[Federal Register: October 22, 2004 (Volume 69, Number 204)]
[Proposed Rules]               
[Page 62008-62012]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22oc04-15]                         
Download: PDF Version
=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION

34 CFR Part 225

RIN 1855-AA02

 
Credit Enhancement for Charter School Facilities Program

AGENCY: Office of Innovation and Improvement, Department of Education.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Secretary issues these proposed regulations to administer 
the Credit Enhancement for Charter School Facilities program and its 
predecessor, the Charter School Facilities Financing Demonstration 
Grant program. Under this program, the Department provides competitive 
grants to entities that are non-profit or public or are consortia of 
these entities to demonstrate innovative credit enhancement strategies 
to assist charter schools in acquiring, constructing, and renovating 
facilities through loans, bonds, other debt instruments, or leases.

DATES: We must receive your comments on or before November 22, 2004.

ADDRESSES: Address all comments about these proposed regulations to Jim 
Houser, U.S. Department of Education, 400 Maryland Avenue, SW., 
Washington, DC 20202-6140. If you prefer to send comments through the 
Internet, use the following address: comments@ed.gov. You must include 
the term ``credit enhancement'' in the subject line of your electronic 
message.
    If you want to comment on the information collection requirements, 
you must send your comments to the Office of Management and Budget at 
the address listed in the Paperwork Reduction Act section of this 
preamble. You may also send a copy of these comments to the Department 
representative named in this section.

FOR FURTHER INFORMATION CONTACT: Valarie Perkins or Jim Houser, U.S. 
Department of Education, 400 Maryland Avenue, SW., Washington, DC 
20202-6140. Telephone: (202) 260-1924 or via Internet, at: 
charter.facilities@ed.gov. If

[[Page 62009]]

you use a telecommunications device for the deaf (TDD), you may call 
the Federal Information Relay Service (FIRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the proposed regulations that each of 
your comments addresses and to arrange your comments in the same order 
as the proposed regulations.
    We also invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the program.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations in room 4W258, 400 Maryland 
Avenue, SW., Washington, DC, 20202-6140, between the hours of 8:30 a.m. 
and 4 p.m., Eastern time, Monday through Friday of each week except 
Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, please contact the person 
listed under FOR FURTHER INFORMATION CONTACT.

Background

    These proposed regulations would apply to both (a) the Credit 
Enhancement for Charter School Facilities program, which is authorized 
under title V, part B, subpart 2 of the Elementary and Secondary 
Education Act of 1965 (the Act), as amended by the No Child Left Behind 
Act of 2001 (Pub. L. 107-110, enacted January 8, 2002) and (b) its 
predecessor, the Charter School Facilities Financing Demonstration 
Grant program, as authorized by title X, part C, subpart 2 of the Act 
as part of the Department of Education Appropriations Act, 2001 as 
enacted by the Consolidated Appropriations Act, 2001. The purpose of 
this program is to assist charter schools in meeting their facilities 
needs. Under this program, funds are provided on a competitive basis to 
public and nonprofit entities, and consortia of these entities, to 
leverage other funds and help charter schools acquire school facilities 
through such means as purchase, lease, and donation. Grantees may also 
use grants to leverage other funds to help charter schools construct 
and renovate school facilities.
    To help leverage funds for charter school facilities, grant 
recipients may, among other things: Guarantee and insure debt, 
including bonds, to finance charter school facilities; guarantee and 
insure leases for personal and real property; facilitate a charter 
school's facilities financing by identifying potential lending sources, 
encouraging private lending, and carrying out other, similar 
activities; and establish temporary charter school facilities that new 
charter schools may use until they can acquire a facility on their own.
    Sections in these proposed regulations that govern the management 
of grants would apply to grants under both the Credit Enhancement for 
Charter School Facilities program and its predecessor, the Charter 
School Facilities Financing Demonstration Grant program. These two 
programs are virtually identical and grants made under them will 
operate for several years. Sections related to grantee selection would 
apply only to grant competitions conducted after fiscal year (FY) 2004.

