Legislative Update

Federal Grants Management TrainingMay 6, 2013

Renaissance DowntownPhoenix, AZ Presented byMichael Brustein, Esq.Brustein & Manasevit, PLLCmbrustein@bruman.comwww.bruman.com 1AgendaThe State of CongressFiscal and Budgetary Developments (Sequestration)The State of the Federal Role in EducationA Test on Federal Grants ManagementEDGAR and OMB TutorialQuestions2The State of Congress

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Congressional ProductivityThe 112th Congress was the least productive since analysts started keeping track112th: 283 Public laws passedClinton impeachment4Congressional ProductivityLack of Productivity is a result of:Gridlock in legislative processDivides between parties and within partiesDivided Congress, continued influence of Tea PartySignificant focus on must-pass legislation in contentious policy areas like federal spending113th Congress not doing much better5Congressional Popularity

>Source: PPP poll January 20136Congressional PopularityRoot CanalsLice Colonoscopies Source: PPP poll January 2013

>7The Good News

Source: PPP poll January 2013

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8http://www.publicpolicypolling.com/main/2013/01/congress-somewhere-below-cockroaches-traffic-jams-and-nickleback-in-americans-esteem.html

Also: ebola, telemarketers, meth labs8Retirements and Turnover Significant numbers of Representatives and Senators have retired or announced pending retirement in recent years.Most cite age, but also driven out by gridlock, partisan politics, etc.Voter dissatisfaction means greater electoral turnover in CongressLucrative post-Congressional job opportunities add incentive to retire at younger age

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Largest Turnover Since 1970sCurrent announced retirements, plus defeats in last election, means largest turnover in Congress since 1970sEspecially pronounced in SenateExpect continued turnover in next few years

10The State of CongressOverall: Continued partisanshipSignificant turnover on education-relevant Committees and Committee leadershipLoss of institutional knowledge/relationshipsFocus on fiscal policy above all else

11Fiscal and Budgetary NewsSequestrationThe Fiscal Cliff DealFY 2013 Appropriations How Cuts Will be ImplementedFY 2014 and Beyond12SequestrationAlso known as the sequesterA series of automatic, across-the-board budget cutsAmount and type of cuts depends on category of spendingFollowing procedures laid out in 1985 law

13Budget Control Act of 2011Set deficit reduction targetsCreated Congressional debt supercommitteeIf supercommittee failed to come up with a deficit reduction plan meeting targets, automatic cuts triggeredSequestration as failsafe/threat not really meant to go into practiceBecause supercommittee did not come up with a plan, sequestration is triggeredAmerican Taxpayer Relief ActAlso known as the fiscal cliff dealModified sequestration amounts, timingWhere does sequestration come from?14How does sequestration work?*Triggers procedure set out in Balanced Budget and Deficit Control Act of 1985Congress identifies total amount to be cut and time period over which cuts occurCuts are divided evenly by yearCuts are split between defense and non-defense spendingExempt programs (outlined in law) are removed from equationAll other programs see equal, across-the-board cuts in first year (in this case, modified procedure for subsequent years)General procedure is subject to modification by Congress15The Fiscal Cliff Deal In the days leading up to the end of 2012, fiscal picture looked direTemporary (Bush-era) tax cuts set to expireSequestration set to go into effect January 2nd Concerns about how sequestration, increase in tax rates would affect economyNo alternatives in place16

17The Fiscal Cliff DealCongress passed comprehensive spending/tax package known as American Taxpayer Relief Act early on New Years DayExtended most of the Bush-era middle-class tax cuts (though not payroll tax cuts)Raised marginal income tax rates on those with incomes above $400,000 for individuals ($450,000 for couples)Made changes to implementation date of sequestration and total cut amount

18Changes to SequesterDelays start by two months (was January 2; now March 1, 2013)Reduces FY 2013 cut by $24 billion to compensate for shorter time periodOffsets reduction in cuts with:$12 billion in new taxes to IRAs that are converted from traditional to Roth plans$12 billion in cuts to annual spending capsSplit evenly between Defense and non-defenseCut now at 5% of FY 2013 fundingSequestration still applies for remainder of FY 2013 and for FY 2014 through FY 2021

