted.

Discussion: As noted in the preamble to the NPRM, the basis for

using an LEA's closing balance, as expressed as a percentage of TCE, to

demarcate the extent of forgiveness for eligible overpayments was

intended to provide LEAs with reasonable minimal amounts to allow for

the transition from one fiscal year to the next. In light of this

limited purpose, the Secretary proposed the level of five percent of

TCE. In response to comments that a sufficient cash reserve should be

provided for a longer transitional period, however, the Secretary is

increasing the size of the permitted reserve to 10 percent. While the

Secretary considers this substantial enlargement of the permitted

reserve to be consistent with the stated purpose, a further increase in

the allowable carryover reserve to one that might be sufficient for a

period of up to three months--one full quarter--would be inappropriate

for the limited transitional purpose of this provision.

No special provision has been made in these final regulations for

LEAs that use ending balances to fund override expenditures in States

with budget limits. As noted, the purpose of this provision is to

provide for a transition from one fiscal year to another. Creating an

exception allowing larger reserves solely for LEAs that fund subsequent

year operations through overrides funded with ending balances would not

be consistent with the purpose of the provision, and would be unfair to

other LEAs that are not subject to budget limits but nonetheless use

their ending balances to fund operations in the ensuing year. In

addition, the Secretary believes that the doubling in size of the

allowable carryover reserve should help address the concerns of any

district that uses ending balances to fund override spending.

Finally, the allowable carryover reserve is considered only in

determining the amount of the overpayment that will be forgiven. The

Secretary would not expect every district to use all of its closing

balance in excess of the allowable cash reserve to satisfy immediately

the unforgiven portion of its overpayments. As has been the practice in

the past, in appropriate cases, repayment may be made through

administrative offset, or a repayment schedule can be negotiated to

provide for repayment over time so as not to disrupt the educational

services provided by the LEA.

Changes: The allowed carryover amount, in determining how much of

the eligible overpayments are forgiven, is increased from five percent

to 10 percent of the previous year's total current expenditures.

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

Severe Disabilities Under Section 8003(g) of the Act

Definitions (Sec. 222.80)

Comment: Two commenters indicated that the regulations should

include a definition of the statutory term ``compassionate post

assignment,'' and that the definition of the term should be obtained

from the Department of Defense. One of those commenters suggested that,

absent a definition from the Department of Defense, the Department

should consider defining the term based upon the enrollment of military

students with disabilities. Specifically, the commenter suggested that

the term could be defined as meaning an assignment to any LEA with an

enrollment of children with disabilities that exceeds the State

average, and where at least 25 percent of those children are military

dependents.

Discussion: As stated in the NPRM, the Department has been unable

to obtain a standard definition of the term ``compassionate post

assignment.'' In the absence of a standard or official definition of

the term in Department of Defense statutes, regulations, or other

official policy guidance, the Department has determined that it would

be inappropriate to develop its own definition of the term. The

commenter's suggested definition of the term as any LEA with an above-

State average enrollment of children with disabilities, 25 percent of

whom are military dependents, may in practical effect exclude some LEAs

that do not meet the commenter's standard, but that do meet the section

8003(g) statutory standard of serving two or more severely disabled

students who each have a parent in the uniformed services. For this

reason, the Department believes that it would be inappropriate to adopt

the commenter's suggestion.

Changes: None.

Subpart G--Special Provisions for Local Educational Agencies That Claim

Children Residing on Indian Lands

Withholding and Related Procedures for Indian Policies and Procedures

(Secs. 222.114-222.122)

Comment: One commenter approved of the clarity of the proposed

enforcement regulations in this section but asked whether a school

district claiming children residing on Indian lands under section

8003(a)(1)(C) of the Act could choose to count the children in another

category, thereby waiving the 1.25 payment weight and avoiding the

Indian policies and procedures (IPP) requirements under section 8004 of

the Act, which are associated with children residing on Indian lands.

Discussion: A school district with a pending IPP enforcement issue

that has claimed children residing on Indian lands under section

8003(a)(1)(C) but refused to comply with the IPP requirements cannot

avoid the IPP enforcement provisions, including having its funds

withheld, by deciding not to claim the children on an amended or future

application. However, there is no provision in the Impact Aid statute

that requires a school district to claim children residing on Indian

lands under section 8003(a)(1)(C), even if the children

[[Page 35412]]

would meet the eligibility requirements for the increased payment

weight associated with that section.

