[Federal Register Volume 59, Number 109 (Wednesday, June 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13891]


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[Federal Register: June 8, 1994]


                                                   VOL. 59, NO. 109

                                            Wednesday, June 8, 1994

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

 

Special Supplemental Food Program for Women, Infants and Children 
(WIC); Food Funding Formula Rule

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes revisions to funding and funds allocation 
procedures for the Special Supplemental Food Program for Women, Infants 
and Children (WIC) in order to simplify and update the funding process 
in anticipation of a fully funded program. The proposed amendments will 
provide a greater share of funds to States receiving comparatively less 
than their fair share of funds based on their WIC income eligible 
population, simplify and better manage the food funding allocation 
process by eliminating obsolete features and provide all State agencies 
with stability funding, adjusted for inflation, to the extent funds are 
available.

DATES: To be assured of consideration, written comments must be 
received on or before August 8, 1994. Since comments may be accepted 
simultaneously on several separate rulemakings, commenters on this 
proposed rule are asked to label their comments ``Food Funding Formula 
Rule''.

ADDRESSES: Comments may be mailed to Stanley C. Garnett, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, room 540, Alexandria, Virginia 22302, (703) 
305-2746. All written submissions will be available for public 
inspection at this address during regular business hours (8:30 a.m. to 
5 p.m.), Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Deborah McIntosh, Chief, Program 
Analysis and Monitoring Branch, Supplemental Food Programs Division, 
Food and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, 
Virginia 22302, (703) 305-2710.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

    This proposed rule is issued in conformance with Executive Order 
12866 and has been classified as significant.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Pursuant to that review, 
the Administrator of the Food and Nutrition Service (FNS) has certified 
that this rule will not have a significant impact on a substantial 
number of small entities. The rule affects how the Department will 
calculate food grant allocations for WIC State agencies.

Paperwork Reduction Act

    No new data collection or recordkeeping requiring Office of 
Management and Budget (OMB) approval under the Paper Reduction Act of 
1980 (44 U.S.C. 3501 through 3502) are included in this proposed rule.

Executive Order 12372

    This program is listed in the Catalog of Federal Domestic 
Assistance Programs under 10.557 and is subject to Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials (7 CFR part 3015, subpart V, and final rule-related 
notice published June 24, 1983 (48 FR 29114)).

Executive Order 12778

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' paragraph of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions, all applicable 
administrative procedures must be exhausted. In the WIC Program, the 
administrative procedures are as follows: (1) Local agencies and 
vendors--State agency hearing procedures issued pursuant to 7 CFR 
246.18; (2) applicants and participants--State agency hearing 
procedures issued pursuant to 7 CFR 246.9; (3) sanctions against State 
agencies (but not claims for repayment assessed against a State agency) 
pursuant to 7 CFR 246.19--administrative appeal in accordance with 7 
CFR 246.22; and (4) procurement by State or local agencies--
administrative appeal to the extent required by 7 CFR 3016.36.

Background

Need for Revisions to the Food Funds Allocation Process

    The WIC Program has consistently demonstrated its effectiveness in 
promoting the health and nutritional well-being of low-income women, 
infants and children at nutritional or medical risk, and has 
experienced large increases in its appropriation for the last several 
years. Due to its success, the WIC Program is likely to soon achieve 
``full funding'' whereby it is estimated that all eligible women, 
infants and children who apply could obtain program benefits. In moving 
toward the full funding objective, the Department finds that its 
current food funding formula presents impediments to funding equality 
and is so complex it is difficult to execute and predict its results.
    Historically, WIC has never had enough funds to serve all who are 
in need of, and eligible for, its benefits. Certain State agencies 
receive levels of funding that allow them to serve more of their 
eligible populations than others. The concept of full funding for WIC 
as set forth by the Administration does not guarantee unlimited funds 
nor does it establish the WIC Program as a federal entitlement program. 
As before, WIC must manage within a finite appropriation level. 
However, a fully funded WIC Program implies that the appropriation 
level will more adequately provide for all eligible persons who apply 
for benefits, and that each State agency should have an equal chance to 
serve their eligible population. Currently, many State agencies are 
serving lesser proportions of their WIC-eligible population than other 
State agencies. Therefore, the formula must support growth among State 
agencies which are now funded to serve a lesser proportion of their 
eligible population, as well as allocate funds fairly among all State 
agencies under a stable, fully funded program.
    Therefore, to better prepare the WIC Program for full funding, the 
proposed revisions to the food funding formula strive for three major 
objectives: (1) To provide a greater share of funds to State agencies 
receiving comparatively less than their fair share of funds based on 
their WIC income eligible population; (2) to simplify the food funding 
formula and delete obsolete components; and (3) to maintain current 
services to eligible participants that State agencies are serving to 
the extent funds are available.
    FNS has recognized for some time that constraints of the current 
funds allocation process necessitated revisions to the food funding 
formula. Additionally, the National Association of WIC Directors (NAWD) 
formed a special Funding Formula Committee (Committee) to provide 
recommendations to FNS for revising the formula and improving methods 
for allocating WIC food funds. The Committee views are referenced in 
this preamble on particular issues.
    The Committee recommendations focused on how full funding should 
alter the funding formula for the future. The limited funds provided to 
the WIC Program in the past were not adequate to fully reach the 
eligible population. Consequently, the current funding formula sought 
to preserve participation gains that State agencies achieved. If 
additional funds were available, funds were allocated to foster program 
growth, particularly to the pregnant women and infant population at 
highest risk. Service to this highest risk group is now largely 
accomplished. A fully funded program must now strive to achieve greater 
funding equity among all State agencies.

