[Federal Register Volume 63, Number 104 (Monday, June 1, 1998)]
[Rules and Regulations]
[Pages 29928-29932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14508]



[[Page 29927]]

_______________________________________________________________________

Part XVII





Department of Education





_______________________________________________________________________



34 CFR Part 301



Preschool Grants for Children with Disabilities; Final Rule

  Federal Register / Vol. 63, No. 104 / Monday, June 1, 1998 / Rules 
and Regulations  

[[Page 29928]]


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DEPARTMENT OF EDUCATION

34 CFR Part 301

RIN 1820-AB47


Preschool Grants for Children with Disabilities

AGENCY: Office of Special Education and Rehabilitative Services, 
Department of Education.

ACTION: Final Regulations.

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SUMMARY: The Secretary amends the regulations governing the Preschool 
Grants for Children with Disabilities program. These provisions would 
affect the allocation of funds to States and local educational agencies 
(LEAs). These amendments are needed to implement changes recently 
enacted by the Individuals with Disabilities Education Act Amendments 
of 1997 (IDEA Amendments of 1997).

EFFECTIVE DATE: These regulations will take effect on July 1, 1998.

FOR FURTHER INFORMATION CONTACT: Thomas Irvin or JoLeta Reynolds, U.S. 
Department of Education, 600 Independence Avenue, SW., Mary E. Switzer 
Building, Room 3090, Washington, DC 20202. Telephone: (202) 205-5507. 
Individuals who use a telecommunications device for the deaf (TDD) may 
call the TDD number at (202) 205-5465.
    Individuals with disabilities may obtain this document in an 
alternate format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to Katie Mincey, Director of the Alternate Formats 
Center. Telephone: (202) 205-8113.

SUPPLEMENTARY INFORMATION: The Preschool Grants for Children with 
Disabilities program under section 619 of Part B of the Individuals 
with Disabilities Education Act (Act) provides additional Federal 
financial assistance to States for providing special education and 
related services to children with disabilities aged three through five 
years, and, at a State's discretion, to two-year-old children with 
disabilities who will turn three during the school year. The Preschool 
Grants for Children with Disabilities regulations in 34 CFR part 301 
establish the administrative procedures for applying for and 
distributing Preschool Grants funds.
    The IDEA Amendments of 1997 made significant changes in how 
preschool grant funds are distributed to States and LEAs. These changes 
will apply to preschool grant funds that will become available on July 
1, 1998. Each State must distribute any funds that it does not retain 
for administration and other State-level activities to LEAs in 
accordance with the new formula set out in Sec. 301.31. Under this 
formula, the State must first award each LEA the amount it would have 
received under section 619 of the Act for fiscal year 1997 if the State 
had distributed 75 percent of its preschool grant. Even if a State 
distributed 90 percent of its preschool grant to LEAs for fiscal year 
1997, the base payment must be calculated as if the State had 
distributed 75 percent of its preschool grant. The regulations clarify 
that States also must provide new or reconfigured LEAs, including 
charter schools that meet the definition of a LEA in section 602 of the 
IDEA, part of this base payment based on the relative numbers of 
children with disabilities ages three through five currently provided 
special education by each of the affected LEAs. Each State must 
distribute to LEAs any flow-through funds remaining after the base 
awards are made on the basis of public and private elementary and 
secondary school enrollment (85 percent of the remaining funds) and the 
relative number of children living in poverty (15 percent of the 
remaining funds). A State also may choose to distribute funds it has 
set aside to LEAs for activities specified in Sec. 301.26.
    In order to calculate the base payment, the State must know the 
final amount of its fiscal year 1997 award. However, because of 
potential changes in funding due to downward revisions in State child 
counts resulting in the redistribution of these funds, the final fiscal 
year 1997 grant award may not be known until September 1998. A State 
should calculate the base payments to LEAs based on the State's fiscal 
year 1997 award that became available on July 1, 1997, plus or minus 
any adjustments as of the time of the State's allocation to LEAs. 
States must make adjustments to the base payments to LEAs when the 
State's final 1997 award amount is determined, if that amount is 
different from the award on which the initial allocations to the LEAs 
were based.
    A State may choose to distribute the funds it has set aside under 
Sec. 301.24 for other State-level activities to LEAs for direct 
services or other activities specified in Sec. 301.26. It is important 
to note that funds retained under Sec. 301.24 for other State-level 
activities do not need to be distributed to LEAs, or if some funds are 
distributed to LEAs, the SEA is not required to do so according to the 
formula in Sec. 301.31. States have the discretion to determine how any 
set aside funds allocated to LEAs will be distributed. States are 
advised to separately identify for each LEA the amount that is the base 
payment, the amount distributed based on enrollment and poverty and, if 
applicable, any State set aside money the State may have distributed to 
the LEA. This would enable interested parties to determine how the 
subgrant was calculated.
    The substantive rights and protections established under Part B of 
the Act and its implementing regulations at 34 CFR part 300 apply to 
three through five year old children with disabilities and to two-year-
old children, if they are served under this program. Therefore these 
rights and protections, which include the right to a free appropriate 
public education, placement in the least restrictive environment, and 
the availability of due process procedures, are not repeated in the 
part 301 regulations.
    These final regulations implement the changes made to section 619 
of part B of the Act by the IDEA Amendments of 1997.
    On October 22, 1997, the Secretary published a notice of proposed 
rulemaking (NPRM) for this program in the Federal Register. In the 
preamble to the NPRM, the Secretary discussed on pages 55052 and 55053 
the changes proposed in that document to conform the regulations for 
the Preschool Grants for Children with Disabilities program with the 
provisions of the IDEA Amendments of 1997.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM several 
parties submitted comments on the proposed regulations. An analysis of 
the comments and of the changes in the regulations since publication of 
the NPRM follows.
    Substantive issues are discussed under the section of the 
regulations to which they pertain. Technical and other minor changes--
and suggested changes the Secretary is not legally authorized to make 
under the applicable statutory authority--are not addressed.

