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Public Welfare
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2021-10-01

EXPENDITURES OF STATE AND FEDERAL TANF FUNDS
Public Welfare
Regulations Relating to Public Welfare
OFFICE OF FAMILY ASSISTANCE (ASSISTANCE PROGRAMS), ADMINISTRATION FOR CHILDREN AND FAMILIES, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Pt. 263

PART 263—EXPENDITURES OF STATE AND FEDERAL TANF FUNDS
Sec.
263.0
What definitions apply to this part?

Subpart A—What Rules Apply to a State's Maintenance of Effort?
263.1
How much State money must a State expend annually to meet the basic MOE requirement?
263.2
What kinds of State expenditures count toward meeting a State's basic MOE expenditure requirement?
263.3
When do child care expenditures count?
263.4
When do educational expenditures count?
263.5
When do expenditures in State-funded programs count?
263.6
What kinds of expenditures do not count?
263.8
What happens if a State fails to meet the basic MOE requirement?
263.9
May a State avoid a penalty for failing to meet the basic MOE requirement through reasonable cause or through corrective compliance?

Subpart B—What Rules Apply to the Use of Federal TANF Funds?
263.10
What actions would we take against a State if it uses Federal TANF funds in violation of the Act?
263.11
What uses of Federal TANF funds are improper?
263.12
How will we determine if a State intentionally misused Federal TANF funds?
263.13
Is there a limit on the amount of Federal TANF funds that a State may spend on administrative costs?
263.14
What methodology shall States use to allocate TANF costs?

Subpart C—What Rules Apply to Individual Development Accounts?
263.20
What definitions apply to Individual Development Accounts (IDAs)?
263.21
May a State use the TANF grant to fund IDAs?
263.22
Are there any restrictions on IDA funds?
263.23
How does a State prevent a recipient from using the IDA account for unqualified purposes?

Authority:
42 U.S.C. 604, 607, 609, and 862a; Pub. L. 109-171.

Source:
64 FR 17893, Apr. 12, 1999, unless otherwise noted.
§ 263.0
What definitions apply to this part?
(a) Except as noted in § 263.2(d), the general TANF definitions at §§ 260.30 through 260.33 of this chapter apply to this part.
(b) The term “administrative costs” means costs necessary for the proper administration of the TANF program or separate State programs.
(1) It excludes direct costs of providing program services.
(i) For example, it excludes costs of providing diversion benefits and services, providing program information to clients, screening and assessments, development of employability plans, work activities, post-employment services, work supports, and case management. It also excludes costs for contracts devoted entirely to such activities.
(ii) It excludes the salaries and benefits costs for staff providing program services and the direct administrative costs associated with providing the services, such as the costs for supplies, equipment, travel, postage, utilities, rental of office space and maintenance of office space.
(2) It includes costs for general administration and coordination of these programs, including contract costs and all indirect (or overhead) costs. Examples of administrative costs include:
(i) Salaries and benefits of staff performing administrative and coordination functions;
(ii) Activities related to eligibility determinations;
(iii) Preparation of program plans, budgets, and schedules;
(iv) Monitoring of programs and projects;
(v) Fraud and abuse units;
(vi) Procurement activities;
(vii) Public relations;
(viii) Services related to accounting, litigation, audits, management of property, payroll, and personnel;
(ix) Costs for the goods and services required for administration of the program such as the costs for supplies, equipment, travel, postage, utilities, and rental of office space and maintenance of office space, provided that such costs are not excluded as a direct administrative cost for providing program services under paragraph (b)(1) of this section;
(x) Travel costs incurred for official business and not excluded as a direct administrative cost for providing program services under paragraph (b)(1) of this section;
(xi) Management information systems not related to the tracking and monitoring of TANF requirements (e.g., for a personnel and payroll system for State staff); and
(xii) Preparing reports and other documents.

