[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Proposed Rules]
[Pages 52564-52580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25584]



[[Page 52563]]


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Part IV





Department of Education





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34 CFR Part 222



Office of Elementary and Secondary Education; Impact Aid Program; 
Proposed Rules

  Federal Register / Vol. 61, No. 195 / Monday, October 7, 1996 / 
Proposed Rules  

[[Page 52564]]



DEPARTMENT OF EDUCATION

34 CFR Part 222

RIN 1810-AA84


Office of Elementary and Secondary Education; Impact Aid Program

AGENCY: Office of Elementary and Secondary Education, Department of 
Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to issue regulations governing the 
Impact Aid Program under title VIII of the Elementary and Secondary 
Education Act of 1965 (ESEA), as amended by the Improving America's 
Schools Act of 1994 (IASA). The program, in general, provides 
assistance for maintenance and operations costs to local educational 
agencies (LEAs) that are affected by Federal activities. These proposed 
regulations are needed to implement a number of changes from the 
previous Impact Aid laws, Public Law 81-874 and Public Law 81-815, 
which were repealed when title VIII of the ESEA was enacted, and 
clarify and improve the administration of the program.

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

ADDRESSES: All comments concerning the proposed regulations should be 
addressed to Catherine Schagh, U.S. Department of Education, Impact Aid 
Program, 600 Independence Avenue, S.W., Room 4200, Portals Building, 
Washington, DC 20202-6244. The fax number for submitting these comments 
is (202) 205-0088. Comments may also be sent through the Internet to 
Catherine__S[email protected].
    To ensure that public comments have maximum effect in developing 
the final regulations, the Department urges that each comment clearly 
identify the specific section or sections of the proposed regulations 
that the comment addresses and that comments be in the same order as 
the proposed regulations.
    A copy of any comments that concern information collection 
requirements should also be sent to the Office of Management and Budget 
at the address listed in the Paperwork Reduction Act section of this 
preamble.

FOR FURTHER INFORMATION CONTACT: For further information on this part, 
please contact Catherine Schagh. Telephone: (202) 260-3858. Individuals 
who use a telecommunications device for the deaf (TDD) may call the 
Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8 
a.m. and 8 p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: On October 20, 1994, the President signed 
into law the IASA (Pub. L. 103-382). The IASA reauthorized the Impact 
Aid Program as title VIII of the ESEA, and made a number of changes to 
the program. Under the Impact Aid Program, assistance is provided for 
maintenance and operations costs to LEAs affected by Federal 
activities, including the presence of tax-exempt Federal property and 
an increased student population due to Federal property ownership or 
activities.
    On March 4, 1995, President Clinton issued a regulatory reinvention 
initiative directing heads of departments and agencies to review all 
existing regulations to eliminate those that are outdated and modify 
others to increase flexibility and reduce burden. The Department has 
undertaken a thorough review of the existing Impact Aid Program 
regulations in light of this initiative. In addition, Department staff 
have met on numerous occasions with Impact Aid applicants and other 
interested parties at National Association for Federally Impacted 
Schools meetings to converse and solicit views about possible changes 
to the current regulations due both to statutory changes and burden 
reduction.
    As a part of that process, the Secretary published in the Federal 
Register on September 29, 1995, a final regulation removing regulations 
that were obsolete due to changes made in the statute by the IASA, or 
that were unnecessary because they simply repeated statutory 
provisions. In addition, in that regulation, the Secretary reorganized, 
streamlined, and revised the remaining regulations so that they were 
more logically organized, clearly stated, and easier to use. Except 
where changes were necessary to conform the previous regulations to the 
new Impact Aid law (title VIII of the ESEA), and for a few minor 
procedural changes, those final regulations contained the same 
substantive provisions as the previous regulations.
    The Secretary indicated in those technical regulations that he 
intended to publish a notice of proposed rulemaking (NRPM) in the 
future to implement provisions of the new law that were not included in 
those final regulations, and to make any substantive changes that were 
identified as needed under the Secretary's reinvention review. The 
Secretary now is publishing this NPRM to accomplish those objectives.

Summary of Provisions

General

    In subpart A (general provisions), Sec. 222.4 would be revised to 
be consistent with the proof of mailing requirements under the 
Education Department General Administrative Regulations that apply to 
other Department programs. Under this provision, private metered 
postmarks or mail receipts that are not dated by the U.S. Postal 
Service would not be accepted as proof of mailing.

Implementation of New Statutory Provisions

    1. Overpayment forgiveness provision (section 8012 of the ESEA). 
New Secs. 222.12-222.15 would be added to subpart A to implement the 
Secretary's new authority in section 8012 of the ESEA to forgive Impact 
Aid overpayments under certain circumstances. Proposed Sec. 222.12 
would specify what overpayments the Secretary considers eligible for 
forgiveness under section 8012. As described in proposed 
Sec. 222.12(a)(1), the provision generally would apply to funds 
received by an LEA in excess of the amount the LEA was eligible to 
receive under Pub. L. 81-874, Pub. L. 81-815, or title VIII of the 
ESEA, but only to the extent that a balance is owed on or after the 
effective date of the final regulations. The provision would apply to a 
full overpayment under those laws (including any portion of the 
overpayment that has been repaid) if the overpayment is the subject of 
a written request for forgiveness filed by the LEA before the effective 
date of the final regulations, or of a timely written request for an 
administrative hearing or reconsideration. This is because these 
requests generally preserve the full overpayment debt pending 
resolution of the disputed action.
    The Secretary would not extend application of this forgiveness 
provision to the limited portions of the program that require LEAs to 
expend the Federal funds for specific purposes other than general 
maintenance and operations (such as for disaster assistance under 
section 7 of Public Law 81-874 or section 16 of Public Law 81-815, or 
to provide a free appropriate education for federally connected 
children with disabilities under section 8003(d) of the ESEA or section 
3(d)(2)(C) of Pub. L. 81-874). Unlike most other ESEA programs, 
Congress has not granted authority in the Impact Aid program statute to 
the Secretary to grant waivers of certain programmatic requirements, 
such as for the required use of funds.

[[Page 52565]]

    Accordingly, proposed Sec. 222.12(a)(2) specifies that the 
provision would not apply to overpayments under section 7 of Public Law 
81-874 or section 16 of Public Law 81-815 (disaster assistance 
program). This is because these overpayments generally are due either 
to an LEA's misexpenditure of funds or to its receipt of funds in 
excess of its actual eligible disaster assistance costs. Likewise, this 
provision would not apply to overpayments resulting from an LEA's 
failure to expend or account for funds properly under section 8003(d) 
of the ESEA (subpart D of the regulations) or its predecessor 
provision, section 3(d)(2)(C) of Public Law 81-874, for certain 
federally connected children with disabilities, or under section 
8003(g) of the ESEA for certain federally connected children with 
severe disabilities (subpart F of these proposed regulations).
    Proposed Sec. 222.12(a)(2) also specifies that the forgiveness 
provision would not apply to amounts received by an LEA that, as 
determined under section 8003(g) of the ESEA (authorizing payments to 
LEAs for costs associated with certain federally connected children 
with severe disabilities), were in excess of the maximum basic support 
payment for which the LEA was eligible under section 8003(b) of the 
ESEA. Under section 8003(g), if an LEA receives Federal funds for 
Impact Aid purposes from sources other than the Impact Aid program 
(e.g., the Department of Defense), and the total of the funds from 
other sources and the LEA's payment under section 8003(b) exceeds the 
maximum basic support payment for which the LEA was eligible, the 
excess amount must be made available for redistribution to LEAs that 
provide an education to certain federally connected children with 
severe disabilities.
    Proposed Sec. 222.13 sets forth the basic requirements that an LEA 
must meet for an eligible overpayment to be forgiven in whole or part. 
Section 222.13(a)(1) provides that the Secretary would forgive an 
eligible overpayment in whole or part only if an LEA timely files a 
request for forgiveness and certain information and documentation. In 
addition, as specified in proposed Sec. 222.13(a)(2), the Secretary 
must determine in accordance with proposed Sec. 222.14, in the case 
either of an LEA's or the Department's error, that repayment of the 
LEA's total eligible overpayments will result in an undue financial 
hardship on the LEA and seriously harm the LEA's educational program. 
In the case of Department error, an overpayment also would qualify if 
the Secretary determined, on a case-by-case basis, that repayment would 
be manifestly unjust.
    Proposed Sec. 222.13(b) specifies the time limits within which an 
LEA must file its forgiveness request and supporting information and 
documentation. Under that proposed provision, an LEA generally must 
file a forgiveness request in writing within 30 days of its initial 
receipt of a notice of an overpayment. For an overpayment for which an 
LEA has submitted a written forgiveness request before the effective 
date of the final regulations, the LEA would be required to file the 
supporting information and documentation within 30 days from the 
effective date of the regulations. For all other overpayments, proposed 
Sec. 222.13(b)(3) specifies that an LEA would be required to provide 
the specific information and documentation concerning financial 
hardship within the same time period that applies to the forgiveness 
request. In either case, the Secretary may grant a written extension of 
the applicable time period for the submission of the information and 
documentation due to lack of availability of that data.
    Proposed Sec. 222.13(c)(1) specifies the types of information and 
documentation that an LEA must provide in support of its written 
forgiveness request. All LEAs would be required to provide the 
following (as applicable) for the LEA's fiscal year preceding the date 
of the request: A copy of the LEA's annual financial report to the 
State; the LEA's local real property tax rate for current expenditure 
purposes; the maximum local real property tax rate for current 
expenditure purposes allowed by State law, or if there is no State 
maximum, the average local real property tax rate of all LEAs in the 
State; and the LEA's equalized assessed valuation of real property per 
pupil (EAVPP) (or other measure of fiscal capacity as defined by the 
State), and the average of that measure for all LEAs in the State. The 
Secretary believes this is the minimum information necessary to 
determine an LEA's eligibility for overpayment forgiveness under the 
standard proposed in Sec. 222.14, and the amount to be forgiven under 
proposed Sec. 222.15.
    For an LEA whose boundaries are the same as a Federal military 
installation, the LEA also would be required to provide the average per 
pupil expenditure (PPE) of the LEA, and the average PPE in all LEAs in 
the State. In addition, proposed Sec. 222.13(c)(2) requires an LEA 
requesting forgiveness under the manifestly unjust repayment exception 
(proposed Sec. 222.13(a)(2)(ii)), or based upon no present or 
prospective ability to repay the debt (proposed Sec. 222.14(a)(2)), to 
submit additional information and documentation in support of its 
request for forgiveness under those special provisions.
    Proposed Sec. 222.13(d)(1) clarifies that, like a request for 
reconsideration, a request for forgiveness of an overpayment does not 
extend the time within which an applicant must file an administrative 
hearing request under Sec. 222.151, unless the Secretary (or 
Secretary's delegatee) extends that time limit in writing. Similarly, 
proposed Sec. 222.13(d)(2) provides that a request for an 
administrative hearing or for reconsideration does not extend the time 
within which an applicant must file a request for forgiveness under 
Secs. 222.12-222.15, unless the Secretary (or the Secretary's 
delegatee) extends that time limit in writing.
    Proposed Sec. 222.14 describes how the Secretary will determine 
whether repayment of an eligible overpayment would result in undue 
financial hardship and seriously harm the LEA's educational program. It 
is the Secretary's intent in publishing these regulations to establish 
a reasonable measure of undue financial hardship that may be 
objectively applied, and that fairly balances the competing interests 
of applicants eligible for redistribution of overpaid Impact Aid funds 
with the interests of those districts applying for forgiveness. 
Comments and suggestions are invited on whether these proposed 
regulations achieve that balance and reasonably measure undue financial 
hardship.
    As described in proposed Sec. 222.14(a)(1)(i), to meet this 
standard the total eligible overpayments of the LEA must be at least 
$10,000. The Secretary believes that an LEA could repay a total 
eligible debt of less than $10,000, in installments if necessary, 
without undue financial hardship.
    In addition, under proposed Sec. 222.14(a)(1)(ii), for an LEA in a 
State with a maximum local real property rate (other than an LEA with 
boundaries that are the same as a Federal military installation), the 
LEA's local real property tax rate for current expenditure purposes for 
the preceding fiscal year would be required to be at least 90 percent 
of the maximum rate allowed by State law. The Secretary believes that 
this is a reasonable level of effort to require an LEA to make to repay 
its debts. For such an LEA in a State without a maximum local real 
property tax rate, the LEA's local real property tax rate for current 
expenditure purposes, for the preceding fiscal year, would be required 
to be at least equal to the State average local real property tax rate.