General

    Section 301.5(a) is removed. The definitions of Educational service 
agency, Local educational agency, and State educational agency are 
contained in 34 CFR part 300. As Sec. 301.4(c) states, the regulations 
in 34 CFR part 300 apply to 34 CFR part 301--Preschool Grants for 
Children with Disabilities. The Department will consider whether these 
definitions need further clarification in the context of developing 
final regulations for 34 CFR part 300.

[[Page 29929]]

Use of State Agency Allocations (Sec. 301.26)

    Comment: A number of commenters requested that notes be deleted 
from the regulations implementing Part B of IDEA.
    Discussion: The note following this section in the NPRM explains 
that the IDEA Amendments of 1997 made a number of changes to the Act 
designed to encourage better coordination of services among programs, 
including flexibility for States to use State administration funds 
under section 619(e) of the Act to coordinate activities with other 
programs that provide services to children with disabilities and to 
fund administrative costs related to Part C of the Act. The note 
indicates that, consistent with the intent of these provisions, an 
example of an authorized activity under paragraph (a) would be to plan 
and develop a statewide comprehensive delivery system for children with 
disabilities aged birth through five. The activities mentioned in the 
note continue to be allowable expenditures but to eliminate unnecessary 
language, the note would be removed.
    Change: The note will be removed.

Allocations to Local Educational Agencies (Sec. 301.31)