19Fiscal cliff deal creates $24 billion in offsets to pay for delay Half will come from spending cuts ($12 billion)Split evenly between defense and non-defense discretionary (NDD) funding (includes education) ($6 billion each)One-third of cuts to be applied in FY 2013, remaining two thirds in FY 2014) $2 billion in NDD cuts for FY 2013

Vanishing Sequestration Cuts20Fiscal cliff deal spending cuts will be applied through reductions in Congressional spending capsCuts to caps =/= cuts to fundingThese cuts are in addition to any across-the-board cuts from sequestration Due to differences between spending and caps, little anticipated effect this yearTakes originally estimated 8.2% cuts down to 5%Vanishing Sequestration Cuts21Two major factors in determining federal funding under sequestration:Congressional spending capsRegular-year federal appropriations

22Regular-Year AppropriationsStill important!!!For FY 2013, sequestration cuts represent reductions below the budget baseline (current federal spending levels)Funding for FY 2013 set by two continuing resolutions (CRs) (temporary budget measures)Second FY 2013 CR set funding at FY 2012 levels, with some exceptionsE.g. Head Start (additional $33.5 million)For FY 2014 and beyond, cuts are incorporated into funding levels through regular appropriations process

23How Sequestration Cuts are CalculatedAdjust total cut for interest to reflect lesser debt principal$1.2 trillion $984 billionDivide by year from FY 2013 through FY 2021 $109.3 billionReduce FY 2013 cuts by $24 billion, to $85.3 billion*Split function between defense and non-defense spending (about $42.7 billion each in FY 2013, $54.5 billion each per subsequent year)Take exempt programs out of the equationSpread cuts equally among remaining programs in FY 2013 Cut is taken at federal program, project, or activity levelSequestration cut will be 5% of FY 2013 funding*(*change due to fiscal cliff deal)24The Impact of Sequestration (after the fiscal cliff deal)25How Cuts will be ImplementedAll funds allocated October 2012 and later are subject to cuts starting March 1Single allocation or monthly programs affected starting with first allocation after sequester date (e.g. April 1)For competitive grants, funds previously awarded will remain unaffected(even for multi-year/continuation grants)Cuts will be implemented in next competitionFor bifurcated funding programs*:Advance funding received in October of 2012 did not see cuts when allocatedBUT cuts will be calculated and total FY 2013 cut deducted from July 2013 allocation

*Per a July 2012 memorandum, confirmed in February 26 conference call.26In programs with bifurcated funding, grantees usually receive about 75% of program funds in October, and the remaining 25% the following July. Though sequestration cuts represent approximately 5% of years allocation, that entire amount will be taken out of July 2013 funds.FY 2013 Funding Under Sequestration27Sample Sequestration CutAssume the (fictional) School is Cool (SIC) grant program provides $100,000 per year to your StateAs with most bifurcated funding programs, 75% of SIC funds ($75,000) are distributed to States in October, with the remaining 25% ($25,000) available in JulyUnder sequestration, ED* provided the full funding amount in October of 2012. However, it will calculate a cut for the full fiscal year (approximately 5%, or $5,000) and will apply that full years cut against July 2013 funds.*Per a July 2012 memorandum, confirmed in February 26 conference call.28Sample Sequestration Cut FY 2013Your State received its regular SIC appropriation ($75,000) on October 1, 2012. The full-year sequestration cut of $5,000 will be taken out of July 2013 fundingSo the SIC funds sent out on July 1, 2013 will be $20,000 ($25,000 - $5,000)

*Per a July 2012 memorandum, confirmed in February 26 conference call.29NOTE: Actual allocations may shift by more or less than 5%Because of variations in census data, poverty data, and per pupil expenditures, FY 2013 allocations under Title I and other formula programs will be different from FY 2012In addition, ED will not reduce small or shrinking districts below hold-harmless amount, leaving other district to share that cutResult: actual cuts from 2012 to 2013 at district level can range from 0% to approximately 10%

30Second FY 2013 CR contains provision that triggers automatic cuts if appropriations were above spending capsOMB says this has occurred Will mean 0.2% across-the-board cut in addition to sequestration in FY 2013Unclear at this point how this cut will be implemented, but likely through sequester process

NOTE: Second CR Means Additional Across-the-board Cut

31Sequestration in 2014 and BeyondFor FY 2014 through 2021, cuts are applied through reductions in annual spending caps as part of regular Congressional appropriations processCuts will be applied to both allocations for bifurcated programs (October and July) Total cut is estimated at 8.2% of non-defense discretionary spendingBut actual cut for each program depends on appropriation bills32Sample Sequestration Cut FY 2014For FY 2014 and beyond, sequestration cuts (and cuts from the fiscal cliff deal) are taken out of 302(b) appropriations capsSequestration will not be applied as a percentage cutAppropriators have discretion in distributing spending/cutsSo 75% of SIC funds will be sent out in October, and 25% in JulyThe only variable here is total program funding the size of the pie.