[[Page 52566]]

    Under proposed Sec. 222.14(b), the Secretary would use the same 
method to determine an LEA's tax rate for current expenditure purposes 
as the Secretary uses for eligibility and payments under section 
8003(f) of the Act (heavily impacted LEAs).
    Because an LEA's capacity to raise local revenues is determined by 
the level of the assessed values of its real property, as well as by 
the tax rate it levies, the Secretary also would consider the fiscal 
capacity of these LEAs under proposed Sec. 222.14(a)(1)(iii). The 
Secretary would define ``fiscal capacity'' for this purpose (under 
proposed Sec. 222.14(c)) to mean the equalized assessed valuation of 
real property per pupil (EAVPP), unless otherwise defined by State law. 
Under this proposed standard, the fiscal capacity of these LEAs for the 
preceding fiscal year would be required to be below the State average. 
The Secretary believes that if an LEA's fiscal capacity is greater than 
the State average, it would not be an undue financial burden on the LEA 
to increase its local revenues to repay the Impact Aid debt. The 
Secretary is interested in receiving comments on this fiscal capacity 
measure and its threshold.
    Under proposed Sec. 222.14(a)(1), an LEA with boundaries that are 
the same as a Federal military installation (``coterminous LEA'') would 
not be required to meet the local effort standards under proposed 
Sec. 222.14(a)(1) (ii) and (iii). This is because most of the real 
property in coterminous LEAs is not subject to local real property 
taxes. Therefore, for these coterminous LEAs, the Secretary would 
consider instead their average per pupil expenditure. Under proposed 
Sec. 222.14(a)(1)(iv), a coterminous LEA would qualify only if its 
average per pupil expenditure (PPE) for the preceding fiscal year did 
not exceed 125 percent of the average PPE in all LEAs in the State for 
that preceding fiscal year.
    Finally, under proposed Sec. 222.14(a)(2), any LEA would meet the 
undue financial hardship standard if the Secretary determined that 
neither the successor nor the predecessor LEA has the present or 
prospective ability to repay the eligible overpayment. The Secretary 
anticipates that this provision will be applicable only in extremely 
limited situations, such as when a debtor LEA has no present revenue 
and is not expected to have any future revenue.
    Proposed Sec. 222.15 describes the amount of an eligible 
overpayment that the Secretary forgives once an LEA has timely filed a 
forgiveness request and the required information and documentation. 
Under Sec. 222.15(a), the Secretary would forgive an eligible 
overpayment in whole if the Secretary has determined that the LEA meets 
the undue financial hardship test under Sec. 222.14 and the LEA's 
preceding year's current expenditure closing balance was five percent 
or less of its preceding fiscal year's total current expenditures.
    The Secretary considers five percent of an LEA's total current 
expenditures to be a reasonable minimal amount for an LEA to carry over 
for a smooth transition from the end of one year to the beginning of 
the next. Unless an LEA has more than that amount of funds at the end 
of the year, the Secretary believes that it would impose an undue 
financial burden on the LEA to be required to repay the eligible 
overpayment. Therefore, for an eligible LEA with five percent or less 
in carryover funds at the end of the LEA's fiscal year preceding the 
date of the forgiveness request, the Secretary would forgive an 
eligible overpayment in whole.
    In addition, under proposed Sec. 222.15(a) the Secretary would 
forgive an eligible overpayment in whole if, in the case of an error by 
the Secretary, the Secretary determines that repayment by the LEA would 
be manifestly unjust. The Secretary anticipates that an LEA would 
qualify for forgiveness in whole under this special provision only on 
the rare occasion in which an LEA received an overpayment due to an 
error on the part of the Secretary that an LEA could not reasonably be 
expected to identify and report. For example, if the Secretary 
calculated a payment for an LEA using an incorrect local contribution 
rate, and the LEA did not know nor could it reasonably have known that 
the local contribution rate was too high, the resulting overpayment 
would be forgiven in whole by the Secretary under this standard.
    Proposed Sec. 222.15(b)(1) specifies that the Secretary will 
forgive an eligible overpayment in part if an LEA otherwise meets the 
requirements for forgiveness and the undue financial hardship test, but 
the LEA's preceding fiscal year's current expenditure closing balance 
was more than five percent of its preceding fiscal year's total current 
expenditures. In cases where an LEA has more than five percent 
carryover at the end of its preceding fiscal year, the Secretary 
believes that it would not be an undue financial burden for an LEA to 
repay all or a portion of the excess Federal funds it received. Under 
Sec. 222.15(b)(2), if an LEA qualifies for forgiveness of a debt in 
part, the LEA would be expected to repay the amount by which its 
preceding fiscal year's closing balance exceeded five percent of its 
preceding fiscal year's total current expenditures. The Secretary would 
forgive the remaining amount of the LEA's eligible overpayment balance.
    2. Payments for Federal property (section 8002 of the ESEA). In 
subpart B, the Secretary proposes two revisions to Sec. 222.22, a 
portion of which implements the new statutory requirement that the 
Secretary must deduct from an LEA's section 8002 payment the amount of 
revenue that an LEA received during the previous fiscal year from 
activities conducted on eligible Federal property. The Secretary is 
proposing these revisions in response to public request for 
clarification. Paragraph (c) would be revised to clarify that the 
Secretary deducts these revenues from the LEA's section 8002 maximum 
payment amount, rather than from an LEA's section 8002 payment after 
any proration due to insufficient appropriations. Paragraph (d) would 
be revised to clarify that the Secretary does not consider Federal 
payments-in-lieu-of-taxes (PILOT or PILT), such as PILTs for Federal 
entitlement lands under Public Law 97-258 (31 U.S.C. 6901-6906), to be 
revenues from activities on Federal property for the purpose of this 
section. This is because, historically in the Impact Aid Program, 
Congress has not considered these types of payments as revenue 
resulting from activities conducted on Federal property.
    In addition, a new Sec. 222.23 would be added to subpart B to 
implement the new statutory method in section 8002(b)(3) of the ESEA 
for valuing the Federal property that is the basis for payments under 
section 8002 (previously section 2 of Public Law 81-874). Under section 
8002(b)(3), the aggregate assessed value of eligible Federal property 
must be determined, by the local official responsible for assessing the 
value of real property in the LEA, on the basis of the current 
``highest and best use'' of taxable properties ``adjacent'' to the 
parcel of eligible Federal property.
    Proposed Sec. 222.23(a) would require a local official first to 
determine a fair market value for the eligible Federal property based 
upon the highest and best use of the adjacent taxable parcels. The 
official then would be required to adjust that fair market value by any 
percentage, ratio, index, or other factor that the official would use, 
if the eligible Federal property were taxable, to determine its 
assessed value for the purpose of generating local real property tax 
revenues for current expenditures. The proposed regulation also 
clarifies that the official may assume that there was a transfer of 
ownership of the

[[Page 52567]]

eligible Federal property for the year for which the section 8002 
assessed value is being determined.
    Numerous section 8002 applicants have requested the Department to 
establish regulatory parameters for the ``highest and best use'' 
standard. In response to that request, proposed Sec. 222.23(b) would 
define the terms ``adjacent'' and ``highest and best use.''
    In doing so, the proposed regulation provides maximum flexibility 
to States and localities by basing the local official's determination 
of fair market value upon State or local law or guidelines if 
available, and by allowing consideration of the most developed and 
profitable use for which adjacent taxable property is physically 
adaptable and for which there is a need or demand for such use in the 
near future. The standards for ``highest and best use'' in these 
proposed regulations are based upon the Uniform Appraisal Standards for 
Federal Land Acquisitions (Washington, D.C.: U.S. Printing Office, 
1992), which are developed by the Interagency Land Acquisition 
Conference and establish guidelines for Federal land acquisitions 
appraisals.
    To address concerns articulated by applicants that this degree of 
flexibility could be subject to abuse by applicants, in accordance with 
the Uniform Appraisal Standards the proposed regulation also provides 
that a local official may not consider speculative or remote potential 
uses of adjacent property. In addition, if the highest and best uses of 
all adjacent properties are not the same, Sec. 222.23(b) would require 
the local official to take into consideration the different potential 
uses of adjacent properties. For example, an official could not base 
the valuation of the entire Federal property only on the highest valued 
adjacent property (such as commercial property) if other adjacent 
properties had different potential uses (such as residential or 
agricultural property).
    3. Payments for children with severe disabilities (section 8003(g) 
of the ESEA). A new subpart F would be added to implement the new 
authority in section 8003(g) of the ESEA for payments to certain LEAs 
for children with severe disabilities. In that subpart, proposed 
Sec. 222.80 defines ``children with severe disabilities'' in a manner 
consistent with the definition of the term in 34 CFR Sec. 315.4(d) of 
the regulations implementing the Individuals with Disabilities 
Education Act. Proposed Sec. 222.81 describes the requirements that an 
LEA must meet to be eligible for and receive a payment under section 
8003(g), including that the LEA must be eligible for a payment under 
section 8003(d) of the ESEA (payments for federally connected children 
with disabilities) for those children to be claimed as the basis for a 
payment under section 8003(g). Section 8003(g) specifies that eligible 
children must have a parent on active duty in the uniformed services 
with a compassionate post assignment. However, proposed Sec. 222.81 
does not include the term ``compassionate post assignment'' because no 
standard policy or definition regarding that term could be ascertained. 
Comments are invited on any measurable standard that could be used for 
the term.
    Proposed Sec. 222.82 explains how the Secretary would calculate the 
total amount of funds available for payments under section 8003(g) 
under the limited circumstances in which those funds are available. 
Proposed Sec. 222.83 provides that the Secretary will give written 
notice to all potentially eligible LEAs if funds are available for 
payments under section 8003(g), and explains how an LEA would apply to 
the Secretary for those funds. Under this proposed regulation, to apply 
for section 8003(g) funds, an LEA would be required to submit 
documentation to the Secretary, within 60 days of the date of the 
Secretary's notice to the LEA that funds are available, detailing the 
total costs to the LEA of providing a free appropriate public education 
for the eligible children with severe disabilities.
    Proposed Sec. 222.84 establishes how the Secretary would calculate 
an LEA's payment under section 8003(g). Under that method, to avoid 
double payment for the same child, the Secretary would subtract the 
amount that the LEA received under section 8003(d) of the ESEA for that 
child. Finally, proposed Sec. 222.85 clarifies that an LEA must use the 
funds it receives under section 8003(g) for the reimbursement of total 
costs, reported in its section 8003(g) application, of providing an 
educational program outside the schools of the LEA for the federally 
connected children with severe disabilities claimed under section 
8003(g).
    4. Withholding and related procedures for Indian policies and 
procedures (sections 8004(d)(2) and 8004(e) (8)-(9) of the ESEA). 
Proposed Secs. 222.114-222.122 would be added to subpart G to implement 
the Secretary's expanded enforcement authority for Indian policies and 
procedures in sections 8004(d)(2) and 8004(e) (8)-(9) of the ESEA. 
Section 8004(a) of the ESEA, like the previous Impact Aid law, requires 
LEAs to establish certain Indian policies and procedures (IPPs), 
including policies and procedures to ensure that children residing on 
Indian lands participate in programs and activities on an equal basis 
with all other children, and that parents of the children residing on 
Indian lands and Indian tribes have an opportunity to present their 
views on those programs and activities.
    Section 8004(d)(2) has expanded the Secretary's previous authority 
to enforce the implementation of IPPs. Under section 8004(d)(2), the 
Secretary may now take any appropriate action to enforce the IPP 
requirements, including withholding section 8003 funds from the LEA, 
after affording an opportunity for interested parties to present their 
views. In addition, section 8004(e)(8) has expanded the Secretary's 
previous withholding authority by requiring the Secretary to withhold 
an LEA's entire section 8003 payment, rather than only the portion of 
that payment that represents an increase due to a federally connected 
child's residence on Indian lands.
    Because most IPP issues are resolved through technical assistance 
provided by the Impact Aid Program, the Secretary does not believe that 
it will be necessary to exercise this withholding authority in most 
cases. However, the Secretary's intent in publishing these regulations 
is to adopt clear and fair withholding procedures for LEAs and Indian 
tribes in the event of a withholding action. Comments and suggestions 
are invited on whether these proposed regulations are clear and whether 
they could be simplified.
    To implement these expanded enforcement provisions, the Secretary 
proposes to revise Sec. 222.95(g) of the current regulations, and to 
add new Secs. 222.114-222.122. Section 222.95(g) currently requires an 
LEA that amends its IPPs following its annual review of those policies 
and procedures to send a copy of the amended IPPs to the Impact Aid 
Program Director for approval and to the affected tribe or tribes. That 
section would be revised to establish a definite time limit within 
which the LEA must send a copy of the amended IPPs to the Director and 
affected tribe or tribes, which would be within 30 days of the LEA's 
amendment.
    New Secs. 222.114-222.122 would describe withholding procedures 
implementing sections 8004(d)(2) and 8004(e)(8) of the ESEA. Proposed 
Sec. 222.114 provides that the Assistant Secretary uses any appropriate 
actions to enforce IPP statutory and regulatory requirements, including 
the withholding of funds in accordance with Secs. 222.115-222.122, 
after affording an opportunity to the affected LEA, parents, and Indian 
tribe or tribes to present their views.

