The Game ChangerNACTEI Pre-Conference

Michael Brustein, Esq.Brustein & Manasevit

May 15, 2012

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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

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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

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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?

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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%

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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

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Impact of Sequestration

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How to Avoid Sequestration?•Must be rescinded by an act of Congress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

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See Tab A

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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

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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

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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

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Sequestration Impact on CTE

•$158 million cut! In first year alone…

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Suggestions to Minimize Impact

9% vs. 2%Sequestration CMIA

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3. Maintenance of Effort

• Section 311(b) of Perkins•Most Restrictive•Only One Waiver-Idaho 2002

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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

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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)

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• If MOE violation determined by either monitoring or A-133 Audit, state given 35 days to respond.

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SEE APPEAL OF PENNSYLVANIA AND LEGISLATIVE RELIEF

APPENDIX B23

4. Monitoring

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OIG Report on Monitoring

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ED Monitoring

•OIG Report # I13K0002•http://www2.ed.gov/about/offices/list/oig/aireports/i13k0002.pdf

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•ED identified Grantees as – •“High Risk”•“At Risk”

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New ED Policy:

•Discontinue “At Risk’ •Formula Grantees: “Active Engagement”•Discretionary Grantees: “Evidence of Risk”

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•“Active Engagement” and “Evidence of Risk” not High Risk but requires ED action

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•Of the 50 SEAs and 10 Territories:•4 are High Risk•20 are Active Engagement

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•SEAs only formally notified if High Risk not active engagement

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High Risk:

•DC•Guam

•VIDE•American Samoa

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Active Engagement:• CA • BIE•Marianas • FL• GA • HI • IL • LA

• MI • MS • NJ• NY• PA• PR• TN• TX

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Risk Mitigation for Discretionary Grants•More Frequent Reviews•On-site Visits• Special Conditions•High Risk Designation

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OVAE Comments (See Appendix B)• OVAE uses “Risk Analysis” Assign Risk

Levels• Audits• Program Findings• Timing of Last Visit• Larger States

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•LEAs and Postsecondary Institutions selected based on “program of study” analysis— but primary focus at SEA

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•Considerable scrutiny on • Local application•Performance accountability•Validity and reliability of data

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•Are all locals using same definitions as state?•Are multiple systems in state corrupting the data?• Is state providing T/A to locals?

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•Due to reduction in OVAE personnel and resources, now shifting to “virtual monitoring.”

•Kentucky is up first!

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5. Shift of Focus

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Compliance Versus Results

Audit Versus Monitoring

Shift of Focus?

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Beltway “Noise”

Program Success Trumps All

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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

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Will OESE/OPE/OVAE follow?

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What about OIG?

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Camden, NJ Audit March 2012(A02K0014)

• Designate Camden as High Risk• Impose Special Conditions• Appoint 3rd Party Servicer• Rescind Camden “Flexibilities” on

Schoolwide46

What about Single Audit?• Keep an eye on “Compliance Supplement”

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Reshaping Policies

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Is Congress on board?

“We Can’t Wait” Crusade!

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Obama taking advantage of dysfunction in Congress to

reshape policies

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•Congress Approval Rating Lower than BP, Paris Hilton, and Hugo Chavez

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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)

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All regulations must contain the statutory cite upon which they are based.Sec 437(b) of GEPA

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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

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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

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•Same provision in “Department of Education Organization Act”

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Is the current reshaping of policy consistent with ESEA, GEPA, DEOA?

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•RTT funds awarded to States that committed to Common Core State Standards Initiative

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•NCLB Waivers contingent on adoption of Common Core Standards or endorsed by institutions of higher education

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6. OMB Super Circular

Appendix C

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Obama Executive Order 13563

“Regulatory Review”

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“R.I.P”OMB Advance Notice of Proposed Rulemaking

Release of Advance N

otice 2/12

Public Comm

ent

Notice of Proposed

Change

Comm

ent

Final Rule

Delayed Effective

Date

7/1/13 Earliest Effective D

ate

Potential Rescission by N

ew Adm

inistration 63

Council on Financial Assistance Reform (COFAR)

• 10 members from largest grant making agencies: HHS, AG, ED, Energy, HS, HUD, DOL, DOT

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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

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Super Circular

• Increase consistency•Decrease complexity

But allows for disparate treatment depending on type of entity

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•Will the shifting of Audit Thresholds reduce burden on SEAs?

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Single Audit Thresholda) 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/Unallowable2) 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??

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“Full Single Audit” Over $3 Million

“Universal Compliance Requirements”

1. Allowable Costs2. Eligibility3. Reporting4. Subrecipient Monitoring5. Period of Availability of Federal Funds6. Procurement Practices Comply with

Suspension/Debarment71

Federal Agencies to identify “non-universal” elements, with focus on preventing fraud, waste, abuse

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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

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Pass-Through Agencies•Attempt to reduce burden on pass-through (SEA)•Federal Agencies to better coordinate review of subrecipient internal controls when 2 or more federal agencies funding

e.g. Philadelphia74

• If entity receives majority of Fed $ directly, not from pass-through, then Federal Agency to conduct follow-up on internal controls

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•OMB wants pass-through to focus on programmatic requirements of subawards

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Increasing Threshold would increase burden on SEA for monitoring and

Limited Scope Audits

???

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If single audits are effective tool to obtain compliance, fewer audits

would put SEA at greater risk

???

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•OMB proposes that single audits be digitized into a searchable database to support analysis of audit results by pass-through entities

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Indirect Cost•OMB proposing a mandatory flat indirect cost rate discounted from recipient’s already negotiated rate

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Indirect Costs

•OMB – Reduce burden on time associated with indirect cost calculation and negotiation – reduce overall indirect costs, more $ for program

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Indirect Cost•Discounted Rates 4 years with minimal documentation, or raised through negotiation with full documentation

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Time and Effort•OMB seeking alternative mechanisms to PARs•Grantee and OIG communities to submit alternative mechanisms

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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

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7. Perkins Reauthorization Blueprint???•See Appendix D on Comparisons with Perkins IV

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Where in the Pipeline is Perkins Reauthorization?

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How will competitive and consortia funding impact CTE enterprise?

•OVAE – Waivers

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What is the wisdom of a “match” requirement for private sector?

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8. Tutorial on Linkages

•See Appendices E and F

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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 periodB. The easier one:

Linking transactions to a grant period after funds are no longer available for obligation “Roll Forward”

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Late Liquidations

•Within 1st 18 months after the close of the obligation period at discretion of program office•After 1st 18 months, OCFO decision

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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

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•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

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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

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Remember:• Obligations must be during a period of

availability•Must be for allowable costs (no

supplanting)• Not manipulative to avoid repayment of

lapsed funds

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Questions?

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presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the

protections under the D.C. Rules of Professional Conduct. Attendance at this presentation, a later review of any printed or

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with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first

consulting legal counsel familiar with your particular circumstances.

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