    Comment: A few commenters noted that Sec. 301.31(a) refers to 
Sec. 301.27, but that the proposed regulations do not include a 
Sec. 301.27.
    Discussion: A typographical error was made in the NPRM. The 
reference in Sec. 301.31(a) should be to Sec. 301.30, rather than 
Sec. 310.27.
    Change: The regulatory citation in the Sec. 301.31(a) has been 
changed to Sec. 301.30.
    Comment: A number of commenters raised the issue of whether charter 
schools or LEAs not in existence during fiscal year 1997 would be 
eligible for a base payment under Sec. 301.31(a) and, if so, how such 
payments should be calculated.
    Discussion: The regulations should be revised to ensure that 
charter schools established under State law as LEAs and LEAs not in 
existence during fiscal year 1997 are not excluded from receiving a 
base payment. In addition, if the boundaries of LEAs that were in 
existence or administrative responsibility for providing services to 
children with disabilities ages 3 through 5 are changed, adjustments to 
their base payments of the affected LEAs also would be made. For 
example, a change in administrative responsibility might encompass a 
change in the age range for which an LEA is responsible for providing 
services such as where responsibility for serving 3 and 4 year olds is 
transferred from one LEA to another. These adjustments will ensure that 
affected LEAs equitably share in their base payments. The base amount 
for new and previously existing LEAs, once recalculated, becomes the 
new base payment for the LEAs. These base payments would not change 
unless the payments subsequently need to be recalculated pursuant to 
Sec. 301.31.
    Change: A new paragraph (b) has been added to Sec. 301.31 to 
clarify that, if LEAs are created, combined, or otherwise reconfigured 
subsequent to fiscal year 1997, the State would be required to provide 
the LEAs involved with revised base allocations calculated on the basis 
of the relative numbers of children with disabilities ages three 
through five currently provided special education by each of the 
affected LEAs.
    Comment: One commenter requested that the language in the note 
following this section of the NPRM be incorporated into the 
regulations.
    Discussion: The language in the note that States should use the 
best data available on the numbers of children enrolled in public and 
private elementary and secondary schools and the numbers of children 
living in poverty has been incorporated into the regulations. The 
number of children enrolled in public and private elementary and 
secondary schools includes the number of disabled and nondisabled 
children. If data on enrollment in private schools are not available, 
States or LEAs are not required to initiate new data collections to 
obtain this data. However, States are encouraged to try to obtain 
enrollment data from private schools.
    States have discretion in determining what data to use to allocate 
funds among LEAs on the basis of children living in poverty. States 
should use the best data available to them that reflect the 
distribution of children living in poverty. Examples of options include 
census poverty data, aggregate data on children in families receiving 
assistance under the State program funded under Part A of title IV of 
the Social Security Act, aggregate data on children participating in 
the free or reduced-price meals program under the National School Lunch 
Act, and allocations under title I of the Elementary and Secondary 
Education Act.
    In order to be fair to all LEAs the data used by the State to 
determine enrollment and numbers of children living in poverty would 
need to be the same across the State.
    Change: A new paragraph (c)(3) has been added to Sec. 301.31 
stating that for the purpose of making grants under this section, 
States must apply on a uniform basis across all LEAs the best data that 
are available to them on the numbers of children enrolled in public and 
private elementary and secondary schools and the numbers of children 
living in poverty. The note will be deleted.
    Comment: One commenter requested clarification regarding whether 
children who are home schooled are to be included in determining public 
and private school enrollment.
    Discussion: If a State recognizes home schools as private schools, 
and the State is collecting data on private school enrollments, then 
students educated in home schools may be included in the State's 
calculation of private school enrollment.

Change: None.

Major Changes in the Regulations

    The following is a summary of the major substantive changes in 
these final regulations:
     A new paragraph (b) has been added to Sec. 301.31 to 
clarify that, if LEAs are created, combined, or otherwise reconfigured 
subsequent to fiscal year 1997, the State would be required to provide 
the LEAs involved with revised base payments, that would be calculated 
on the basis of the relative numbers of children with disabilities ages 
three through five currently provided special education by each of the 
affected LEAs.
     A new paragraph (c)(3) has been added to Sec. 301.31 
stating that for the purpose of making grants under this section, 
States must apply on a uniform basis across all LEAs the best data that 
are available to them on the numbers of children enrolled in public and 
private elementary and secondary schools and the numbers of children 
living in poverty.

Goals 2000: Educate America Act

    The Goals 2000: Educate America Act (Goals 2000) focuses the 
Nation's education reform efforts on the eight National Education Goals 
and provides a framework for meeting them. Goals 2000 promotes new 
partnerships to strengthen schools and expands the Department's 
capacities for helping communities to exchange ideas and obtain 
information needed to achieve the goals.
    These final regulations address the National Education Goal that 
all children in America will start school ready to learn.

Executive Order 12866

    These final regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the

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order the Secretary has assessed the potential costs and benefits of 
this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those determined by the 
Secretary as necessary for administering this program effectively and 
efficiently. Burdens specifically associated with information 
collection requirements, if any, were identified and explained in the 
preamble to the NPRM.

Regulatory Flexibility Act

    The Secretary certifies that these final regulations would not have 
a significant economic impact on a substantial number of small entities 
and there has not been public comment challenging that conclusion or 
other information that would change the Department's decision.

