The Game Changer
NACTEI Pre-Conference
Michael Brustein, Esq.
Brustein & Manasevit
May 15, 2012
1
THE TEST!
2
2. Perkins Funding and
Sequestration
• Perkins Funding – July 1, 2012
June 30, 2013
$1,123,659 (.189 % cut)
• Constant with Allocation for July 1, 2011
June 30, 2012 (13% cut from prior year)
• Administration 2013 Request: July 1, 2013
June 30, 2014 $1,123,030
3
Budget Control Act
• August 2011
• Raised the debt ceiling temporarily
• Reduced spending caps by $891 billion
over the next ten years
• Created Congressional debt
Supercommittee
4
The Supercommittee: Not So Super
• Tasked with cutting $1.5 trillion in spending
over next decade by Thanksgiving 2011
• If at least $1.2 trillion in cuts were not
agreed to by November 23, automatic cuts
triggered in that same amount
• Total failure to come to an agreement
▫ Blamed on lack of agreement generally, and on
issue of taxes vs. cuts
• Failure of Supercommittee means automatic
cuts through “sequestration”
5
Sequestration: a Big Hairy Mess
• Failure of Supercommittee means automatic
cuts through “sequestration”
• Cuts take effect January 2, 2013
• Cuts to some programs may take effect immediately
(mid-year)
• Cuts to education of
up to $4.1 billion this
coming year
• Never really intended to
happen?
6
Sequestration Step-by-Step
• Adjust total for interest to reflect lesser debt
principal
▫ $1.2 trillion  $984 billion
• Divide by year from 2013 through 2021
• Split by function between defense and non-defense
spending (about $54.5 billion each per year)
• Take exempt programs out of the equation
• Spread cuts equally among remaining programs in
2013 (accomplished by reducing spending caps for
2014 and beyond)
• Estimates on final cuts range from 5.5% - 9.1%
7
Sequestration
• What’s exempt?
• Some low income assistance programs:
• Social Security
• Medicaid
• TANF
• SNAP
• Many child nutrition and commodity food
programs
• Veterans benefits
• Pell grants, in first year
• What’s not exempt?
• Defense spending, among other items
8
Impact of Sequestration
9
How to Avoid Sequestration?
• Must be rescinded by an act of Congress
through:
▫ Regular- year appropriations legislation passed
by House and Senate with specific rescission
language;
▫ An alternate spending plan with rescission
language; or
▫ Special legislation rescinding
automatic cuts
• All options must be approved by
House, Senate, and President
10
See Tab A
11
The Search for Plan B
• Alternative to sequestration is to pass a budget
bill that undoes automatic cuts
• Potential alternatives
• President’s budget proposal
• The Ryan budget
• Other input
12
The President’s Proposal
• Overall, 2.5% increase in education spending ($1.72
billion)
• New Race to the Top proposals for college
affordability and completion, improving
matriculation and reducing remediation ($1.55
billion)
• Increases to Promise Neighborhoods, IDEA Part C
• Legislative proposal would provide:
• $30 billion to modernize schools
• $25 billion to help hire and retain teachers
• $1 billion for career academies
• Other programs frozen at FY 12 levels (no cuts)
• Includes: CTE, Title I, SIG, 21st CCLC, IDEA Part B
13
The Ryan Budget
• Proposed by House Budget Committee Chairman Paul Ryan
(R-WI), resolution passed House in March
• Lowers spending caps by 5% in FY 2013; by 19% in FY 2014
• Huge cuts in almost all areas except defense
▫ Education could lose $115 billion in the next decade
• Restructuring of tax code, entitlements
• Balances budget by 2040?
• Negative reaction from Democrats, advocates, some
moderate Republicans
▫ “Thinly veiled social darwinism” (President Obama)
▫ Goes against debt ceiling agreements on spending
14
Other input
• Defense industry: Don’t subject us
to cuts
• Chairman Kline (R-MN): Don’t cut
IDEA
• States: State and local revenues are
dropping, can’t take more cuts at
federal level
• Leadership: need accountability for
Supercommittee failure
• Presidential and Congressional
Elections a factor
15
What’s Next for the Budget
• House and Senate Appropriations Committees will draft
spending bills
• Debate on spending will be part of election
• Most Likely:
▫ Another Continuing Resolution (CR) and long budget
battle
▫ Continuing signs of schism within Republican party
▫ Final action on sequestration and
budget will come during lame
duck session
16
Sequestration Impact on CTE
• $158 million cut! In first year alone…
17
Suggestions to Minimize Impact
9%
Sequestration
vs.
2%
CMIA
18
3. Maintenance of Effort
• Section 311(b) of Perkins
• Most Restrictive
• Only One Waiver-Idaho 2002
19
OVAE Comments on MOE
(5/3/12)
• Violations not readily apparent from FSR,
CAR, or A-133
• Spectrum runs from solely State
Administration $ to broad matrix
• Focus on $ appropriated vs. $ expended
for CTE
20
OVAE Recommends
• Handle problems informally
• More formal, OGC involvement
• Identify target number and OVAE will
work to find solution
• May shift from “aggregate” to “per
student,” but be consistent (e.g.
participant vs. concentrator)
21
• If MOE violation determined by either
monitoring or A-133 Audit, state given
35 days to respond.