Proposed Regulations

    The primary purpose of this regulation is to establish selection 
criteria for this complex program's discretionary grant competitions 
after FY 2004. Since we seek to award grants to high-quality applicants 
with high-quality plans to use their grant funds, these criteria 
essentially include assessments on the quality of the applicant and the 
quality of the applicant's plan. The criteria also assess how 
applicants propose to leverage private or public sector funding and 
increase the number and variety of charter schools assisted in meeting 
their facilities needs. The proposed selection criteria are similar to 
those we have used in the two previous competitions for this program. 
As noted above, this proposed regulation also includes a few provisions 
that govern the ongoing management of the grants already awarded in 
preceding fiscal years.

Executive Order 12866

1. Potential Costs and Benefits

    Under Executive Order 12866, we have assessed the potential costs 
and benefits of this regulatory action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those we have 
determined to be necessary for administering this program effectively 
and efficiently. Elsewhere in this SUPPLEMENTARY INFORMATION section we 
identify and explain burdens specifically associated with information 
collection requirements. See the heading Paperwork Reduction Act of 
1995.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of this regulatory action, we have determined that the 
benefits would justify the costs.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
Summary of Potential Costs and Benefits
    The Secretary believes that these regulations are necessary to 
clarify complex statutory provisions. As noted elsewhere, these 
proposed regulations add clarity where the statute is ambiguous or 
reorganize statutory material to facilitate a better understanding of 
the statute's requirements. Nearly all of the benefits and costs of 
these proposed regulations stem from the underlying legislation and not 
the regulations. The costs associated with these proposed regulations 
are not only minimal but are also justified in terms of the benefits 
that successful applicants for these discretionary grants will receive. 
For example, the statute requires an application and the types of 
information that would be collected through the proposed selection 
criteria should be readily available to applicants under this program.

2. Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum on ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations

[[Page 62010]]

easier to understand, including answers to questions such as the 
following:
    [cir] Are the requirements in the proposed regulations clearly 
stated?
    [cir] Do the proposed regulations contain technical terms or other 
wording that interferes with their clarity?
    [cir] Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
    [cir] Would the proposed regulations be easier to understand if we 
divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  225.1 What is the Credit Enhancement for Charter School 
Facilities Program?)
    [cir] Could the description of the proposed regulations in the 
``Supplementary Information'' section of this preamble be more helpful 
in making the proposed regulations easier to understand? If so, how?
    [cir] What else could we do to make the proposed regulations easier 
to understand?
    Send any comments that concern how the Department could make these 
proposed regulations easier to understand to the person listed in the 
ADDRESSES section of the preamble.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. The small entities that would be tangentially affected by 
these proposed regulations are small grantees and, tangentially, small 
charter schools that ultimately benefit from services provided by 
grantees. In addition, we do not believe that the regulations would 
have a significant economic impact on the limited number of small 
grantees and small charter schools affected because the proposed 
regulations would not impose excessive regulatory burdens on those 
entities or require unnecessary Federal supervision.
    The proposed regulations would benefit both small and large 
entities in that they clarify confusing and complex statutory 
requirements. Also, since the statute requires Credit Enhancement for 
Charter School Facilities applicants to apply to the Department if they 
wish to receive discretionary funds, it would be difficult for the 
Department to award funds without the application information specified 
in the proposed regulations. The proposed regulations will ensure that 
applicants do not provide significant amounts of information that is 
already otherwise available to the Department.
    The proposed regulations would impose minimal paperwork burden 
requirements for all applicants and minimal requirements with which 
grant recipients must comply. However, the Secretary specifically 
invites comments on the effects of the proposed regulations on small 
entities, and on whether there may be further opportunities to reduce 
any potential adverse impact or increase potential benefits resulting 
from these proposed regulations without impeding the effective and 
efficient administration of the Credit Enhancement for Charter School 
Facilities program.