Assumptions Under Full Funding

    Cost Control Efforts. The President's goal of fully funding the WIC 
Program strongly assumes that current policies and procedures affecting 
cost containment strategies will continue. Cost savings through cost 
containment initiatives, including infant formula rebates, have been 
highly effective in the WIC Program in recent years, creating savings 
that have allowed the program to assist millions of additional 
participants. State agencies are required to continue infant formula 
rebates, and are encouraged to explore other cost containment 
initiatives to manage the WIC Program more efficiently and effectively 
and to ensure that the President's goal can be realized.
    Due to the intense scrutiny and competition for funds that all 
Government programs now face, it is imperative that in a fully funded 
program, WIC State agencies continue to monitor and aggressively pursue 
cost containment strategies. The Department seeks comments and 
suggestions as to how the policies, rules or procedures could be 
adjusted to better reward efficient State management and cost 
containment efforts without putting upward pressure on program costs or 
undue burdens on the program. State agencies may have valuable insights 
to share with the Department on cost containment strategies and on 
strengthening standards for cost containment to insure that existing 
structural incentives for cost efficiency will be maintained.
    WIC Food Costs. WIC Program food costs account for approximately 75 
percent of the overall WIC budget. Therefore, it is critical that State 
agencies use these food dollars wisely so that additional WIC 
participants can be served. Since funds are allocated based on the 
national average food package cost, State agencies that have food 
package costs above the national average will not be able to serve the 
number of participants estimated to be served with their allocation. 
This will function as an incentive for these State agencies to manage 
their food package costs more efficiently in order to serve all 
eligibles in their respective jurisdictions.
    State agencies currently are required to employ various strategies 
to reduce food costs, such as infant formula rebates and effective 
vendor management. Additional strategies found effective in controlling 
costs include, but are not limited to, food container size and name 
brand management practices, and rebates on foods other than infant 
formula. Many States are utilizing these additional strategies; 
however, other State agencies may need to implement additional cost 
containment initiatives to reduce their per person food package cost to 
enable them to serve additional participants.
    Nutritional Risk Criteria. Another area where State agencies have 
some discretion in operating the WIC Program which may affect a State 
agency's ability to realize the President's goal of full funding are 
the nutritional risk standards used to establish program eligibility. 
In addition to meeting income eligibility standards, an applicant for 
program benefits must also be certified by a competent professional 
authority to be at nutritional risk due to medically-related conditions 
or dietary deficiencies that impair or endanger health. Currently State 
agencies have considerable flexibility in establishing and implementing 
nutritional risk criteria.
    The commitment to WIC full funding can only be met if States 
continue to utilize risk-related eligibility criteria that are based in 
sound medical, nutritional, and preventive health research. Poverty in 
and of itself, while strongly associated with many health and 
nutrition-related problems, is not a sufficient condition for program 
eligibility.
    In order to help advance understanding of the current state of 
scientific knowledge of nutritional risk as it pertains to the WIC 
target population, FNS funded a grant to the National Academy of 
Sciences, Institute of Medicine, Food and Nutrition Board (FNB). The 
grant will be used for a scientific evaluation of WIC nutrition risk 
criteria, including an independent review of all nutrition risk factors 
currently in use by the WIC Program, and a review of the related 
scientific literature. The FNB will issue a report summarizing its 
findings regarding determination of nutritional risk for each 
criterion, and will identify gaps in the scientific knowledge 
indicating that additional research is needed.
    The results of this review will be shared with State agencies to 
help them better manage program services and to ensure that full 
funding will meet the nutritional and health-related needs in a well 
targeted manner.

