House committee substitute to the 1st edition makes the following changes.

Amends the bill title. Deletes proposed new GS 115C-419, allocation to private residential facilities.

Amends GS 108A-80 to allow sharing confidential information concerning a person receiving public assistance or social services with a local school administrative unit (was, local educational agency).

Enacts new GS 115C-12(41) to require the State Board of Education (Board) to develop and implement rules for providing and monitoring education services provided to students in private psychiatric residential treatment facilities.

Amends GS 122C-23.1 to provide that all private psychiatric residential treatment facilities (PRTFs), as defined in GS 122C-450(a)(3), as enacted in this act, are to serve children eligible to attend public schools under GS 115C-366, including an expelled or suspended student who otherwise meets the requirements of GS 115C-366. Enacts new subsection (c) to authorize the Department of Health and Human Services (DHHS) to issue an initial license, valid for six months, to a PRTF that meets all of the licensure requirements except for the approval of the facility-based school as a Nonpublic Exceptional Children's Program by the Department of Public Instruction (DPI). Requires the PRTF to secure approval from DPI of its facility-based school as a Nonpublic Exceptional Children's Program during the six-month period.  Provides that if the PRTF does not obtain DPI's approval within the six-month period, DHHS is to review the license for appropriate action. Provides that if the PRTF obtains approval from DPI, then DHHS may issue a license for the remainder of the calendar year and the facility is then eligible for annual review thereafter. Enacts new subsection (d) to require DHHS to review a PRTF's license for appropriate action subsequent to receipt of a written notice from DPI that a PRTF has not provided educational services. Amends subsection (b) to provide that a facility-based school is subject to the time limits as specified in subsection (c) as enacted in this act. Re-letters the subsections accordingly in GS 122C-23.1.

Enacts new Part 4, Educational Services in Private Psychiatric Residential Treatment Facilities, in Article 6 of GS Chapter 122C. Provides definitions (new GS 122C-450) for the following terms: educational services, Nonpublic Exceptional Children's Program, and private psychiatric residential treatment facility. Requires a child receiving behavioral health services in a PRTF to also receive education services in accordance with federal and state law if the child is eligible to enroll in public schools. Requires that a PRTF ensure, for a child with a disability, that all educational services meet applicable standards. Considers a PRTF a local education agency and subject to the jurisdiction of the Office of Administrative Hearings for dispute resolution. Provides that a PRTF must meet two specified conditions to be qualified to receive a funding allocation from DHHS. Requires funds transferred to the Division of Mental Health, Development Disabilities, and Substance Abuse Services (Division) for the purchase of educational services within the PRTF to be held in a statewide reserve at the Division. Requires the Division to use the reserve funds to pay for education services authorized by the (DPI) and billed by the PRTF in a process established by the Division. Requires DHHS to stop disbursement of funds to a PRTF upon receiving written notice from DPI that education services have not been provided. Requires the PRTF to notify, within three business days of admission, the DPI and the local school administrative unit in which the child was last enrolled. Requires the PRTF to request copies of the child's individualized education program and related documents and requires the information to be provided within three days of the request. Requires PRTF to notify DPI within three days of the withdrawal or discharge of a child. Requires PRTF to work with the receiving local school administrative unit to develop a transition plan to be implemented upon discharge of a child residing in a PRTF. Requires the State Board of Education and DPI to perform specified training, record keeping, and rule implementation functions.

Provides that, as of the effective date of the act, PRTFs licensed to serve children eligible to enroll in public schools have six months after their next annual review to get approval of the facility-based school by the DPI as a Nonpublic Exceptional Children's Program. Requires DHHS to review the PRTF's license for appropriate action if the required approval is not obtained before the additional six months are up.

Provides that a PRTF that has a signed education services agreement with a local school administrative unit for the 2013-14 and 2014-15 school years is qualified to receive a funding allocation from DHHS to provide unmet education services needs not covered in the agreement.

Gives the State Board of Education the authority to adopt emergency rules to monitor the delivery of education services in PRTFs. Emergency rules expire on the earlier of (1) effective date of a permanent rule to replace the emergency rules or (2) June 30, 2014.

Requires DHHS and DPI, along with other interested agencies, to submit a report to the Joint Legislative Education Oversight Committee and the Joint Legislative Oversight Committee on Health and Human Services by November 1 of each year, including specified information.

Directs the Board to identify recurring budget reductions within the funds appropriated to DPI or to State Aid to Public Schools in the amount of $1.6 million for the 2013-14 fiscal year and $3.2 million for the 2014-15 fiscal year within 30 days of passage of Senate Bill 402, 2013 Regular Session, Appropriations Act of 2013. Appropriates $1.6 million for fiscal year 2013-14 and $3.2 million to DPI to provide educational services to children in PRTFs as provided in this act. Requires DPI to transfer to DHHS for payment to qualifying PRTFs $1.6 million for the 2013-14 fiscal year and $3.2 million to provide educational services to children in PRTFs as provided in this  act.

Makes all of the provisions of this act effective when it becomes law. Directs DPI to process all applications submitted by PRTFs on or before September 1, 2013, for approval as a Nonprofit Exceptional Children's Program no later than December 1, 2013.