Paperwork Reduction Act of 1995

    Sections 225.11 and 225.12 contain information collection 
requirements. Under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), the Department of Education submitted a copy of this section 
to the Office of Management and Budget (OMB) for its review.
Collection of Information: Credit Enhancement for Charter School 
Facilities Grant Program
    The Department will use the information collected through the 
selection criteria and competitive priority to determine whether to 
fund applicants. Since the statute requires applicants to apply for 
funds, the Department would not be able to award these funds without 
the application to collect the required information.
    We estimate the annual reporting and recordkeeping burden for this 
collection of information to average 80 hours for each respondent for 
30 applicants, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Thus, we 
estimate the total annual reporting and recordkeeping burden for this 
collection to be 2400 hours.
    If you want to comment on the information collection requirements, 
please send your comments to the Office of Information and Regulatory 
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC 
20503; Attention: Desk Officer for U.S. Department of Education. You 
may also send a copy of these comments to the Department representative 
named in the ADDRESSES section of this preamble.
    We consider your comments on this proposed collection of 
information in--
    [cir] Deciding whether the proposed collection is necessary for the 
proper performance of our functions, including whether the information 
will have practical use;
    [cir] Evaluating the accuracy of our estimate of the burden of the 
proposed collection, including the validity of our methodology and 
assumptions;
    [cir] Enhancing the quality, usefulness, and clarity of the 
information we collect; and
    [cir] Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.
    The proposed regulations would benefit both small and large 
entities in that they clarify confusing and complex statutory 
requirements. However, the Secretary specifically invites comments on 
the effects of the proposed regulations on small entities, and on 
whether there may be further opportunities to reduce any potential 
adverse impact or increase potential benefits resulting from these 
proposed regulations without impeding the effective and efficient 
administration of the Credit Enhancement for Charter School Facilities 
program.
    Commenters are requested to describe the nature of any effect and 
provide empirical data and other factual support for their views to the 
extent possible. These comments will be placed in the public comment 
file and considered in the preparation of the final regulations.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

[[Page 62011]]

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.

    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.
    You may also view this document in PDF at the following site: 
http://www.ed.gov/programs/charterfacilities/index.html.


    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: 
http://www.gpoaccess.gov/nara/index.html
.


(Catalog of Federal Domestic Assistance Number 84.354A Credit 
Enhancement for Charter School Facilities Program.)

List of Subjects in 34 CFR Part 225

    Charter Schools, Credit Enhancement, Education, Educational 
facilities, Elementary and secondary education, Grant programs--
education, Report and recordkeeping requirements, Schools.

    Dated: October 19, 2004.
Nina Shokraii Rees,
Assistant Deputy Secretary for Innovation and Improvement.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend title 34 of the Code of Federal Regulations by adding a new 
part 225 to read as follows:

PART 225--CREDIT ENHANCEMENT FOR CHARTER SCHOOL FACILITIES PROGRAM

Subpart A--General
Sec.
225.1 What is the Credit Enhancement for Charter School Facilities 
Program?
225.2 Who is eligible to receive a grant?
225.3 What regulations apply to the Credit Enhancement for Charter 
School Facilities Program?
225.4 What definitions apply to the Credit Enhancement for Charter 
School Facilities Program?
Subpart B--How Does the Secretary Award a Grant?
225.10 How does the Secretary evaluate an application?
225.11 What selection criteria does the Secretary use in evaluating 
an application for a Credit Enhancement for Charter Schools 
Facilities grant?
225.12 What funding priority may the Secretary use in making a grant 
award?
Subpart C--What Conditions Must Be Met by a Grantee?
225.20 When may a grantee draw down funds?
225.21 What are some examples of impermissible uses of reserve 
account funds?

    Authority: 20 U.S.C. 7223, unless otherwise noted.

Subpart A--General


Sec.  225.1  What is the Credit Enhancement for Charter School 
Facilities Program?

    (a) The Credit Enhancement for Charter School Facilities Program 
provides grants to eligible entities to assist charter schools in 
obtaining facilities.
    (b) Grantees use these grants to do the following:
    (1) Assist charter schools in obtaining loans, bonds, and other 
debt instruments for the purpose of obtaining facilities.
    (2) Assist charter schools in obtaining leases of facilities.
    (c) Grantees may demonstrate innovative credit enhancement 
initiatives while meeting the program purposes under paragraph (b) of 
this section.
    (d) For the purposes of these regulations, the Credit Enhancement 
for Charter School Facilities Program includes grants made under the 
Charter School Facilities Financing Demonstration Grant Program.