Funding Formula Objectives

    The funding process should assure each State agency a grant that 
allows it an equal opportunity to serve its fair share of eligible 
persons seeking WIC service by providing a food package suited to the 
participant's unique nutritional deficiencies, not to exceed the 
maximum food benefit allowed under regulations. This rule proposes a 
funding formula to meet this overall goal.
    The objective of fair share allocation is to give each State agency 
a percentage of total available funds based on its number of WIC-
eligibles as a percent of the total number of WIC-eligibles nationally. 
Accordingly, an ``under fair share'' State agency is one whose percent 
share of grant funds is less than its percent share of the total 
national WIC-eligible population. An ``over fair share'' State agency 
is one whose percent share of grant funds is greater than its percent 
share of the WIC-eligible population. While there is general agreement 
that the fair share concept is important and that it is necessary to 
bring ``under fair share'' State agencies closer to their fair share 
objective, the best way to implement this concept was a more difficult 
decision. The current formula provides a ``stability'' grant which 
assures all State agencies of their prior year grant plus some 
inflationary increases. While ``stability'' funding was important in 
the past to avoid eroding participation gains, fully funding the WIC 
Program does not ensure that grant levels to individual State agencies 
will be stable, since States' eligible populations may increase or 
decrease over time due to changes in the economy or other factors.
    The current formula for allocating food funds was published in a 
final rule on July 2, 1987 (52 FR 25182). Most recently, it was amended 
by a Final Rule published March 11, 1994, at 59 FR 11475. This preamble 
is organized first to describe the most significant current provisions, 
and to explain the proposed revision or elimination of these 
provisions. Second, a summary of how the proposed food funding formula 
will work is provided.

Current Provisions

Section 246.16(c)(1)  Allocation Formula--Use of Participation Data in 
the Formula

    The proposed food funding formula would no longer use reported 
priority participation data or data reflecting State-funded 
participation for imputing the figures needed for the targeting 
components of the formula described in Sec. 246.16(c)(3)(ii) and 
(c)(1)(ii)(A). Accordingly, the Department is proposing to revise 
Sec. 246.16(c)(1) to eliminate the use of participation data for these 
purposes.

Section 246.16(c)(3)(i)  Allocation of Stability Funds

    Currently, in allocating funds to State agencies, first priority is 
given to maintaining each State's operating level ``stability 
funding''. The stability component of a State agency's allocation is 
initially based on the amount of food funds received by each State 
agency in the prior fiscal year, adjusted to restore 50 percent of any 
grant funds voluntarily returned in the prior year. This base level is 
then adjusted to account for a portion of the inflation estimated for 
the upcoming fiscal year (except that Indian State agencies receive a 
full inflation adjustment).
    The proposed formula retains this component with some modification. 
The principle of stability is maintained to help assure that each State 
agency receives enough funds to support its current participation 
level. However, the proposed rule tempers this with the principle of 
fair share allocation based on each State agency's eligible population.
    This rule proposes deleting the provision allowing a State agency 
the option to retain 50 percent of funds it returns before July 16 as a 
part of its stability grant the next fiscal year. For example, 
currently a State agency which voluntarily returns $100 in unspent food 
funds would be reduced by only $50 of that $100 in its stability grant 
for the next year.
    The 50 percent credit was intended as an incentive for a State 
agency to return food funds that it could not spend, thereby making 
those funds available for reallocation to State agencies that needed 
additional funds. Actually, almost all State agencies which have 
elected to return funds under this provision have been those which were 
in danger of failing to spend at least 95 percent of their allocated 
food funds. Failure to achieve this expenditure level results in a 
specific decrease in the amount of food funds in the subsequent fiscal 
year as specified in Sec. 246.16(e)(2). In these instances, State 
agencies simply returned the amount of funds necessary to ensure 
expenditures of at least 95 percent of their adjusted food grants. The 
Department no longer believes restoration of 50 percent of returned 
funds to State agencies in the next year is prudent. The restoration of 
these funds makes it possible for a State agency already serving all of 
its eligible population to retain funds it does not need.

