Federal court rules South Carolina's education agency is entitled to hearing

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COLUMBIA — A federal appeals court on Friday ordered the U.S. Department of Education to hear South Carolina’s appeal of its $36 million federal penalty for recession-era budget cuts.

The 4th U.S. Circuit Court of Appeals ruled the federal government should not have reduced its funding to South Carolina before allowing an appeal, and that the state should get its money back until U.S. Education Secretary Arne Duncan makes a final decision.

“South Carolina is entitled to an opportunity for a hearing,” the order said.

“The secretary’s determination could not have been final until after the USDOE (Department of Education) provided the state with notice and an opportunity for a hearing,” it continued. “Only if and when the USDOE finally denies South Carolina’s waiver request can it reduce the federal funding grant to South Carolina.”

The court heard the case last month in Lexington, Va. Its decision comes nearly two years after the federal agency said it would reduce the state’s allotment for special education because of legislators’ budget cuts.

The penalty involves the state’s failure to meet “maintenance of effort.” Federal law bars states from spending less money on special education from one year to the next. If they do spend less, their federal allotment is cut by a corresponding amount.

According to the federal agency, the funding requirement exists to protect local school districts from fluctuations that leave them footing the bill for teachers and services for disabled students. States can apply for an exemption, but such waivers are limited.

The $36 million punishment is what’s left of an initial threat in June 2011 of $111.5 million. Other amounts were forgiven, while the remaining cut was over spending during the 2009-10 school year.

Congressional action last month stopped the threat of a permanent penalty.

The hearing will determine whether South Carolina gets to keep any or all of that $36 million cut in the current budget year.

“We’ve been partial­ly exonerated,” said Super­intendent Mick Zais. “We contended all along we were entitled to a hearing and that Secretary Duncan acted improperly when he denied us a hearing.”

A timeline on that hearing and a final decision is unknown. A spokesman said the federal agency is withholding comment until officials have had time to review the ruling.

The reduction was initially set to start in October 2011. But the federal agency delayed the punishment by a year to give the state time to prepare for the loss. Zais’ request for another delay was denied.

Duncan dismissed South Carolina’s case last May, rejecting efforts to challenge the remaining penalty.

“We’ve just been persistent,” Zais said. “We didn’t throw up our hands and say, ‘Oh well.’ We kept hammering away, hoping in the end to do what’s right for special needs students and the state.”

Zais’ first victory came last month.

The cut was slated to be permanent, with $36 million taken off the top yearly of South Carolina’s share of money awarded through the Individuals with Disabilities Education Act.

But a clause inserted in a law that averted a shutdown of the federal government repealed what Zais called an absurd perpetual penalty. The provision was slid in during debate in the U.S. Senate.

Because of the penalty, South Carolina is receiving $140 million this fiscal year from the federal government for special education, compared to $176 million in 2011-12. But South Carolina’s school districts have not felt the loss, since the Legislature put $36 million in the current state budget to cover the cut.


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