Family & Community Special Communities
Special Education

Administrative Advisory SPED 2008-1: IDEA-2004 and Requirements related to Maintenance of Effort

The purpose of this advisory is to inform school districts and charter schools (both referred to as districts in this advisory) about the new requirements in the Individuals with Disabilities Education Improvement Act (IDEA-2004) related to maintaining annual fiscal effort to spend state and local funds to provide special education services to eligible students. These requirements are known as "maintenance of effort" or MOE. MOE requires that school districts expend local and state funds for special education services each year at least at the same level (either on a per capita basis or an aggregate basis) that the district did during the previous year, unless the district has an allowable reason for reducing its expenditures. The purpose of the MOE requirements is to ensure that federal special education funds are used to supplement and not supplant local or state funds.

IDEA-2004 has changed some of the requirements for MOE that will affect districts' financial planning and spending1. Among other things, the law now allows for a higher percentage of federal funds that can be used to support reduction in state and local spending from one year to the next. Another change reduces the obligation to "demonstrate" that the MOE requirement is being met. This advisory will describe the changes in the law, and the impact of these changes on district spending and budgeting practices.

Specifically, this advisory addresses the following areas:

1. The general requirements related to maintenance of effort (MOE) and district verification of compliance.
2. How increases in federal special education entitlement funding can assist in meeting MOE spending requirements.
3. The impact on MOE of using federal special education funds for instructional support services.
4. The impact on MOE of a finding against a district of "significant disproportionality."
5. The impact on MOE of findings against a district of noncompliance such that the district requires substantial intervention.

The general requirements of MOE and district verification of compliance

To be eligible for federal financial assistance for special education, a school district is required to spend at least the same total or per capita2 amount from local funds or from a combination of state and local funds3 as the school district spent for special education purposes in the prior year, unless an exception allows spending to be reduced in the second year4 or the district is able to reduce its expenditures because of increased federal funds as described under Section B of this advisory.

In the past, the Department has audited compliance of this MOE requirement annually by comparing a school district's two most recent end-of-year expenditure reports. When the reports showed that a district did not spend at least the same amount of state and local funds in the second year, the Department notified the district of the discrepancy and required the district to produce documentation correcting its financial records or demonstrating that the reduction in spending was justified because of an exception to the MOE requirement, or to complete a corrective action plan that could include returning federal funds.

Under IDEA-2004, the Department is no longer required to annually review district spending to ensure that the MOE requirement is met. Consistent with IDEA-2004,5 each year the district must submit written assurance to the Department that it meets the requirements of eligibility, including MOE requirements.6 Accordingly, the assurances statement submitted to the Department annually by school districts in order to be eligible for federal special education grants meets the IDEA-2004 requirements for an annual assurance.7 Districts should continue to maintain records documenting yearly budgets and spending in compliance with MOE requirements, including all applicable exceptions that allow the district to reduce its state and local spending in certain circumstances. The Department may request such records at any time (see Section E of this advisory). In addition to the exceptions found in the law, certain adjustments can be made to the MOE requirements (see Section B of this advisory).

How increases in federal special education funds can assist in meeting MOE requirements

IDEA-2004 allows districts to treat more of the increases in federal special education entitlement funds (known in Massachusetts as the Fund Code 240 grant) they receive from one year to the next as if these federal funds are state and local funds for the purpose of meeting the MOE requirement. Under IDEA-97, school districts could allow up to 20% of any increase of its Fund Code 240 grant from one year to the next to be considered as state or local funds for the purposes of calculating the MOE requirements for the succeeding year. Under IDEA-2004, that offset has increased to 50%. Therefore, districts can reduce over time the amount of state and local funds they must use to support special education services, while still providing the full range of needed services and fulfilling their obligations for MOE.

By using federal dollars in increasing amounts to meet increased costs, a district may be able to reduce its MOE obligation, rather than increase it, even if it is spending additional dollars. Beginning with the 2005-6 fiscal year, for any fiscal year in which the district's Fund Code 240 grant exceeds the amount of the district's grant in the previous year, the district may reduce its state and local funds for special education by up to 50% of the amount of that excess.8 That adjustment accumulates over time as long as the district's Fund Code 240 grant continues to increase each year. As an example: 9

The district may make these adjustments and still meet its MOE obligations under federal law. This adjustment is allowed because Congress intends that a greater percentage overall of the costs of special education will be covered by federal funds, as was its original intention when the federal special education law was first passed.