[[Page 52568]]

    Proposed Sec. 222.115 describes the circumstances under which the 
Assistant Secretary will withhold payments that an LEA otherwise is 
eligible to receive under section 8003 of the Act. As described in 
proposed Sec. 222.115(a), payments are withheld if the Assistant 
Secretary determines it is necessary to enforce IPP statutory or 
regulatory requirements. In addition, where a tribal complaint has 
resulted in an IPP hearing, proposed Sec. 222.115(b) explains that the 
Assistant Secretary withholds payments if an LEA rejects the final 
determination of the Assistant Secretary, or refuses to implement the 
required remedy within the time established and the Assistant Secretary 
determines that the LEA would not otherwise undertake the required 
remedy within a reasonable time.
    Proposed Sec. 222.115 also clarifies that, with either type of a 
withholding action (that is, with or without a previous IPP hearing), 
the Assistant Secretary would not withhold payments under the specific 
circumstances described in proposed Sec. 222.120. Those circumstances 
would include: (1) where the LEA has received a waiver from compliance 
with the IPP requirements from the affected tribe or tribes because of 
satisfaction with the LEA's provision of educational services to its 
federally connected children (Sec. 222.120(a)); where the tribe submits 
to the Assistant Secretary a written request not to withhold the LEA's 
section 8003 payments (Sec. 222.120(b)); where the Assistant Secretary 
determines that withholding section 8003 payments during the course of 
the school year would substantially disrupt the educational programs of 
the LEA (Sec. 222.120(c)); or where the LEA rejects the final 
determination of the Assistant Secretary and the tribe elects to have 
educational services provided by a Bureau of Indian Affairs School but 
some Indian students remain at the LEA (Sec. 222.120(d)).
    Proposed Sec. 222.116 describes how the Assistant Secretary 
initiates an IPP withholding proceeding. Under the proposed process, 
the Assistant Secretary would send a written notice of intent to 
withhold payments to the LEA and the affected Indian tribe or tribes, 
describing how the LEA has failed to comply with the applicable IPP 
requirements and advising the LEA of its rights under the withholding 
procedures.
    Proposed Sec. 222.117 describes the procedures the Assistant 
Secretary follows after issuing a notice of intent to withhold payments 
to an LEA. Proposed Sec. 222.117(b) clarifies that an LEA that receives 
a notice of intent to withhold payments from the Assistant Secretary is 
not entitled to an administrative hearing under section 8011 of the 
ESEA and subpart J of the regulations.
    Proposed Sec. 222.117(c) provides that an LEA that already has 
participated in an IPP hearing, but rejects or refuses to implement the 
Assistant Secretary's final determination, would have the opportunity 
to justify by a timely filed written explanation with the Assistant 
Secretary why that withholding should not occur. The written 
explanation and any supporting documentation would be required to be 
filed within 10 days from the date of the LEA's receipt of the 
Assistant Secretary's written notice of intent to withhold funds.
    On the other hand, if an LEA has not yet participated in a hearing 
concerning its compliance with IPP requirements, Sec. 222.117(d) would 
permit the LEA an opportunity for a withholding hearing. An LEA would 
be required to file a written hearing request within 30 days from the 
date of its receipt of the Assistant Secretary's notice of intent to 
withhold funds.
    Proposed Sec. 222.118 describes how IPP withholding hearings will 
be conducted, which will be by a hearing examiner, with the opportunity 
for the parties to present their views in writing or orally. Under 
these procedures, the hearing examiner would make an initial 
withholding decision based upon written findings, which would be sent 
to both parties and to the affected tribe or tribes (Sec. 222.118(f)). 
That initial withholding determination would constitute the Secretary's 
final withholding decision without any further proceedings, unless one 
of the parties to the withholding hearing requests the Secretary's 
review of the hearing examiner's initial decision or the Secretary 
otherwise determines to review the decision.
    Proposed Sec. 222.119 describes which payments are subject to being 
withheld due to noncompliance with IPP requirements. Once a final 
withholding decision has been issued, all of an LEAs section 8003 
payments would be withheld under this provision, regardless of fiscal 
year, until the LEA either documents compliance, or exemption from 
compliance under proposed Sec. 222.120.
    As discussed previously, proposed Sec. 222.120 clarifies the 
circumstances that exempt an LEA from a withholding action. One of 
those circumstances arises if the affected tribe or tribes files a 
written request that an LEA's section 8003 payments not be withheld. 
The Secretary encourages Indian tribes to make any such request as 
promptly as possible after receiving a notice of intent of withholding, 
to avoid any unnecessary administrative withholding proceedings and 
possible disruption to the LEAs payments. If an Indian tribe wishes to 
make such a request, proposed Sec. 222.121 explains the requirements 
that apply.
    Finally, proposed Sec. 222.122 clarifies the procedures that are 
followed if the Assistant Secretary determines not to withhold an LEAs 
funds. The Assistant Secretary would notify the LEA and the affected 
Indian tribe or tribes in writing that the payments will be not be 
withheld, with an explanation of the reasons for that decision.
    5. Determinations under section 8009 of the ESEA. Section 222.161 
of subpart K would be revised to implement new terms used in section 
8009 of the ESEA by adding definitions of the following three terms: 
local tax revenues, local tax revenues covered under a State 
equalization program, and total local tax revenues. Under section 8009, 
a State may take into consideration certain Impact Aid payments in 
allocating State aid if the Secretary determines that the State has a 
State aid program that is designed to equalize expenditures among the 
LEAs in the State.
    The term ``local tax revenues'' would be defined to mean compulsory 
charges levied by an LEA, intermediate school district or other local 
governmental entity on behalf of an LEA for current expenditures for 
educational services. The term would be defined to include the proceeds 
of ad valorem taxes, sales and use taxes, income taxes and other taxes 
and, where a State funding formula requires a local contribution 
equivalent to a specified mill tax levy on taxable real or personal 
property, any revenues recognized by the State as satisfying that local 
contribution requirement.
    In addition, the term ``local tax revenues covered under a State 
equalization program'' would be defined as local tax revenues 
contributed to or taken into consideration in a State aid program, but 
excluding all revenues from State and Federal sources. Finally, a 
definition would be added of the term ``total local tax revenues'' to 
mean all local tax revenues including revenues for education programs 
for children needing special services, vocational education, 
transportation, and the like but excluding all revenues from State and 
Federal sources.

Administrative Procedures

    1. Administrative hearings and judicial review (section 8011 of the 
ESEA). Several changes would be made in subpart J to improve or clarify 
the administration of Impact Aid

[[Page 52569]]

administrative hearings. Section 222.151 would be revised to require an 
applicant's written request for an administrative hearing following an 
adverse action to be filed within 30 days of notice of that action, 
rather than within 60 days as is currently allowed. This change is 
proposed to expedite the Department's debt collection process so that 
the recovered funds can be redistributed more quickly to all eligible 
Impact Aid applicants. Because this provision would limit the current 
time period in which applicants adversely affected by Departmental 
action must file a hearing request, but could provide an overall 
benefit to all eligible Impact Aid applicants, the Secretary is 
particularly interested in receiving comments on this proposed 
provision.
    Section 222.152, concerning requested reconsiderations, would be 
revised to clarify that either the Secretary, or the Secretary's 
delegate (such as the Assistant Secretary for Elementary and Secondary 
Education or the Director of the Impact Aid Program), could make 
reconsideration determinations. In addition, Sec. 222.154 would be 
revised to require any party filing a written submission by facsimile 
transmission (FAX) in the course of an Impact Aid administrative 
hearing proceeding to file a follow-up hard copy within a reasonable 
period of time. This is a change from the current regulations, which 
permit the Secretary or an administrative law judge (ALJ) to request 
such a copy, but do not require a hard copy in all instances. The 
change is proposed to facilitate the operation of Impact Aid 
administrative hearing procedures and ensure that original signed 
documents are consistently in the hearing record.
    Section 222.157 would be revised in paragraph (a) to require an ALJ 
to issue an initial, rather than a recommended, decision. This is a 
change from the current regulations, which allow an ALJ to issue either 
an initial decision that becomes final without further Secretarial 
review (in the absence of an appeal or independent Secretarial review), 
or a recommended decision requiring Secretarial review. This change 
would expedite the administrative hearing process for applicants and 
provide more consistency to the administrative hearing procedures, 
while still preserving the parties' appeal rights. Section 222.157(a) 
also would clarify that when an initial decision becomes final without 
Secretarial review, the Department's Office of Hearings and Appeals 
will notify the parties of the finality of that decision. In addition, 
in accordance with the Department's longstanding policy, 
Sec. 222.157(b) would be revised to clarify that any party (not just 
the applicant) may request Secretarial review of an initial decision.
    Finally, Sec. 222.158 would be revised correspondingly to reflect 
that the Secretary's review would be of an ALJ's initial decision, and 
to clarify that the Secretary mails to each party written notice of the 
final decision.
    2. Determinations under section 8009 of the ESEA. Subpart K of the 
regulations (Determinations under Section 8009 of the Act) would be 
revised to clarify the specific procedures to be followed when a 
proceeding is initiated under section 8009 of the ESEA. Section 222.164 
would be amended in paragraph (a)(2) to provide that whenever a 
proceeding is initiated under section 8009 of the ESEA, the initiating 
party would be required to give adequate notice to the State and all 
LEAs in the State and provide them with a complete copy of the 
submission initiating the proceeding. In addition, the party initiating 
the proceeding would be required to notify the State and all LEAs in 
the State of their right to request from the Secretary, within 30 days 
of the initiation of a proceeding, the opportunity to present their 
views before the Secretary makes a determination.
    These steps would enable the Department to make more timely 
certification determinations. Section 8009(b)(1) of the ESEA is changed 
from the previous Impact Aid law (section 5(d)(2) of Pub. L. 81-874), 
in that section 8009(b)(1) prohibits a State from reducing its State 
aid payments due to Impact Aid before certification by the Secretary. 
Therefore, to enable States to make timely State aid payments to LEAs 
without unnecessary adjustments, it is essential that the Department 
make certification determinations as rapidly as possible once a 
proceeding is initiated.
    Section 222.164(b)(5) would be revised to clarify the 
predetermination procedures that the Secretary follows when a party 
requests the opportunity to present views before the Secretary makes a 
determination. Specifically, upon receipt of a timely request for a 
predetermination hearing, the Secretary would notify all LEAs and the 
State of the time and place of the predetermination hearing. The 
proposed regulation clarifies that predetermination hearings are 
informal and any LEA and the State are free to participate whether or 
not they requested the predetermination hearing. Under this proposed 
regulation, at the conclusion of the predetermination hearing, the 
Secretary would hold the record open for 15 days for the submission of 
post-hearing comments. The Secretary could extend the period for post-
hearing comments for good cause for up to an additional 15 days.
    In addition, the proposed revisions to Sec. 222.164(b)(5) would 
clarify the Secretary's flexible approach to predetermination hearings 
for States and local school districts, under which an alternative to a 
predetermination hearing is allowed for the presentation of views, 
under certain circumstances, before the Secretary makes a 
determination. Under this alternative procedure, if the party or 
parties requesting the predetermination hearing agree, they may present 
their views to the Secretary exclusively in writing. This procedure 
saves the State and LEAs both time and cost, and reflects the current 
practice of the Secretary. Under this proposed regulation, the 
Secretary would notify all LEAs and the State that this alternative 
procedure is being followed. The proposed regulation would give those 
LEAs and the State up to 30 days from the date of the notice in which 
to submit their views in writing. Any LEA or the State would be 
permitted to submit its views in writing within the specified time, 
regardless of whether it requested the opportunity to present its 
views.
    Finally, proposed Sec. 222.165, concerning administrative appeals 
of section 8009 determinations, would be revised. Section 222.165(e) 
would be revised in accordance with applicable legal principles to 
specify that the ALJ conducting the appeal is bound by all applicable 
statutes and regulations and may neither waive them nor rule them 
invalid.
    Section 222.165(f) would be revised to clarify that a follow-up 
hard copy of a facsimile transmission must be filed within a reasonable 
period of time following that transmission. Currently there is no time 
requirement for the filing of a follow-up hard copy. This change is 
proposed to be consistent with other Impact Aid facsimile transmission 
filing requirements.
    In addition, Sec. 222.165(h) would be revised generally to provide 
a more expedited hearing process for States and LEAs, and at the same 
time preserve their appeal rights. That provision would specify that 
appeals to the Secretary of initial decisions and the finality of 
initial decisions under section 8009 of the ESEA would be governed by 
Secs. 222.157(b), 222.158 and 222.159 of the general Impact Aid 
administrative hearing procedures in subpart J. Under those procedures, 
an ALJ's initial decision automatically constitutes the Secretary's 
final decision

[[Page 52570]]

without any further proceedings unless the decision is appealed by a 
party or the Secretary decides to review the initial decision. This 
would be a change from current hearing practice under section 5(d)(2) 
of Pub. L. 81-874 and section 8009 of the ESEA, under which an ALJ's 
decision must be certified to the Secretary before it becomes final.