Paperwork Reduction Act of 1995

    Under the Paperwork Reduction Act of 1995, no persons are required 
to respond to a collection of information unless it displays a valid 
OMB control number. The valid OMB Control number assigned to the 
collections of information in these final regulations are displayed at 
the end to the affected sections of the regulations.
    Section 301.10 contains 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 this section to the 
Office of Management and Budget for its review. OMB has approved this 
submission with OMB control no. 1820-0030.

Intergovernmental Review

    This program is subject to the requirements of Executive Order 
12372 and the regulations in 34 CFR part 79. The objective of the 
Executive order is to foster an intergovernmental partnership and a 
strengthened federalism by relying on processes developed by State and 
local governments for coordination and review of proposed Federal 
financial assistance.
    In accordance with the order, this document is intended to provide 
early notification of the Department's specific plans and actions for 
this program.

Assessment of Educational Impact

    In the NPRM the Secretary requested comments on whether the 
proposed regulations would require transmission of information that is 
being gathered by or is available from any other agency or authority of 
the United States.
    Based on the response to the NPRM and on its own review, the 
Department has determined that the regulations in this document do not 
require transmission of information that is being gathered by or is 
available from any other agency or authority of the United States.

Electronic Access to This Document

    Anyone may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or 
portable document format (pdf) on the World Wide Web at either of the 
following sites:
    http://ocfo.ed.gov/fedreg.htm
    http://www.ed.gov/news.html
    To use the pdf you must have the Adobe Acrobat Reader Program with 
Search, which is available free at either of the previous sites. If you 
have questions about using the pdf, call the U.S. Government Printing 
Office at (202) 512-1530 or, toll free at 1-888-293-6498.
    Anyone may also view these documents in text copy only on an 
electronic bulletin board of the Department. Telephone: (202) 219-1511 
or, toll free, 1-800-222-4922. The documents are located under Option 
G--Files/Announcements, Bulletins and Press Releases.

    Note: The official version of this document is the document 
published in the Federal Register.

List of Subjects in 34 CFR part 301

    Education of individuals with disabilities, Elementary and 
Secondary education, Grant programs--education, Infants and children, 
Reporting and recordkeeping requirements.

    Dated: May 20, 1998.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number: 84.173 Preschool 
Grants for Children with Disabilities)
    The Secretary amends Title 34 of the Code of Federal Regulations by 
revising part 301 as follows:

PART 301--PRESCHOOL GRANTS FOR CHILDREN WITH DISABILITIES

Subpart A--General

Sec.
301.1  Purpose of the Preschool Grants for Children With 
Disabilities Program.
301.2--301.3  [Reserved]
301.4  Applicable regulations.
301.5  Applicable definitions.
301.6  Applicability of Part C of the Act to two-year-old children 
with disabilities.

Subpart B--State Eligibility for a Grant.

301.10  Eligibility of a State to receive a grant.
301.11  [Reserved]
301.12  Sanctions if a State does not make a free appropriate public 
education available to all preschool children with disabilities.

Subpart C--Allocation of Funds to a State.

301.20  Allocation to States.
301.21  Increase in funds.
301.22  Limitation.
301.23  Decrease in funds.
301.24  State-level activities.
301.25  Use of funds for State administration.
301.26  Use of State agency allocations.

Subpart D--Allocation of Funds to Local Educational Agencies.

301.30  Subgrants to local educational agencies.
301.31  Allocations to local educational agencies.
301.32  Reallocation of local educational agency funds.

    Authority: 20 U.S.C. 1419, unless otherwise noted.

Subpart A--General


Sec. 301.1  Purpose of the Preschool Grants for Children With 
Disabilities Program.

    The purpose of the Preschool Grants for Children With Disabilities 
program (Preschool Grants program) is to provide grants to States to 
assist them in providing special education and related services--
    (a) To children with disabilities aged three through five years; 
and
    (b) At a State's discretion, to two-year-old children with 
disabilities who will turn three during the school year.

(Authority: 20 U.S.C. 1419(a))


Secs. 301.2--301.3  [Reserved]


Sec. 301.4  Applicable regulations.