Each district should maintain expenditure records from year to year in order to determine whether it may reduce state and local spending in the succeeding fiscal year by using the accumulated adjustment. These records should be maintained for auditing purposes.

Table 3 incorporates the spending identified in Table 1 and the accumulated adjustment calculation in Table 2 to illustrate how the MOE obligation can be reduced using the adjustment available through increased federal funds. Table 3 begins with the MOE obligation for Year 2:

Compare the district's MOE obligation in Table 1 with the MOE obligation in Table 3 that incorporates the accumulated adjustment allowance for treating a percentage of the increased federal funds as state and local funds. The MOE obligation without the federal adjustment increased by $9,000 over the 4-year period (see Table 1, Year 5), while the increase with the accumulated adjustment was just $5,400 for the same period of time (see Table 3, Year 5). This shows that districts that are able to maintain their state and local spending on special education at the same level or lower from year to year will see actual decreases in the required MOE obligation over time as their federal grant increases.

C. Using federal special education funds for instructional support services

Under federal special education law, a school district may use up to 15% of its federal special education grant (Fund Code 240) to pay for instructional support activities in the general education program, i.e., for all students, regardless of disability status.10 Each year, if the district uses federal special education funds for instructional support, then the amount of adjustment to the MOE described in Section B of this advisory must be reduced accordingly for that year.11 Reductions to the allowable adjustment in state and local spending will also have impact on the accumulated adjustment over time. Here is how this special rule affects the sample district previously used, beginning with Year 2:

In the example, the district's use of $750 in federal funds to support instructional support services in Year 2 reduced that year's MOE final adjustment - it was originally $1,500 but the district must subtract the $750 it spent for Instructional Support. The final MOE adjustment for that year is $750.

The accumulation over the four-year period is also affected. In this example, even though the district did not use federal special education funds for instructional support services in Year 3, the district was only able to carry a $750 adjustment from Year 2, rather than the initial adjustment figure of $1,500. Therefore, rather than a cumulative adjustment of $3,500, as described for Year 3 in Table 2 in this advisory, the school district using funds for instructional support as shown in Table 4 would have a cumulative adjustment of $2,750 in Year 3.

Finally, the Year 4 spending on Instructional Support is $1,000 - more than the $100 adjustment for that year. Therefore, for Year 4, the $100 adjustment originally available is reduced to $0 and there is no additional accumulation to the accumulated MOE adjustment.

Each district should maintain complete and accurate records of its spending practices and budgets for future years in order to determine whether this special rule applies. Also, the Department will maintain a record of a school district's use of instructional support funds as documented on the "Notice of Intent to Use Federal Special Education Entitlement Funds" form.13 For your convenience, the Department has posted information on the cumulative MOE adjustment for all districts as of FY07. The file includes any revisions to this calculation consistent with the information in this advisory. Districts may begin their individual MOE record keeping as of FY08.

D. The impact of a finding against the district of "significant disproportionality"

IDEA-2004 requires the Department to determine whether there is "significant disproportionality" based on race and ethnicity occurring within the state or school districts with respect to finding students eligible for special education, identifying students in specific disability categories, making special education placements, or suspending or expelling students with disabilities.14 If the Department makes a finding of significant disproportionality against a district, the district is required to reserve 15% of its federal special education grant (Fund Code 240 grant) to provide instructional support activities to students in the groups that were significantly over-identified, as well as to other students in the district. 15 This requirement will result in a similarly revised accumulated adjustment calculation as described in Section C of this advisory.

The Department will review school districts' data annually to determine whether there is significant disproportionality in these areas. If the Department finds significant disproportionality based on the data, the district will receive a written notice of the requirement to reserve the full 15% of the federal special education grant for instructional support activities. 16 Upon receipt of the notice, the district must complete the form entitled "Notice of Intent to Use Federal Special Education Entitlement Funds."17 Such districts must make adjustments in their records and in their planned spending of the allowable reduction of state and local funds for that year, as described in Section C of this advisory.