Section 246.16(c)(3)(i)(A)  Inflation Adjustment

    The current food funding formula uses a calculation referred to as 
the ``targeted inflation factor''. It is designed to provide an 
inflation adjustment proportionate to a State agency's service to the 
highest priority participants. Under this process, the full inflation 
increase is adjusted according to each State agency's percentage of 
participants in the top three priority level categories (Priority I-III 
women, infants and children at nutritional or medical risk). 
Specifically, the formula requires multiplying the percentage of its 
participation which is in the top three priorities by the full rate of 
inflation. The resultant factor is multiplied by the prior year food 
grant to determine the stability grant, as adjusted for targeted 
inflation. For instance, if 75 percent of a State agency's 
participation was in the Priority I to III participation categories, 
and the full inflation rate was 4 percent, that State agency would 
receive a targeted inflation rate of 3 percent applied against its 
prior year grant to determine its stability grant. An exception is made 
for Indian State agencies which receive full inflation.
    The intent of the existing provision is twofold. First, it gives a 
greater inflation increase to State agencies which are serving high 
priority participants. Second, by not providing full inflation to all 
State agencies, some funds remain after stability grant allocations. 
These funds are distributed under the ``residual funds'' portion of the 
formula and provide additional funds to all State agencies. The impact 
of targeted inflation, coupled with the residual funds portion of the 
formula, has been to provide almost all State agencies with a full 
inflation increase anyway. However, the targeted inflation process is 
complicated and, since service to the highest risk participants is now 
largely achieved, is no longer relevant. This rule proposes the more 
straight-forward process of providing all State agencies with a full 
inflationary increase as long as funds are adequate to do so.
    If, however, the appropriation for any given year is insufficient 
to support prior year grant levels plus full inflation, the funding 
formula must reduce State agency grants to allow for funds allocation 
within available funding. Two options were considered when the 
appropriation is inadequate to support stability. The first option, and 
the one most favored by the Committee, was an equal pro rata reduction 
for all State agencies for that fiscal year. The second option is that 
State agencies with under fair share allocations receive first priority 
for any available inflationary increases, and those State agencies at 
or above their fair share allocation for that fiscal year receive 
second priority. The Department believes that when funds are limited, 
the concept of a fair share allocation should remain a priority in the 
allocation of funds. Therefore, this rule proposes to adopt the second 
option. This will assure continued progress in increasing the grants of 
States that are under their fair share.

Section 246.16(c)(3)(i)(B)  Migrant Set-Aside

    Section 17(g)(4) of the Child Nutrition Act of 1966 (42 U.S.C. 
1786(g)(4)) provides that not less than \9/10\ of one percent of the 
funds appropriated for the WIC Program be available first for services 
to migrant women, infants and children. Currently, the regulations 
stipulate that the full \9/10\ of one percent set-aside is to be 
subtracted from all States' stability grants and then added to 
stability grants of States that report serving migrants. Because these 
adjustments for the migrant set-aside become part of the base grant of 
stability funds for the next fiscal year, FNS found that stability 
grants were skewed over time, directly causing some State agencies to 
receive more than their fair share of funds while preventing other 
States from receiving their fair share. This distorting effect becomes 
even larger as overall funding increases.
    Additionally, for the last few years, the number of reported 
migrants receiving WIC services is consistently and substantially less 
than the number that could be supported by the full migrant set-aside. 
The Department thinks that continued increases in the appropriation 
have made the full migrant set-aside excessive and unnecessary. With 
full funding and the fair share allocation objective proposed by this 
rule, the current method of allocating the migrant set-aside is 
irrelevant, since the proposed funding formula is based upon an 
estimate of WIC eligibles which already includes the migrant 
population.
    This rule proposes that for State agencies that serve migrants, a 
portion of the grant be designated for service to the migrant 
population. The designated amount would be based on prior year migrant 
participation reported by each State agency. By designating a target 
funding level, the migrant grant does not distort subsequent grant 
allocations, yet establishes service to this needy population as a 
priority. This is an approach similar to the one employed to target 
expenditures for breastfeeding promotion and support. However, as under 
current regulations, a State agency would not be penalized for not 
fully spending the portion of its grant designated for migrants as this 
would be to the detriment of other needy participants waiting for 
service. As the migrant population served in a State in a prior year 
may change in the following year when migrant workers travel to other 
States where work is available, it is unreasonable to hold funds to 
serve a population that may not be present that year. In a full funding 
environment, migrant populations actually pose a dilemma similar to 
unexpected changes in the overall eligible population. At any time, a 
demographic change could result in greater or fewer eligibles than 
estimated. The Department believes that State agencies must estimate 
and accommodate such changes according to the information available 
from State and local sources.
    Therefore, for planning purposes, expenditure targets will be 
established for both food grants and nutrition services and 
administration grants to insure that \9/10\ of one percent of the 
appropriation is made available for service to migrants. State agencies 
would be expected to plan for migrant participants as now required in 
their State Plan of Operation and give priority service to migrant 
participants that arrive from another State agency seeking WIC 
services.

Section 246.16(c)(3)(ii)  Allocation of Residual Funds

    Under the current rule, any funds remaining after stability grants 
are allocated are ``residual funds''. Residual funds are allocated 
under two components--''targeting'' and ``growth''. This rule proposes 
eliminating the targeting component and modifying the growth component 
as discussed below.