(Authority: 20 U.S.C. 7223)


Sec.  225.2  Who is eligible to receive a grant?

    The following are eligible to receive a grant under this part:
    (a) A public entity, such as a State or local governmental entity;
    (b) A private nonprofit entity; or
    (c) A consortium of entities described in paragraphs (a) and (b) of 
this section.

(Authority: 20 U.S.C. 7223a; 7223i(2))


Sec.  225.3  What regulations apply to the Credit Enhancement for 
Charter School Facilities Program?

    The following regulations apply to the Credit Enhancement for 
Charter School Facilities Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants and Agreements with 
Institutions of Higher Education, Hospitals, and other Non-Profit 
Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 81 (General Educational Provisions Act--
Enforcement).
    (7) 34 CFR part 82 (New Restrictions on Lobbying).
    (8) 34 CFR part 84 (Governmentwide Requirements for Drug-Free 
Workplace (Grants)).
    (9) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement)).
    (b) The regulations in this part 225.

(Authority: 20 U.S.C. 1221e-3; 1232)


Sec.  225.4  What definitions apply to the Credit Enhancement for 
Charter School Facilities Program?

    (a) Definitions in the Act. The following term used in this part is 
defined in section 5210 of the Elementary and Secondary Education Act 
of 1965, as amended by the No Child Left Behind Act of 2001: Charter 
school.
    (b) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1: Acquisition, Applicant, Application, Award, 
Department, EDGAR, Facilities, Grant, Grantee, Nonprofit, Private, 
Project, Public, and Secretary.

(Authority: 20 U.S.C. 7221(i)(1); 7223d)

Subpart B--How Does the Secretary Award a Grant?


Sec.  225.10  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec.  225.11.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 7223; 1232)


Sec.  225.11  What selection criteria does the Secretary use in 
evaluating an application for a Credit Enhancement for Charter School 
Facilities grant?

    The Secretary uses the following criteria to evaluate an 
application for a Credit Enhancement for Charter School Facilities 
grant:
    (a) Quality of project design and significance. (35 points) In 
determining the quality of project design and significance, the 
Secretary considers--
    (1) The extent to which the grant proposal would provide financing 
to

[[Page 62012]]

