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California Department of Education

Video Transcript: "Fiscal Requirements for the Workforce Investment Act, Title II, Adult Education and Family Literacy Act"

Presentation name: Fiscal Requirements for the Workforce Investment Act, Title II, Adult Education and Family Literacy Act

Presenters: Dr. Patricia Terry, Ph.D., CA Director Adult Education/Administrator, California Department of Education and Michael Brustein, Esq., Counsel and Consultant, California Department of Education

Location: Sacramento County Office of Education/OTAN

Date: September 19, 2013

Pat: Hello. I'm Patricia Terry, Administrator of the Adult Education Office at the California Department of Education and State Director for Adult Education.

I have with me here today attorney Michael Brustein who is an expert on Grant's Management and he is going to be discussing with me for the benefit of the field, some information around provisions related to the compliant implementation of the Workforce Investment, Title II, Adult Education and Family Literacy Act, or AEFLA.

The particular provisions that we're going to focus on are not new. They have been in the language since the beginning of the Act however because we have had a monitoring visit from the Office of Vocational and Adult Education, OVAE, we had a monitoring visit back in March of 2013. One of their findings was that we, as the Adult Education Office, should provide to the field more guidance around the provisions of the grant. And the particular provisions that we're going to focus on today are the supplement, not supplant, provision and we will also address the use, the appropriate use of program income or program fees.

So at this time I'm going to turn it over to Michael so that he can give you a little bit better context and tell you also a little bit about his background. Michael?

Michael: Good morning. Thank you so much, Pat. It's an honor and a delight to be working with the California Department of Ed. on this issue here today.

Let me just give a little bit of background on myself. I am a private attorney out of Washington D.C. and our firm is under contract to provide consultant services to the California Department of Education.

But in a former life I was a federal attorney and one of the programs that I worked on was at that time called the Adult Education Act. It was at a time when we wrote the actual program regulations for the Adult Education Act that were on the books for many years. So I have an interest in the area of adult education and I have a passion for and I've kept track of the legislative developments for about 35 years with regard to the Adult Education Act.

When the U.S. Offices of Education morphed into the U.S. Education Department I was asked to serve on a transition team to establish the U.S. Education Department and my specific responsibility was to establish the Office of Vocational and Adult Education. So I do have familiarity with how the Federal office is structured and I've been in private practice now for some thirty-three years and we've worked with many, many states, local school districts, postsecondary institutions on matters related to adult education and federal grants management; issues that we're going to talk about here today.

Let me, as Pat indicated I want to give some context to why we are having this particular focus today on some of the fiscal issues of matching and supplanting under the Adult Education Act. And as Pat indicated it stemmed from a federal monitoring, a monitoring visit that the Office of Vocational Adult Education conducted here in Sacramento in March of 2013.

I think it's important for everyone viewing this resource today to understand that although the focus of that monitoring was the California Department of Education, the federal team that came in to Sacramento also made visits at a number of adult ed. providers. So very much we need to understand that when folks from the U.S. Education Department come in to look at compliance under the Adult Education and Family Literacy Act they're looking not only at the California Department of Education's operation of that program but the program being administered by the local providers as well and that's really one of the reasons we want to go into some depth on this issue of supplanting.

I think it's also important to point out at the outset that there are federal dollars tied to these adult ed. activities. If either the state or local providers are found to be non-compliant with those adult ed. statutory requirements then there's always a potential for liability or exposure. So it's critically important that everyone understand what the requirements are and it's one of the reasons that Pat asked for this session today and we're going to go into some depth as to what those requirements are.

So I'll hand it back to you, Pat.

Pat: Thank you, Michael.

So let's start with finding out why is there a non-supplant provision in the AEFLA?

Michael: Thanks! Let's me respond to that by first referring to the statute. And actually I'm reading from the book that I authored "The Administrators Guide to the Adult Education and Family Literacy Act of 1998". It's been around now for fifteen years. Congress has been rather slow in reauthorizing the Workforce Investment Act of which Title II is the Adult Education and Family Literacy Act.