While a school district may choose to claim the children in another

payment category, such as under section 8003(a)(1)(F) of the Act, in

order to circumvent or avoid the special provisions relating to school

districts claiming children residing on Indian lands, the Secretary

does not support or endorse such an action. Reclassifying the children

in this way clearly would result in the school district receiving a

lesser Impact Aid payment than it otherwise would receive. Most

importantly, however, the Secretary believes that the requirements of

section 8004 may be beneficial in ensuring the equal participation of

children living on Indian lands in a school district's programs and

activities and affording parents and Indian tribes an opportunity to

present their views on those programs and activities. Therefore, the

Secretary encourages school districts to meet the spirit and the

purpose of the requirements associated with section 8004, which would

also enable them to receive the higher payments for children residing

on Indian lands.

Changes: None.

Secretary's Authority To Withhold Payments (Sec. 222.115)

Comment: Another commenter asked for clarification of the

relationship between the proposed language in Sec. 222.115(b) and

Sec. 222.113(c).

Discussion: Section 222.115(b) provides that the Assistant

Secretary withholds payments to an LEA after an IPP hearing where the

LEA rejects the final determination of the Assistant Secretary or 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. Section 222.113(c) provides that the Assistant

Secretary's final determination under Sec. 222.113(a) is the final

action for the Department concerning the complaint and is subject to

judicial review. When read together, these sections mean that if a

school district appeals a final determination, the Assistant Secretary

is not precluded from withholding the funds in accordance with the

regulations while the appeal is pending.

Changes: None.

Subpart K--Determinations Under Section 8009 of the Act

Treatment of State Aid Under Section 8009 of the Act (Sec. 222.161)

Comment: One commenter stated that the definition of ``total local

tax revenues'' should be clarified by adding the word ``tax'' after the

word ``including.''

Discussion: ``Local tax revenues'' as defined in Sec. 222.161(c)

clearly includes the proceeds from various types of taxes, and does not

include other types of revenues.

Changes: In the definition of ``total local tax revenues,'' the

word ``tax'' is added after the word ``including.''

Paperwork Reduction Act of 1995

Under the Paperwork Reduction Act of 1995, no persons are required

to respond to a collection of information unless it displays a valid

OMB control number. The valid OMB control number assigned to the

collections of information in these final regulations is displayed at

the end of the affected sections of the regulations.

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: June 26, 1997.

Richard W. Riley,

Secretary of Education.

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

The Secretary amends part 222 of Title 34 of the Code of Federal

Regulations as follows:

PART 222--IMPACT AID PROGRAM

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

follows:

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

Secs. 222.7, 222.9, 222.10 and 222.11 [Amended]

2. In the authority citation for the following sections, remove

``1221e-3,'':

Sec. 222.7.

Sec. 222.9.

Sec. 222.10.

Sec. 222.11.

Secs. 222.50, 222.94, 222.95, 222.103, 222.104, 222.108-

222.113 [Amended]

3. In the authority citation for the following sections, remove

``1221e-3(a)(1),'':

Sec. 222.50.

Sec. 222.94.

Sec. 222.95.

Sec. 222.103.

Sec. 222.104.

Sec. 222.108.

Sec. 222.109.

Sec. 222.110.

Sec. 222.111.

Sec. 222.112.

Sec. 222.113.

4. 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]

5. In Sec. 222.11, the introductory text is amended by removing

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

place ``Except as otherwise provided in Secs. 222.12-222.18,''.

Sec. 222.13 [Redesignated as Sec. 222.19]

6. Section 222.13 is redesignated as Sec. 222.19, and new

Secs. 222.12-222.18 are added to read as follows:

Sec. 222.12 What overpayments are eligible for forgiveness under

section 8012 of the Act?

(a) The Secretary considers as eligible for forgiveness under

section 8012 of the Act (``eligible overpayment'') any 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 (except for the types of overpayments listed in Sec. 222.13),

and that--

(1) Remains owing on or after July 31, 1997;

[[Page 35413]]

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

the LEA before July 31, 1997; or

(3) Is the subject of a pending, timely written request for an

administrative hearing or reconsideration, and has not previously been

reviewed under Secs. 222.12-222.18.