Section 246.16(c)(3)(ii)(A)  ``Targeting'' Component for Food Funds

    The current funding formula requires that 50 percent of residual 
funds be distributed to all State agencies for the targeting component. 
These targeting funds are allocated to each State agency based 
primarily on its number of Priority I participants. The targeting 
formula procedure is complex, requiring many computations to calculate 
a targeting index by which each State agency's share of targeting funds 
is determined.
    The targeting component was originally designed to provide an 
incentive for targeting benefits to the highest risk participants, 
Priority I women and infants. However, State-reported participation 
data indicate that nationwide, 90 percent of all fully (categorical, 
income and at nutritional risk) eligible infants and pregnant women are 
receiving services through the WIC Program. Therefore, the targeting 
component is no longer needed to encourage service to Priority I 
participants.
    The Department is also concerned that the targeting component is a 
barrier to achieving funding equity among State agencies. All State 
agencies receive targeting funds, regardless of whether their stability 
grants already provide a fair share allocation. With targeting, funding 
levels for State agencies at or above their fair share level can 
continue to increase, while State agencies receiving below their fair 
share amount have difficulty catching up. With the elimination of the 
targeting component, funding equity can be reached more rapidly. In 
short, this rule proposes the elimination of the targeting component to 
simplify the formula, and ensure greater funding equity based on each 
State agency's eligible population.

Section 246.16(c)(3)(ii)(B)  ``Growth'' Component for Food Funds

    Under the current formula, after targeting funds are allocated, the 
remaining half of residual funds are allocated for ``growth'' within 
State agencies that have less opportunity to serve their eligible 
population compared to other State agencies. Growth funds are allocated 
based primarily on a ``fair share'' concept similar to that discussed 
earlier. To determine fair share funding, FNS uses a mathematical 
equation to create an estimate of each State's eligible WIC population. 
The estimate begins with each State agency's number of income 
eligibles, currently extracted from decennial census data. The estimate 
is adjusted slightly to account for State agency variations in infant 
mortality and low birth weight rates (``health indicators''). Also, 
women, infants and children served by the Commodity Supplemental Food 
Program (CSFP) are subtracted from this estimate for those States in 
which CSFP operates.
    Each State agency's estimated ratio of the eligible WIC population 
is divided by the national estimated eligible WIC population to 
establish each State agency's ``fair share'' percent of total funds. A 
State agency receives growth funds if the funds it was allocated 
through the stability and targeting components are less than its 
calculated fair share. The amount of funds available for growth are 
divided among all State agencies receiving less than their fair share 
of funds, with State agencies furthest from their fair share of funds 
receiving greater allocations. The number of State agencies receiving 
growth funds each fiscal year varies.
    As explained below, the Department proposes retaining the 
``growth'' component of the formula using only the estimate of income 
eligibles (with some adjustments) and deleting the use of health 
indicators. It is believed that this best defines each State agency's 
actual need for program funds and greatly simplifies the ``fair share'' 
equation. Each component and revision of the eligibles database is 
discussed below.

Income Eligibles

    Currently, each State agency's estimate of WIC income eligible 
persons is based on data from the 1990 Decennial Census, which reflects 
population characteristics as of 1989. Although the Census data 
provides the most current State-by-State information, the Department 
recognizes that data which describe a population at a fixed point in 
the past may not accurately reflect recent and future socioeconomic and 
demographic trends. Accordingly, the Department is currently exploring 
other potential data sources for the state-level income eligibles 
estimates. One such potential source is the Current Population Survey 
(CPS), which provides state-level population data by income on an 
annual basis. CPS is used to estimate the total number of WIC income 
eligibles on a national basis. State-level CPS data, used in 
conjunction with other state-level economic, demographic and program 
participation data, may prove to be a better and more current 
alternative source for state-level income eligibles estimates. This 
proposed rule does not establish or define the exact source of the 
eligibles database in order to allow for the use of the most timely and 
reliable data as it becomes available.
    The fair share funding allocations are based on estimates of the 
State agency's target population at or below 185 percent of poverty 
rather than estimates of fully-eligibles (persons income eligible and 
at nutritional risk). This is, in part, because consistent state-level 
data on income is more readily available than state-level data on 
nutritional risk. In addition, the use of income-eligibles data results 
in consistent treatment of State agencies regardless of nutritional 
risk criteria. That is, State agency allocations are not adjusted for 
nutritional risk standards which, compared with other State agencies, 
are more or less inclusive.
    It should be noted that the state level income-eligible estimates 
will be used to determine each state's proportion of the national total 
of WIC income-eligibles. Funding allocations are based on this 
proportion--not on the absolute number of estimated income eligibles in 
each State. Each State agency's fair share allocation thus depends on 
both its share of income eligibles and the total amount of funds 
available nationally.
    Under full funding, the total amount of funds available should 
reflect a national estimate of the cost of serving all fully-eligible 
persons who wish to participate in the program. Because a national 
estimate will assume ``average'' nutritional risk criteria, each State 
agency's fair share allocation will also implicitly assume average 
nutritional risk certification practices, as well as average food 
costs. The allocation formula does not provide additional funds to 
States with higher than average food package costs or broader than 
average definitions of nutritional risk. This basic approach to 
establishing each State agency's fair share funding allocation would 
likely be maintained regardless of any foreseeable changes in the data 
and methodologies used to estimate income eligibles.