Executive Order 12866

1. Assessment of Costs and Benefits

    These proposed regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order, the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs and benefits associated with the proposed 
regulations are minimal and to the extent there are costs, the costs 
result from the statutory requirements and regulations determined by 
the Secretary to be necessary for administering these programs 
effectively and efficiently.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these proposed regulations, the Secretary has 
determined that the benefits of the proposed regulations justify the 
costs. A further discussion of the potential costs and benefits of 
these proposed regulations is contained in the summary below.
    The Secretary also has determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866, the Secretary invites comments 
on whether there may be further opportunities to reduce any potential 
costs or increase potential benefits resulting from these proposed 
regulations without impeding the effective and efficient administration 
of the program.
Summary of Potential Costs and Benefits of Regulatory Provisions 
Discussed Above
    The following is a summary of the potential costs and benefits of 
these proposed regulations:
Overpayment Forgiveness Requests (Sec. 222.13(c))
    This proposed provision would require an LEA seeking forgiveness of 
an overpayment to provide certain financial and real property taxation 
information in support of its request. The statutory authority to 
forgive Impact Aid overpayments applies only in exceptional 
circumstances--error of the Secretary, or error of an LEA where 
repayment would result in undue financial hardship and seriously harm 
the LEA's educational program. In exercising this permissive authority, 
it is important for all applicants that the Secretary establish a 
reasonable test to measure undue hardship and financial harm that may 
be objectively and uniformly applied.
    Many alternative and complex standards could be proposed. However, 
because most LEAs derive revenue from real property taxes, the proposed 
test (where possible) focuses simply on an LEA's ability to raise to 
revenues from real property taxation to repay the debt, and requests 
the minimum data necessary for the Secretary to make a decision on that 
basis. The potential benefit to an LEA of this provision, which is the 
partial or total forgiveness of a debt owed to the Department, far 
outweighs the minimal burden of providing this information.
Valuation of Federal Property for Section 8002 Purposes (Sec. 222.23)
    This proposed regulation standardizes the method local officials to 
use in valuing Federal property for the purposes of an LEA's section 
8002 application. The statute requires that the aggregate assessed 
value of the Federal property be determined by a local official on the 
basis of the current highest and best of the adjacent property and 
provided to the Secretary.
    Section 8002 applicants have expressed significant concern to the 
Department that there is no consistent method for local officials to 
follow in valuing the Federal property in their various jurisdictions, 
and that the limited section 8002 funds therefore will be inequitably 
distributed. This regulation addresses the concerns of those LEAs by 
providing a standard method for local officials to follow in 
determining the aggregate assessed value of the Federal property, and 
standard definitions for two critical terms, ``adjacent'' and ``highest 
and best use.'' In defining the latter term, the proposed regulation 
provides maximum flexibility to States and localities by basing the 
local official's determination of fair market value upon State or local 
guidelines if available.
    Although there may some increased burden on local officials if they 
are not currently using any particular method to arrive at a valuation 
of the Federal property, the benefit to all section 8002 applicants in 
having a minimally uniform standard that allows for local differences 
and will result in a fair distribution of funds far outweighs any 
potential burden on those local officials.
Withholding and Related Procedures for Indian Policies and Procedures 
(Secs. 222.114-222.122)
    These proposed regulations implement the Secretary's expanded 
enforcement authority for Indian policies and procedures in sections 
8004(a)(2) and 8004(e)(8)-(9) of the ESEA, which includes the authority 
to withhold section 8003 payments from LEAs under certain 
circumstances. On September 29, 1995, the Secretary published final 
technical rules in the Federal Register (60 FR 50774-50800), which 
contained detailed rules governing IPPs. Those rules included complaint 
and hearing procedures (Secs. 222.102-222.113) that are available to 
Indian tribes if an LEA has not complied with IPP requirements. They 
did not provide specific procedures for the Secretary to follow, 
however, if it became necessary to withhold section 8003 payments from 
an LEA to obtain that compliance.
    Because the Impact Aid Program provides technical assistance to 
LEAs, parents, and Indian tribes to assure compliance with IPP 
requirements, the Secretary does not anticipate that it will be 
necessary to use these proposed withholding procedures in most cases. 
In the past, few complaints have been filed and all have been resolved 
without the necessity for reaching a withholding determination.
    In the unlikely event that it becomes necessary for the Secretary 
to issue a withholding determination, however, these procedures would 
be necessary so that the affected LEA and Indian tribe or tribes 
clearly know what procedures to follow. Any burden caused by these 
procedures is outweighed by the benefit to both LEAs and Indian tribes 
of having these procedures in place.
Requests for an Administrative Hearing Following an Adverse Action 
(Sec. 222.151)
    This provision would change the time within which an LEA may file a 
request for an administrative hearing following an adverse action from 
60 days to 30 days. This change is being proposed to expedite the 
Department's debt collection process so that funds recovered from 
Impact Aid overpayments may be redistributed more rapidly to all 
eligible Impact Aid applicants. Thirty days is a reasonable time period 
for LEAs to preserve their appeal rights, and any burden caused by this 
shorter period is outweighed by the benefit to all applicants of 
receiving a more rapid redistribution of funds.

[[Page 52571]]

Notification of Initiation of Section 8009 Proceeding 
(Sec. 222.164(a)(2))
    This proposed regulation would require any party initiating a 
certification determination under section 8009 of the ESEA to give 
notice of the initiation of that proceeding to the State and LEAs in 
the State, and to provide those entities with a complete copy of the 
submission initiating the proceeding. Currently, when a proceeding is 
initiated, the Impact Aid Program provides notice of the initiation, 
and any interested LEA (or State) must contact the initiating party 
independently to obtain a copy of the initiating submission (including 
the equalization data). This process can be cumbersome and time-
consuming.
    The statute now has been amended to prohibit a State from reducing 
its State aid payments due to Impact Aid before certification by the 
Secretary. Therefore, to enable States to make timely State aid 
payments to LEAs without unnecessary adjustments, it is essential that 
the Department make certification determinations as rapidly as possible 
once a proceeding is initiated. Although requiring the initiating party 
to provide notice of that initiation and a copy of its submission to 
the State and all LEAs will cause some burden, that burden is 
outweighed by more rapid certification determinations and the 
consequent ability of the State to make State aid payments on a more 
timely basis.

2. Clarity of the Regulations

    Executive Order 12866 requires each Federal agency to write 
regulations that are easy to understand.
    The Secretary invites comment on how to make these regulations 
easier to understand, including answers to questions such as the 
following: (1) Are the requirements in the regulations clearly stated? 
(2) Do the regulations contain technical terms or other wording that 
interferes with the clarity? (3) Does the format of the regulations 
(grouping and order of sections, use of headings, paragraphing, etc.) 
aid or reduce their clarity? Would the regulations be easier to 
understand if they were divided into more (but shorter) sections? (A 
``section'' is preceded by the symbol ``Sec. '' and a numbered heading; 
for example ``Sec. 222.1 What is the scope of this part?'') (4) Is the 
description of the proposed regulations in the ``Supplementary 
Information'' section of this preamble helpful in understanding the 
proposed regulations? How could this description be more helpful in 
making the proposed regulations easier to understand? (5) What else 
could the Department do to make the regulations easier to understand?
    A copy of any comments that concern whether these proposed 
regulations are easy to understand should also be sent to Stanley M. 
Cohen, Regulations Quality Officer, U.S. Department of Education, 600 
Independence Avenue, S.W. (Room 5121, FOB-10), Washington, DC, 20202-
2241.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities.
    The small entities that would be affected by these proposed 
regulations are small LEAs receiving Federal funds under this program. 
The proposed regulations would not have a significant economic impact 
on the small entities affected because the proposed regulations would 
not impose excessive regulatory burdens or require unnecessary Federal 
supervision. The proposed regulations would impose minimal requirements 
to ensure the proper expenditure of program funds.

Paperwork Reduction Act of 1995

    As described below, proposed Secs. 222.83(b) and (c), 222.95(g), 
and 222.164(a)(2) and (b), contain information collection requirements. 
As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), 
the Department of Education has submitted a copy of these sections to 
the Office of Management and Budget (OMB) for its review under that 
Act.
    Collection of Information: Impact Aid: Payments to Local 
Educational Agencies for Children with Severe Disabilities under 
Section 8003(g) of the Act (Part 222, Subpart F): Under proposed 
Sec. 222.83(b) and (c) (How does an eligible LEA apply for a payment 
under section 8003(g)?), an LEA that wishes to apply under section 
8003(g) of the ESEA for special funds that may be available for certain 
federally connected children with severe disabilities is required to 
submit to the Secretary information detailing the total costs to the 
LEA of providing a free appropriate public education for those 
children. That information may include: (1) for the costs of the 
outside entity providing the educational program for those children, 
copies of invoices, vouchers, tuition contracts, and other similar 
documents showing the signature of an official or authorized employee 
of the outside entity; and (2) for the additional costs, if any, of the 
LEA related to that educational program, copies of invoices, check 
receipts, contracts, and other similar documents showing the signature 
of an official or authorized employee of the LEA.
    The likely respondents to this collection of information are LEAs 
that have federally connected children with severe disabilities whose 
parents are on active duty in the uniformed services and the outside 
entity or institution providing the educational program for those 
children. The information submitted is used to calculate the amount of 
the LEA's payment under section 8003(g) of the Act.
    We estimate that approximately 24 LEAs may apply for funds under 
section 8003(g), and each application will take an average of 2 hours 
to prepare. Therefore, the total annual reporting and recordkeeping 
burden that will result from the collection of this information is 48 
burden hours (24 LEAs, multiplied by 1 application, multiplied by 2 
burden hours for preparing each application).
    Collection of Information: Impact Aid: Special Provisions for Local 
Educational Agencies that Claim Children Residing on Indian Lands (Part 
222, Subpart G): An LEA is required, as a part of its application for 
funds under section 8003 of the ESEA, to submit certain policies and 
procedures in accordance with section 8004 of the ESEA to ensure equal 
participation of Indian children and consultation with and involvement 
of their parents and Indian tribes (IPPs). Under proposed 
Sec. 222.95(g) (How are Indian policies and procedures reviewed to 
ensure compliance with the requirements in section 8004(a) of the 
Act?), an LEA would have 30 days to send a copy of any amendment to its 
IPPs to the Director of the Impact Aid Program and the affected Indian 
tribe or tribes. This provision would not change the paperwork burden 
for IPPs, which was approved previously as a part of the section 8003 
application under OMB #1810-0036 (942,915 total annual hours for all 
applicants, as revised downward due to changes in the Impact Aid law 
(based upon an average of .109 annual hours per parent response per 
child, and an average of 303 annual hours per LEA annual response per 
application)).
    Collection of Information: Impact Aid: Determinations under Section 
8009 of the Act (Part 222, Subpart K): Under proposed 
Sec. 222.164(a)(2) (What procedures does the Secretary follow in making 
a determination under section 8009?), the party initiating an 
equalization proceeding under section 8009 of the ESEA must provide the 
State and all LEAs in the State with a complete copy of the submission 
initiating the proceeding. In addition, the party initiating the 
proceeding must notify the State and all LEAs in the State

