Maintenance of Effort Requirements in No Child Left Behind Programs

1. Maintenance of Effort Requirements in No Child Left Behind Programs Categorical Cooperative Program Directors Association September 20, 2012 Presented by Peggy O’Guin, CPA California Department of Education School Fiscal Services Division

2. Maintenance of Effort (MOE) Overview: • MOE concept = “supplement not supplant” • Feds expect us to use federal funds to supplement, not supplant, what we were already doing with state and local funds • In other words: They expect us to put forth at least the same level of effort using state and local funds as we did before they gave us federal funds

3. Maintenance of Effort (MOE) Overview, continued: • Most federal programs have an MOE requirement • Administration of requirement varies slightly from program to program • Example: Special Ed MOE rules differ slightly from NCLB MOE rules • But concept is the same

4. Maintenance of Effort (MOE) Legal requirement: • An LEA may receive its full allocation of NCLB funds for covered programs for a given year only if the LEA expended, in the preceding fiscal year, from state and local funds, at least 90% as much as it expended in the second preceding fiscal year from state and local funds

5. Maintenance of Effort (MOE) Legal requirement, continued: • In other words: “The bar” is 90% of prior year level of expenditure from state and local funds • Either aggregate or per capita, whichever is more favorable • NCLB Act Title IX and 34 CFR 299.5 in handout

6. Maintenance of Effort (MOE) Overly simplified illustration: • In Year 1, LEA spends $111,111 from state and local funds • For Year 2, “the bar” will be 90% of $111,111 (= $100,000) • In Year 2, LEA spends only $98,000 from state and local funds • LEA fails to maintain effort by 2% • In Year 3, LEA’s NCLB program allocations are reduced by 2% • Waivers possible: More on this shortly

7. Maintenance of Effort (MOE) Practical realities: • Note that in the preceding example, LEA really “failed” to maintain effort by 12% • Because “the bar” is 90% of PY, so the first 10% “reduction of effort” doesn’t count • Pretty lenient – not all programs have a similar “grace factor”

8. Maintenance of Effort (MOE) Practical realities, continued: • There is actually a two-year lag in when MOE failure impacts program allocations • Due to timing differences between federal and state fiscal year, MOE failure in 2010-11 affects allocations for second subsequent year (2012-13)

9. Maintenance of Effort (MOE) How CDE administers NCLB MOE: • MOE comparison is automated in CDE’s data collection (“SACS”) software • We extract LEA’s expenditure data, calculate LEA’s MOE-eligible expenditures from state and local funds, and compare to PY • We calculate both aggregate and per capita, and use whichever is more favorable • Note that calc at LEA level is preliminary: “Official” calc is performed at CDE

10. Maintenance of Effort (MOE) How CDE administers NCLB MOE, continued: • “MOE-eligible expenditures” includes most costs of running a school district: Instruction, school administration, curriculum development, pupil transportation, guidance and counseling, maintenance, district administration • Costs such as community services, capital outlay, debt service, and interfund transfers are excluded

11. Maintenance of Effort (MOE) How CDE administers NCLB MOE, continued: • Temporary exception to the usual requirement: ARRA Fiscal Stabilization and Ed Jobs expenditures are allowed to count toward “state and local” expenditures • CDE counts only the amount of ARRA needed for LEA to not fail MOE (or to fail at a lesser percentage) • To avoid setting a new higher “bar”

12. Maintenance of Effort (MOE) How CDE administers NCLB MOE, continued: • Automated comparison in software is now available to LEAs at budget and interim reporting periods, in addition to year-end • For monitoring & planning • Use is optional; still only required at year-end

13. Maintenance of Effort (MOE) Waivers • Since bar is only 90%, “failure” of up to 10% is a freebie; after that, waivers possible • An LEA’s request for waiver must demonstrate either: • Uncontrollable circumstance • Precipitous decline in state and local resources

14. Maintenance of Effort (MOE) Waivers, continued • Uncontrollable circumstance example: “In the year before last, our expenditures were high because we restocked the library after the fire. Last year, our expenditures were lower by comparison.” • Precipitous decline in state and local resources example: “We could not maintain our previous level of expenditures because our state funding was reduced by 13 percent.”

15. Maintenance of Effort (MOE) Waiver process: • “Failure Notification” letter from CDE describes process (sample in handout) • LEA sends waiver request to USDE with copy to CDE • USDE requests some information from CDE • LEA waiver requests due in January, to allow time for USDE to process & for states to reallocate • Generally, best to request a waiver if eligible

16. Maintenance of Effort (MOE) Waiver format: • No prescribed format or “template” • Clear & succinct works best • Legitimate & defensible helps too

17. Maintenance of Effort (MOE) • Q: Are districts in danger of failing MOE? • A: Yep! Failure statistics & trends:

18. Maintenance of Effort (MOE) • Q: Is there a statewide plan to help ensure federal funding is not in jeopardy? • A: Not much state can do – federal law is federal law • LEAs agree to MOE rules as a condition of funding • Adherence to grant terms is part of program & fiscal management, & includes monitoring MOE • Waivers provide some relief for events outside LEA’s control

19. Maintenance of Effort (MOE) • Q: Can the state arrange for a blanket waiver? • A: No • Feds do allow states to request waivers on behalf of LEAs • But it’s not a “blanket waiver” – normal rules apply • CDE did this once, but it didn’t expedite much - some of process involves extenuating circumstances that CDE wouldn’t know, so we had to involve LEAs anyway

20. Maintenance of Effort (MOE) • Q: What happens to amounts reduced from allocations of LEAs who fail MOE? • A: Ultimately, amounts get reallocated among LEAs • Reallocation process involves considerable complexity - outside scope for today • Amounts reduced don’t go back to the feds

21. Maintenance of Effort (MOE) • Q: What happens if an LEA’s waiver request is approved? • A: Amounts reduced are restored

22. Maintenance of Effort (MOE) Where from here: • For 2010-11: CDE performed MOE calculations, comparing 2010-11 to 2009-10 • Affecting allocations for 2012-13 • “Failure Notification” letters sent to LEAs August 16 • “Passed Notification” e-mails sent to LEAs August 23 (sample in handout)

23. Maintenance of Effort (MOE) Where from here, continued: • For 2011-12: In spring 2013, CDE will perform MOE calcs comparing 2011-12 to 2010-11 • Affecting allocations for 2013-14 • Target date for “Failure Notifications:” June 30, 2013 • But “don’t call us, we’ll call you” - sometimes things take longer • Process allows plenty of time to prepare a waiver request • Target date for “Passed Notification:” A week or two after “Failure Notifications”

24. Maintenance of Effort (MOE) Where from here, continued: • For 2012-13: Monitor & manage your MOE throughout the year • Review preliminary MOE calc during year-end closing • Strategize: Sometimes, it’s better to use state & local funds instead of federal funds (!) • Strategize: If you can’t meet MOE, consider eligibility for a waiver

25. Maintenance of Effort (MOE) In closing… “Nobody said categorical program management was easy.” ~ P. O’Guin “Federal gift horses sometimes bear special presents for the recipients.” ~ L. Sharp

26. Maintenance of Effort (MOE) Questions before we adjourn? Thank you for managing your federal funds carefully!