S.C. Nabs a Hearing Over $36M in Lost Funding

(CN) - The U.S. Education Department owes South Carolina a hearing before it penalizes it by $36.2 million for cutting its special education budget, the 4th Circuit ruled.

States are eligible for federal grants to educate disabled children under the Individuals with Disabilities Education Act. To qualify for the full amount of funding a state is allocated, it must refrain from spending less money of special education from one year to the next.

While states can apply for an exemption to the rule, the granting of such waivers is rare and typically tied to an extraordinary circumstance such as a natural disaster.

Those that run afoul of the eligibility requirements - technically a failure to meet the Act's "maintenance-of-effort" condition - have their grant funding cut by a corresponding amount.

The rules intend to protect local school districts from uncertainty in how they will pay for teachers and other services provided to students with disabilities.

South Carolina requested a waiver of its maintenance-of-effort condition for about $67.8 million for the fiscal year that ended in 2010, citing conditions related to the global economic crisis.

Education Secretary Arne Duncan granted the waiver in part, but still said the state would lose about $36.2 million for the 2012 fiscal year.

The state requested a hearing on that determination, but was advised that IDEA did not provide for one. It then filed a petition for review in the 4th Circuit, challenging both the determination and the denial of its hearing request, and returned successful.

"Because we conclude that the secretary's determination could not have been final until after the USDOE provided the state with notice and an opportunity for a hearing, we also conclude that South Carolina remains eligible for its full funding until that final determination is made," Judge Paul Niemeyer wrote for a three-judge panel.

"Only if and when the USDOE finally denies South Carolina's waiver request can it reduce the federal funding grant to South Carolina, and then it can implement the reduction in 'any fiscal year following [FY 2010],'" Niemeyer addedwrote.

The Richmond, Va.-based panel also prohibited Duncan from redistributing the $36.2 million denied South Carolina to other states until he makes a final determination on its waiver request.

"South Carolina is entitled to an opportunity for a hearing," Niemeyer wrote.

Having said that, however, the panel believed it would be "premature for us to address its challenge to the Secretary's decision to deny a full waiver."

It therefore remanded the case back to the Education Department, directing it to provide South Carolina with notice and an opportunity for a hearing before the secretary makes a final decision on the waiver.

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