In the current Act, section 241A provides that funds made available for adult education literacy activities under this subtitle shall supplement and not supplant other state or local public funds expended for adult education and literacy activities.

So the question that Pat asked is why do we have this non-supplant provision? And I think you have to start in the macro sense. In general, the federal government is not in the business of subsidizing education in the United States. It is primarily a state, local, constitutional responsibility to provide education services.

However, since 1965 and adult education really was initially part of the Elementary and Secondary Education Act of 1965, there were several state administered programs of which many of us are familiar with; Title I of the Elementary and Secondary Education Act, or the Individuals with Disabilities Education Act, they all have non-supplant provisions meaning that state and local governments first must support education activities and federal funds would come above those or supplement those funds, but in no case displace state and local funds.

However, there's a difference, and a very, very important difference for adult ed. and it requires a close reading of the statute. Every statute that has a non-supplant provision such as Title I, such as Perkins Career Tech, such as Special Ed. and Adult Ed, the wording is slightly different and the rules are slightly different. We're going to focus on what the rules are specifically for adult ed.

So the general proposition is federal funds cannot displace state and local funds but adult ed., as we're going to see this morning, is considerably different than these other programs Special Ed. and the Elementary and Secondary Education Act in terms of how federal funds are to be used.

Pat: Thank you. So what exactly does the term non-supplant mean?

Michael: So essentially supplanting deals with specific facts of one particular transaction. You do not generalize by saying that a program has supplanted or the eligible provider has supplanted. Instead what happens is that an analysis is undertaken typically by auditors, whether federal auditors or the A133 single auditors that are required to audit all education programs on an annual basis. They do an analysis and they look at two specific tasks. What they are trying to determine were the federal funds used to supplement state and local funds? And to do that they're going to look at what happened in the prior year? So supplanting, typically, is always comparing what happened in this year, say 2013, to what happened last year. So if a provider, for example, paid the salary of a literacy instructor last year with non-federal funds and has retained that particular employee and that employee is continuing this year in 2013 to also provide literacy services but now they have shifted or transferred the funding source to a federal account, AEFLA, under the Title II of the WIA, that would raise a presumption of unlawful supplanting. So it really requires an analysis. How were the funds used in the past, how are they being used today?

The second prong that auditors frequently will look at is is the provider carrying out an activity that the, and that activity is required by state or local law and are they using federal funds to do that? That would also raise a presumption of unlawful supplanting, and Pat, we're going to talk about presumptions this morning and how to rebut these presumptions. But I want to repeat, what providers should be cautious about: you do not want to use federal funds to displace or supplant state and local funds. To determine whether or not that's occurred it requires an analysis of looking at very specific transactions and again, we'll talk about those transactions more.

Pat: Okay. So you've already referenced what auditors or monitors might be looking at and I guess I'm concerned that the providers themselves are able to sort of self, you know, regulate in terms of asking the right questions about whether they might be supplanting. So if there's something that they could do before a monitor or an auditor rather would actually look at their expenditures and (inaudible).

Michael: And I think that the best way to respond to that question is say to all of the providers that are looking at this video tape and using it as a resource, please familiarize yourself with a document called the Office of Management and Budget Compliance Supplement. Let me repeat that; it's the Office of Management Budget, OMB, Compliance Supplement. And you will find that by going to the Web site for OMB which would be www.whitehouse.gov/omb and it lists all the circulars that the Office of Management and Budget promulgates. A circular is an executive regulation.