[[Page 52572]]

of their right to request from the Secretary the opportunity to present 
their views to the Secretary before the Secretary makes a 
determination.
    The likely respondents to these third-party disclosure requirements 
are States and LEAs that may initiate equalization proceedings. The 
information that they are required to disclose is used by interested 
parties to determine whether to request the opportunity to present 
their views as to whether the State meets the statutory equalization 
criteria. If a State meets that criteria, it may reduce State aid 
payments to LEAs that receive Impact Aid funds.
    We estimate that equalization proceedings will be initiated in an 
average of four States per year, which have an average of 125 LEAs to 
which the required information must be disclosed, and that the 
disclosure will require an average of .02 hour per disclosure to 
prepare and mail. Therefore, the total annual reporting and 
recordkeeping burden that will result from this disclosure requirement 
is 10.0 burden hours (4 States, multiplied by 125 LEAs, multiplied by 
.02 hour for preparing and mailing each notice).
    In addition, when an equalization proceeding is initiated, certain 
information must be submitted to the Secretary under proposed 
Sec. 222.164(b) to enable the Secretary to determine whether the State 
meets the statutory standard for certification. The likely respondents 
to this collection requirement are States seeking certification of 
their equalization plans. The information that they are required to 
submit is used by the Secretary to determine whether the State's 
equalization plan meets the statutory requirements for certification so 
that the State may take Impact Aid payments into account in 
distributing State aid.
    We estimate that equalization proceedings will be initiated in an 
average of 4 States per year, and that the data submission to the 
Secretary will require an average of 45.25 hours per collection. 
Therefore, the total annual reporting and recordkeeping burden that 
will result from this collection requirement is 181.0 burden hours (4 
States, multiplied by 1 annual submission, multiplied by 45.25 hours 
for preparation and mailing of each submission).
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for U.S. 
Department of Education.
    The Department considers comments by the public on these proposed 
collections of information in:
     Evaluating whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Department, including whether the information will have practical 
utility;
     Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collections of information, including the 
validity of the methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other form of information technology; e.g., permitting 
electronic submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment to the Department on the 
proposed regulations.
    Invitation to Comment: Interested persons are invited to submit 
comments and recommendations regarding these proposed regulations. The 
Secretary is particularly interested in comments on proposed 
Secs. 222.12-222.15 (implementing the overpayment forgiveness 
provision), Sec. 222.81 (describing eligibility standards for payments 
for children with severe disabilities); Secs. 222.114-222.122 
(implementing Indian policy and procedures withholding proceedings), 
and Sec. 222.151(b)(1) (changing the time within which an 
administrative hearing request must be filed from 60 to 30 days 
following an adverse action).
    All comments submitted in response to these proposed regulations 
will be available for public inspection during and after the comment 
period, in Room 4200, Portals Building, 1250 Maryland Avenue, S.W., 
Washington, DC., between the hours of 8:30 a.m. and 4 p.m., Monday 
through Friday of each week except Federal holidays.

List of Subjects in 34 CFR Part 222

    Education, Education of children with disabilities, Elementary and 
secondary education, Federally affected areas, Grant programs--
education, Indians--education, Public housing, Reports and 
recordkeeping requirements, School construction.

    Dated: October 1, 1996.

(Catalog of Federal Domestic Assistance Number 84.041, Impact Aid)
Richard W. Riley,
Secretary of Education.
    The Secretary proposes to amend Part 222 of Title 34 of the Code of 
Federal Regulations as follows:

PART 222--IMPACT AID PROGRAMS

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

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

    3. Section 222.4 is revised to read as follows:


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

    (a) To be timely filed under Sec. 222.3, an application must be 
received by the Secretary, or mailed, on or before the applicable 
filing date.
    (b) An applicant must show one of the following as proof of 
mailing:
    (1) A legibly dated U.S. Postal Service postmark.
    (2) A legible mail receipt with the date of mailing stamped by the 
U.S. Postal Service.
    (3) A dated shipping label, invoice, or receipt from a commercial 
carrier.
    (4) Any other proof of mailing acceptable to the Secretary.
    (c) If an application is mailed through the U.S. Postal Service, 
the Secretary does not accept either of the following as proof of 
mailing:
    (1) A private metered postmark.
    (2) A mail receipt that is not dated by the U.S. Postal Service.

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

    Note to Paragraph (b)(1): The U.S. Postal Service does not 
uniformly provide a dated postmark. Before relying on this method, 
an applicant should check with its local post office.

Sec. 222.11  [Amended]

    4. In Sec. 222.11, the introductory language is amended by removing 
``Except as otherwise provided in section 8012'', and by adding in its 
place ``Except as otherwise provided in Sec. 222.12,''.
    5. Section 222.13 is redesignated as Sec. 222.16, and new 
Secs. 222.12-222.15 are added to read as follows:

[[Page 52573]]

Sec. 222.12  What overpayments are eligible for forgiveness under 
section 8012 of the Act?

    (a)(1) Except as provided in paragraph (a)(2) of this section, the 
Secretary considers the following overpayments as eligible for 
forgiveness under section 8012 of the Act (``eligible overpayment''):
    (i) An overpayment balance that remains owing on or after [insert 
the 30th day from the date of publication of the final regulations in 
the Federal Register], and that is more than a local educational agency 
(LEA) was eligible to receive for a particular fiscal year under Public 
Law 81-874, Public Law 81-815, or the Act.
    (ii) An overpayment amount that is more than an LEA was eligible to 
receive for a particular fiscal year under Public Law 81-874, Public 
Law 81-815, or the Act, and that--
    (A) Is the subject of a written request for forgiveness filed by 
the LEA before [insert the 30th day from the date of publication of the 
final regulations in the Federal Register]; or
    (B) Is the subject of a timely written request for an 
administrative hearing or reconsideration, and has not previously been 
reviewed under Secs. 222.12-222.15.
    (2) The Secretary does not consider the following overpayments to 
be eligible for forgiveness under section 8012 of the Act:
    (i) Any overpayment under section 7 of Public Law 81-874 or section 
16 of Public Law 81-815.
    (ii) An amount received by an LEA, as determined under section 
8003(g) of the Act, which authorizes payments to LEAs for certain 
federally connected children with severe disabilities (implemented in 
subpart F of these regulations), that exceeds the LEA's maximum basic 
support payment under section 8003(b) of the Act.
    (iii) Any overpayment received under the following provisions that 
was caused by an LEA's failure to expend or account for funds properly 
in accordance with the applicable law and regulations:
    (A) Section 8003(d) of the Act (implemented in subpart D of these 
regulations) or section 3(d)(2)(C) of Public Law 81-874 for certain 
federally connected children with disabilities.
    (B) Section 8003(g) of the Act.
    (b) The Secretary applies Secs. 222.13-222.15 in forgiving, in 
whole or part, an LEA's obligation to repay an eligible overpayment 
that resulted from error either by the LEA or the Secretary.

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


Sec. 222.13  What requirements must a local educational agency meet for 
an eligible overpayment to be forgiven in whole or part?

    (a) The Secretary forgives an eligible overpayment, in whole or 
part as described in Sec. 222.15, if--
    (1) The LEA files, in accordance with paragraph (b) of this 
section--
    (i) A request for forgiveness; and
    (ii) The information and documentation described in paragraph (c) 
of this section; and
    (2)(i) The Secretary determines under Sec. 222.14, in the case 
either of an LEA's or the Department's error, that repayment of the 
LEA's total eligible overpayments will result in an undue financial 
hardship on the LEA and seriously harm the LEA's educational program; 
or
    (ii) In the case of the Department's error, the Secretary 
determines on a case-by-case basis that repayment would be manifestly 
unjust (``manifestly unjust repayment exception'').
    (b)(1) Except for an overpayment described in paragraph (2) of this 
section, an LEA must submit to the Impact Aid Program a written request 
for forgiveness no later than 30 days from the LEA's initial receipt of 
a written notice of the overpayment.
    (2) For an overpayment for which an LEA has submitted a written 
request for forgiveness before [insert the 30th day from the date of 
publication of the final regulations in the Federal Register], the 
information and documentation described in paragraph (c) of this 
section must be submitted no later than [insert the 60th day from the 
date of publication of the final regulations in the Federal Register].
    (3) An LEA must submit the information and documentation described 
in paragraph (c) of this section no later than the applicable time 
limits described in paragraph (b)(1) or (2) of this section, or other 
time limit established in writing by the Secretary due to lack of 
availability of the information and documentation.
    (c)(1) Every LEA requesting forgiveness must submit the following 
information and documentation (as applicable) for the fiscal year 
immediately preceding the date of the request for forgiveness 
(``preceding fiscal year''):
    (i) A copy of the LEA's annual financial report to the State.
    (ii) The LEA's local real property tax rate for current expenditure 
purposes, as described in Sec. 222.14(b).
    (iii) The maximum local real property tax rate for current 
expenditure purposes allowed by State law, or if there is no State 
maximum, the average local real property tax rate of all LEAs in the 
State.
    (iv) For an LEA whose boundaries are the same as a Federal military 
installation--
    (A) The average per pupil expenditure (PPE) of the LEA; and
    (B) The average PPE in all LEAs in the State.
    (v) The equalized assessed valuation of real property per pupil 
(EAVPP) (or other measure of fiscal capacity as defined by the State) 
for the LEA, and the average of that measure for all LEAs in the State.
    (2) An LEA requesting forgiveness under Sec. 222.13(a)(2)(ii) 
(manifestly unjust repayment exception), or Sec. 222.14(a)(2) (no 
present or prospective ability to repay), must submit written 
information and documentation (in addition to that described in 
paragraph (c)(1) of this section) in support of its request for 
forgiveness under those provisions.
    (d)(1) A request for forgiveness of an overpayment under this 
section does not extend the time within which an applicant must file a 
request for an administrative hearing under Sec. 222.151, unless the 
Secretary (or the Secretary's delegatee) extends that time limit in 
writing.
    (2) A request for an administrative hearing under Sec. 222.151, or 
for reconsideration under Sec. 222.152, does not extend the time within 
which an applicant must file a request for forgiveness under this 
section, unless the Secretary (or the Secretary's delegatee) extends 
that time limit in writing.

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


Sec. 222.14  How does the Secretary determine undue financial hardship 
and serious harm to a local educational agency's educational program?

    (a) The Secretary determines that repayment of an eligible 
overpayment will result in undue financial hardship on the LEA and 
seriously harm its educational program if the LEA meets the 
requirements in paragraph (a)(1) or (2) of this section:
    (1) An LEA qualifies under paragraph (a) of this section if--
    (i) The sum of the LEA's eligible overpayments on the date of its 
request is at least $10,000;
    (ii)(A) For an LEA in a State with a maximum local real property 
tax rate (except for an LEA described in paragraph (a)(1)(iv) of this 
section), the LEA's local real property tax rate for current 
expenditure purposes, for the preceding fiscal year, is at least 90% of 
the maximum rate allowed by State law; or

[[Page 52574]]

    (B) For an LEA in a State without a maximum local real property tax 
rate (except for an LEA described in paragraph (a)(1)(iv) of this 
section), the LEA's local real property tax rate for current 
expenditure purposes, for the preceding fiscal year, is at least equal 
to the State average local real property tax rate;
    (iii) For an LEA described in paragraph (a)(1)(ii) of this section, 
the LEA's fiscal capacity, for the preceding fiscal year, is below the 
State average; and
    (iv) For an LEA with boundaries that are the same as a Federal 
military installation, the average per pupil expenditure (PPE) of the 
LEA for the preceding fiscal year does not exceed 125% of the average 
PPE in all LEAs in the State for that preceding fiscal year.
    (2) In the alternative, an LEA qualifies under paragraph (a) of 
this section if neither the successor nor the predecessor LEA has the 
present or prospective ability to repay the eligible overpayment.
    (b) The Secretary uses the following methods to determine a tax 
rate for the purposes of paragraph (a)(1) (ii) and (iii) of this 
section:
    (1) If an LEA is fiscally independent, the Secretary uses actual 
tax rates if all the real property in the taxing jurisdiction of the 
LEA is assessed at the same percentage of true value. In the 
alternative, the Secretary may compute a tax rate for fiscally 
independent LEAs by using the methods described in Secs. 222.67-222.69.
    (2) If an LEA is fiscally dependent, the Secretary imputes a tax 
rate using the method described in Sec. 222.70(b).
    (c) ``Fiscal capacity'' for the purpose of paragraph (a)(1)(v) of 
this section means the equalized assessed valuation of real property 
per pupil (EAVPP), unless otherwise defined by the State.

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


Sec. 222.15  What amount does the Secretary forgive?