Subpart A—What Rules Apply to a State's Maintenance of Effort?
§ 263.1
How much State money must a State expend annually to meet the basic MOE requirement?
(a)(1) The minimum basic MOE for a fiscal year is 80 percent of a State's historic State expenditures.
(2) However, if a State meets the minimum work participation rate requirements in a fiscal year, as required under §§ 261.21 and 261.23 of this chapter, after adjustment for any caseload reduction credit under § 261.41 of this chapter, then the minimum basic MOE for that fiscal year is 75 percent of the State's historic State expenditures.
(3) A State that does not meet the minimum participation rate requirements in a fiscal year, as required under §§ 261.21 and 261.23 of this chapter (after adjustment for any caseload reduction credit under § 261.41 of this chapter), but which is granted full or partial penalty relief for that fiscal year, must still meet the minimum basic MOE specified under paragraph (a)(1) of this section.
(b) The basic MOE level also depends on whether a Tribe or consortium of Tribes residing in a State has received approval to operate its own TANF program. The State's basic MOE level for a fiscal year will be reduced by the same percentage as we reduced the SFAG as the result of any Tribal Family Assistance Grants awarded to Tribal grantees in the State for that year.
§ 263.2
What kinds of State expenditures count toward meeting a State's basic MOE expenditure requirement?
(a) Expenditures of State funds in TANF or separate State programs may count if they are made for the following types of benefits or services:
(1) Cash assistance, including the State's share of the assigned child support collection that is distributed to the family, and disregarded in determining eligibility for, and amount of the TANF assistance payment;
(2) Child care assistance (see § 263.3);
(3) Education activities designed to increase self-sufficiency, job training, and work (see § 263.4);
(4) Any other use of funds allowable under section 404(a)(1) of the Act including:
(i) Nonmedical treatment services for alcohol and drug abuse and some medical treatment services (provided that the State has not commingled its MOE funds with Federal TANF funds to pay for the services), if consistent with the goals at § 260.20 of this chapter; and
(ii) Pro-family healthy marriage and responsible fatherhood activities enumerated in part IV-A of the Act, sections 403(a)(2)(A)(iii) and 403(a)(2)(C)(ii) that are consistent with the goals at § 260.20(c) or (d) of this chapter, but do not constitute “assistance” as defined in § 260.31(a) of this chapter; and
(5)(i) Administrative costs for activities listed in paragraphs (a)(1) through (a)(4) of this section, not to exceed 15 percent of the total amount of countable expenditures for the fiscal year.
(ii) Costs for information technology and computerization needed for tracking or monitoring required by or under part IV-A of the Act do not count towards the limit in paragraph (5)(i) of this section, even if they fall within the definition of “administrative costs.”
(A) This exclusion covers the costs for salaries and benefits of staff who develop, maintain, support, or operate the portions of information technology or computer systems used for tracking and monitoring.
(B) It also covers the costs of contracts for the development, maintenance, support, or operation of those portions of information technology or computer systems used for tracking or monitoring.
(b) With the exception of paragraph (a)(4)(ii) of this section, the benefits or services listed under paragraph (a) of this section count only if they have been provided to or on behalf of eligible families. An “eligible family” as defined by the State, must:
(1) Be comprised of citizens or non-citizens who:
(i) Are eligible for TANF assistance;
(ii) Would be eligible for TANF assistance, but for the time limit on the receipt of federally funded assistance; or
(iii) Are lawfully present in the United States and would be eligible for assistance, but for the application of title IV of PRWORA;
(2) Include a child living with a custodial parent or other adult caretaker relative (or consist of a pregnant individual); and
(3) Be financially eligible according to the appropriate income and resource (when applicable) standards established by the State and contained in its TANF plan.
(c) Benefits or services listed under paragraph (a) of this section provided to a family that meets the criteria under paragraphs (b)(1) through (b)(3) of this section, but who became ineligible solely due to the time limitation given under § 264.1 of this chapter, may also count.
(d) Expenditures for the benefits or services listed under paragraph (a) of this section count whether or not the benefit or service meets the definition of assistance under § 260.31 of this chapter. Further, families that meet the criteria in paragraphs (b)(2) and (b)(3) of this section are considered to be eligible for TANF assistance for the purposes of paragraph (b)(1)(i) of this section.
(e) Expenditures for benefits or services listed under paragraph (a) of this section may include allowable costs borne by others in the State (e.g., local government), including cash donations from non-Federal third parties (e.g., a non-profit organization) and the value of third party in-kind contributions if:
