[Federal Register Volume 59, Number 104 (Wednesday, June 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13406]
[[Page Unknown]]
[Federal Register: June 1, 1994]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 205
RIN 1510-AA41
Rules and Procedures for Funds Transfers
AGENCY: Treasury, Fiscal, Financial Management Service.
ACTION: Final rule; amendment.
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SUMMARY: This rule amends the regulations implementing the Cash
Management Improvement Act of 1990 (CMIA), which governs the transfer
of funds between the Federal Government and the States under Federal
programs. It narrows the scope of CMIA implementation by excluding
certain State-level entities that are fiscally or legally independent
of the central State authorities.
DATES: This rule is effective July 1, 1994, and is applicable July 1,
1994, or the first day of a State's 1995 fiscal year, whichever is
later for a given State.
FOR FURTHER INFORMATION CONTACT: Gary Grippo, 202-874-6955.
SUPPLEMENTARY INFORMATION:
Background
This rulemaking is authorized by the Cash Management Improvement
Act of 1990 (CMIA), Public Law 101-453, codified at 31 U.S.C. 3335,
6501, and 6503. The purpose of CMIA is to ensure greater efficiency,
effectiveness, and equity in the exchange of funds between the Federal
Government and the States.
On September 24, 1992, the Financial Management Service (FMS)
issued regulations at 31 CFR part 205 to implement CMIA. 57 FR 44272,
September 24, 1992. Subsequently, when the effective date of CMIA was
delayed by the Cash Management Improvement Act Amendments of 1992,
Public Law 102-589, the FMS revised the rules at 31 CFR part 205 to
change the implementation date. 57 FR 60676, December 21, 1992. The
regulations finally took effect on July 1, 1993, or the first day of a
State's 1994 fiscal year, whichever was later for a given State.
The CMIA statute defines the term ``State'' to mean ``a State of
the United States, the District of Columbia, a territory or possession
of the United States, and an agency, instrumentality, or fiscal agent
of a State * * *'' (31 U.S.C. 6501). [Emphasis added.] The implementing
regulations refined this definition to specify the meaning of a State
agency or instrumentality: ``A State agency or instrumentality is any
organization or component unit of the State reporting entity as defined
by Generally Accepted Accounting Principles'' (31 CFR 205.3). This
regulatory definition, however, has caused problems for States and
Federal agencies because it includes autonomous State-level entities
that are legally or fiscally independent of the Governor, Treasurer,
and Comptroller.
Accordingly, the purpose of this amendment to 31 CFR part 205 is to
narrow the scope of CMIA implementation by excluding certain State-
level entities that are fiscally or legally independent of the central
State authorities. This amendment responds to the concerns of States,
Federal agencies, and independent State-level entities, such as public
benefit corporations and institutions of higher education.
Definition of State Agencies and Instrumentalities
The existing regulation defines a State agency or instrumentality
to be any organization or component unit of the State reporting entity,
as defined by Generally Accepted Accounting Principles (GAAP). This
rulemaking narrows that definition to exclude: (1) Component units of a
State, and (2) institutions of higher education, hospitals, and
nonprofit organizations.
The existing definition causes problems for States because it
includes entities that are legally independent of the State executive
or fiscally independent of the State Treasurer and Comptroller. It
therefore makes States responsible for organizations over which they
have no control, financially or otherwise.
This rulemaking, accordingly, narrows the definition of State
agencies and instrumentalities based on the principles of legal and
fiscal control. First, it excludes component units of a State, such as
public benefit corporations, which are by definition legally
independent of the primary State government. The distinction between
component units of a State and the primary State government is taken
directly from GAAP, specifically Statement No. 14 of the Governmental
Accounting Standards Board, ``The Financial Reporting Entity.''
Second, this rulemaking excludes certain entities that are likely
to be fiscally independent, if not legally independent, by excluding
institutions of higher education, hospitals, and nonprofit
organizations. This exclusion is based on the dichotomy established by
the Office of Management and Budget Circulars on grant administration.
Circular A-102 applies to States per se, while Circular A-110 applies
to institutions of higher education, hospitals, and nonprofit
organizations.
Pass-throughs
Both changes to the definition of State agencies and
instrumentalities exclude particular entities from the scope of CMIA,
but do not necessarily exclude from CMIA all Federal funds that flow to
those entities. That is, these changes should not be construed to
exempt Federal funds that pass from a covered State entity to an entity
that would be excluded by this rulemaking. For example, if a State
Department of Education draws down Federal funds and then passes them
on to a State institution of higher education, the funds would be
subject to CMIA while they were in accounts of the State Department of
Education.