22
SEE APPEAL OF PENNSYLVANIA AND
LEGISLATIVE RELIEF
APPENDIX B
23
4. Monitoring
24
OIG Report on Monitoring
25
ED Monitoring
•OIG Report # I13K0002
•http://www2.ed.gov/about/
offices/list/oig/aireports/i13
k0002.pdf
26
•ED identified Grantees as –
•“High Risk”
•“At Risk”
27
New ED Policy:
• Discontinue “At Risk’
• Formula Grantees: “Active
Engagement”
• Discretionary Grantees: “Evidence
of Risk”
28
• “Active Engagement” and
“Evidence of Risk” not High Risk
but requires ED action
29
• Of the 50 SEAs and 10 Territories:
• 4 are High Risk
• 20 are Active Engagement
30
•SEAs only formally notified if
High Risk not active
engagement
31
High Risk:
• DC
• Guam
• VIDE
• American Samoa
32
Active Engagement:
• CA
• BIE
• Marianas
• FL
• GA
• HI
• IL
• LA
• MI
• MS
• NJ
• NY
• PA
• PR
• TN
• TX
33
Risk Mitigation for
Discretionary Grants
• More Frequent Reviews
• On-site Visits
• Special Conditions
• High Risk Designation
34
OVAE Comments
(See Appendix B)
• OVAE uses “Risk Analysis”
Risk Levels
• Audits
• Program Findings
• Timing of Last Visit
• Larger States
Assign
35
•LEAs and Postsecondary
Institutions selected based on
“program of study” analysis
— but primary focus at SEA
36
• Considerable scrutiny on
• Local application
• Performance accountability
• Validity and reliability of data
37
• Are all locals using same
definitions as state?
• Are multiple systems in state
corrupting the data?
• Is state providing T/A to locals?
38
• Due to reduction in OVAE personnel
and resources, now shifting to “virtual
monitoring.”
• Kentucky is up first!
39
5. Shift of Focus
40
Shift of Focus?
Compliance Versus Results
Audit Versus Monitoring
41
Beltway “Noise”
Program Success Trumps All
42
March 2, 2012 OSEP
Announcement:
• Monitoring will shift from compliance
focus to one driven by results
change in mission?
*OSEP will not conduct verification visits in
2012-2013
43
Will OESE/OPE/OVAE follow?
44
What about OIG?
•Philadelphia •Camden
•Detroit
•Houston
•Los Angeles •Kiryas Joel
45
Camden, NJ Audit
March 2012
(A02K0014)
• Designate Camden as High Risk
• Impose Special Conditions
• Appoint 3rd Party Servicer
• Rescind Camden “Flexibilities” on
Schoolwide
46
What about Single Audit?
• Keep an eye on “Compliance Supplement”
47
Reshaping Policies
48
Is Congress on board?
“We Can’t Wait” Crusade!
49
Obama taking advantage of
dysfunction in Congress to
reshape policies
50
• Congress Approval Rating Lower than BP,
Paris Hilton, and Hugo Chavez
51
Query
If Congress is supposed to write the law, and
ED is supposed to enforce that law, why are
so many current policies undertaken without
Congressional authority?
52
GEPA defines “regulation” to cover
generally applicable rules prescribed by
the Secretary.
Sec. 437(a)
53
All regulations must contain the
statutory cite upon which they are
based.
Sec 437(b) of GEPA
54
1965 ESEA
• “Nothing in this Act shall
authorize a federal official to
mandate, direct, or control” a
state’s, local educational agency’s
or school’s curriculum
55
GEPA
• No provision of any applicable program
shall be construed to authorize any federal
agency or official to exercise any direction,
supervision or control over the curriculum,
program of instruction, or selection of
instructional materials
56
• Same provision in “Department of
Education Organization Act”
57
Is the current reshaping of policy
consistent with ESEA, GEPA, DEOA?
58
•RTT funds awarded to States
that committed to Common
Core State Standards Initiative
59
• NCLB Waivers contingent on adoption
of Common Core Standards or endorsed
by institutions of higher education
60
6. OMB Super Circular
Appendix C
61
Obama Executive Order 13563
“Regulatory Review”
62
“R.I.P”
OMB Advance Notice of Proposed
Rulemaking
Release of Advance
Notice 2/12
Public Comment
Notice of Proposed
Change
Comment
Final Rule
Delayed Effective
Date
7/1/13 Earliest
Effective Date
Potential Rescission by
New Administration
63
Council on Financial
Assistance Reform (COFAR)
• 10 members from largest grant making
agencies: HHS, AG, ED, Energy, HS, HUD,
DOL, DOT
64
Expect Revisions to:
1) Cost Principles
• A-21
• A-87
• A-122
2) Administrative Principles
• A-110
• A-102
3) Federal Agency Audit Resolution
• A-50
4) Single Audit
• A-133
65
Super Circular
• Increase consistency
• Decrease complexity
But allows for disparate treatment
depending on type of entity
66
•Will the shifting of Audit
Thresholds reduce burden
on SEAs?