(1) The expenditure is verifiable and meets all applicable requirements in 45 CFR 75.2 and 75.306;
(2) There is an agreement between the State and the other party allowing the State to count the expenditure toward its MOE requirement; and,
(3) The State counts a cash donation only when it is actually spent.
(f)(1) The expenditures for benefits or services in State-funded programs listed under paragraph (a) of this section count only if they also meet the requirements of § 263.5.
(2) Expenditures that fall within the prohibitions in § 263.6 do not count.
(g) State funds used to meet the Healthy Marriage Promotion and Responsible Fatherhood Grant match requirement may count to meet the MOE requirement in § 263.1, provided the expenditure also meets all the other MOE requirements in this subpart.
[73 FR 6827, Feb. 5, 2008, as amended at 81 FR 3020, Jan. 20, 2016]
§ 263.3
When do child care expenditures count?
(a) State funds expended to meet the requirements of the CCDF Matching Fund (i.e., as match or MOE amounts) may also count as basic MOE expenditures up to the State's child care MOE amount that must be expended to qualify for CCDF matching funds.
(b) Child care expenditures that have not been used to meet the requirements of the CCDF Matching Fund (i.e., as match or MOE amounts), or any other Federal child care program, may also count as basic MOE expenditures. The limit described in paragraph (a) of this section does not apply.
(c) The child care expenditures described in paragraphs (a) and (b) of this section must be made to, or on behalf of, eligible families, as defined in § 263.2(b).
§ 263.4
When do educational expenditures count?
(a) Expenditures for educational activities or services count if:
(1) They are provided to eligible families (as defined in § 263.2(b)) to increase self-sufficiency, job training, and work; and
(2) They are not generally available to other residents of the State without cost and without regard to their income.
(b) Expenditures on behalf of eligible families for educational services or activities provided through the public education system do not count unless they meet the requirements under paragraph (a) of this section.
§ 263.5
When do expenditures in State-funded programs count?
(a) If a current State or local program also operated in FY 1995, and expenditures in this program would have been previously authorized and allowable under the former AFDC, JOBS, Emergency Assistance, Child Care for AFDC recipients, At-Risk Child Care, or Transitional Child Care programs, then current fiscal year expenditures in this program count in their entirety, provided that the State has met all requirements under § 263.2.
(b) If a current State or local program also operated in FY 1995, and expenditures in this program would not have been previously authorized and allowable under the former AFDC, JOBS, Emergency Assistance, Child Care for AFDC recipients, At-Risk Child Care, or Transitional Child care programs, then countable expenditures are limited to:
(1) The amount by which total current fiscal year expenditures for or on behalf of eligible families, as defined in § 263.2(b), exceed total State expenditures in this program during FY 1995; or, if applicable,
(2) The amount by which total current fiscal year expenditures for pro-family activities under § 263.2(a)(4)(ii) exceed total State expenditures in this program during FY 1995.
[64 FR 17893, Apr. 12, 1999, as amended at 73 FR 6828, Feb. 5, 2008]
§ 263.6
What kinds of expenditures do not count?
The following kinds of expenditures do not count:
(a) Expenditures of funds that originated with the Federal government;
(b) State expenditures under the Medicaid program under title XIX of the Act;
(c) Expenditures that a State makes as a condition of receiving Federal funds under another program that is not in Part IV-A of the Act, except as provided in § 263.3;
(d) Expenditures that a State made in a prior fiscal year;
(e) Expenditures that a State uses to match Federal Welfare-to-Work funds provided under section 403(a)(5) of the Act; and
(f) Expenditures that a State makes in the TANF program to replace the reductions in the SFAG as a result of penalties, pursuant to § 264.50 of this chapter.
[71 FR 37481, June 29, 2006]
§ 263.8
What happens if a State fails to meet the basic MOE requirement?
(a) If any State fails to meet its basic MOE requirement for any fiscal year, then we will reduce dollar-for-dollar the amount of the SFAG payable to the State for the following fiscal year.
(b) If a State fails to meet its basic MOE requirement for any fiscal year, and the State received a WtW formula grant under section 403(a)(5)(A) of the Act for the same fiscal year, we will also reduce the amount of the SFAG payable to the State for the following fiscal year by the amount of the WtW formula grant paid to the State.
§ 263.9
May a State avoid a penalty for failing to meet the basic MOE requirement through reasonable cause or corrective compliance?
No. The reasonable cause and corrective compliance provisions at §§ 262.4, 262.5, and 262.6 of this chapter do not apply to the penalties in § 263.8.