Health Indicators

    In the current formula, the calculation of each State's eligible 
WIC population, used to compute its fair share allocation, includes an 
adjustment for its infant mortality and low birth weight rates. These 
health indicators were originally included in the food funding formula 
to help direct limited funds to States that were especially needy. 
However, as appropriation levels have grown, the WIC Program has been 
better able to serve high risk participants (who tend to have the 
highest rates of infant mortality and low birth weight babies). Since 
this prenatal population is now largely served, these adjustments are 
no longer necessary. Moreover, as service to the highest risk 
participants has increased, the overall impact of the health indicators 
on the amount of food funds received by States has become negligible. 
FNS examined the effect of these health indicators on States' Fiscal 
Year 1993 food grants and found that, as currently factored in the 
growth component, health indicators affected food grants for very few 
State agencies and only by a difference of one percent or less. 
Furthermore, the inclusion of the health indicators unduly complicates 
and reduces understanding of the food funding formula. Therefore, this 
rule proposes to eliminate the use of the health indicator adjustments.

Adjustments for Higher Cost Areas

    The current growth component also makes an adjustment for the 
higher food costs of State agencies located outside of the continental 
United States. This adjustment is done to ensure that the share of 
funds received by these State agencies is adequate to serve their share 
of the eligible population given their higher costs. The current 
regulation provides detailed specifications for those States and 
territories with higher food costs as recognized by the Food Stamp 
Program's Thrifty Food Plan (TFP). These States and territories include 
Alaska, Hawaii, Guam, and the Virgin Islands.
    The Department proposes to retain this adjustment, but to allow 
more flexibility than the current regulation. Therefore, the proposed 
rule incorporates more general requirements so that if economic data is 
available that can measure and document higher costs in particular 
outlying State agencies, the Department may use available data to 
construct adjustment factors for such State agencies. Consideration of 
such adjustments would be predicated on the condition that State 
agencies with higher food costs aggressively pursue cost containment 
initiatives, such as stringent vendor management practices, 
participation in multi-state agency infant formula rebate contracts and 
other cost containment efforts.

Adjustments for Indian Tribal Organizations

    The growth allocation for the Indian Tribal Organizations has 
traditionally presented problems due to inadequate data regarding 
eligibles. Currently, 30 Indian State agencies, each primarily 
representing members from one or more Native American tribes, operate 
WIC programs. The Department recognizes that the method for determining 
eligibles to be served by these Indian State agencies is imprecise, 
since census and Vital Statistics data on Native Americans are not 
available by tribe. Often these Indian State agencies also serve non-
Native Americans, who are not captured within their estimated eligible 
population data. In many cases, the present method of determining 
growth allocations indicates that many Indians State agencies are 
already receiving adequate funds to fully serve their estimated 
eligible populations.
    The Department knows of no data source to resolve this problem. 
Therefore, the rule proposes to give FNS the authority to organize and 
oversee negotiations between the Indian State agency (or agencies) and 
the geographic State agency (or agencies) in which the Indian State 
agency is located. FNS could, acting independently or at the request of 
a State agency, involve affected State agencies in an agreement on the 
temporary or permanent transfer of funds. Negotiations could be 
conducted to shift funds among these State agencies to better reflect 
the actual service being provided by each of the State agencies.