charter schools at better rates and terms than they can receive absent 
assistance through the program;
    (2) The extent to which the project goals, objectives, and timeline 
are clearly specified, measurable, and appropriate for the purpose of 
the program;
    (3) The extent to which the project implementation plan and 
activities, including the partnerships established, are likely to 
achieve measurable objectives that further the purposes of the program;
    (4) The extent to which the project is likely to produce results 
that are replicable;
    (5) The extent to which the project will use appropriate criteria 
for selecting charter schools for assistance and for determining the 
type and amount of assistance to be given;
    (6) The extent to which the proposed activities will leverage the 
private or public sector funding and increase the number and variety of 
charter schools assisted in meeting their facilities needs absent the 
program;
    (7) The extent to which the project will serve charter schools in 
States with strong charter laws, consistent with the criteria for such 
laws in section 5202(e)(3) of the Elementary and Secondary Education 
Act of 1965; and
    (8) The extent to which the requested grant amount and the project 
costs are reasonable in relation to the objectives, design, and 
potential significance of the project.
    (b) Quality of project services. (15 points) In determining the 
quality of the project services, the Secretary considers--
    (1) The extent to which the services to be provided by the project 
reflect the identified needs of the charter schools to be served;
    (2) The extent to which charter schools and chartering agencies 
were involved in the design of, and demonstrate support for, the 
project;
    (3) The extent to which the technical assistance and other services 
to be provided by the proposed grant project involve the use of cost-
effective strategies for increasing charter schools' access to 
facilities financing, including the reasonableness of fees and lending 
terms; and
    (4) The extent to which the services to be provided by the proposed 
grant project are focused on assisting charter schools with a 
likelihood of success and the greatest demonstrated need for assistance 
under the program.
    (c) Capacity. (35 points) In determining an applicant's business 
and organizational capacity to carry out the project, the Secretary 
considers--
    (1) The amount and quality of experience of the applicant in 
carrying out the activities it proposes to undertake in its 
application, such as enhancing the credit on debt issuances, 
guaranteeing leases, and facilitating financing;
    (2) The applicant's financial stability;
    (3) The ability of the applicant to protect against unwarranted 
risk in its loan underwriting, portfolio monitoring, and financial 
management;
    (4) The applicant's expertise in education to evaluate the 
likelihood of success of a charter school;
    (5) The ability of the applicant to prevent conflicts of interest, 
including conflicts of interest by employees and members of the board 
of directors in a decision-making role;
    (6) If the applicant has co-applicants (consortium members), 
partners or other grant project participants, the specific resources to 
be contributed by each co-applicant (consortium member), partner, or 
other grant project participant to the implementation and success of 
the grant project;
    (7) For State governmental entities, the extent to which steps have 
been or will be taken to ensure charter schools within the State 
receive the funding needed to obtain adequate facilities; and
    (8) For previous grantees under the charter school facilities 
programs, their performance in implementing these grants.
    (d) Quality of project personnel. (15 points) In determining the 
quality of project personnel, the Secretary considers--
    (1) The qualifications of project personnel, including relevant 
training and experience, of the project manager and other members of 
the project team, including consultants or subcontractors; and
    (2) The staffing plan for the grant project.

(Authority: 20 U.S.C. 7223; 1232)


Sec.  225.12  What funding priority may the Secretary use in making a 
grant award?

    (a) The Secretary may award up to 15 additional points under a 
competitive priority regarding the capacity of charter schools to offer 
public school choice in those communities with the greatest need for 
this choice based on--
    (1) The extent to which the applicant would target services to 
geographic areas in which a large proportion or number of public 
schools have been identified for improvement, corrective action, or 
restructuring under Title I of the Elementary and Secondary Education 
Act of 1965, as amended by the No Child Left Behind Act of 2001;
    (2) The extent to which the applicant would target services to 
geographic areas in which a large proportion of students perform below 
proficient on State academic assessments; and
    (3) The extent to which the applicant would target services to 
communities with large proportions of students from low-income 
families.
    (b) The Secretary may elect to--
    (1) Use this competitive priority only in certain years; and
    (2) Consider the points awarded under this priority only for 
proposals that exhibit sufficient quality to warrant funding under the 
selection criteria in Sec.  225.11.

(Authority: 20 U.S.C. 7223; 1232)

Subpart C--What Conditions Must Be Met by a Grantee?


Sec.  225.20  When may a grantee draw down funds?

    (a) A grantee may draw down funds after it has signed a performance 
agreement acceptable to the Department of Education and the grantee.
    (b) A grantee may draw down and spend a limited amount of funds 
prior to reaching an acceptable performance agreement provided that the 
grantee requests to draw down and spend a specific amount of funds and 
the Department of Education approves the request in writing.

(Authority: 20 U.S.C. 7223d)


Sec.  225.21  What are some examples of impermissible uses of reserve 
account funds?

    (a) Grantees must not use reserve account funds to--
    (1) Directly pay for a charter school's construction, renovation, 
repair, or acquisition; or
    (2) Provide a down payment on facilities in order to secure loans 
for charter schools. A grantee may, however, use funds to guarantee a 
loan for the portion of the loan that would otherwise have to be funded 
with a down payment.
    (b) In the event of a default of payment by a charter school whose 
loan or lease is guaranteed by reserve account funds, a grantee may use 
these funds to cover defaulted payments that are referenced under 
paragraph (a)(1) of this section.

(Authority: 20 U.S.C. 7223d)
[FR Doc. 04-23746 Filed 10-21-04; 8:45 am]

BILLING CODE 4000-01-P