August 20, 2003
To: County and District Superintendents
County and District Chief Business Officials
Charter School Administrators
From: Janet Sterling, Director
School Fiscal Services Division
Subject: Special Education Maintenance of Effort Requirement
See also: Attachment
In light of the enormous state deficits and necessary budget reductions, circumstances that we have taken for granted in previous years are now in question. Specifically, concerns have been raised by the federal government and the state legislature about California's compliance with the federal Individuals with Disabilities Education Act (IDEA) maintenance of effort (MOE) requirements.
The federal MOE requirements have been in place since 1997. However, in previous years, state and local budgets for special education services increased steadily, and it was easy to demonstrate that California's local education agencies (LEAs) maintained their level of expenditures for special education services, (i.e., spent more state and local dollars on special education programs each year). Over the last 6 months, the Special Education Division has received a number of calls regarding cuts in local funding for Special Education. It is incumbent upon CDE to be able to ensure compliance with federal MOE requirements. After consultation with Special Education Local Planning Areas (SELPAs), county offices of education, school districts, and charter schools, CDE developed a process to monitor local MOE requirements, to establish eligibility for IDEA funds.
This letter describes the federal MOE requirements and explains how your financial data can demonstrate compliance. It also describes the reports used to collect the special education expenditures to compare the current year's budget with the prior year's expenditures to determine if the MOE has been met.
What are the MOE Requirements?
MOE requirements are found in Part B of IDEA (20 USC 1413 (a)(2)(A)) and implementing regulations (34 CFR 300.230-300.232). Briefly, the MOE requires that Part B IDEA funds:
It is the state's responsibility to determine the eligibility of an LEA for an IDEA award by comparing the amount of its budgeted state and local special education expenditures to the actual expenditures of the prior year. If the LEA does not meet the MOE requirement, it will not be eligible for federal special education funding. At the end of the year, it is also the responsibility of the state to compare the actual special education expenditures for that year with the actual expenditures of the prior year. If the LEA does not meet this second MOE requirement, it will be billed for the repayment of federal funds equal to the amount by which it reduced state and local spending.
Who is the responsible entity?
Since special education allocations are made by the California Department of Education (CDE) pursuant to the plans submitted by SELPAs, the MOE calculations will be made at that level. The expenditure data of the participating LEAs will be consolidated to determine if the SELPA as a whole has met the MOE requirements. As long as the SELPA passes the MOE test, failure by an individual LEA within that SELPA to meet the MOE test by itself will not result in sanctions. On the other hand, if a SELPA does not pass the budget-to-actual test, none of its participating members will be eligible to receive Part B funding. With respect to the actual-to-actual test, the SELPA will be billed for the amount the SELPA failed to spend from state and local funds to maintain its level of effort. How the penalty is applied to the districts within each SELPA for the budget-to-actual and the actual-to-actual tests will be up to each SELPA.
How do the report calculations work?
We are developing reports that import data from the standardized account code structure (SACS) financial software needed to perform the MOE tests. First, each participating LEA will download its special education unaudited actual expenditure data for the first year (2002–03) in one report and its most recent revised budget for the next year (2003–04) into a second report. The reports will list the special education expenditures in total by goal and object code, then subtract out federal expenditures to arrive at the state and local expenditures. The two reports will be forwarded to the LEA's SELPA administrative unit (AU) for consolidation with the SELPA AU's own expenditures. The SELPA AU will then combine the figures to determine the prior year unaudited actuals and the current year budget for the SELPA as a whole. The results are summarized on a final report, which checks MOE in three tests:
This summary sheet and the SELPA consolidated expenditure and budget reports are submitted to our Special Education Division (SED) for evaluation, in preparation for apportioning the federal special education grants.
What is the timing of these reports?
The initial test for the MOE calculation is the comparison of the 2003–04 most current budget with the 2002–03 unaudited actuals. The two reports for use by LEAs are being added to the 2002–03 unaudited actual SACS software for this purpose. Both reports should be downloaded and submitted to the SELPA on or before September 15, 2003, for consolidation before they are due to the SED on October 15, 2003. The SED will then use these reports to determine eligibility of the SELPA for federal grants for the fall 2003 apportionment.
The second test will be completed after the end of the 2003–04 year, when the 2003–04 unaudited actual data will be compared to that of the prior year. It is anticipated that this test will be performed when we receive the unaudited actuals. It will not be necessary for the SELPA to do the consolidation; rather, we will compile the data from the LEAs' unaudited actual submissions. SELPAs will be notified if reports indicate that they have failed the second MOE test, and additional data will be requested to check on federal exceptions to the basic calculation.
Please note: The process for collecting and reviewing MOE data for future years may be revised, once we have had an opportunity to assess what is workable in this first year of checking MOE.
What about charter schools?
Charter schools are not exempt from the federal special education MOE requirements. Charter schools must submit their special education state and local expenditure totals to their SELPA for inclusion in the SELPA report:
Charters schools that do not use SACS may manually enter summarized data on the report forms; expenditures by goal are not required on the reports.
The accounting for special education transactions can be very complex, and it is important that double counting or incorrect coding does not cause a SELPA to fail its MOE calculations. Therefore, we urge all LEAs and the SELPA AUs to look carefully at the 2002–03 unaudited actual data before submitting them to CDE. The most common problem is the coding of pass-through grants or contracts for services, which, if not done correctly, can result in both parties reporting expenditures. Accurate reporting at the SELPA level will result only if all parties are coding their transactions in compatible ways. Good communication between a SELPA AU and its participating districts is essential.
If a county reports financial data for multiple SELPAs, it will have to split out the transactions of each SELPA individually. Currently, there is not a standardized way to report each of the county's SELPAs separately.
To assist you, we have attached some examples of typical accounting entries that explain the accounting for transactions between LEAs within a SELPA, and examples of coding errors that might affect the MOE calculations.
Issues on MOE continue to be discussed with SELPA administrators, LEA business offices, and charter school representatives. Some refinements may be made on the method for calculating MOE and determining exceptions in spending patterns, based on our experience in this transition year. We anticipate that discussions will continue, and we welcome input from all sources to assist us in developing a practical and effective compliance tool.
We expect the version of the SACS financial software containing the MOE reports to be posted within the next week on our Web site at: http://www.cde.ca.gov. If you have questions or concerns about special education requirements and MOE regulations, please feel free to contact Chris Drouin of the Special Education Division at email@example.com or 916-445-4602 . If you have questions or concerns about SACS accounting or the software reports, you may contact the School Fiscal Services Division at firstname.lastname@example.org or 916-322-1770. This letter, along with the attached accounting guidance, is posted on our Web site at http://www.cde.ca.gov/fg/ac/co/semoe.asp.
See also: Attachment