Commodity Supplemental Food Program

    The Commodity Supplemental Food Program's (CSFP) service to low-
income women, infants and children contributes to the Administration's 
goal of fully funding the WIC Program by the end of Fiscal Year 1996. 
The Fiscal Year 1995 budget request and out year targets assume CSFP 
women, infants and children participation will equal the authorized 
caseload level.
    In those States where both CSFP and WIC operate, the current rule 
requires the subtraction from the WIC income eligible database of those 
participants (based on actual, average CSFP participation in the prior 
fiscal year) who are eligible for the WIC Program, but elect to receive 
benefits under CSFP. As CSFP is currently authorized to serve, in 
addition to WIC eligibles, 5 year old children and postpartum women 
from 6 months to 1 year postpartum, not all CSFP participants are 
categorically eligible for the WIC Program. Therefore, FNS currently 
assumes that one-fourth of the children and one-half of the postpartum 
women participating in CSFP are not eligible for the WIC Program. The 
balance of CSFP participants are subtracted from the WIC eligibles 
estimate.
    The Department is proposing to revise Sec. 246.16(c)(3)(i) to make 
three changes to this deduction from the WIC eligibles baseline data. 
First, the proposed rule modifies the method for determining the number 
of CSFP women, infants and children to subtract from the WIC eligibles 
baseline. The deduction will now be based upon the authorized CSFP 
women, infants and children caseload, rather than actual participation 
figures. Second, the deduction will be based on the CSFP caseload 
authorized at the beginning of the caseload cycle of the prior fiscal 
year (generally announced on December 1). This is a change from the 
current practice of using actual, average participation for the prior 
fiscal year. Finally, the adjustment described above for those CSFP 
participants who are not also categorically eligible for WIC 
(postpartum women from 6 months to 1 year postpartum and 5 year old 
children) will no longer be made. Utilizing the total CSFP caseload 
level for women, infants and children, rather than performance, more 
equitably accounts for the resources provided to a State agency to 
serve the WIC target population using CSFP. These changes will ensure 
that States that do not have access to CSFP will not be disadvantaged 
in their access to WIC funds when compared with States that operate 
both programs.

Summary of the Proposed Food Funding Formula

    The foregoing has described the components of the current formula 
that are proposed for deletion, retention or modification. To ensure 
that the proposed formula is fully understood, the following describes 
the proposed allocation process and provides simplified examples of the 
proposed process.

Fair Share Allocation Objective

    In the proposed Sec. 246.16(c)(3), the funding objective would be 
to give each State agency its fair share allocation of funds to the 
extent funds are available. Funds available would include funds 
appropriated for the fiscal year as well as unspent funds carried over 
from the prior fiscal year that State agencies have not retained under 
spendforward authority as provided in Sec. 246.16(b)(3)(ii). An example 
of a simplified fair share allocation is shown below. This example 
assumes that available funds total $5000, and the total number of 
income eligibles is 1000 persons.

------------------------------------------------------------------------
                                       Eligibles  Fair share  Fair share
             Stateagency                  No.     percentage  allocation
------------------------------------------------------------------------
A....................................        200         20      $1,000 
B....................................        500         50       2,500 
C....................................        300         30       1,500 
                                      ----------------------------------
      Total..........................      1,000        100       5,000 
------------------------------------------------------------------------

Stability Allocation

    Recognizing that State agencies may already have participants on 
the program supported with the grant funds each State agency received 
in the prior year, the formula would strive to protect this service 
depending on total funds available. Section 246.16 (c)(ii) proposes a 
Stability Allocation which protects prior year grant levels contingent 
on availability of funds.
    It is proposed that if funds are not adequate to fully fund prior 
year grants, all State agencies will receive a pro-rata reduction from 
their prior year grant level commensurate with the shortfall of 
available funds. If funds are available, each State agency would 
receive a stability allocation equal to its final authorized grant 
level as of September 30 of the prior fiscal year. If funds are still 
available, State agencies will receive an inflation adjustment in the 
following two-step sequence.
    (1) Each State agency with a prior year final authorized grant 
level which is less than its fair share allocation shall receive its 
prior year final authorized grant level, increased by an inflation 
factor which reflects the anticipated rate of food cost increases as 
determined by the Department, not to exceed its fair share allocation. 
Should funds be inadequate to fully meet this adjustment, each under 
fair share State agency will receive an equal percent increase as 
permitted by the amount of funds available.
    (2) If funds remain after completing step 1, each State agency with 
a prior year final authorized grant level that is at or greater than 
its fair share allocation shall receive its prior year final authorized 
grant level, increased by an inflation factor which reflects the 
anticipated rate of food cost increases as determined by the 
Department. Should funds be inadequate to fully meet this adjustment, 
each State agency will receive an equal percent increase as permitted 
by the amount of the funds available.

Growth Allocation

    If funds remain after step 1 and 2 above, then funds are provided 
for a ``growth allocation''. The growth allocation gives additional 
funds to each State agency which has an inflation-adjusted stability 
allocation which is less than its fair share allocation. The formula 
subtracts each State agency's current year stability allocation from 
its fair share allocation to determine the dollar shortfall. Each State 
agency's shortfall, as a percent of all State agency's shortfalls, 
yields its percent share of the funds available for the growth 
allocation.

Example of Formula Allocation Process

    The example below describes allocation steps for stability and 
growth. First, all State agencies have received at least their prior 
year final grant, which totaled $4,500. As $5,000 is available to 
allocate in this case, funds are sufficient to do both stability and 
growth allocations.