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Reductions in caps give appropriators more discretion in choosing where to spend or trim (as opposed to automatic cuts)Can preserve some programs entirelyExpect preservation, in large part, of Title I, IDEA fundsCan zero out programs entirelyCan be unpredictableIn years where budget set late, funding is up in the air

Sequestration in 2014 and Beyond34The FY 2014 Double Whammy?States and school districts generally structure budget cycles differently from the federal governmentFor federal government, FY13 funding = October 2012 + July 2013 allocationsFor States/districts, SY 2013-14 = July 2013 + October 2013Assuming FY 2014 program funds are cut, SY 2013-14 will see a double reduction: July 2013 funding will be cut proportionate to full FY 2013October 2013 funding will be cut by up to 8.2%, depending on Congressional appropriations

35FY 2014 Appropriations ProgressBoth House and Senate have passed non-binding budget resolutionsHouse: cut $5.7 trillion over next decadeSenate: cut $975 billion in spending over next decade, matched with $975 billion in new revenuesPresident released annual budget proposal April 10thBoth chambers determined to get budget done on time36The State of the Federal Role in Education1960s: Congress began recognizing unmet educational needsChildren in PovertyStudents with DisabilitiesVocational TrainingLimited English Proficient StudentsHomeless Students

38Federal education programs Designed to address specific unmet needs

39Limited Federal CapacityState administered programs created

40Department of Health Education and WelfareEducation responsibility generally given to the U.S. Department of Health, Education, and Welfare (HEW) United States Office of Education Divided into program bureaus with specific responsibilityElementary and Secondary EducationVocational EducationSpecial Education, etc.

41Office of EducationBureaus: Responsibility for individual programIndividual programs contained separate administrative rulesNot always consistentBurdensome due to differing requirements

42U.S. Department of Education (ED) in 1980Education responsibility transferredHEW becomes ED and Health & Human Services (HHS)

43EDSeparation of program function is preservedFunds allocated to States for program administrationFunds allocated to States for distribution to school districts local education agencies (LEAs)

44State Education Agencies (SEAs)SEAs expandedSignificant function: Administer federal programsDivided into program officesGenerally reflect federal organizationExamplesElementary and SecondaryStudents with DisabilitiesCareer Education

45Federal Government recognizes inefficiency!Programs with separate administrative requirementsDuplication of effortsInconsistent requirementsChanges need to be program by programLeads to administrative standardization

46Administrative StandardizationGeneral Education Provisions Act (GEPA)Education Department General Administrative Regulations (EDGAR)Single Audit ActOffice of Management and Budget (OMB) Circulars47GEPAPart of the organic law establishing EDs structure Cross-cutting provisions

48EDGARDepartment of Education administrative rules covering all ED programs

49Single Audit Act OMB Circular A-133Standardized audit requirements for all entities expending > $500,000 federal $ annually

50OMB CircularsGovernment-wide principles for determining what costs are allowable

51How can we spend these funds?Always begin with program statuteAsk:What can we do?Who can we serve?Any specific restrictions?

52What controls the State LEA relationship regarding the federal programs?Part 76 34 CFR Part 76 (Code of Federal Regulations)LEA applies to the State for fundingState notifies LEAAmountTimingFederal requirements applicableSEA assures intended uses are within the lawLEA commits to follow the plan it submits to SEA

