(1) On the basis of a preliminary notification from the superintendent of public instruction that a district has failed to submit required reports or budgets or has failed to maintain accredited status and has been designated as on deficiency status, the board of public education shall make a preliminary determination of whether or not a substantial reason exists to order the superintendent of public instruction to withhold distribution of state equalization aid or to order the county superintendent to withhold county equalization money from a district.

(a) If the board determines that no substantial reason exists to withhold funds, the matter is ended.

(b) If the board determines that there is a substantial reason to withhold funds, the board shall provide notice by certified mail of the pending action to the district. Such notice shall include:

(i) a statement of the time, place and nature of the hearing;

(ii) a statement of the legal authority and jurisdiction under which the hearing is to be held;

(iii) a reference to the particular sections of the statutes and the rules involved;

(iv) a statement of the matters asserted;

(v) a designation of who will hear the allegation;

(vi) a provision advising parties of their right to be represented by counsel at the hearing.

(c) The notice shall advise the district that it has the right to contest the proposed action of the board, and that it may do so by appearing at the hearing either through a representative of the school district or through counsel or by requesting the board to consider the matter on the basis of the available information without an appearance by a representative of the district.

(d) The board shall enclose with the notice an election form on which the district shall be asked to indicate whether it intends to appear at the hearing and contest the board's proposed action, contest the board's proposed action without appearing at the hearing, or accept the proposed withholding of funds without contesting it. The notice shall require the district to return the election form within twenty (20) days of the date on which the notice was mailed, and shall inform the district that failure to return the form in a timely manner will result in the withholding of funds by default.

(e) If the district does not return the completed election form within twenty (20) days or elects to accept the proposed withholding of funds without contesting it, the board shall order the equalization funds withheld at its next meeting.

(f) If the district elects to contest the proposed withholding of funds and complies with subsection (1) (d) of this rule, the board shall conduct a hearing.