If the providers would go the circular denoted A133; in A133 are the specific rules on single audit they will note that at the end of A133 OMB has posted on its Web site, what's called the OMB Compliance Supplement. The Compliance Supplement is the road map so to speak, the bible for single auditors. It's divided up by federal agency, alphabetized so it would start with Agriculture and you would go down to Education and when you get to the section on Education it is in them alphabetized again by program and one  of the first programs in that would be the Adult Education and Family Literacy Act. And when you look at the requirements in the Compliance Supplement that auditors must use when they conduct an audit of the Adult Ed. program one of the first items listed in that Compliance Supplement is a cross-reference to provisions relating to supplement not supplant at the very front of the Compliance Supplement for the U.S. Education Department. And it said those programs that have the supplement, not supplant, look at the specific language and I read to you what the language is of the Adult Education and Family Literacy Act, and then it specifically says auditors shall carry out two tasks and I briefly referenced those. And I think it's worth mentioning it again. The first task; auditors will look at the fiscal records of the provider. They will compare the expenditures that the provider made for adult literacy last year to the expenditures that the provider is making this year and then they'll do a comparison. What was the funding source for those expenditures? For salaries, professional development, curriculum development, materials, travel. They'll look at individual expenditures, not group expenditures but individual expenditures such as how was the salary of Michael Brustein paid? Was the salary of Michael Brustein as a literacy instructor paid last year with local dollars or state appropriated dollars? And was his funding source this year in 2013 shifted over to federal AEFLA funds? If that is the case they would make the presumption of unlawful supplanting.

It also asks the auditors to conduct a second prong test and that is are there activities that you as a provider are carrying out that are not required by the Federal Adult Education Act but are required by you, the local school district or by the California Department of Ed. or the State Board of Education; requirements that are independent, autonomous from the statute, are you using federal funds to carry out mandates that are not part of the Adult Ed Act? And if again they find that you, as a provider, are using federal funds to carry out a mandate not found in the federal law, but coming from state local law or policy then they're going to raise another presumption of unlawful supplanting and a presumption merely shifts the burden of proof back to the provider to say ‘okay they have found some evidence. Can we rebut that evidence?' and I want to talk to you a bit later this morning on how to rebut that evidence.

Pat: Okay. Okay so that really is segue into my next question. What type of documentation would be needed to rebut a presumption of unlawful supplanting?

Michael: Providers need to be, again, very careful on how they admass the evidence to rebut a presumption of unlawful supplanting.

There are two pieces of evidence that must be kept on file by all providers. The first is you have to show what would the provider have done in the absence of the federal funds. So let me expand upon that. Let's just say for example that there were no federal funds available to support adult ed. and the provider is experiencing a cut in state and local support for adult literacy activities. What would the provider have done when you're experiencing a cut on your own resources, local resources, or state resources for adult literacy, what would have you have done? Would you have discontinued that particular activity; meaning would have you have terminated that particular teacher? Would you have discontinued purchasing these computers for a reading lab? You have to ask yourself those questions. So issue; how do you document that?

First part is relatively easy. You've got to show that there actually has been a reduction or a cut in state or local support for adult literacy. So let's assume for a moment that in the prior year the Legislature, the State Legislature or through district sources the district received two hundred and fifty thousand dollars non-federal funds for adult literacy and now there's been a cut in that funding. Now rather than two hundred and fifty thousand dollars the district is only receiving two hundred thousand or one hundred and fifty thousand. You have to have evidence to show that there was a reduction in state local support. What could that be? It could be an Appropriations Bill. It could be an article out of the newspaper. It could be a letter from Pat Terry saying state support is being reduced. It could be from the Mayor to a particular school district that support for these activities are being cut. You need to retain evidence showing the reduction in state local support for adult literacy. That's the easy part, retaining that letter.

The second part that you have to retain evidence on is not so easy. You have to show documentation that in the absence, in the absence of the federal funds you would have discontinued that particular activity. So for example; you've got a local superintendent of schools that is meeting with the local board of education and they are discussing at that board meeting that they're experiencing a five percent cutback in state local funds, or a ten percent cutback in state local funds. And you had the minutes of that meeting showing we have to absorb these cuts and these cuts are going to mean a reduction in staffing for our particular school district. That reduction in staffing means the elimination of three positions for adult literacy. And that information is reflected in the minutes of the meeting by the local board of ed. or the executive cabinet meeting with the local superintendent.