53General Education Provisions Act (GEPA)GEPA: Is the program subject to the cross-cutting authority of ED on State Administered Programs?Applicable programProgram for which the Secretary of Education has administrative responsibilityNo Child Left BehindIndividuals with Disabilities Education ActCarl Perkins Career and Technical Education Act54GEPA EDGAREDGAR applies and expands GEPA requirementsApplication ProcessState applies to EDLocal Education Agency (LEA) applies to State (SEA)55GEPA EDGARFunds flow ED SEA LEA States are responsible for and must monitor LEA complianceSEAs are responsible to ED to properly administer federal grant funds56GEPA EDGAR Funds flow to SEA after ED approval of applicationFunds flow to LEA after SEA approves local applicationAvailable for 27 months for obligationObligation is not expenditure90 days additional for liquidation Obligation defined57Single Audit Act OMB Circular A-133Historically:Audit requirements historically separate and within program statutesRequirements inconsistentSingle Audit Act (A-133)Requires audit by independent auditor of federal programs whenever recipient expends over $500,000 federal funds all servicesCreates uniform standards of IndependenceSelection of items to be auditedAuditing standardsContains program guides for auditor useCompliance supplements

58Single Audit Act OMB Circular A-133Compliance SupplementEach major programGuide developed by ED/OMBImportant resourceED view of important elementsAuditor responsibility59OMB CircularsGovernment-wideContain general principles for determining allowable costshttp://www.whitehouse.gov/omb/circulars_default

60OMB Circular A-87Covers state-local governmentsApplicable to SEAs, LEAs

61OMB Circular A-87 43 Items of CostCan I pay for attendance at a professional development meeting for a Title I teacher?

What documentation do I need to support salary payments?62Possible Massive Changes to CircularsNPRM 2/1/13Close of comment period: Extended 06/02/13Analysis of public commentFinal regulation not likely before 1/1/14EDGAR revisions within one year of final regulation ?No splitting FY63Why Supercircular???Greater simplicityGreater consistencyObama Executive Order on Regulatory Review 2011 Increase efficiency Strengthen oversight

64What is covered?Administrative Requirements (A-102, A-110)Cost Principles (A-87, A-21, A-122)Audit Requirements (A-133)

6565GEPAAnd finallyWhat happens if I dont follow the rules?Enforcement proceduresRecovery of fundsTermination of programHigh Risk StatesCompliance Agreement

66Grants Management TestEDGAR and OMB Circular Tutorial

Key QuestionsWhat is the significance of EDGAR?Which OMB Circulars apply?What is the relationship to program regulations?What legal authorities do you rely on?69Anatomy of EDGAR Administrative RulesSEAs / LEAs Part 80Postsecondary Part 74Non Profits Part 74State Administered Programs Part 76Direct Grant Part 75Enforcement Part 81Lobbying Part 82Debarment / Suspension Part 85FERPA Part 99

70RoadmapStandards for Financial ManagementHow to Determine if a Cost is AllowableCash Management Controls and ObligationsAsset ControlsProcurement ControlsSelected Cost ItemsAudits and Enforcement

71Roadmap of EDGAR and OMB Circulars80.20(b) (p. 107) Standards for Financial Management Systems80.22 (p. 108) Allowable CostsA-87 Basic Guidelines (p. 291-292)A-87 Composition of Cost (p. 292)80.23 (p. 108) Period of Availability of Funds76.707 (p. 87) When Obligations Are Made76.708 (p. 87) When Certain Subgrantees May Begin to Obligate Funds76.710 (p. 88) Obligations Made During a Carryover Period are Subject to Current Statutes, Regulations, and Applications72Roadmap of EDGAR and OMB Circularsi)80.32 (p. 114) Equipmentj)80.36 (p. 115) Procurementk)80.42 (p. 124) Retention and Access Requirements for Recordsl)76.730 (p. 89) Records Related to Grant Fundsm) 80.40 (p. 122) Monitoring and Reporting Program Performancen)80.43 (p. 126) Enforcemento)76.401 (p. 74) Disapproval of an Application Opportunity for a Hearing 73Roadmap of EDGAR and OMB CircularsAppendix B to A-87 (p. 293) Selected Items of Cost + Advertising (p. 294) (outreach) + Personnel Costs (p. 295) + Meetings (p. 305) + Travel (p. 308)A-133 Single Audits + 210 (p. 358) Subrecipient and Vendor Determinations + Compliance Supplement (p. 354) + 200 (p. 357) Audit Requirements + 320 (p. 363) Report Submission + Pass-Through (p. 367)81.32 (p. 134) ProportionalityAppendix to Part 81 (p. 139) Illustrations of Proportionality81.33 (p. 135) Mitigating Circumstances

74Questions?75This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship 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.Disclaimer7676