(b) The Secretary applies Secs. 222.14-222.18 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 overpayments are not eligible for forgiveness under

section 8012 of the Act?

The Secretary does not consider the following overpayments to be

eligible for forgiveness under section 8012 of the Act:

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

16 of Public Law 81-815.

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

8003(g) of the Act (payments to LEAs for certain federally connected

children with severe disabilities, implemented in subpart F of this

part), that exceeds the LEA's maximum basic support payment under

section 8003(b) of the Act.

(c) Any overpayment caused by an LEA's failure to expend or account

for funds properly in accordance with the following laws and

regulations:

(1) Section 8003(d) of the Act (implemented in subpart D of this

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

connected children with disabilities.

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

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

Sec. 222.14 What requirements must a local educational agency meet for

an eligible overpayment to be forgiven in whole or part?

The Secretary forgives an eligible overpayment, in whole or part as

described in Sec. 222.18, if--

(a) An LEA submits to the Department's Impact Aid Program office a

written request for forgiveness by the later of--

(1) Thirty days from the LEA's initial receipt of a written notice

of the overpayment; or

(2) September 2, 1997;

(b) The LEA submits to the Department's Impact Aid Program office

the information and documentation described in Sec. 222.16 by the

deadlines described in paragraph (a) of this section, or other time

limit established in writing by the Secretary due to lack of

availability of the information and documentation; and

(c) The Secretary determines under Sec. 222.17 that--

(1) In the case either of an LEA's or the Department's error,

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

(2) In the case of the Department's error, determined on a case-by-

case basis, repayment would be manifestly unjust (``manifestly unjust

repayment exception'').

Sec. 222.15 How are the filing deadlines affected by requests for

other forms of relief?

Unless the Secretary (or the Secretary's delegatee) extends the

applicable time limit in writing--

(a) A request for forgiveness of an overpayment under Sec. 222.14

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

for an administrative hearing under Sec. 222.151; and

(b) 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

Sec. 222.14.

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

Sec. 222.16 What information and documentation must an LEA submit for

an eligible overpayment to be considered for forgiveness?

(a) Every LEA requesting forgiveness must submit, within the time

limits established under Sec. 222.14(b), the following information and

documentation for the fiscal year immediately preceding the date of the

forgiveness request (``preceding fiscal year''):

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

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

purposes, as described in Sec. 222.17(b).

(3) The average local real property tax rate of all LEAs in the

State.

(4) The average per pupil expenditure (APPE) of the LEA, calculated

by dividing the LEA's aggregate current expenditures by the total

number of children in average daily attendance for whom the LEA

provided a free public education.

(5) The APPE of the State, as defined in section 8013 of the ESEA.

(b) An LEA requesting forgiveness under Sec. 222.14(c)(2)

(manifestly unjust repayment exception), or Sec. 222.17(a)(3) (no

present or prospective ability to repay), also must submit written

information and documentation in specific support of its forgiveness

request under those provisions within the time limits established under

Sec. 222.14(b).

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

Sec. 222.17 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 an LEA and

seriously harm its educational program if the LEA meets the

requirements in paragraph (a)(1), (2), or (3) of this section.

(1) An LEA other than an LEA described in paragraphs (a)(2) and (3)

of this section meets the requirements of paragraph (a) of this section

if--

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

total at least $10,000;

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

purposes, for the preceding fiscal year, is equal to or higher than the

State average local real property tax rate for that preceding fiscal

year; and

(iii) The LEA's average per pupil expenditure (APPE) (as described

in Sec. 222.16(a)(4)) for the preceding fiscal year is lower than the

State APPE (as described in Sec. 222.16(a)(5)) for that preceding

fiscal year.

(2) The following LEAs qualify under paragraph (a) of this section

if they meet the requirements in paragraph (a)(1)(i) of this section

and their APPE (as described in Sec. 222.16(a)(4)) for the preceding

fiscal year does not exceed 125 percent of the State APPE (as described

in Sec. 222.16(a)(5)) for that preceding fiscal year:

(i) An LEA with boundaries that are the same as a Federal military

installation.

(ii) Other LEAs with no local real property tax revenues, or with

minimal local real property tax revenues per pupil due to substantial

amounts of Federal property in the LEA as compared with the average

amount of those revenues per pupil for all LEAs in the State.