    For an LEA that meets the requirements of Sec. 222.13(b) (timely 
filed forgiveness request and information and documentation), the 
Secretary forgives an eligible overpayment as follows:
    (a) Forgiveness in whole. The Secretary forgives the eligible 
overpayment in whole if the Secretary determines that the LEA meets--
    (1) The requirements of Sec. 222.14 (undue financial hardship), and 
the LEA's current expenditure closing balance for the LEA's fiscal year 
immediately preceding the date of its request for forgiveness 
(``preceding fiscal year'') is five percent or less of its total 
current expenditures (TCE) for that year; or
    (2) The manifestly unjust repayment exception in 
Sec. 222.13(a)(2)(ii).
    (b) Forgiveness in part. (1) The Secretary forgives the eligible 
overpayment in part if the Secretary determines that the LEA meets the 
requirements of Sec. 222.14 (undue financial hardship), but the LEA's 
preceding fiscal year's current expenditure closing balance is more 
than five percent of its total current expenditures (TCE) for that 
year.
    (2) For an eligible overpayment that is forgiven in part, the 
Secretary--
    (i) Requires the LEA to repay the amount by which the LEA's 
preceding fiscal year's current expenditure closing balance exceeded 
five percent of its preceding fiscal year's total current expenditures 
(``calculated repayment amount''); and
    (ii) Forgives the difference between the calculated repayment 
amount and the LEA's total overpayments.
    (3) For the purposes of this section, ``current expenditure closing 
balance'' means an LEA's closing balance before any revocable transfers 
to non-current expenditure accounts, such as capital outlay or debt 
service accounts.
    Example: An LEA that timely requests forgiveness has two 
overpayments of which portions remain owing on the date of its 
request--one of $200,000 and one of $300,000. Its preceding fiscal 
year's closing balance is $250,000 (before a revocable transfer to a 
capital outlay or debt service account); and 5 percent of its TCE 
for the preceding fiscal year is $150,000.
    The Secretary calculates the amount that the LEA must repay by 
determining the amount by which the preceding fiscal year's closing 
balance exceeds 5 percent of the preceding year's TCE. This 
calculation is made by subtracting 5 percent of the LEA's TCE 
($150,000) from the closing balance ($250,000), resulting in a 
difference of $100,000 that the LEA must repay. The Secretary then 
totals the eligible overpayment amounts ($200,000 + $300,000), 
resulting in a total amount of $500,000. The Secretary subtracts the 
calculated repayment amount ($100,000) from the total of the two 
overpayment balances ($500,000), resulting in $400,000 that the 
Secretary forgives.

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

    6. Section 222.22 is amended by revising paragraphs (c) and (d) to 
read as follows:


Sec. 222.22  How does the Secretary treat compensation from Federal 
activities for purposes of determining eligibility and payments?

* * * * *
    (c) If an LEA described in paragraph (a) of this section received 
revenue described in paragraph (b)(1) of this section during the 
preceding fiscal year that is less than the maximum payment amount 
under section 8002(b) for the fiscal year for which the LEA seeks 
assistance, the Secretary reduces that maximum payment amount by the 
amount of that revenue received by the LEA.
    (d) For purposes of this section, the amount of revenue that an LEA 
receives during the previous fiscal year from activities conducted on 
Federal property does not include the following:
    (1) Payments received by the agency from the Secretary of Defense 
to support--
    (i) The operation of a domestic dependent elementary or secondary 
school; or
    (ii) The provision of a free public education to dependents of 
members of the Armed Forces residing on or near a military 
installation.
    (2) Federal payments-in-lieu-of-taxes (PILOTs or PILTs), including 
PILTs for Federal entitlement lands authorized by Public Law 97-258, 31 
U.S.C. Secs. 6901-6906.
* * * * *
    7. A new Sec. 222.23 is added to read as follows:


Sec. 222.23  How does a local official determine the aggregate assessed 
value of eligible Federal property for the purpose of a local 
educational agency's section 8002 payment?

    (a) The aggregate assessed value of eligible Federal property for 
the purpose of an LEA's section 8002 payment must be determined, by a 
local official responsible for assessing the value of real property 
located in the jurisdiction of the LEA for the purpose of levying a 
property tax, as follows:
    (1) The local official first determines a fair market value (FMV) 
for the eligible Federal property in each Federal installation or other 
federally owned property (e.g., Federal forest), based on the highest 
and best use of taxable properties adjacent to the eligible Federal 
property.
    (2) The local official then determines a section 8002 assessed 
value for each Federal installation or federally owned property by 
adjusting the FMV established in paragraph (a)(1) of this section by 
any percentage, ratio, index, or other factor that the official would 
use, if the eligible Federal property were taxable, to determine its 
assessed value for the purpose of generating local real property tax 
revenues for current expenditures. In making this adjustment, the 
official may assume that there was a transfer of ownership of the 
eligible Federal property for the year for which the section 8002 
assessed value is being determined.

[[Page 52575]]

    (3) The local assessor then calculates the aggregate section 8002 
assessed value for all eligible Federal property in the LEA by adding 
the section 8002 assessed values for each different Federal 
installation or federally owned property determined in paragraph (a)(2) 
of this section.

    Example: Two different Federal properties are located within a 
LEA--a Federal forest, and a naval facility. Based upon the highest 
and best use of taxable properties adjacent to the eligible Federal 
property, the local assessor establishes an FMV for the Federal 
forest of $1 million (woodland), and an FMV for the naval facility 
of $3 million (50 percent residential and 50 percent commercial/
industrial). Assessed values in that taxing jurisdiction are 
determined by multiplying the FMV of property by an assessment 
ratio--the assessment ratio for woodland property is 30 percent of 
FMV, for residential 60 percent of FMV, and for commercial 75 
percent of FMV.
    To determine the section 8002 assessed value of the Federal 
forest, the assessor multiplies the FMV for that property 
($1,000,000) by 30 percent (the assessment ratio for woodland 
property), resulting in a section 8002 assessed value of $300,000.
    To determine the section 8002 assessed value for the naval 
facility, the assessor first must determine the portion of the total 
FMV attributable to each property type if that portion has not 
already been established. To make this determination for the 
residential portion, the assessor could multiply the total FMV 
($3,000,000) for the naval facility by 50 percent (the portion of 
residential property), resulting in a $1.5 million FMV for the 
residential property. To determine a section 8002 assessed value for 
this residential portion, the assessor then would multiply the $1.5 
million by 60 percent (assessment ratio for residential property), 
resulting in $900,000.
    Similarly, to determine the portion of the FMV for the naval 
facility attributable to the commercial/industrial property, the 
assessor could multiply the total FMV ($3,000,000) by 50 percent 
(the portion of commercial/industrial property), resulting in $1.5 
million. To determine the section 8002 assessed value for this 
commercial/industrial portion, the official then would multiply the 
$1.5 million by 75 percent (the assessment ratio for commercial/
industrial property), resulting in $1,025,000. The assessor then 
must add the section 8002 assessed value figures for the residential 
portion ($900,000) and for the commercial/industrial portion 
($1,025,000), resulting in a total section 8002 assessed value for 
the entire naval facility of $1,925,000.
    Finally, the assessor determines the aggregate section 8002 
assessed value for the LEA by adding the section 8002 assessed value 
for the Federal forest ($300,000), and the section 8002 assessed 
value for the naval facility ($1,925,000), resulting in an aggregate 
assessed value of $2,325,000.

    (b) For the purpose of this section, the terms listed below have 
the following meanings:
    (1) ``Adjacent'' means next to or close to the eligible Federal 
property. In most cases, this will be the closest taxable parcels.
    (2)(i) ``Highest and best use'' of a parcel of adjacent property 
means the FMV of that parcel determined based upon a ``highest and best 
use'' standard in accordance with State or local law or guidelines if 
available. To the extent that State or local law or guidelines are not 
available, ``highest and best use'' generally will be a reasonable fair 
market value based upon the current use of those properties. However, 
the local official may also consider the most developed and profitable 
use for which the adjacent taxable property is physically adaptable and 
for which there is a need or demand for that use in the near future.
    (ii) A local official may not base the ``highest and best use'' 
value of adjacent taxable property upon potential uses that are 
speculative or remote.
    (iii) If the taxable properties adjacent to the eligible Federal 
property have different highest and best uses, these different uses 
must enter into the local official's determination of the FMV of the 
eligible Federal property under paragraph (a)(1) of this section.

    Example: If a portion of a Federal installation to be valued has 
road or highway frontage with adjacent properties that are used for 
residential and commercial purposes, but the rest of the Federal 
installation is rural and vacant with adjacent properties that are 
agricultural, the local official must take into consideration the 
various uses of the adjacent properties (residential, commercial, 
and agricultural) in determining the FMV of the Federal property 
under paragraph (a)(1) of this section.

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

    8. New Secs. 222.80 through 222.85 are added as subpart F (Payments 
to Local Educational Agencies for Children with Severe Disabilities 
under Section 8003(g) of the Act) to read as follows:
Subpart F--Payments to Local Educational Agencies for Children with 
Severe Disabilities under Section 8003(g) of the Act
222.80  What definitions apply to this subpart?
222.81  What requirements must a local educational agency meet to be 
eligible for a payment under section 8003(g) of the Act?
222.82  How does the Secretary calculate the total amount of funds 
available for payments under section 8003(g)?
222.83  How does an eligible local educational agency apply for a 
payment under section 8003(g)?
222.84  How does the Secretary calculate payments under section 
8003(g) for eligible local educational agencies?
222.85  How may a local educational agency use funds that it 
receives under section 8003(g)?

Subpart F--Payments to Local Educational Agencies for Children with 
Severe Disabilities under Section 8003(g) of the Act


Sec. 222.80  What definitions apply to this subpart?

    (a) The definitions in Secs. 222.2 and 222.50 apply to this 
subpart.
    (b) In addition, the following term applies to this subpart:
    Children with severe disabilities means children with disabilities 
who because of the intensity of their physical, mental, or emotional 
problems, need highly specialized education, social, psychological, and 
medical services in order to maximize their full potential for useful 
and meaningful participation in society and for self-fulfillment. The 
term includes those children with disabilities with severe emotional 
disturbance (including schizophrenia), autism, severe and profound 
mental retardation, and those who have two or more serious disabilities 
such as deaf-blindness, mental retardation and blindness, and cerebral-
palsy and deafness.

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


Sec. 222.81  What requirements must a local educational agency meet to 
be eligible for a payment under section 8003(g) of the Act?

    An LEA is eligible for a payment under section 8003(g) of the Act 
if it--
    (a) Is eligible for and receives a payment under section 8003(d) of 
the Act for children identified in paragraph (b) of this section and 
meets the requirements of Secs. 222.52 and 222.83(b) and (c); and
    (b) Incurs costs of providing a free appropriate public education 
to at least two children with severe disabilities whose educational 
program is being provided by an entity outside the schools of the LEA, 
and who each have a parent on active duty in the uniformed services.

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


Sec. 222.82  How does the Secretary calculate the total amount of funds 
available for payments under section 8003(g)?

    (a) In any fiscal year in which Federal funds other than funds 
available under the Act are provided to an LEA to meet the purposes of 
the Act, the Secretary--
    (1) Calculates the sum of the amount of other Federal funds 
provided to an LEA to meet the purposes of the Act and the amount of 
the payment that the LEA

[[Page 52576]]

received for that fiscal year under section 8003(b) of the Act; and
    (2) Determines whether the sum calculated under paragraph (a)(1) of 
this section exceeds the maximum basic support payment for which the 
LEA is eligible under section 8003(b), and, if so, subtracts from the 
amount of any payment received under section 8003(b), any amount in 
excess of the maximum basic support payment for which the LEA is 
eligible.
    (b) The sum of all excess amounts determined in paragraph (a)(2) of 
this section is available for payments under section 8003(g) to 
eligible LEAs.

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


Sec. 222.83  How does an eligible local educational agency apply for a 
payment under section 8003(g)?

    (a) In fiscal years in which funds are available for payments under 
section 8003(g), the Secretary provides notice to all potentially 
eligible LEAs that funds will be available.
    (b) An LEA applies for a payment under section 8003(g) by 
submitting to the Secretary documentation detailing the total costs to 
the LEA of providing a free appropriate public education to the 
children identified in Sec. 222.81, during the LEA's preceding fiscal 
year, including the following:
    (1) For the costs of the outside entity providing the educational 
program for those children, copies of all invoices, vouchers, tuition 
contracts, and other similar documents showing the signature of an 
official or authorized employee of the outside entity; and
    (2) For any additional costs (such as transportation) of the LEA 
related to providing an educational program for those children in an 
outside entity, copies of invoices, check receipts, contracts, and 
other similar documents showing the signature of an official or 
authorized employee of the LEA.
    (c) An LEA applying for a payment must submit to the Secretary the 
information required under paragraph (b) of this section within 60 days 
of the date of the notice that funds will be available.

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


Sec. 222.84  How does the Secretary calculate payments under section 
8003(g) for eligible local educational agencies?

    For any fiscal year in which the Secretary has determined, under 
Sec. 222.82, that funds are available for payments under section 
8003(g), the Secretary calculates payments to eligible LEAs under 
section 8003(g) as follows:
    (a) For each eligible LEA, the Secretary subtracts an amount equal 
to that portion of the payment the LEA received under section 8003(d) 
of the Act for that fiscal year, attributable to children described in 
Sec. 222.81, from the LEA's total costs of providing a free appropriate 
public education to those children, as submitted to the Secretary 
pursuant to Sec. 222.83(b). The remainder is the amount that the LEA is 
eligible to receive under section 8003(g).
    (b) If the total of the amounts for all eligible LEAs determined in 
paragraph (a) of this section is equal to or less than the amount of 
funds available for payment as determined in Sec. 222.82, the Secretary 
provides each eligible LEA with the entire amount that it is eligible 
to receive, as determined in paragraph (a) of this section.
    (c) If the total of the amounts for all eligible LEAs determined in 
paragraph (a) of this section exceeds the amount of funds available for 
payment as determined in Sec. 222.82, the Secretary ratably reduces 
payments under section 8003(g) to eligible LEAs.
    (d) If the total of the amounts for all eligible LEAs determined in 
paragraph (a) of this section is less than the amount of funds 
available for payment as determined in Sec. 222.82, the Secretary pays 
the remaining amount to LEAs under section 8003(d). An LEA that 
receives such a payment shall use the funds for expenditures in 
accordance with the requirements of section 8003(d) and subpart D of 
these regulations.