If you can retain that documentation coupled with the evidence of the support and retain those in your files then you would have evidence to actually rebut the presumption of unlawful supplanting. Because the federal government has ruled, the U. S. Education Department has ruled and it's set out clearly again in the OMB Compliance Supplement, that if the provider can demonstrate that A: they've had a reduction in support and as a result of that reduction they would have reduced or eliminated a particular activity then you effectively rebut the presumption of unlawful supplanting. That would allow the provider then to use the federal funds to support that activity.

So again, let's take myself as an example. I'm an adult literacy instructor in Sacramento. My salary was paid with non-federal funds. Sacramento learns that they have to absorb a cut which means that my position is slated for reduction. At that point Sacramento could then decide that no, we're going to now pay Mr. Brustein's salary with federal funds because had those federal funds not been available we would have had to eliminate that position. We have the documentation to show that but because the federal funds are now available we can effectively rebut that presumption of unlawful supplanting because even though I was paid with non-federal funds last year, this year I can be paid with federal funds.

Now this may sound somewhat abstract, but it is actually clearly crafted in the OMB Compliance Supplement; how to rebut the presumption of unlawful supplanting. Two prongs; one - evidence that there actually is a reduction in state and local support and two- evidence that as a result of that reduction we would have been forced to make cuts to our adult literacy program. If you can satisfy those two prongs then I do not think that you will have a problem then using the federal funds to support that activity.

Pat: Okay, thank you. Are there different rules for LEAs, Local Education Agencies, postsecondary institutions and non-profits as it relates to this provision?

Michael: No there are not different rules. The statute that I read in Section 241 of the Adult Education and Family Literacy Act makes it very clear that providers cannot supplant funds but the providers include local education agencies, postsecondary institutions, non-profits, community-based organizations, faith-based providers, and so forth. Those same rules would apply but I want to emphasize that the statute says they cannot supplant other state or local public funds. And I think it's important to point out here as I mentioned at the outset, this legislation, the Adult Education and Family Literacy Act goes back a long way. It was initially enacted back in the 1960's as part of the Elementary and Secondary Education Act. At a time when the match requirement, and we're going to talk about matching, when the match requirement was ten percent. It was only really when adult education was made part of the Workforce Enforcement Act of Title II in 1998 that the matching requirement was elevated from ten percent to twenty-five percent.

So adult ed., again, was a significant federal activity. Many states, many locals were supporting it primarily with federal funds.

Title II put a great emphasis, Title II of the Workforce Investment Act put a great emphasis on trying to embrace non-traditional providers such as community-based organizations, faith-based organizations in the delivery of adult ed. services so when the statute says you cannot supplant other local public funds, it says public funds. So for example if a faith-based provider, a community-based organization such as the YMCA was running some type of a literacy program without using public funds in the past, now would be permitted even under this language of the supplanting statute to use Adult Literacy funds to pay for that particular salary.

So when you ask me, are there differences? Everyone needs to be careful making sure that federal funds supplement, do not supplant, but the statute says specifically do not supplant state funds or local public funds.

Pat: Okay so public is…

Michael: Right.

Pat: …criticial there. Okay you've talked about retaining the documentation related to this. How long must documentation be retained?

Michael: Pat that's a really important point because the rules that we're talking about in Grants Management today really apply to whatever federal education program the provider is carrying out and there all set out in the Education Department General Administrative Regulations. All the regulations in EDGAR, the acronym for Education Department General Administrative Regulations apply across the board to all these federal education programs.

Those rules require that grantees and sub-grantees retain all records related to a particular grant for three years from the date that the grantee or sub-grantee submits its final expenditure report for that particular project.

