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the State is not taking payments under the Act into consideration with regard to a program of State aid, or (2) that the State is taking such payments into consideration with regard to a program of State aid in conformity with section 5(d)(2) of the Act and this subpart.

(c) Failure to provide assurances. A failure on the part of any local or State educational agency to set forth the assurances required by this section constitutes sufficient cause for an initiation of proceedings by the Secretary, as provided for in § 222.68 of this subpart. However, the Secretary will not, because of a failure to provide these assurances, suspend or terminate payments under the Act with respect to such agencies prior to the rendering of a final decision under this subpart.

(Authority: 20 U.S.C. 240(d); S. Rep. No. 1026, 93d Cong., 2d Sess. 163 (1974))

[42 FR 15546, Mar. 22, 1977, unless otherwise noted. Redesignated at 45 FR 77368, Nov. 21, 1980, and amended at 54 FR 37257, Sept. 7, 1989]

§ 222.68

Submissions and consultations.

(a) Initiation. (1) A proceeding under this subpart leading to a determination by the Secretary as to whether, or the extent to which a State may take into consideration payments under the Act in determining relative finanacial resources or need under a program of State aid may be initiated (i) by the State educational agency or other appropriate agency of the State; (ii) by a local educational agency which is or would be adversely affected by that State action; or (iii) by the Secretary, if the Secretary has reason to believe that the State's action is in violation of section 5(d) of the Act and that payments to local educational agencies in the State should therefore be terminated under section 5(d) of the Act.

(2) Whenever a proceeding under this subpart is initiated, the party initiating the proceeding shall give adequate notice to all State and local agencies which might be adversely affected by a determination. Those agencies will be accorded a right of intervention in the determination proceedings.

(3) Nothing in this subpart shall be construed to prohibit a State which has not obtained a prior determination from the Secretary under this subpart from taking into consideration payments under the Act as provided for in section 5(d)(2) of the Act if that action is in conformity with §§ 222.62 and 222.66 of this subpart.

(Authority: 20 U.S.C. 240(d)(2); H.R. Rep. No. 805, 93d Cong., 2d Sess., 42-43 (1974))

(b) Submission. (1) A submission by a State or local educational agency under this section must be made in the manner requested by the Secretary and must contain such information and assurances as may be required by the Secretary in order to reach a determination under section 5(d) of the Act and this subpart.

(2) A State educational agency in a submission must (i) demonstrate how its program of State aid comports with the criteria and standards in § 222.62 and (ii) indicate for each local educational agency receiving funds under the Act the proportion of those funds which will be taken into consideration in accordance with § 222.66.

(3) A local educational agency in a submission must demonstrate how it is affected by (i) the action of the State and (ii) the applicability of the standards set forth in this subpart to such action.

(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 shall result in a summary determination by the Secretary that the program of State aid of that State does not comport with the regulations under this subpart.

(c) Advance consultation. States may upon request consult with the Department regarding the possible application of the requirements of this subpart to relevant proposed legislation (such as legislation providing for taking into account funds under the Act in determining the amount of State aid) prior to the adoption of the legislation.

(Authority: 20 U.S.C. 240(d))

§ 222.69 Notice and opportunity for hearing.

(a) General requirements. The Secretary will afford reasonable notice of a determination under this subpart and opportunity for a hearing to any State educational agency or local educational agency adversely affected by the determination. The Secretary will afford the notice and opportunity for a hearing and the hearing (if requested) shall take place prior to the implementation by the Secretary of any determination. The notice shall set forth the reasons for the determination in sufficient detail to enable the agencies to respond.

(b) Requests for hearing. (1) A State or local educational agency which is adversely affected by a determination under section 5(d) of the Act and this subpart and which desires a hearing regarding that determination must submit a written request for a hearing within 30 days after the Secretary gives appropriate notice. The time within which a request must be filed I will not be extended unless the time for filing the request is extended in writing by the Secretary or the Secretary's designee at the time notice of the determination is given.

