Cal. Education Code § 56845

(a) The Superintendent may withhold, in whole or in part, state funds or federal funds allocated under the federal Individuals with Disabilities Education Act (20 U.S.C. Sec. 1400 et seq.) from a local educational agency after reasonable notice and opportunity for a hearing if the Superintendent finds either of the following: (1) The local educational agency failed to comply substantially with a provision of state law, federal law, or regulations governing the provision of special education and related services to individuals with exceptional needs which results in the failure to comply substantially with corrective action orders issued by the department resulting from monitoring findings or complaint investigations. (2) The local educational agency failed to implement the decision of a due process hearing officer based on noncompliance with provisions of this part, the implementing regulations, provisions of the federal Individuals with Disabilities Education Act (20 U.S.C. Sec. 1400 et seq.), or the implementing regulations, which noncompliance results in the denial of, or impedes the delivery of, a free appropriate public education for an individual with exceptional needs. (b) When the Superintendent determines that a local educational agency made substantial progress toward compliance with state law, federal law, or regulations governing the provision of special education and related services to individuals with exceptional needs, the Superintendent may apportion the state or federal funds withheld from the local educational agency. (c) Notwithstanding any other provision of law, state funds may not be allocated to offset any federal funding intended for individuals with exceptional needs, as defined in Section 56026, and withheld from a local educational agency due to the agency’s noncompliance with state or federal law. (d) For purposes of this section, in order to enter into contracts with one or more local educational agencies to serve individuals with exceptional needs who are not being served as required under this part, the department is exempt from the requirements of Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code and from the requirements of Article 6 (commencing with Section 999) of Chapter 6 of Division 4 of the Military and Veterans Code.