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``SEC. 1121. GRANTS FOR THE OUTLYING AREAS AND THE SECRETARY OF THE INTERIOR.
- ``(a) Reservation of Funds.--From the amount appropriated for payments to States for any fiscal year under section 1002(a), the Secretary shall reserve a total of 1 percent to provide assistance to--
- ``(1) the outlying areas on the basis of their respective need for such assistance according to such criteria as the Secretary determines will best carry out the purpose of this part; and
- ``(2) the Secretary of the Interior in the amount necessary to make payments pursuant to subsection (c).
- ``(b) Assistance to the Outlying Areas.--
- ``(1) In general.--From amounts made available under subsection (a) in each fiscal year the Secretary shall make grants to local educational agencies in the outlying areas (other than the outlying areas assisted under paragraph (3)).
- ``(2) Competitive grants.--
- ``(A) The Secretary shall reserve $5,000,000 from the amounts made available under subsection (a) in each fiscal year to award grants on a competitive basis, to local educational agencies in the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. The Secretary shall award such grants according to the recommendations of the Pacific Region Educational Laboratory which shall conduct a competition for such grants.
- ``(B) Except as provided in subparagraph (D), grant funds awarded under this part only may be used for programs described in this Act, including teacher training, curriculum development, instructional materials, or general school improvement and reform.
- ``(C) Grant funds awarded under this paragraph only may be used to provide direct educational services.
- ``(D) The Secretary may provide 5 percent of the amount made available for grants under this paragraph to pay the administrative costs of the Pacific Region Educational Laboratory regarding activities assisted under this paragraph.
- ``(c) Allotment to the Secretary of the Interior.--
- ``(1) In general.--The amount allotted for payments to the Secretary of the Interior under subsection (a)(2) for any fiscal year shall be, as determined pursuant to criteria established by the Secretary, the amount necessary to meet the special educational needs of--
- ``(A) Indian children on reservations served by elementary and secondary schools for Indian children operated or supported by the Department of the Interior; and
- ``(B) out-of-State Indian children in elementary and secondary schools in local educational agencies under special contracts with the Department of the Interior.
- ``(2) Payments.--From the amount allotted for payments to the Secretary of the Interior under subsection (a)(2), the Secretary of the Interior shall make payments to local educational agencies, upon such terms as the Secretary determines will best carry out the purposes of this part, with respect to out-of-State Indian children described in paragraph (1). The amount of such payment may not exceed, for each such child, the greater of--
- ``(A) 40 percent of the average per pupil expenditure in the State in which the agency is located; or
- ``(B) 48 percent of such expenditure in the United States.
SEC. 1120B. COORDINATION REQUIREMENTS.
SEC. 1122. ALLOCATIONS TO STATES.