    The following regulations apply to the Preschool Grants program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) in title 34 of the Code of Federal Regulations--
    (1) Part 76 (State-Administered Programs) except Secs. 76.125-
76.137 and 76.650-76.662;
    (2) Part 77 (Definitions that Apply to Department Regulations);
    (3) Part 79 (Intergovernmental Review of Department of Education 
Programs and Activities);
    (4) Part 80 (Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments);
    (5) Part 81 (General Education Provision Act--Enforcement);
    (6) Part 82 (New Restrictions on Lobbying); and

[[Page 29931]]

    (7) Part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for a Drug-Free 
Workplace (Grants)).
    (b) The regulations in this part 301.
    (c) The regulations in 34 CFR part 300.

(Authority: 20 U.S.C. 1419)


Sec. 301.5  Applicable definitions.

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
EDGAR
Fiscal year
Grant period
Secretary
Subgrant

    (b) Other definitions. The following definitions also apply to this 
part:
    Act means the Individuals with Disabilities Education Act, as 
amended.
    Part B child count means the child count required by section 
611(d)(2) of the Act.
    Preschool means the age range of 3 through 5 years.
    State means each of the 50 States, the District of Columbia, and 
the Commonwealth of Puerto Rico.

(Authority: 20 U.S.C. 1402, 1419)


Sec. 301.6  Applicability of Part C of the Act to two-year-old children 
with disabilities.

    Part C of the Act does not apply to any child with disabilities 
receiving a free appropriate public education, in accordance with part 
B of the Act, with funds received under the Preschool Grants program.

(Authority: 20 U.S.C. 1419(h))

Subpart B--State Eligibility for a Grant.


Sec. 301.10  Eligibility of a State to receive a grant.

    A State is eligible to receive a grant if--
    (a) The State is eligible under 34 CFR part 300; and
    (b) The State demonstrates to the satisfaction of the Secretary 
that it has in effect policies and procedures that assure the provision 
of a free appropriate public education--
    (1) For all children with disabilities aged three through five 
years in accordance with the requirements in 34 CFR part 300; and
    (2) For any two-year-old children, provided services by the SEA or 
by an LEA or ESA under Sec. 301.1.

(Authority: 20 U.S.C. 1419 (a), (b))
(Approved by the Office of Management and Budget under control 
number 1820-0030)


Sec. 301.11  [Reserved]


Sec. 301.12  Sanctions if a State does not make a free appropriate 
public education available to all preschool children with disabilities.

    If a State does not meet the requirements in section 619(b) of the 
Act--
    (a) The State is not eligible for a grant under the Preschool Grant 
program;
    (b) The State is not eligible for funds under 34 CFR part 300 for 
children with disabilities aged 3 through 5 years; and
    (c) No SEA, LEA, ESA, or other public institution or agency within 
the State is eligible for a grant under Subpart 2 of part D of the Act 
if the grant relates exclusively to programs, projects, and activities 
pertaining to children with disabilities aged 3 through 5 years.

(Authority: 20 U.S.C. 1411(d)(2) and (e)(2)(B); 1419(b); 1461(j))

Subpart C--Allocation of Funds to States.


Sec. 301.20  Allocations to States.

    After reserving funds for studies and evaluations under section 
674(e) of the Act, the Secretary allocates the remaining amount among 
the States in accordance with Secs. 301.21-301.23.

(Authority: 20 U.S.C. 1419(c)(1))


Sec. 301.21  Increase in funds.

    If the amount available for allocation to States under Sec. 301.20 
is equal to or greater than the amount allocated to the States under 
section 619 of the Act for the preceding fiscal year, those allocations 
are calculated as follows:
    (a) Except as provided in Sec. 301.22, the Secretary--
    (1) Allocates to each State the amount it received for fiscal year 
1997;
    (2) Allocates 85 percent of any remaining funds to States on the 
basis of their relative populations of children aged 3 through 5; and
    (3) Allocates 15 percent of those remaining funds to States on the 
basis of their relative populations of children described in paragraph 
(a)(2) of this section who are living in poverty.
    (b) For the purpose of making grants under this section, the 
Secretary uses the most recent population data, including data on 
children living in poverty, that are available and satisfactory to the 
Secretary.

