scribed in section 1124(c)(1)(B), the State educational agency shall, if such agency assumes responsibility for the special educational needs of such children, receive the portion of such local educational agency's allocation under sections 1124, 1124A, 1125, and 1125A that is attributable to such children. (2) SPECIAL RULE.-If the State educational agency does not assume such responsibility, any other State or local public agency that does assume such responsibility shall receive that portion of the local educational agency's allocation.

(b) ALLOCATIONS AMONG LOCAL EDUCATIONAL AGENCIES.-The State educational agency may allocate the amounts of grants under sections 1124, 1124A, 1125, and 1125A among the affected local educational agencies

(1) if two or more local educational agencies serve, in whole or in part, the same geographical area;

(2) if a local educational agency provides free public education for children who reside in the school district of another local educational agency; or

(3) to reflect the merger, creation, or change of boundaries of one or more local educational agencies.

(c) REALLOCATION.-If a State educational agency determines that the amount of a grant a local educational agency would receive under sections 1124, 1124A, 1125, and 1125A is more than such local educational agency will use, the State educational agency shall make the excess amount available to other local educational agencies in the State that need additional funds in accordance with criteria established by the State educational agency. SEC. 1127. [20 U.S.C. 6339] CARRYOVER AND WAIVER.

(a) LIMITATION ON CARRYOVER.-Notwithstanding section 421(b) of the General Education Provisions Act or any other provision of law, not more than 15 percent of the funds allocated to a local educational agency for any fiscal year under this subpart (but not including funds received through any reallocation under this subpart) may remain available for obligation by such agency for one additional fiscal year.

(b) WAIVER.-A State educational agency may, once every 3 years, waive the percentage limitation in subsection (a) if—

(1) the agency determines that the request of a local educational agency is reasonable and necessary; or

(2) supplemental appropriations for this subpart become available.

(c) EXCLUSION.-The percentage limitation under subsection (a) shall not apply to any local educational agency that receives less than $50,000 under this subpart for any fiscal year.

PART B-STUDENT READING SKILLS
IMPROVEMENT GRANTS

Subpart 1-Reading First

SEC. 1201. [20 U.S.C. 6361] PURPOSES.

The purposes of this subpart are as follows:

(1) To provide assistance to State educational agencies and local educational agencies in establishing reading programs for

students in kindergarten through grade 3 that are based on scientifically based reading research, to ensure that every student can read at grade level or above not later than the end of grade 3.

(2) To provide assistance to State educational agencies and local educational agencies in preparing teachers, including special education teachers, through professional development and other support, so the teachers can identify specific reading barriers facing their students and so the teachers have the tools to effectively help their students learn to read.

(3) To provide assistance to State educational agencies and local educational agencies in selecting or administering screening, diagnostic, and classroom-based instructional reading assessments.

(4) To provide assistance to State educational agencies and local educational agencies in selecting or developing effective instructional materials (including classroom-based materials to assist teachers in implementing the essential components of reading instruction), programs, learning systems, and strategies to implement methods that have been proven to prevent or remediate reading failure within a State.

(5) To strengthen coordination among schools, early literacy programs, and family literacy programs to improve reading achievement for all children.

SEC. 1202. [20 U.S.C. 6362] FORMULA GRANTS TO STATE EDUCATIONAL AGENCIES.

(a) IN GENERAL.—

(1) AUTHORIZATION TO MAKE GRANTS.--In the case of each State educational agency that in accordance with section 1203 submits to the Secretary an application for a 6-year period, the Secretary, from amounts appropriated under section 1002(b)(1) and subject to the application's approval, shall make a grant to the State educational agency for the uses specified in subsections (c) and (d). For each fiscal year, the funds provided under the grant shall equal the allotment determined for the State educational agency under subsection (b).

(2) DURATION OF GRANTS.-Subject to subsection (e)(3), a grant under this section shall be awarded for a period of not more than 6 years.

(b) DETERMINATION OF AMOUNT OF ALLOTMENTS.—

(1) RESERVATIONS FROM APPROPRIATIONS.-From the total amount made available to carry out this subpart for a fiscal year, the Secretary

(A) shall reserve one-half of 1 percent for allotments for the United States Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, to be distributed among these outlying areas on the basis of their relative need, as determined by the Secretary in accordance with the purposes of this subpart;

(B) shall reserve one-half of 1 percent for the Secretary of the Interior for programs under this subpart in schools operated or funded by the Bureau of Indian Affairs;

(C) may reserve not more than 22 percent or $25,000,000, whichever is less, to carry out section 1205

(relating to external evaluation) and section 1206 (relating to national activities);

(D) shall reserve $5,000,000 to carry out sections 1207 and 1224 (relating to information dissemination); and

(E) for any fiscal year, beginning with fiscal year 2004, for which the amount appropriated to carry out this subpart exceeds the amount appropriated for fiscal year 2003, shall reserve, to carry out section 1204, the lesser of

(i) $90,000,000; or

(ii) 10 percent of such excess amount.

(2) STATE ALLOTMENTS.-In accordance with paragraph (3), the Secretary shall allot among each of the States the total amount made available to carry out this subpart for any fiscal year and not reserved under paragraph (1).

(3) DETERMINATION OF STATE ALLOTMENT AMOUNTS.—

(A) IN GENERAL.-Subject to subparagraph (B), the Secretary shall allot the amount made available under paragraph (2) for a fiscal year among the States in proportion to the number of children, aged 5 to 17, who reside within the State and are from families with incomes below the poverty line for the most recent fiscal year for which satisfactory data are available, compared to the number of such individuals who reside in all such States for that fiscal year.