(2) A request for a hearing in accordance with this section must specify the issues of fact and law to be considered.

(3) If a local educational agency requests a hearing it must furnish a copy of the request to the appropriate State educational agency. If a State requests a hearing, it must furnish a copy of the request to all local educational agencies whose payments under the Act are or would be taken into consideration in the allocation of State aid.

(c) Time and place of hearing. The hearing shall be held at a time and place fixed by the Secretary or the Secretary's designee (with due regard to the mutual convenience of the parties).

(d) Counsel. In all proceedings under this section, all parties shall have the right to be represented by counsel.

(e) Proceedings. The Secretary may refer the matter in controversy to a hearing officer or to a hearing panel

designated by the Secretary for such purpose. The hearing officer or hearing panel may consist of or include persons who are employees of the Department, employees of other Federal departments and agencies, and persons who are not Federal employees.

(f) Procedural rules. (1) If in the opinion of the hearing officer or panel no dispute exists as to a material fact the resolution of which would be materially assisted by oral testimony, the hearing officer or panel shall afford each party to the proceeding an opportunity for presenting its case at the option of the hearing officer or panel (i) in whole or in part in writing or (ii) in an informal conference which shall afford each party sufficient notice of the issues to be considered (where such notice has not previously been afforded).

(2) With respect to hearings involv ing a dispute as to a material fact the resolution of which would be materially assisted by oral testimony, the hearing officer or panel shall afford each party, in addition to the notice of issues required by paragraph (f)(1)(ii) of this section, the following:

(i) An opportunity for a record of the proceedings;

(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.

(g) Decisions. When a hearing officer or panel is designated to consider the matter, the officer or panel shall make an initial decision based upon written findings, which shall be forwarded to the Secretary. The Secretary may, by appropriate notification to the parties, determine to review it or certify it as the final decision of the Secretary without further proceedings. Written notice of the initial decision shall be sent to all parties. In any case in which the Secretary modifies or reverses the initial decision, a notice of that action shall be accompanied by a written statement of the grounds for the reversal or modification. Notice of the final decision of the Secretary shall be served upon all parties to the hearing, the hearing panel and any local educational agency which may be adversely affected thereby.

(h) Effect on payments. (1) When an appropriate request for a hearing under this section has been made the Secretary will not suspend or terminate payments to a local educational agency under the Act on the basis of section 5(d)(1) of the Act until a final decision with respect to the matter in controversy has been made under this subpart.

(2) If a State has been finally determined, after notice and opportunity for hearing, to have been taking into consideration payments under the Act in violation of sections 5(d) (1) and (2) of the Act, the Secretary shall terminate payments under the Act to all local educational agencies in that State unless the State provides satisfactory assurances within thirty (30) days after receiving notice of a final : decision, that it will restore to all affected local agencies any State aid 1 which was denied the agencies because of those payments.

[ (3) If a State has been finally deter=mined, after notice and opportunity

for a hearing, to have been taking into consideration payments under the Act in excess of the proportion computed under § 222.66 of this subpart, the SecEretary shall terminate payments under

the Act to all local educational agenEcies in that State, unless the State provides satisfactory assurances, within thirty (30) days after receiving notice of a final decision, that it will reimburse all affected local educational agencies for the excess amount of payments taken into consideration in the allocation of State aid and that thereafter it will only take into consideration payments under the Act in the proportion permitted.

(4) During the thirty days provided under paragraphs (h) (2) and (3) of this section, for a State to provide satEisfactory assurances, the Secretary

will suspend payments under the Act Eto all local educational agencies in the State. However, if during that time the State does provide the assurances E required, the Secretary will lift the suspension of payments.

(Authority: 20 U.S.C. 240(d), 242(b); S. Rep. No. 1026, 93d Cong., 2d Sess. 163 (1974))

Subpart H-Provisions Related to Handicapped Children and Children With Specific Learning Disabilities

SOURCE: 54 FR 37257, Sept. 7, 1989, unless otherwise noted.