Excluded Entities With Accounts in the Central State Treasury
Finally, clarification may be needed for cases where an excluded
entity maintains its bank accounts in the central State treasury, which
is part of the primary State government and therefore ostensibly
subject to CMIA. As a general rule, accounts in the central State
treasury against which an excluded entity disburses funds to program
recipients or contractors would not be covered by CMIA. If, for
example, a State university maintains an account in the State treasury,
keeps Federal funds in it, and issues checks to students against it,
the provisions of the CMIA regulation would not apply.
Rulemaking Analysis
E.O. 12866: It has been determined that this regulation is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a Regulatory Assessment is not required.
Regulatory Flexibility Act: Since no notice of proposed rulemaking
is required for this regulatory action, the provisions of the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.
Notice and Comment
The FMS issues this final rule without prior notice and without a
comment period, in accordance with 5 U.S.C. 553(b)(B). The FMS has
determined that a notice of proposed rulemaking is unnecessary and
contrary to the public interest.
The FMS makes these determinations based on meetings and
correspondence with Federal agencies and States, which have urged the
FMS to change the definition of State agencies and instrumentalities.
Forty States expressed unanimous concern about the definition at four
regional roundtable discussions. Twenty-six States indicated in survey
responses that there were legal and practical impediments to complying
with the regulation. Virtually all States and Federal agencies,
moreover, have written to the FMS to voice concerns about the existing
definition.
Prior notice-and-comment on this rulemaking is unnecessary because
all affected parties support it. States, Federal agencies, and
independent State-level entities without exception have urged the FMS
to narrow the definition of State agencies and instrumentalities. Since
this rulemaking responds to the universal position of all parties
subject to the regulation, prior notice and a comment period are not
necessary.
The determination that notice-and-comment is contrary to the public
interest is based on the following considerations. First, the existing
definition of State agencies and instrumentalities, if implemented,
could result in serious damage to State governments and to independent
State-level entities, such as public benefit corporations, public
authorities, and public institutions of higher education. This
definition would place Governors and other officials of the primary
State government in positions of legal and financial responsibility for
entities that are by law independent. States and independent State-
level entities have appealed to the FMS that the implications of this
definition are financially and legally untenable.
Second, the existing regulatory definition could threaten the
stability of the CMIA program by forcing States into either default or
noncompliance. A State is in default of CMIA when it does not enter
into a Treasury-State Agreement with the FMS to implement CMIA. Some
States have indicated that they can not execute an agreement under the
existing regulation because they would be binding entities they do not
control legally or fiscally. Other States may enter into agreements on
behalf of such entities but can not ensure compliance with what has
been negotiated. The potential for both default and noncompliance is
considerable under the current regulation and could undermine the
implementation of sound cash management practices required by CMIA.
Finally, the existing regulation would result in unnecessary costs
to the Federal Government and potential financial harm to States. Under
the current regulation, States would incur added costs to modify the
unique accounting system of each independent State entity. A State
covering six independent entities, for example, would have additional
costs that are six times those incurred by the State to adapt the
central State accounting system to implement CMIA. These duplicative
costs must either be charged to the Federal Government, or absorbed by
the States, with but marginal benefits to the CMIA program.
List of Subjects in 31 CFR Part 205
Grant programs, Grant administration, Intergovernmental relations,
Electronic funds transfers.
Issuance
For the reasons set forth in the preamble, 31 CFR part 205 is
amended by this final rule as follows.
PART 205--[AMENDED]
1. The authority citation for 31 CFR part 205 continues to read as
follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 321, 3335, 6501, 6503.
2. The definition of the term ``State'' in Sec. 205.3 is revised to
read as follows:
Sec. 205.3 Definitions.
* * * * *
State means a State of the United States, the District of Columbia,
the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, American Samoa, Guam, the Virgin Islands, and an
agency, instrumentality, or fiscal agent of a State so defined, but
does not mean a local government or an Indian tribal government.
(1) A State agency or instrumentality is any organization of the
primary government of the State financial reporting entity, as defined
by Generally Accepted Accounting Principles, excluding institutions of
higher education, hospitals, and nonprofit organizations.
(2) A fiscal agent of a State is an entity that pays, collects, or
holds Federal funds on behalf of the State in furtherance of a Federal
program, excluding private nonprofit community organizations.
* * * * *
Dated: May 27, 1994.
Michael T. Smokovich,
Acting Commissioner.
[FR Doc. 94-13406 Filed 5-31-94; 8:45 am]
BILLING CODE 4810-35-P