(B) EXCEPTIONS.

(i) MINIMUM GRANT AMOUNT.-Subject to clause (ii), no State receiving an allotment under subparagraph (A) may receive less than one-fourth of 1 percent of the total amount allotted under such subparagraph.

(ii) PUERTO RICO.-The percentage of the amount allotted under subparagraph (A) that is allotted to the Commonwealth of Puerto Rico for a fiscal year may not exceed the percentage that was received by the Commonwealth of Puerto Rico of the funds allocated to all States under subpart 2 of part A for the preceding fiscal year.

(4) DISTRIBUTION OF SUBGRANTS.-The Secretary may make a grant to a State educational agency only if the State educational agency agrees to expend at least 80 percent of the amount of the funds provided under the grant for the purpose of making, in accordance with subsection (c), competitive subgrants to eligible local educational agencies.

(5) REALLOTMENT.-If a State educational agency described in paragraph (2) does not apply for an allotment under this section for any fiscal year, or if the State educational agency's application is not approved, the Secretary shall reallot such amount to the remaining State educational agencies in accordance with paragraph (3).

(6) DEFINITION OF STATE.-For purposes of this subsection, the term "State" means each of the 50 States, the District of Columbia, and the Commonwealth of Puerto Rico.

(c) SUBGRANTS TO LOCAL EDUCATIONAL AGENCIES.—

(1) AUTHORIZATION TO MAKE SUBGRANTS.-In accordance with paragraph (2), a State educational agency that receives a

grant under this section shall make competitive subgrants to eligible local educational agencies.

(2) ALLOCATION.—

(A) MINIMUM SUBGRANT AMOUNT.-In making subgrants under paragraph (1), a State educational agency shall allocate to each eligible local educational agency that receives such a subgrant, at a minimum, an amount that bears the same relation to the funds made available under subsection (b)(4) as the amount the eligible local educational agency received under part A for the preceding fiscal year bears to the amount all the local educational agencies in the State received under part A for the preceding fiscal year.

(B) PRIORITY.-In making subgrants under paragraph (1), a State educational agency shall give priority to eligible local educational agencies in which at least

(i) 15 percent of the children served by the eligible local educational agency are from families with incomes below the poverty line; or

(ii) 6,500 children served by the eligible local educational agency are from families with incomes below the poverty line.

(3) NOTICE.-A State educational agency receiving a grant under this section shall provide notice to all eligible local educational agencies in the State of the availability of competitive subgrants under this subsection and of the requirements for applying for the subgrants.

(4) LOCAL APPLICATION.-To be eligible to receive a subgrant under this subsection, an eligible local educational agency shall submit an application to the State educational agency at such time, in such manner, and containing such information as the State educational agency may reasonably require.

(5) STATE REQUIREMENT.-In distributing subgrant funds to eligible local educational agencies under this subsection, a State educational agency shall

(A) provide funds in sufficient size and scope to enable the eligible local educational agencies to improve reading instruction: and

(B) provide the funds in amounts related to the number or percentage of students in kindergarten through grade 3 who are reading below grade level.

(6) LIMITATION TO CERTAIN SCHOOLS.-In distributing subgrant funds under this subsection, an eligible local educational agency shall provide funds only to schools that both(A) are among the schools served by that eligible local educational agency with the highest percentages or numbers of students in kindergarten through grade 3 reading below grade level, based on the most currently available data; and

(B)(i) are identified for school improvement under section 1116(b); or

(ii) have the highest percentages or numbers of children counted under section 1124(c).

(7) LOCAL USES OF FUNDS.—

(A) REQUIRED USES.-Subject to paragraph (8), an eligible local educational agency that receives a subgrant under this subsection shall use the funds provided under the subgrant to carry out the following activities:

(i) Selecting and administering screening, diagnostic, and classroom-based instructional reading assessments.

(ii) Selecting and implementing a learning system or program of reading instruction based on scientifically based reading research that

(I) includes the essential components of reading instruction; and

(II) provides such instruction to the children in kindergarten through grade 3 in the schools served by the eligible local educational agency, including children who

(aa) may have reading difficulties;

(bb) are at risk of being referred to special education based on these difficulties;

(cc) have been evaluated under section 614 of the Individuals with Disabilities Education Act but, in accordance with section 614(b)(5) of that Act, have not been identified as being a child with a disability (as defined in section 602 of that Act);

(dd) are being served under such Act primarily due to being identified as being a child with a specific learning disability (as defined in section 602 of that Act) related to reading;

(ee) are deficient in the essential components of reading skills, as listed in subparagraphs (A) through (E) of section 1208(3); or (ff) are identified as having limited English proficiency.

(iii) Procuring and implementing instructional materials, including education technology such as software and other digital curricula, that are based on scientifically based reading research.

(iv) Providing professional development for teachers of kindergarten through grade 3, and special education teachers of kindergarten through grade 12, that

(I) will prepare these teachers in all of the essential components of reading instruction; (II) shall include

(aa) information on instructional materials, programs, strategies, and approaches based on scientifically based reading research, including early intervention, classroom reading materials, and remedial programs and approaches; and

(bb) instruction in the use of screening, diagnostic, and classroom-based instructional reading assessments and other procedures that effectively identify students who may be