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


Sec. 222.85  How may a local educational agency use funds that it 
receives under section 8003(g)?

    An LEA that receives a payment under section 8003(g) shall use the 
funds for reimbursement of costs reported in the application that it 
submitted to the Secretary under Sec. 222.83(b).

(Authority: 20 U.S.C. 7703(g)(2))

    9. Section 222.95 is amended by revising the paragraph (g) 
introductory text to read as follows:


Sec. 222.95  How are Indian policies and procedures reviewed to ensure 
compliance with the requirements in section 8004(a) of the Act?

* * * * *
    (g) An LEA that amends its IPPs shall, within 30 days, send a copy 
of the amended IPPs to--
* * * * *
    10. New Secs. 222.114 through 222.122 are added to subpart G, with 
a heading preceding them, to read as follows:

Withholding and Related Procedures for Indian Policies and Procedures

222.114  How does the Assistant Secretary implement the provisions 
of this subpart?
222.115  When does the Assistant Secretary withhold payments from a 
local educational agency under this subpart?
222.116  How are withholding procedures initiated under this 
subpart?
222.117  What procedures are followed after the Assistant Secretary 
issues a notice of intent to withhold payments?
222.118  How are withholding hearings conducted in this subpart?
222.119  What is the effect of withholding under this subpart?
222.120  When is a local educational agency exempt from withholding 
of payments?
222.121  How does the affected Indian tribe or tribes request that 
payments to a local educational agency not be withheld?
222.122  What procedures are followed if it is determined that the 
local educational agency's funds will not be withheld under this 
subpart?
222.123-222.129  [Reserved]

Withholding and Related Procedures for Indian Policies and 
Procedures


Sec. 222.114  How does the Assistant Secretary implement the provisions 
of this subpart?

    The Assistant Secretary implements section 8004 of the Act and this 
subpart through such actions as the Assistant Secretary determines to 
be appropriate, including the withholding of funds in accordance with 
Secs. 222.115-222.122, after affording the affected LEA, parents, and 
Indian tribe or tribes an opportunity to present their views.

(Authority: 20 U.S.C. 7704(d)(2), (e)(8)-(9))


Sec. 222.115  When does the Assistant Secretary withhold payments from 
a local educational agency under this subpart?

    Except as provided in Sec. 222.120, the Assistant Secretary 
withholds payments to an LEA if--
    (a) The Assistant Secretary determines it is necessary to enforce 
the requirements of section 8004 of the Act or this subpart; or
    (b) After a hearing has been conducted under section 8004(e) of the 
Act and Secs. 222.102-222.113 (IPP hearing)--
    (1) The LEA rejects the final determination of the Assistant 
Secretary; or
    (2) The LEA fails to implement the required remedy within the time 
established and the Assistant Secretary determines that the required 
remedy will not be undertaken by the LEA even if the LEA is granted a 
reasonable extension of time.

(Authority: 20 U.S.C. 7704(a), (b), (d)(2), (e)(8)-(9))

[[Page 52577]]

Sec. 222.116  How are withholding procedures initiated under this 
subpart?

    (a) If the Assistant Secretary decides to withhold an LEA's funds, 
the Assistant Secretary issues a written notice of intent to withhold 
the LEA's payments.
    (b) In the written notice, the Assistant Secretary--
    (1) Describes how the LEA failed to comply with the requirements at 
issue; and
    (2)(i) Advises an LEA that has participated in an IPP hearing that 
it may request, in accordance with Sec. 222.117(c), that its payments 
not be withheld; or
    (ii) Advises an LEA that has not participated in an IPP hearing 
that it may request a withholding hearing in accordance with 
Sec. 222.117(d).
    (c) The Assistant Secretary sends a copy of the written notice of 
intent to withhold payments to the LEA and the affected Indian tribe or 
tribes by certified mail with return receipt requested.

(Authority: 20 U.S.C. 1221e-3(a)(1); 20 U.S.C. 7704(a), (b), (d)(2), 
and (e)(8)-(9))


Sec. 222.117  What procedures are followed after the Assistant 
Secretary issues a notice of intent to withhold payments?

    (a) The withholding of payments authorized by section 8004 of the 
Act is conducted in accordance with section 8004(d)(2) or (e)(8)-(9) of 
the Act and the regulations in this subpart.
    (b) An LEA that receives a notice of intent to withhold payments 
from the Assistant Secretary is not entitled to an Impact Aid hearing 
under the provisions of section 8011 of the Act and subpart J of these 
regulations.
    (c) After an IPP hearing. (1) An LEA that rejects or fails to 
implement the final determination of the Assistant Secretary after an 
IPP hearing has 10 days from the date of the LEA's receipt of the 
written notice of intent to withhold funds to provide the Assistant 
Secretary with a written explanation and documentation in support of 
the reasons why its payments should not be withheld. The Assistant 
Secretary provides the affected Indian tribe or tribes with an 
opportunity to respond to the LEA's submission.
    (2) If after reviewing an LEA's written explanation and supporting 
documentation, and any response from the Indian tribe or tribes, the 
Assistant Secretary determines to withhold an LEA's payments, the 
Assistant Secretary notifies the LEA and the affected Indian tribe or 
tribes of the withholding determination in writing by certified mail 
with return receipt requested prior to withholding the payments.
    (3) In the withholding determination, the Assistant Secretary 
states the facts supporting the determination that the LEA failed to 
comply with the legal requirements at issue, and why the provisions of 
Sec. 222.120 (provisions governing circumstances when an LEA is exempt 
from the withholding of payments) are inapplicable. This determination 
is the final decision of the Department.
    (d) An LEA that has not participated in an IPP hearing.
    (1) An LEA that has not participated in an IPP hearing has 30 days 
from the date of its receipt of the Assistant Secretary's notice of 
intent to withhold funds to file a written request for a withholding 
hearing with the Assistant Secretary. The written request for a 
withholding hearing must--
    (i) Identify the issues of law and facts in dispute; and
    (ii) State the LEA's position, together with the pertinent facts 
and reasons supporting that position.
    (2) If the LEA's request for a withholding hearing is accepted, the 
Assistant Secretary sends written notification of acceptance to the LEA 
and the affected Indian tribe or tribes and forwards to the hearing 
examiner a copy of the Assistant Secretary's written notice, the LEA's 
request for a withholding hearing, and any other relevant documents.
    (3) If the LEA's request for a withholding hearing is rejected, the 
Assistant Secretary notifies the LEA in writing that its request for a 
hearing has been rejected and provides the LEA with the reasons for the 
rejection.
    (4) The Assistant Secretary rejects requests for withholding 
hearings that are not filed in accordance with the time for filing 
requirements described in paragraph (d)(1) of this section. An LEA that 
files a timely request for a withholding hearing, but fails to meet the 
other filing requirements set forth in paragraph (d)(1) of this 
section, has 30 days from the date of receipt of the Assistant 
Secretary's notification of rejection to submit an acceptable amended 
request for a withholding hearing.
    (e) If an LEA fails to file a written explanation in accordance 
with paragraph (c) of this section, or a request for a withholding 
hearing or an amended request for a withholding hearing in accordance 
with paragraph (d) of this section, the Secretary proceeds to take 
appropriate administrative action to withhold funds without further 
notification to the LEA.

(Authority: 20 U.S.C. 1221e-3; 7704(a), (b), (d)(2), and (e)(8)-(9))


Sec. 222.118   How are withholding hearings conducted in this subpart?

    (a) Appointment of hearing examiner. Upon receipt of a request for 
a withholding hearing that meets the requirements of Sec. 222.117(d), 
the Assistant Secretary requests the appointment of a hearing examiner.
    (b) Time and place of the hearing. Withholding hearings under this 
subpart are held at the offices of the Department in Washington, D.C., 
at a time fixed by the hearing examiner, unless the hearing examiner 
selects another place based upon the convenience of the parties.
    (c) Proceeding. (1) The parties to the withholding hearing are the 
Assistant Secretary and the affected LEA. An affected Indian tribe is 
not a party, but, at the discretion of the hearing examiner, may 
participate in the hearing and present its views on the issues relevant 
to the withholding determination.
    (2) The parties may introduce all relevant evidence on the issues 
stated in the LEA's request for withholding hearing or other issues 
determined by the hearing examiner during the proceeding. The Assistant 
Secretary's notice of intent to withhold, the LEA's request for a 
withholding hearing, and all amendments and exhibits to those 
documents, must be made part of the hearing record.
    (3) Technical rules of evidence, including the Federal Rules of 
Evidence, do not apply to hearings conducted under this subpart, but 
the hearing examiner may apply rules designed to assure production of 
the most credible evidence available, including allowing the cross-
examination of witnesses.
    (4) Each party may examine all documents and other evidence offered 
or accepted for the record, and may have the opportunity to refute 
facts and arguments advanced on either side of the issues.
    (5) A transcript must be made of the oral evidence unless the 
parties agree otherwise.
    (6) Each party may be represented by counsel.
    (7) The hearing examiner is bound by all applicable statutes and 
regulations and may neither waive them nor rule them invalid.
    (d) Filing requirements. (1) All written submissions must be filed 
with the hearing examiner by hand-delivery, mail, or facsimile 
transmission. The Secretary discourages the use of facsimile 
transmission for documents longer than five pages.
    (2) If agreed upon by the parties, a party may serve a document 
upon the other party by facsimile transmission.

[[Page 52578]]

    (3) The filing date for a written submission under this subpart is 
the date the document is--
    (i) Hand-delivered;
    (ii) Mailed; or
    (iii) Sent by facsimile transmission.
    (4) A party filing by facsimile transmission is responsible for 
confirming that a complete and legible copy of the document was timely 
received by the hearing examiner.
    (5) Any party filing a document by facsimile transmission must file 
a follow-up hard copy by hand-delivery or mail within a reasonable 
period of time.
    (e) Procedural rules. (1) If the hearing examiner determines that 
no dispute exists as to a material fact or that the resolution of any 
disputes as to material facts would not be materially assisted by oral 
testimony, the hearing examiner shall afford each party an opportunity 
to present its case--
    (i) In whole or in part in writing; or
    (ii) In an informal conference after affording each party 
sufficient notice of the issues to be considered.
    (2) With respect to withholding hearings involving a dispute as to 
a material fact the resolution of which would be materially assisted by 
oral testimony, the hearing examiner shall afford to each party--
    (i) Sufficient notice of the issues to be considered at the 
hearing;
    (ii) An opportunity to present witnesses on the party's behalf; and
    (iii) An opportunity to cross-examine other witnesses either orally 
or through written interrogatories.
    (f) Decision of the hearing examiner. (1) The hearing examiner--
    (i) Makes written findings and an initial withholding decision 
based upon the hearing record; and
    (ii) Forwards to the Secretary, and mails to each party and to the 
affected Indian tribe or tribes, a copy of the written findings and 
initial withholding decision.
    (2) A hearing examiner's initial withholding decision constitutes 
the Secretary's final withholding decision without any further 
proceedings unless--
    (i) Either party to the withholding hearing, within 30 days of the 
date of its receipt of the initial withholding decision, requests the 
Secretary to review the decision and that request is granted; or
    (ii) The Secretary otherwise determines, within the time limits 
stated in paragraph (g)(2)(ii) of this section, to review the initial 
withholding decision.
    (3) When an initial withholding decision becomes the Secretary's 
final decision without any further proceedings, the Department notifies 
the parties and the affected Indian tribe or tribes of the finality of 
the decision.
    (g) Administrative appeal of an initial decision.
    (1)(i) Any party may request the Secretary to review an initial 
withholding decision.
    (ii) A party must file this request for review within 30 days of 
the party's receipt of the initial withholding decision.
    (2) The Secretary may--
    (i) Grant or deny a timely request for review of an initial 
withholding decision; or
    (ii) Otherwise determine to review the decision, so long as that 
determination is made within 45 days of the date of receipt of the 
initial decision by the Secretary.
    (3) The Secretary mails to each party and the affected Indian tribe 
or tribes, by certified mail with return receipt requested, written 
notice of--
    (i) The Secretary's action granting or denying a request for review 
of an initial decision; or
    (ii) The Secretary's determination to review an initial decision.
    (h) Secretary's review of an initial withholding decision.
    (1) When the Secretary reviews an initial withholding decision, the 
Secretary notifies each party and the affected Indian tribe or tribes 
in writing, by certified mail with return receipt requested, that it 
may file a written statement or comments; and
    (2) Mails to each party and to the affected Indian tribe or tribes, 
by certified mail with return receipt requested, written notice of the 
Secretary's final withholding decision.