(3) 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) 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

[[Page 35414]]

alternative, the Secretary computes 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).

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

Sec. 222.18 What amount does the Secretary forgive?

For an LEA that meets the requirements of Sec. 222.14(a) (timely

filed forgiveness request) and Sec. 222.14(b) (timely filed 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. 222.17 (undue financial hardship), and

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

immediately preceding the date of its forgiveness request (``preceding

fiscal year'') is ten percent or less of its total current expenditures

(TCE) for that year; or

(2) The manifestly unjust repayment exception in Sec. 222.14(c)(2).

(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. 222.17 (undue financial hardship), and the LEA's

preceding fiscal year's current expenditure closing balance is more

than ten percent of its 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

ten percent of its preceding fiscal year's TCE (``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 10 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 10 percent of the preceding year's TCE. This

calculation is made by subtracting 10 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)

7. 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

calculated under section 8002(b)(2) 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. 6901-6906.

* * * * *

8. 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.

(3) The local official 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 an

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 a FMV for the Federal

forest of $1 million (woodland), and a 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

[[Page 35415]]

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)

9. Section 222.36 is amended by revising paragraph (b) (1) and (2)

to read as follows:

Sec. 222.36 What minimum number of federally connected children must a

local educational agency have to receive a payment on behalf of those

children under section 8003 (b) and (e)?

* * * * *

(b) * * *

(1) 1,000 in ADA; or

(2) 10 percent of the total number of children in ADA.

* * * * *

10. Subpart F (Payments to Local Educational Agencies for Children

with Severe Disabilities under Section 8003(g) of the Act), consisting

of Secs. 222.80 through 222.85, is added to read as follows:

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?

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. 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 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) of the Act, 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

[[Page 35416]]

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.

(Approved by the Office of Management and Budget under control

number 1810-0036)

(Authority: 20 U.S.C. 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) of the Act, 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

this part.

(Authority: 20 U.S.C. 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) of the Act

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, and adding an OMB control number before the

authority citation, 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--

* * * * *

(Approved by the Office of Management and Budget under control

number 1810-0036)

12. New Secs. 222.114 through 222.122 are added to subpart G of

this part, 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?

Sec. 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))

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).

[[Page 35417]]

(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. 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 this

part.

(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. 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, DC, 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.

(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

[[Page 35418]]

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 a local educational agency 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]

13. 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''.

14. 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

* * * * *

15. 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?

* * * * *

[[Page 35419]]

(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))

16. 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]

17. In Sec. 222.156, paragraph (g) is amended by removing ``hearing

examiner'', and adding in its place ``ALJ''.

18. Section 222.157 is amended by revising the heading 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)(ii)

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.

* * * * *

19. In Sec. 222.158, the heading, introductory text, 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--

(a) * * *

(b) Mails to each party written notice of the Secretary's final

decision.

(Authority: 20 U.S.C. 7711(a))

20. In Sec. 222.161, paragraph (c) is amended 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. The following definitions apply to this subpart:

* * * * *

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 tax 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.

* * * * *

21. In Sec. 222.162, paragraph (a) is revised to read as follows:

Sec. 222.162 What disparity standard must a State meet in order to be

certified and how are disparities in current expenditures or revenues

per pupil measured?

(a) Percentage disparity limitation. The Secretary considers that a

State aid program equalizes expenditures if the disparity in the amount

of current expenditures or revenues per pupil for free public education

among LEAs in the State is no more than 25 percent. In determining the

disparity percentage, the Secretary disregards LEAs with per pupil

expenditures or revenues above the 95th or below the 5th percentile of

those expenditures or revenues in the State. The method for calculating

the percentage of disparity in a State is in the appendix to this

subpart.

* * * * *

21. In Sec. 222.164, paragraphs (a)(2) and (b) are revised, and an

OMB control number is added before the authority citation, 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.

[[Page 35420]]

(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 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.

* * * * *

(Approved by the Office of Management and Budget under control

number 1810-0036)

(Authority: 20 U.S.C. 7709)

22. 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.

(g) * * *

(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 of this part.

(Authority: 20 U.S.C. 7709)

[FR Doc. 97-17208 Filed 6-30-97; 8:45 am]

BILLING CODE 4000-01-P