(Authority: 20 U.S.C. 1419(c)(2)(A))


Sec. 301.22  Limitation.

    (a) Notwithstanding Sec. 301.21, allocations under that section are 
subject to the following:
    (1) No State's allocation may be less than its allocation for the 
preceding fiscal year.
    (2) No State's allocation may be less than the greatest of--
    (i) The sum of--
    (A) The amount it received for fiscal year 1997; and
    (B) One-third of one percent of the amount by which the amount 
appropriated under section 619(j) of the Act exceeds the amount 
appropriated under section 619 of the Act for fiscal year 1997;
    (ii) The sum of--
    (A) The amount it received for the preceding fiscal year; and
    (B) That amount multiplied by the percentage by which the increase 
in the funds appropriated from the preceding fiscal year exceeds 1.5 
percent; or
    (iii) The sum of--
    (A) The amount it received for the preceding fiscal year; and
    (B) That amount multiplied by 90 percent of the percentage increase 
in the amount appropriated from the preceding fiscal year.
    (b) Notwithstanding paragraph (a)(2) of this section, no State's 
allocation under Sec. 301.21 may exceed the sum of--
    (1) The amount it received for the preceding fiscal year; and
    (2) That amount multiplied by the sum of 1.5 percent and the 
percentage increase in the amount appropriated.
    (c) If the amount available for allocation to States under 
Sec. 301.21 and paragraphs (a) and (b) of this section is insufficient 
to pay those allocations in full, the Secretary ratably reduces those 
allocations, subject to paragraph (a)(1) of this section.

(Authority: 20 U.S.C. 1419(c)(2)(B) and (C))


Sec. 301.23  Decrease in funds.

    If the amount available for allocations to States under Sec. 301.20 
is less than the amount allocated to the States under section 619 of 
the Act for the preceding fiscal year, those allocations are calculated 
as follows:
    (a) If the amount available for allocations is greater than the 
amount allocated to the States for fiscal year 1997, each State is 
allocated the sum of--
    (1) The amount it received for fiscal year 1997; and
    (2) An amount that bears the same relation to any remaining funds 
as the increase the State received for the preceding fiscal year over 
fiscal year 1997 bears to the total of those increases for all States.
    (b)(1) If the amount available for allocations is equal to the 
amount allocated to the States for fiscal year 1997, each State is 
allocated the amount it received for that year.
    (2) If the amount available is less than the amount allocated to 
States for fiscal

[[Page 29932]]

year 1997, the Secretary allocates amounts equal to the allocations for 
fiscal year 1997, ratably reduced.

(Authority: 20 U.S.C. 1419(c)(3))


Sec. 301.24  State-level activities.

    (a) Each State may retain not more than the amount described in 
paragraph (b) of this section for administration and other State-level 
activities in accordance with Secs. 301.25 and 301.26.
    (b) For each fiscal year, the Secretary determines and reports to 
the SEA an amount that is 25 percent of the amount the State received 
under section 619 of the Act for fiscal year 1997, cumulatively 
adjusted by the Secretary for each succeeding fiscal year by the lesser 
of--
    (1) The percentage increase, if any, from the preceding fiscal year 
in the State's allocation under section 619 of the Act; or
    (2) The rate of inflation, as measured by the percentage increase, 
if any, from the preceding fiscal year in the Consumer Price Index For 
All Urban Consumers, published by the Bureau of Labor Statistics of the 
Department of Labor.

(Authority: 20 U.S.C. 1419(d))


Sec. 301.25  Use of funds for State administration.

    (a) For the purpose of administering section 619 of the Act 
(including the coordination of activities under Part B of the Act with, 
and providing technical assistance to, other programs that provide 
services to children with disabilities), each State may use not more 
than twenty percent of the maximum amount it may retain under 
Sec. 301.24 for any fiscal year.
    (b) Funds described in paragraph (a) of this section may also be 
used for the administration of Part C of the Act, if the SEA is the 
lead agency for the State under that part.

(Authority: 20 U.S.C. 1419(e))


Sec. 301.26  Use of State agency allocations.