(Authority: 20 U.S.C. 7704)


Sec. 222.119  What is the effect of withholding under this subpart?

    (a) The withholding provisions in this subpart apply to all 
payments that an LEA is otherwise eligible to receive under section 
8003 of the Act for any fiscal year.
    (b) The Assistant Secretary withholds funds after completion of any 
administrative proceedings under Secs. 222.116-222.118 until the LEA 
documents either compliance or exemption from compliance with the 
requirements in section 8004 of the Act and this subpart.

(Authority: 20 U.S.C. 7704(a), (b), (d)(2), (e)(8)-(9))


Sec. 222.120  When is an LEA exempt from withholding of payments?

    Except as provided in paragraph (d)(2) of this section, the 
Assistant Secretary does not withhold payments to an LEA under the 
following circumstances:
    (a) The LEA documents that it has received a written statement from 
the affected Indian tribe or tribes that the LEA need not comply with 
section 8004 (a) and (b) of the Act, because the affected Indian tribe 
or tribes is satisfied with the provision of educational services by 
the LEA to the children claimed on the LEA's application for assistance 
under section 8003 of the Act.
    (b) The Assistant Secretary receives from the affected Indian tribe 
or tribes a written request that meets the requirements of Sec. 222.121 
not to withhold payments from an LEA.
    (c) The Assistant Secretary, on the basis of documentation provided 
by the LEA, determines that withholding payments during the course of 
the school year would substantially disrupt the educational programs of 
the LEA.
    (d)(1) The affected Indian tribe or tribes elects to have 
educational services provided by the Bureau of Indian Affairs under 
section 1101(d) of the Education Amendments of 1978.
    (2) For an LEA described in paragraph (d)(1) of this section, the 
Secretary recalculates the section 8003 payment that the LEA is 
otherwise eligible to receive to reflect the number of students who 
remain in attendance at the LEA.

(Authority: 20 U.S.C. 7703(a), 7704(c),(d)(2) and (e)(8))


Sec. 222.121  How does the affected Indian tribe or tribes request that 
payments to a local educational agency not be withheld?

    (a) The affected Indian tribe or tribes may submit to the Assistant 
Secretary a formal request not to withhold payments from an LEA.
    (b) The formal request must be in writing and signed by the tribal 
chairman or authorized designee.

(Authority: 20 U.S.C. 7704(d)(2) and (e)(8))


Sec. 222.122  What procedures are followed if it is determined that the 
local educational agency's funds will not be withheld under this 
subpart?

    If the Secretary determines that an LEA's payments will not be 
withheld under this subpart, the Assistant Secretary notifies the LEA 
and the affected Indian tribe or tribes, in writing, by certified mail 
with return receipt requested, of the reasons why the payments will not 
be withheld.

(Authority: 20 U.S.C. 7704(d)-(e))


Sec. 222.150  [Amended]

    11. In Sec. 222.150, paragraph (b)(1) is amended by removing 
``Secs. 222.90-222.114'', and adding in its place ``Secs. 222.90-
222.122''.

[[Page 52579]]

    12. Section 222.151 is amended by revising the title and paragraph 
(b)(1) to read as follows:


Sec. 222.151  When is an administrative hearing provided to a local 
educational agency?

* * * * *
    (b) * * *
    (1) The applicant files a written request for an administrative 
hearing within 30 days of its receipt of written notice of the adverse 
action; and
* * * * *
    13. Section 222.152 is amended by revising paragraphs (b) and (c) 
to read as follows:


Sec. 222.152  When may a local educational agency request 
reconsideration of a determination?

* * * * *
    (b) The Secretary's (or the Secretary's delegatee's) consideration 
of a request for reconsideration is not prejudiced by a pending request 
for an administrative hearing on the same matter, or the fact that a 
matter has been scheduled for a hearing. The Secretary (or the 
Secretary's delegatee) may, but is not required to, postpone the 
administrative hearing due to a request for reconsideration.
    (c) The Secretary (or the Secretary's delegatee) may reconsider any 
determination under the Act or Pub. L. 81-874 concerning a particular 
party unless the determination has been the subject of an 
administrative hearing under this part with respect to that party.

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

    14. Section 222.154 is amended by revising paragraph (e) to read as 
follows:


Sec. 222.154  How must written submissions under this subpart be filed?

* * * * *
    (e) Any party filing a document by facsimile transmission must file 
a follow-up hard copy by hand-delivery or mail within a reasonable 
period of time.

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


Sec. 222.156  [Amended]

    15. In Sec. 222.156, paragraph (g) is amended by removing ``hearing 
examiner'', and adding in its place ``ALJ''.
    16. Section 222.157 is amended by revising the title and paragraphs 
(a) and (b)(1) to read as follows:


Sec. 222.157  What procedures apply for issuing or appealing an 
administrative law judge's decision?

    (a) Decision. (1) The ALJ--
    (i) Makes written findings and an initial decision based upon the 
hearing record; and
    (ii) Forwards to the Secretary, and mails to each party, a copy of 
the written findings and initial decision.
    (2) An ALJ's initial decision constitutes the Secretary's final 
decision without any further proceedings unless--
    (i) A party, within the time limits stated in paragraph (b)(1) of 
this section, requests the Secretary to review the decision and that 
request is granted; or
    (ii) The Secretary otherwise determines, within the time limits 
stated in paragraph (b)(2)(ii) of this section, to review the initial 
decision.
    (3) When an initial decision becomes the Secretary's final decision 
without any further proceedings, the Department's Office of Hearings 
and Appeals notifies the parties of the finality of the decision.
    (b) Administrative appeal of an initial decision.
    (1)(i) Any party may request the Secretary to review an initial 
decision.
    (ii) A party must file such a request for review within 30 days of 
the party's receipt of the initial decision.
* * * * *
    17. In Sec. 222.158, the title, introductory language, and 
paragraph (b), are revised to read as follows:


Sec. 222.158  What procedures apply to the Secretary's review of an 
initial decision?

    When the Secretary reviews an initial decision, the Secretary--
* * * * *
    (b) Mails to each party written notice of the Secretary's final 
decision.

(Authority: 20 U.S.C. 7711(a))
    18. In Sec. 222.161, paragraph (c) is revised by removing the 
paragraph designations before each definition, reordering the 
definitions in alphabetical order, and adding in alphabetical order the 
following new definitions of ``Local tax revenues,'' ``Local tax 
revenues covered under a State equalization program,'' and ``Total 
local tax revenues'':


Sec. 222.161  How is State aid treated under section 8009 of the Act?

* * * * *
    (c) Definitions. * * *
* * * * *
    Local tax revenues means compulsory charges levied by an LEA or by 
an intermediate school district or other local governmental entity on 
behalf of an LEA for current expenditures for educational services. 
``Local tax revenues'' include the proceeds of ad valorem taxes, sales 
and use taxes, income taxes and other taxes. Where a State funding 
formula requires a local contribution equivalent to a specified mill 
tax levy on taxable real or personal property or both, ``local tax 
revenues'' include any revenues recognized by the State as satisfying 
that local contribution requirement.
    Local tax revenues covered under a State equalization program means 
``local tax revenues'' as defined in paragraph (c) of this section 
contributed to or taken into consideration in a State aid program 
subject to a determination under this subpart, but excluding all 
revenues from State and Federal sources.
* * * * *
    Total local tax revenues means all ``local tax revenues'' as 
defined in paragraph (c) of this section, including revenues for 
education programs for children needing special services, vocational 
education, transportation, and the like during the period in question 
but excluding all revenues from State and Federal sources.
* * * * *
    19. In Sec. 222.164, paragraphs (a)(2) and (b) are revised to read 
as follows:


Sec. 222.164  What procedures does the Secretary follow in making a 
determination under section

    8009? (a) * * *
    (2) Whenever a proceeding under this subpart is initiated, the 
party initiating the proceeding shall give adequate notice to the State 
and all LEAs in the State and provide them with a complete copy of the 
submission initiating the proceeding. In addition, the party initiating 
the proceeding shall notify the State and all LEAs in the State of 
their right to request from the Secretary, within 30 days of the 
initiation of a proceeding, the opportunity to present their views to 
the Secretary before the Secretary makes a determination.
    (b) Submission. (1) A submission by a State or LEA under this 
section must be made in the manner requested by the Secretary and must 
contain the information and assurances as may be required by the 
Secretary in order to reach a determination under section 8009 and this 
subpart.
    (2)(i) A State in a submission shall--
    (A) Demonstrate how its State aid program comports with 
Sec. 222.162; and
    (B) Demonstrate for each LEA receiving funds under the Act that the 
proportion of those funds that will be taken into consideration 
comports with Sec. 222.163.
    (ii) The submission must be received by the Secretary no later than 
120 calendar days before the beginning of the State's fiscal year for 
the year of the

[[Page 52580]]

determination, and must include (except as provided in 
Sec. 222.161(c)(2)) final second preceding fiscal year disparity data 
enabling the Secretary to determine whether the standard in 
Sec. 222.162 has been met. The submission is considered timely if 
received by the Secretary on or before the filing deadline or if it 
bears a U.S. Postal Service postmark dated on or before the filing 
deadline.
    (3) An LEA in a submission must demonstrate whether the State aid 
program comports with section 8009.
    (4) Whenever a proceeding is initiated under this subpart, the 
Secretary may request from a State the data deemed necessary to make a 
determination. A failure on the part of a State to comply with that 
request within a reasonable period of time results in a summary 
determination by the Secretary that the State aid program of that State 
does not comport with the regulations in this subpart.
    (5) Before making a determination under section 8009, the Secretary 
affords the State, and all LEAs in the State, an opportunity to present 
their views as follows:
    (i) Upon receipt of a timely request for a predetermination 
hearing, the Secretary notifies all LEAs and the State of the time and 
place of the predetermination hearing.
    (ii) Predetermination hearings are informal and any LEA and the 
State may participate whether or not they requested the 
predetermination hearing.
    (iii) At the conclusion of the predetermination hearing, the 
Secretary holds the record open for 15 days for the submission of post-
hearing comments. The Secretary may extend the period for post-hearing 
comments for good cause for up to an additional 15 days.
    (iv) Instead of a predetermination hearing, if the party or parties 
requesting the predetermination hearing agree, they may present their 
views to the Secretary exclusively in writing. In such a case, the 
Secretary notifies all LEAs and the State that this alternative 
procedure is being followed and that they have up to 30 days from the 
date of the notice in which to submit their views in writing. Any LEA 
or the State may submit its views in writing within the specified time, 
regardless of whether it requested the opportunity to present its 
views.
* * * * *
(Authority: 20 U.S.C. 7709)

    20. In Sec. 222.165, paragraphs (e), (f), and (h) are revised to 
read as follows:


Sec. 222.165  What procedures does the Secretary follow after making a 
determination under section 8009?

* * * * *
    (e) Proceedings. (1) The Secretary refers the matter in controversy 
to an administrative law judge (ALJ) appointed under 5 U.S.C. 3105.
    (2) The ALJ is bound by all applicable statutes and regulations and 
may neither waive them nor rule them invalid.
    (f) Filing requirements. (1) Any written submission under this 
section must be filed by hand-delivery, mail, or facsimile 
transmission. The Secretary discourages the use of facsimile 
transmission for documents longer than five pages.
    (2) If agreed upon by the parties, service of a document may be 
made upon the other party by facsimile transmission.
    (3) The filing date for a written submission under this section is 
the date the document is--
    (i) Hand-delivered;
    (ii) Mailed; or
    (iii) Sent by facsimile transmission.
    (4) A party filing by facsimile transmission is responsible for 
confirming that a complete and legible copy of the document was 
received by the Department.
    (5) Any party filing a document by facsimile transmission must file 
a follow-up hard copy by hand-delivery or mail within a reasonable 
period of time.
* * * * *
    (h) Decisions. (1) The ALJ--
    (i) Makes written findings and an initial decision based upon the 
hearing record; and
    (ii) Forwards to the Secretary, and mails to each party, a copy of 
the written findings and initial decision.
    (2) Appeals to the Secretary and the finality of initial decisions 
under section 8009 are governed by Secs. 222.157(b), 222.158 and 
222.159 of subpart J.

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

[FR Doc. 96-25584 Filed 10-4-96; 8:45 am]
BILLING CODE 40000-01-W