67
Single Audit Threshold
a) Under $1 million in total federal
expenditures:
• No single audit
• Augmented pass-through role
b) Between $1 million and $3 million
• More “focused” single audit
c) Over $3 million
• Full single audit
68
“Focused Single Audit”
($1 to $3 Million)
• Single auditors to review
• 2 Compliance Requirements
1) Allowable/Unallowable
2) Federal agency determines – but
priority on risk of improper
payments, or fraud, waste, abuse
(look to Compliance Supplement)
69
•Can SEA impose additional
compliance requirements??
70
“Full Single Audit” Over $3 Million
“Universal Compliance Requirements”
1.
2.
3.
4.
5.
6.
Allowable Costs
Eligibility
Reporting
Subrecipient Monitoring
Period of Availability of Federal Funds
Procurement Practices Comply with
Suspension/Debarment
71
Federal Agencies to identify
“non-universal” elements,
with focus on preventing
fraud, waste, abuse
72
CAROI
• COFAR “encourages” federal
agencies to engage in CAROI
• Collaborative approach envisioned
more as a mediation process
between agency and recipient
with informal assistance as
needed
73
Pass-Through Agencies
• Attempt to reduce burden on passthrough (SEA)
• Federal Agencies to better
coordinate review of subrecipient
internal controls when 2 or more
federal agencies funding
74
e.g. Philadelphia
• If entity receives majority of Fed $
directly, not from pass-through,
then Federal Agency to conduct
follow-up on internal controls
75
•OMB wants pass-through to
focus on programmatic
requirements of subawards
76
Increasing Threshold would increase
burden on SEA for monitoring and
Limited Scope Audits
???
77
If single audits are effective tool to
obtain compliance, fewer audits
would put SEA at greater risk
???
78
• OMB proposes that single audits be
digitized into a searchable database
to support analysis of audit results
by pass-through entities
79
Indirect Cost
•OMB proposing a mandatory
flat indirect cost rate
discounted from recipient’s
already negotiated rate
80
Indirect Costs
• OMB – Reduce burden on time
associated with indirect cost
calculation and negotiation –
reduce overall indirect costs, more
$ for program
81
Indirect Cost
• Discounted Rates
4 years
with minimal documentation, or
raised through negotiation with
full documentation
82
Time and Effort
• OMB seeking alternative
mechanisms to PARs
• Grantee and OIG communities to
submit alternative mechanisms
83
Applicant’s Financial Risk
• OMB recommends Agencies to
consider applicant’s financial risk prior
to making the award (for non-formula
grants)
• Indicators of Risk
• Past financial performance
• Past programmatic performance
• Internal controls
84
7. Perkins Reauthorization
Blueprint???
•See Appendix D on
Comparisons with Perkins IV
85
Where in the Pipeline is
Perkins Reauthorization?
86
How will competitive and
consortia funding impact CTE
enterprise?
•OVAE – Waivers
87
What is the wisdom of a
“match” requirement for
private sector?
88
8. Tutorial on Linkages
•See Appendices E and F
89
Linking Expenditures to Grant
Funds
Do Not Leave $ on the Table!
90
2 Separate Scenarios
A. The difficult one:
Liquidating obligations more than 90
days after the close of the obligation
period
B. The easier one:
Linking transactions to a grant period
after funds are no longer available for
obligation
“Roll Forward”
91
Late Liquidations
• Within 1st 18 months after the close
of the obligation period
at
discretion of program office
• After 1st 18 months, OCFO decision
92
Roll Forward
• Not up to program office or OCFO
• ED Policy on valid obligation
1. A transaction giving rise to an
obligation within period of
availability
2. Linking of the transaction with
funds available during period of
availability
93
• Linking can occur long after funds
are no longer available for
obligation
as long as clear
documentation that the
transaction occurred during the
27-month Tydings period
94
• Process of “deobligating” and
“reobligating” is a valid method of
linkage if obligations are timely and
the adjustments are part of the normal
accounting practice and not
manipulative.
- Appeal of State of California
Doc. No. 12(122)83
95
• “The legally relevant question is when
the obligation arose, not in what
account the obligation may have been
initially recorded.”
- Appeal of State of California
96
Deobligate/Reobligate
• On 7/1/11, obligations could be
charged to FY 10 (3 months) FY 11
(15 months) or FY 12 (27 months)
• If FY 09 obligations not yet
liquidated, and incurred during FY
10 Tydings period, deobligate FY 12,
then FY 11, then FY 10
97
Remember:
• Obligations must be during a period of
availability
• Must be for allowable costs (no
supplanting)
• Not manipulative to avoid repayment of
lapsed funds
98
Questions?
99
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and does not constitute legal advice or a legal service. This
presentation does not create a client-lawyer relationship with
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protections under the D.C. Rules of Professional
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first consulting legal counsel familiar with your particular
circumstances.
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