Subpart B—What Rules Apply to the Use of Federal TANF Funds?
§ 263.10
What actions would we take against a State if it uses Federal TANF funds in violation of the Act?
(a) If a State misuses its Federal TANF funds, we will reduce the SFAG payable for the immediately succeeding fiscal year quarter by the amount misused.
(b) If the State fails to demonstrate that the misuse was not intentional, we will further reduce the SFAG payable for the immediately succeeding fiscal year quarter in an amount equal to five percent of the adjusted SFAG.
(c) The reasonable cause and corrective compliance provisions of §§ 262.4 through 262.6 of this chapter apply to the penalties specified in paragraphs (a) and (b) of this section.
§ 263.11
What uses of Federal TANF funds are improper?
(a) States may use Federal TANF funds for expenditures:
(1) That are reasonably calculated to accomplish the purposes of TANF, as specified at § 260.20 of this chapter; or
(2) For which the State was authorized to use IV-A or IV-F funds under prior law, as in effect on September 30, 1995 (or, at the option of the State, August 21, 1996).
(b) We will consider use of funds in violation of paragraph (a) of this section, sections 404 and 408 and other provisions of the Act, section 115(a)(1) of PRWORA, or part 75 of this title to be misuse of funds.
[64 FR 17893, Apr. 12, 1999, as amended at 81 FR 3020, Jan. 20, 2016]
§ 263.12
How will we determine if a State intentionally misused Federal TANF funds?
(a) The State must show, to our satisfaction, that it used these funds for purposes that a reasonable person would consider to be within the purposes of the TANF program (as specified at § 260.20 of this chapter) and consistent with the provisions listed in § 263.11.
(b) We may determine that a State misused funds intentionally if there is supporting documentation, such as Federal guidance or policy instructions, precluding the use of Federal TANF funds for such purpose.
(c) We may also determine that a State intentionally misused funds if the State continues to use the funds in the same or similarly improper manner after receiving notification that we had determined such use to be improper.
§ 263.13
Is there a limit on the amount of Federal TANF funds that a State may spend on administrative costs?
(a)(i) Yes, a State may not spend more than 15 percent of the amount that it receives as its adjusted SFAG, or under other provisions of section 403 of the Act, on “administrative costs,” as defined at § 263.0(b).
(ii) Any violation of the limitation in paragraph (a)(i) of this section will constitute a misuse of funds under § 263.11(b).
(b) Expenditures on the information technology and computerization needed for tracking and monitoring required by or under part IV-A of the Act do not count towards the limit specified in paragraph (a) of this section.
(1) This exclusion covers the costs for salaries and benefits of staff who develop, maintain, support or operate the portions of information technology or computer systems used for tracking and monitoring.
(2) It also covers the costs of contracts for development, maintenance. support, or operation of those portions of information technology or computer systems used for tracking or monitoring.
§ 263.14
What methodology shall States use to allocate TANF costs?
States shall use a benefiting program cost allocation methodology consistent with the general requirements of subpart E of part 75 of this title to allocate TANF costs.
[73 FR 42721, July 23, 2008, as amended at 81 FR 3020, Jan. 20, 2016]