Now the adult ed. statute requires multi-year funding. The state is not permitted to give one year grants. It has to be at least two years. Sometimes states use three years. But it's got to be a multi-year grant so on record retention you'd look at the end of the grant date and then retain records for three years from the date that the provider provides to the state its last expenditure report. But I also want to add Pat, that as an attorney we advise our clients hold records for five years. Even though EDGAR has this three year rule, we recommend five years and the reason is is that expenditures made under the adult education program are subject to a five year statute of limitations; meaning that the federal government could only go back and recoup miss-expended funds for a period of five years from the date that the expenditure was made. So theoretically it's possible to hold the records for three years from the expenditure date but still be within that five year period. So we urge all providers should hold records for five years just to make sure that there is no further exposure or liability for the federal government.

Pat: Thank you! That's very critical as far as I'm concerned because of the possibility of liability.

So how far back will the auditors go? They could go back five years I take it?

Michael: Exactly. They could go back five years but typically they do not. Typically auditors and I'm talking about both federal auditors from the Office of the Inspector General, the U.S. Education Department as well as the auditors that conduct the audits under the OMB Circular A133 Single Audit. Whether it's a federal auditor or non-federal auditors conducting the single audit they typically look at a 12 month period that has ended. So for example if auditors came in to a district in September or October, they would most likely be looking at expenditures that ended that prior June 30. So if they came in today, say September 19, 2013 they would look at expenditures from July 1, 12 to June 30, 2013. They would look at that twelve month window. However, if there had been prior findings of supplanting, for example in adult ed., if there had been prior findings of not using the adult ed. funds for eligible beneficiaries, for example individual sixteen years-of-age, no longer in high school, they could go back and look further at what happened in a prior year. That's going to happen more often at the federal level than with the single audit level. I have seen audits where the federal auditors have gone back two years, but it's a highly unusual situation for auditors to go back for more than two years.

None the less, by the time these cases are fully resolved, it could be four or five years later that's why it's so important to be mindful of that five year statute of limitations.

Pat: I understand. That makes a lot of sense. Is it lawful to substitute WIA Title I funds for WIA Title II funds?

Michael: I've found that that question has come up in a number of other states because for the providers out there that are familiar with the Workforce Investment Act there five Titles to it. There are five Titles. Title I are the funds that go directly to the governor and those funds provide services to One-Stop Centers, to establish One-Stop Centers, to provide counseling or intensive services or testing of individuals and to provide training. Title I of the Workforce Investment Act, which is funded at a much higher level than the Adult Education and Family Literacy Act in Title II, says that one of the permissible activities under Title I are adult literacy services. That is that an individual could go into a One-Stop, any of the One-Stops here in the state of California, and be assessed and determine that they're in need of adult literacy services and actually have some of those services provided under Title I. It is an allowable expenditure.

So under your question, if for example a particular provider had been receiving Title II WIA through the adult ed. funds could they then go and supplement that activity with Title I funds? The answer is yes without any violation of non-supplant. What about visa-versa? That last year they had WIA Title I funds for adult literacy, they no longer have it. Now they're applying for WIA Title II adult ed. funds. Can they pay that teacher's salary that last year was paid for with Title I funds, can they now use Title II funds? And the answer is yes, without any violation of the non-supplant provision. There's nothing in the Adult Ed. Act which would prohibit that type of transaction.

Pat: I see. Not sure how often that sort of thing comes up in California because you know, it presumes this close relationship which we hope exists between the adult education providers and their local WIBs and One-Stops and what have you. But, I thought it was still, you know, good to know whether or not that can happen.

Michael: Right. And of course the law mandates coordination between Title I and Title II.

Pat: Yes. Right, right!

So I'm going to get a little bit specific now with a scenario: What if two years ago a salary was paid with federal AEFLA funds and the funding source last year was shifted to non-federal funds? Can an agency lawfully shift it back to federal funds?