E. The impact of findings of MOE noncompliance requiring substantial intervention

In the course of monitoring a district or conducting general oversight activities, the Department may identify a school district as having pervasive noncompliance with federal special education requirements that requires substantial intervention to correct the non-compliance.18 When such a finding is made, in accordance with IDEA-2004 requirements, the district may not reduce its MOE (i.e., the district may not reduce spending from state or local funds for any of the reasons described above) in that fiscal year or in any subsequent years in which the district continues to be out of compliance and in need of substantial intervention by the Department.19

Also, for any district identified as needing substantial intervention to correct pervasive noncompliance, the Department will audit the school district's special education spending to ensure that the district met its MOE requirement in providing services for students with disabilities in the most recent year for which full financial information is available, and its obligation to budget appropriately to meet the MOE requirement in the current year. Any findings of noncompliance with MOE may result in action by the Department to recover or withhold federal special education funds, as appropriate.

We strongly encourage school districts to maintain comprehensive local records of their expenditures and allowable reductions in MOE. It is our hope that the additional flexibility described in Section B of this advisory will have a positive impact on the demand on state and local resources for the provision of special education services.

Thank you for your attention to this advisory and for all the work you do on behalf of students with disabilities.

1 Those requirements are described in federal special education regulations at 34 CFR §§ 300.202-300.205, and in the special education statute 20 U.S.C. § 1413(a)(2).

2 "Per capita" means the amount per child with a disability served by the district.

3 This provision is found at 34 CFR § 300.203(b).

4 A district may reduce its level of state and local spending below that of the previous fiscal year if one of the following exceptions applies: (a) the voluntary departure or departure for just cause, of special education or related services personnel; (b) a decrease in the enrollment of children with disabilities in the district; (c) the end of the district's obligation to serve a student in a costly program because the student has moved from the district, or is no longer eligible for special education services; (d) the end of the district's obligation to make "costly expenditures for long-term purchases" such as equipment or facilities; …. 34 CFR § 300.204.

5 This provision is found at 34 CFR § 300.200.

6 34 CFR 300.200 states that a "[school district] is eligible for assistance under Part B of the Act for a fiscal year if the [school district] submits a plan that provides assurances to the [Department] that the [school district] meets each of the conditions in §§ 300.201 through 300.213." See also 20 U.S.C. § 1413(a). All assurances required here are also included in the Special Education Program Plan Statement    that is required every three years.

7 This statement, available at: http://finance1.doe.mass.edu/Grants/grants08/rfp/doc/08_assurance.doc , says at section A-2: Federal funds will be used to supplement and will in no case supplant funds from non-federal sources that, in the absence of such federal funds, would be made available for the purposes of the program(s). The district will be in compliance with all maintenance of effort requirements as determined by the per pupil expenditure or the local and state aggregate expenditures in the provision of a free public education, except to the extent that the law provides for IDEA-2004 federal funds to be treated as state or local funds.

8 34 CFR § 300.205(a). Please note that if the federal funds received by the district do not increase, then the district may not reduce its state and local spending in that year.

9 For purposes of this illustration only, Year 1 does not show adjustments in the example. In practice there would likely have been an adjustment to the MOE obligation for Year 1 also because the district could have been adjusting its MOE calculations from FY 98 and forward, consistent with requirements in federal special education law.

10 In federal special education regulations, these instructional support activities are called "early intervening" activities. In practice they may also be referred to as "pre-referral," "Response to Intervention," or "tiered instruction and intervention programs." Such programs serve students not yet identified as eligible for special education but in need of instructional interventions to prevent inappropriate referrals to special education. Up to 15% of the federal grant can be used for such programs. 34 CFR § 300.226.

11 34 CFR § 300.205(d).

12 The allowable amount is up to 15% of the federal grant. 34 CFR § 300.226.

13 At: http://www.doe.mass.edu/sped/IDEA2004/spr_meetings/eiisservices.html and required to be submitted to the Department when federal special education funds are used for instructional support.

14 34 CFR § 300.646.

15 34 CFR § 300.646(b)(2).

16 Where such findings are made, individual letters with detail on the finding and required activity will be sent to the district superintendent or director.

17 At: http://www.doe.mass.edu/sped/IDEA2004/spr_meetings/eiisservices.html.

18 Please see a description of this type of determination at: http://www.doe.mass.edu/sped/2007/0516ata.html

19 34 CFR § 200.205(c).