Subpart C—What Rules Apply to Individual Development Accounts?
§ 263.20
What definitions apply to Individual Development Accounts (IDAs)?
The following definitions apply with respect to IDAs:
Date of acquisition means the date on which a binding contract to obtain, construct, or reconstruct the new principal residence is entered into.
Eligible educational institution means an institution described in section 481(a)(1) or section 1201(a) of the Higher Education Act of 1965 (20 U.S.C. 1088(a)(1) or 1141(a)), as such sections were in effect on August 21, 1996. Also, an area vocational education school (as defined in subparagraph (C) or (D) of section 521(4) of the Carl D. Perkins Vocational and Applied Technology Education Act (20 U.S.C. 2471(4)) that is in any State (as defined in section 521(33) of such Act), as such sections were in effect on August 21, 1996.
Individual Development Account (IDA) means an account established by, or for, an individual who is eligible for assistance under the TANF program, to allow the individual to accumulate funds for specific purposes. Notwithstanding any other provision of law (other than the Internal Revenue Code of 1986), the funds in an IDA account must be disregarded in determining eligibility for, or the amount of, assistance in any Federal means-tested programs.
Post-secondary educational expenses means a student's tuition and fees required for the enrollment or attendance at an eligible educational institution, and required course fees, books, supplies, and equipment required at an eligible educational institution.
Qualified acquisition costs means the cost of obtaining, constructing, or reconstructing a residence. The term includes any usual or reasonable settlement, financing, or other closing costs.
Qualified business means any business that does not contravene State law or public policy.
Qualified business capitalization expenses means business expenses pursuant to a qualified plan.
Qualified entity means a nonprofit, tax-exempt organization, or a State or local government agency that works cooperatively with a nonprofit, tax-exempt organization.
Qualified expenditures means expenses entailed in a qualified plan, including capital, plant equipment, working capital, and inventory expenses.
Qualified first-time home buyer means a taxpayer (and, if married, the taxpayer's spouse) who has not owned a principal residence during the three-year period ending on the date of acquisition of the new principal residence.
Qualified plan means a business plan that is approved by a financial institution, or by a nonprofit loan fund having demonstrated fiduciary integrity. It includes a description of services or goods to be sold, a marketing plan, and projected financial statements, and it may require the eligible recipient to obtain the assistance of an experienced entrepreneurial advisor.
Qualified principal residence means the place a qualified first-time home buyer will reside in accordance with the meaning of section 1034 of the Internal Revenue Code of 1986 (26 U.S.C. 1034). The qualified acquisition cost of the residence cannot exceed the average purchase price of similar residences in the area.
§ 263.21
May a State use the TANF grant to fund IDAs?
If the State elects to operate an IDA program, then the States may use Federal TANF funds or WtW funds to fund IDAs for individuals who are eligible for TANF assistance and exercise flexibility within the limits of Federal regulations and the statute.
§ 263.22
Are there any restrictions on IDA funds?
The following restrictions apply to IDA funds:
(a) A recipient may deposit only earned income into an IDA.
(b) A recipient's contributions to an IDA may be matched by, or through, a qualified entity.
(c) A recipient may withdraw funds only for the following reasons:
(1) To cover post-secondary education expenses, if the amount is paid directly to an eligible educational institution;
(2) For the recipient to purchase a first home, if the amount is paid directly to the person to whom the amounts are due and it is a qualified acquisition cost for a qualified principal residence by a qualified first-time home buyer; or
(3) For business capitalization, if the amounts are paid directly to a business capitalization account in a federally insured financial institution and used for a qualified business capitalization expense.
§ 263.23
How does a State prevent a recipient from using the IDA account for unqualified purposes?
To prevent recipients from using the IDA account improperly, States may do the following:
(a) Count withdrawals as earned income in the month of withdrawal (unless already counted as income);
(b) Count withdrawals as resources in determining eligibility; or
(c) Take such other steps as the State has established in its State plan or written State policies to deter inappropriate use.