Michael: Okay. Great question…

Pat: Okay.

Michael: …and one of the comments I made at the outset here this morning was that to determine whether a violation of supplanting has occurred you have to undertake an analysis of a particular transaction. So they would look at a salary such as what you just mentioned and they compare last year to this year. They're not at all interested in what happened two years ago. So under your question if two years ago the teacher was paid with federal and then last year they were shifted to non-federal, clearly no problem there, and then this year the provider wants to go back to federal; that would create the presumption of unlawful supplanting because you're only looking at two years; this year to last year. The fact that two years ago they were paid with federal funds, all well and good, but the only thing they're going to concern themselves with; what was the funding source last year? And if the funding source last year was non-federal and now you're shifting it to federal, we're back to square one; presumption of unlawful supplanting.

Pat: Okay. Thank you. This is really very helpful to me as well.

I'd like for us to shift a little bit now. Don't know if we should talk about the matching or Federal MOU Requirements and I do want to make that distinction because I think I spoke to you earlier on our ride over here about the field's needs to distinguish between State MOE which has come about as a result of our most recent budget language and it has to do with the state of California being mandated to, the LEAs being mandated to retain their level of expending or expenditures on adult education into the 13/14 and 14/15 years, whatever they were spending in the 12/13 years. So that is in the state budget language so that's kind of State MOE but in terms of Federal MOE as it relates to the AEFLA Grant, could you, you know, speak a little bit about that?

Michael: Sure. So the federal statute contains three very significant fiscal provisions. Three! And each one is different than the others.

The three are: one - maintenance of effort, what you refer to as MOE, two - matching, and three - supplanting. Each one is very different than the other.

Maintenance of effort is a determination and essentially it's a precondition of eligibility for the state of California in the adult education program where the statute says that the state is required to maintain fiscal effort by looking at the prior fiscal year to the second proceeding fiscal year. So essentially what the statute is saying is that when all is said and done the state of California, providing for non-federal sources, non-federal sources to support adult education that that amount is at least the amount of the second proceeding year and under adult ed. it's a rather liberal task that says that the measure shall be coming within ninety percent of what the prior year expenditures were.

So for example if the amount hypothetically two years ago was one hundred million dollars then the state of California would be required to maintain effort at least at ninety million dollars to satisfy that. That is a global proposition that says that if you want to participate you've got to go ahead and do that, however it says that if there is a short fall, if you are not at ninety million dollars under my hypothetical, you're at eighty-five million, then the statute reads that the award to the state of California would be proportionally reduced.

But maintenance of effort is simply we're looking at the aggravated expenditures, non-federal across the state, public expenditures. We're not looking at, for example, expenditures made from let's say tuition, registration fees, we're going to get to that in a minute, but what the state of California appropriates in tax dollars that the districts receive and now under flex decide what to use for adult education, what local tax dollars go for adult education, that becomes a measure of maintenance of effort.

Matching is completely different.  Matching is a cautionary proposition. And the statute reads now that the state must from state expenditures and again looking at public expenditures either taken from the State Legislature or through local tax dollars, supporting adult literacy, must be at least twenty-five percent of the federal award. So again, using my example of let's say that the award to the state of California was fifty million dollars for adult education, state of California would have to show that it is at least expending twenty-five percent or twelve point five million in non-federal public funds to support adult education. That is different than maintenance of effort– maintenance of effort aggregate match twenty-five percent test.

Supplanting, again different, we're looking at transaction by transaction by individual providers to determine whether or not a violation occurred. So again, three very significant but different fiscal provisions; maintenance of effort global support, matching – have to satisfy twenty-five percent, and then the third is the individual transactions under supplanting.