    Each State shall use any funds it retains under Sec. 301.24 and 
does not use for administration under Sec. 301.25 for any of the 
following:
    (a) Support services (including establishing and implementing the 
mediation process required by section 615(e) of the Act), which may 
benefit children with disabilities younger than 3 or older than 5 as 
long as those services also benefit children with disabilities aged 3 
through 5.
    (b) Direct services for children eligible for services under 
section 619 of the Act.
    (c) Developing a State improvement plan under subpart 1 of Part D 
of the Act.
    (d) Activities at the State and local levels to meet the 
performance goals established by the State under section 612(a)(16) of 
the Act and to support implementation of the State improvement plan 
under subpart 1 of Part D of the Act if the State receives funds under 
that subpart.
    (e) Supplementing other funds used to develop and implement a 
Statewide coordinated services system designed to improve results for 
children and families, including children with disabilities and their 
families, but not to exceed one percent of the amount received by the 
State under section 619 of the Act for a fiscal year.

(Authority: 20 U.S.C. 1419(f))

Subpart D--Allocation of funds to local educational agencies.


Sec. 301.30  Subgrants to local educational agencies.

    Each State that receives a grant under section 619 of the Act for 
any fiscal year shall distribute any funds it does not retain under 
Sec. 301.24 to local educational agencies in the State that have 
established their eligibility under section 613 of the Act.

(Authority: 20 U.S.C. 1419(g)(1))


Sec. 301.31  Allocations to local educational agencies.

    (a) Base payments. The State shall first award each agency 
described in Sec. 301.30 the amount that agency would have received 
under section 619 of the Act for fiscal year 1997 if the State had 
distributed 75 percent of its grant for that year under section 
619(c)(3), as then in effect.
    (b) Base payment adjustments. For fiscal year 1998 and beyond--
    (1) If a new LEA is created, the State shall divide the base 
allocation determined under paragraph (a) of this section for the LEAs 
that would have been responsible for serving children with disabilities 
now being served by the new LEA, among the new LEA and affected LEAs 
based on the relative numbers of children with disabilities ages 3 
through 5 currently provided special education by each of the LEAs;
    (2) If one or more LEAs are combined into a single new LEA, the 
State shall combine the base allocations of the merged LEAs; and
    (3) If for two or more LEAs, geographic boundaries or 
administrative responsibility for providing services to children with 
disabilities ages 3 through 5 changes, the base allocations of affected 
LEAs shall be redistributed among affected LEAs based on the relative 
numbers of children with disabilities ages 3 through 5 currently 
provided special education by each affected LEA.
    (c) Allocation of remaining funds. After making allocations under 
paragraph (a) of this section, the State shall--
    (1) Allocate 85 percent of any remaining funds to those agencies on 
the basis of the relative numbers of children enrolled in public and 
private elementary and secondary schools within the agency's 
jurisdiction; and
    (2) Allocate 15 percent of those remaining funds to those agencies 
in accordance with their relative numbers of children living in 
poverty, as determined by the SEA.
    (3) For the purpose of making grants under this section, States 
must apply on a uniform basis across all LEAs the best data that are 
available to them on the numbers of children enrolled in public and 
private elementary and secondary schools and the numbers of children 
living in poverty.

(Authority: 20 U.S.C. 1419(g)(1))


Sec. 301.32  Reallocation of local education agency funds.

    (a) If a SEA determines that an LEA is adequately providing a free 
appropriate public education to all children with disabilities aged 3 
through 5 residing in the area served by that agency with State and 
local funds, the SEA may reallocate any portion of the funds under 
section 619 of the Act that are not needed by that local agency to 
provide a free appropriate public education to other local educational 
agencies in the State that are not adequately providing special 
education and related services to all children with disabilities aged 3 
through 5 residing in the areas they serve.
    (b) If a State provides services to preschool children with 
disabilities because some or all LEAs and ESAs are unable or unwilling 
to provide appropriate programs, the SEA may use payments that would 
have been available to those LEAs or ESAs to provide special education 
and related services to children with disabilities aged 3 through 5 
years, and to two-year-old children with disabilities receiving 
services consistent with Sec. 301.1 who are residing in the area served 
by those LEAs and ESAs.

(Authority: 20 U.S.C. 1414(d), 1419(g)(2))

[FR Doc. 98-14508 Filed 5-29-98; 8:45 am]
BILLING CODE 4000-01-P