§ 222.70 What are the scope and purpose of these regulations?

(a) The regulations in this subpart govern the provision of additional payments under section 3(d)(2)(C) of the Act to local educational agencies (LEAS) that provide free appropriate public education to federally connected, handicapped children who are counted under section 3(d)(2)(C) of the Act. See § 222.77 for other statutes and regulations that may be relevant. (b) These regulations set forth the requirements, interpretations, and guidance necessary to implement section 3(d)(2)(C).

(Authority: 20 U.S.C. 238(d)(2)(C), 242(b))

§ 222.71 What definitions apply to this subpart?

In addition to the terms defined in § 222.3, the following definitions, which are generally the same as the definitions used in the Education of the Handicapped Act (20 U.S.C. 1401 et seq.) and in 34 CFR part 300, apply to this subpart:

"Free appropriate public education” means special education and related services that

(1) Are provided at public expense, without charge, and, except for services provided to children placed in or referred to private schools or facilities by their LEAS in accordance with § 222.76, under public supervision and direction;

(2) Meet the Standards of the State educational agency (SEA), including the requirements of this part;

(3) Include preschool, elementary school, or secondary school education in the State involved; and

(4) Are provided in confirmity with an individualized education program that meets the requirements under 34 CFR 300.340-300.349.

"Handicapped children" is defined in 34 CFR 300.5.

"Preschool program” means an educational or related program encompassing the educational level from a child's birth to the time at which elementary education is provided as determined under State law, provided that this program is recognized as free public education under State law.

"Related needs" means those needs related to a handicap or specific learning disability for which related services, in addition to direct instructional services, are deemed necessary so that the child may effectively participate in the instructional program of the LEA.

"Related services" means transportation and such developmental, corrective, and supportive services (including speech pathology and audiology, psychological services, physical and occupational therapy, recreation, counseling services, and medical services for diagnostic and evaluation purposes only) required to assist a handicapped child to benefit from special education, and includes the early identification and assessment of handicapping conditions in children. (See 34 CFR 300.13 for additional information.) (Authority: 20 U.S.C. 238(d)(2)(C), 244(10); H. Rept. 1137, 95th Cong., Sess. 2d 104-105 (1978))

§ 222.72 What requirements must an LEA meet in order to count a handicapped child for purposes of section 3(d)(2)(C)?

(a) In order that a handicapped child may be counted for the purpose of an additional payment under section 3(d)(2)(C), a child must

(1) Have a parent on active duty in the uniformed services, as defined in § 222.3, or reside on Indian lands, as described in section 403(1)(A) of the Act;

(2) Be receiving services suited to the child's special educational and related needs; and

(3) Be enrolled in a program (including a preschool program if appropriate) that is of sufficient size, scope, and quality to give reasonable promise of substantial progress toward meeting the child's special educational and related needs and is provided as part of free public education in the LEA. (b) An LEA shall

(1) State in its application the number of federally connected, handicapped children it claims for an increased payment under section 3(d)(2)(C); and

(2) Meet the regular eligibility requirements of section 3(c) of the Act in order to receive an additional payment under section 3(d)(2)(C). (There is no minimum number of federally connected, handicapped children who must be served in order for the LEA to receive the additional payment under section 3(d)(2)(C).)

(c) An LEA shall provide the assurances and certifications required under § 222.73.

(d) An LEA shall have in effect a written individualized educational program for each federally connected, handicapped child claimed for an increased payment under section 3(d)(2)(C). An LEA that satisfies the requirements of 34 CFR 300.340300.346 for children counted under section 3(d)(2)(C) has satisfied the requirements of this paragraph.