Pat: Okay. Alright, let's move into this area of program income and program fees. Which for California I think is somewhat new because first of all, Ed. Code was, California Ed. Code was specific about restricting the charging of fees for various program areas as it relates to people trying to earn a high school diploma. Of course we had the bill, I think its AB 186, Eng's bill, which allowed for a temporary time anyway, for the charging for ESL classes, ESL instruction. [Transcriptionist Note: bill is AB 189 by Mike Eng]

But in general our providers had been signing assurances that they were not charging program fees up to, I would say, January, 2012 when the Eng Bill became a law. However, there are some providers, not all, but there are some providers who do charge fees. Now some of them call them registration fees. I don't know if there's an issue there with whatever we're using to, you know, name them or label the fees and I don't know that that would be an appropriate program income fee, program fee if we call it a registration fee. But I'm really asking my first question, does a registration fee have to be reported under program fees?

Michael: Okay so to answer that question I think it's important to look to what does the federal law require and not require. And the federal statute, and again you have to read the federal statute in conjunction with the Education Department General Administrative Regulations, EDGAR. EDGAR states that providers may certainly charge, federal law, may charge registration or tuition, but if they do EDGAR specifically says those fees cannot be calculated as part of the state's contribution for either Match or maintenance of effort. So there's nothing in the Adult Ed. statute or EDGAR which would proscribe a provider from charging a tuition cost or registration fee or whatever you want to call it for adult literacy services. But if they do that cannot be part of the calculation for the match requirement or maintenance of effort. So you've got to be real careful.

Can the state of California, or other states for that matter, impose their own restrictions and say that students participating in adult literacy cannot be charged tuition for example. Absolutely! The state can add whatever provisions it wants because adult ed. is a state administered program. It's up the state of California and State Board to decide its own rules on how to administer it. They can do that but still if providers are going to charge a registration fee or if they're going to charge tuition and report that back to the state, those fees, those registration/tuition costs cannot be included in what the state sends back to Washington as part of the expenditure reports.

On the issue of program income and that's a little bit different, can providers generate income during the life of the award or participation in the adult ed. grant? And the answer again is in EDGAR and EDGAR says very clearly that providers may generate income from these federal projects. The general rule in EDGAR, and this is interesting cause it's about to change under a revision of the new OMB rules, but under the existing rules it said the general rule is that if a provider generates income that income should be used as part of that program and deducted from the federal grant. So let me explain; let's just say that you were to give to Sacramento a hundred thousand dollars in adult literacy funds. That is a commitment over a twelve month period to fund Sacramento at a hundred thousand dollars. During that twelve month period Sacramento generates program income from the adult education grant of ten thousand dollars. Under the general EDGAR rule it would provide that the state would only reimburse Sacramento for ninety thousand dollars and the other ten thousand would be made up from the income that was generated from Sacramento.

That is not typically the way adult ed. programs are administered in the United States. Typically if the income is generated under my hypothetical of ten thousand dollars the provider's required to put that back into the program. So rather than running a hundred thousand dollar program, they are now running a hundred and ten thousand dollar program.

What the Office of Management and Budget proposed in February 1, 2013, and what's called the Proposed Super Circular, is they revisit this rule and they say to states that unless they specifically indicate otherwise or the federal program specifically indicates otherwise any income generated should be used as an offset against what the program would receive in federal funds. So basically they're saying we want to move, we want to move it along to say yes we encourage you to generate income if you do it's got to be plowed back into the program but it would offset the federal contribution. That's not the way it's really being handled pretty much anywhere in the United States right now but it's something that we really need to keep our eyes on moving forward.

Pat: Ok, because I think in California we're more concerned about, sort of, registration fees, which in my mind it seems to go more to support like administrative costs of, you know, registering students and maintaining those kinds of records that kind of thing as opposed, and my question to you is if this is a registration fee which is more in the administrative realm, does that have to be plowed back into the program or does it even have to be reported?

Michael: Okay, so again may registration fees be required by a particular provider? Yes, they can go ahead and do that as long as the state says that it's permissible. There's nothing in the federal law proscribing that activity. Whether it should be reported back to the state? Again, that's a state determination. The state would make that decision whether or not to require, you don't have to, it's a state determination. The one caveat here is that if a provider does charge a registration, and granted it's only going for administrative purposes, you cannot include that in your match or maintenance of effort calculation. But clearly the state can come up with its own rules as to what you want your providers to do and what they need to report with regard to registration fees.

Pat: Okay, thank you. This is a little stickier. What about registration fees that might cover non-AEFLA programs, adult ed. program, as well as the AEFLA enrollees? Because in many instances we could have a class where the teacher is funded, you know, from several sources, so whatever, how would we sort of disaggregate that because I'm only looking at what we need to report to remain compliant, you know…

Michael: Right.

Pat:…with the federal grant so I would not be as concerned about the other registration fees for the non-AEFLA student but I am, I do want to know about what is being supported, what's supporting the AEFLA program and make sure that that's reported so that I can report it to the Feds.

Michael:  An extremely important point, Pat, extremely important. When grant administrators at the local level decide to participate in federal grants, whether it's Elementary and Secondary Education Act, special ed., adult ed., voc ed. they are signing on to essentially all the OMB rules and the rules set out in the Education Department General Administrative Regulations. One of the most fundamental concepts is a term called allocability. Not allowability, but allocability. Allocability means proportionality. Meaning that if a particular provider for example were to get a hundred thousand dollars in federal adult ed. funds and buy a computer lab for their adult literacy program but only used it 50 percent of the time for adult ed. and the other 50 percent the provider's using it for other purposes during say the regular school day, that would violate the allocability rules, or the proportionality rules.

It's being used 50 percent by adult ed. and 50 percent for other purposes; those other purposes should share in that price at 50 percent. That same principle of allocability applies to the match. When California reports back to Washington that it is using these particular expenditures for adult ed. matching, those expenditures must satisfy all the requirements of the Adult Ed. Act as well, and that includes allocability.

So going to your particular question; if you had fees that were being included or any costs that were being included and reported back to the state that were benefiting non-AEFLA purposes, it would be an allocability issue and it would not satisfy the match. In other words any expenditures that CDE reports back to Washington as a match must meet all the requirements of the Adult Ed. Act. They must be used only for adult ed. beneficiaries. If providers reporting to you other expenditures that are not benefiting adult ed. they cannot be included in your match calculation. So that principle on allocability applies both to the federal dollars and any dollars that are included in your match calculations back to Washington.

Pat: Okay. Well I'm not, I'm thinking that we have covered most of the most important points as far as the fiscal requirements and I really do thank you for expounding and elaborating on that because you gave specific examples and I think we have a foundation now to make some decisions and I hope that we, I believe that we've helped the local agencies as well and the providers to see how they can do their own self test to see are they compliant.

Of course I would say that we are open to other questions and I would direct that to the field and we will do all that we can to support the field in being compliant and figuring out any questions that they may have with respect to the appropriate reporting as far, and expenditures and we will look, we have put out some bulletins, management bulletins and that was one of our first moves to try to provide guidance. But I think today we have gone into depth and that has been very important because getting specific is always more helpful I think and giving possible scenarios…

Michael: Right.

Pat: …because then we can make some comparisons to what would be going on in individual programs.
So I really do thank you for the discussion today and I would like to say to the viewing audience this video will made available. It will be posted in the coming days and we will put out an email announcement to you to let you know where it's posted. This would serve as a resource and a reference to you and to us at AEO as we go forward in the compliant implementation of the AELFA grant.

So thank you so much Michael.

Michael: Thank you!

Pat: And thank you to the viewing audience and we hope that if you do have questions we will be able to get answers. Thank you so much.

OTAN activities are funded by contract CN160223 from the Adult Education Office, in the Career & College Transition Division, California Department of Education, with funds provided through Federal P.L., 105-220, Section 223. However, OTAN content does not necessarily reflect the position of that department or the U.S. Department of Education.