(e) The program provided for the handicapped children counted under section 3(d)(2)(C) must conform to State standards for programs for handicapped children and must encompass the specific educational and related needs of the children counted. (Authority: 20 U.S.C. 238 (a), (b), and (d)(2)(C), 240(f), 242; S. Rept. 1026, 93d Cong., 2d Sess. 159 (1974); Chinle Common School District v. Mathews, Civil No. 761273 (D.D.C. 1976))

EFFECTIVE DATE NOTE: At 54 FR 37257, September 7, 1989, § 222.72 was revised, effective after the information collection requirements have been approved by the Office of Management and Budget under the Paperwork Reduction Act of 1980.

§ 222.73 What assurances and certifications regarding handicapped children must an LEA provide in its application?

(a) Size, scope, and quality of programs. (1) An LEA shall provide an assurance that federally connected, handicapped children claimed for an increased payment under section 3(d)(2)(C) are receiving services in programs (including preschool programs) that are of sufficient size, scope, and quality to give reasonable promise of

substantial progress toward meeting the special educational and related needs of these children. The Secretary considers any special education program serving the special educational needs of these children that conforms to the requirements for special education programs under part B of the Education of the Handicapped Act as satisfying this assurance.

(2) The LEA shall also certify that its programs conform to State standards for programs for the types of children served.

(b) Education of the Handicapped Act requirements. (1) An LEA shall provide an assurance that its programs conform to the policies, procedures, and requirements of sections 612 and 613 of the Education of the Handicapped Act.

(2) The Secretary may consult with persons in charge of special education programs for handicapped children and children with specific learning disabilities in the SEA to determine whether State standards and programs conform to the policies and procedures required under sections 612 and 613 of the Education of the Handicapped Act.

(c) Additional information. The Secretary may require information in addition to that contained in the application in order to substantiate compliance with these assurances.

(Authority: 20 U.S.C. 238(d)(2)(C); H. Rept. 805, 93d Cong., 2d Sess. 43-46 (1974); S. Rept. 1026, 93d Cong., 2d Sess. 45 (1974); Cong. Record, daily ed., H7396, July 31, 1974)

§ 222.74 What restrictions and requirements apply to the use of the additional payments under section 3(d)(2)(C)? (a) General. The additional payment to an LEA that is related to the increase in entitlement under section 3(d)(2)(C) (hereinafter "section 3(d)(2)(C) funds") must be used for programs and projects designed to meet the special educational and related needs of the handicapped children counted under that section. (Authority: 20 U.S.C. 240(f))

(b) Methods of obligation and expenditure of funds. Obligations and expenditures of section 3(d)(2)(C)

funds may be incurred in either of two ways:

(1) An LEA may obligate or expend the section 3(d)(2)(C) funds for the fiscal year for which the funds were appropriated.

(2) An LEA may reimburse itself for obligations or expenditures of local and general State aid funds already made for the fiscal year for which the section 3(d)(2)(C) funds were appropriated.

(Authority: 20 U.S.C. 238(d)(2)(C), 240(f), 242(b))

(c) Allowable expenditures. An LEA shall use its section 3(d)(2)(C) funds for the following types of expenditures:

(1) Expenditures that are reasonably related to the conduct of programs or projects for the education of handicapped children. These expenditures may include program planning and evaluation but may not include the construction of school facilities.

(2) Acquisition cost (net invoice price) of equipment to meet the special educational and related needs of handicapped children. If section 3(d)(2)(C) funds are used for the acquisition of equipment and any financial advantage is realized through rebates, discounts, bonuses, free pieces of equipment not used in a program or project for the education of handicapped children, or other circumstances, the fair market value of that financial advantage is not an allowable expenditure and may not be credited as an expenditure of those funds. In no case may the section 3(d)(2)(C) funds be used to acquire equipment if the title to that equipment would be in a private school and not in the applicant agency.

(d) Fiscal accountability requirements. An LEA shall account for the use of the section 3(d)(2)(C) funds as follows:

(1) By recording, for each fiscal year, the receipt (or credit) of section 3(d)(2)(C) funds separately from other funds received under the Act, i.e., on a line item basis in the general fund account or in a separate account.

(2) By demonstrating that, for each fiscal year, the total amount of expenditures for programs or projects

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