1. Stability Allocation--Under Fair Share

    First, under fair share State agencies get an inflationary 
increase, based on full inflation, to the extent permitted by available 
funding. In this example, available funding permits the entire 
inflationary increase:

------------------------------------------------------------------------
                                             Prior                      
                                   Fair      year    Inflation     New  
          State agency             share     final   3 percent    grant 
                                             grant                      
------------------------------------------------------------------------
A..............................    $1,000    $1,100         NA    $1,100
B..............................     2,500     2,000        $60     2,060
C..............................     1,500     1,400         42     1,442
                                ----------------------------------------
      Total....................     5,000     4,500        102     4,602
Funds remaining = $398                                                  
------------------------------------------------------------------------

2. Stability Allocation--Over Fair Share

    Next, over fair share State agencies get an inflationary increase, 
based on full inflation, to the extent permitted by available funding. 
In this example, available funding permits the entire inflationary 
increase: 

------------------------------------------------------------------------
                                             Prior                      
                                   Fair      year    Inflation     New  
          State agency             share     final   3 percent   grant  
                                             grant                      
------------------------------------------------------------------------
A..............................    $1,000    $1,100        $33    $1,133
B..............................     2,500     2,000         60     2,060
C..............................     1,500     1,400         42     1,442
                                ----------------------------------------
      Total....................     5,000     4,500        135     4,635
Funds remaining = $365                                                  
------------------------------------------------------------------------

3. Growth Allocation

    Under fair share State agencies get a proportion of remaining funds 
based on the shortfall between their fair share allocation and 
stability grant. In the example below, the $365 available for growth 
funding is shared by States B and C according to their respective 
shortfalls from their fair share allocations. 

----------------------------------------------------------------------------------------------------------------
                                                                   Shortfall                                    
          State agency             Fair share   Stability  -------------------------- Fundsreceived  Final grant
                                                  grant       Dollar's     Percent                              
----------------------------------------------------------------------------------------------------------------
A...............................       $1,000       $1,133           NA           NA            NA        $1,133
B...............................        2,500        2,060         $440           88          $322         2,382
C...............................        1,500        1,442           58           12            43         1,485
                                 -------------------------------------------------------------------------------
      Total.....................        5,000        4,635          498          100           365         5,000
Funds remaining = $0.                                                                                           
----------------------------------------------------------------------------------------------------------------

    If any funds allocated in the three steps above cannot be used and 
are declined by one or more State agencies, then these funds will be 
allocated, using the method in Step 3, to the under fair share State 
agencies which have the ability to use more funds. If all funds are 
still not distributed, then these remaining funds would be allocated to 
State agencies which have a stability allocation which is at or greater 
than its fair share allocation. Each of these State agencies which can 
document the need for additional funds will be eligible to receive 
additional funds based on the difference between its stability 
allocation level and fair share allocation. State agencies closest to 
their fair share allocation shall receive first consideration.
    For instance, in the example above, State A would be able to 
receive funds declined by State B or C. In this way, the precedence for 
funding will be to increase funding to under fair share State agencies 
to the extent possible, while still allowing State agencies that are 
over their fair share level to receive additional funds when a 
documented need for additional funds exists. All grants awarded through 
this process would become the basis of the following year's stability 
allocation.

Performance Standard

    The 95 percent performance standard in current regulations was 
reevaluated. This standard reduces the current year grant for any State 
agency that did not spend at least 95 percent of its food grant. The 
Department is concerned that this current standard of 95 percent of the 
grant is too generous in the context of a fully funded program. While 
the Department is sympathetic to the difficulties of rapidly growing 
States of meeting the 95 percent expenditure level, State agencies with 
relatively stable funding and participation do not face the same 
difficulties. For stable State agencies, expending less than the 95 
percent of allocated food funds is likely to indicate they have funds 
they cannot use. Therefore, the Department has proposed in 
Sec. 246.16(e)(2)(i) a 95 percent standard for State agencies receiving 
less than their fair share allocation, and 98 percent for those at or 
over their fair share level. Additionally, prior to applying the 
performance standard, the current provision in Sec. 246.16(e)(3)(i) 
allows for exclusion from the grant of food funds that are spent 
forward into a succeeding fiscal year as authorized by 
Sec. 246.16(b)(3)(ii), and (iv) and (v). Since spentforward funds are 
merely unspent funds that the State agency can retain, the Department 
no longer believes that they should be excluded when assessing spending 
performance. Accordingly, the proposed rule deletes this provision. Any 
food funds backspent under Sec. 246.16(b)(3)(i) or converted to 
Nutritional Services and Administration (NSA) funds under 
Sec. 246.16(g) will continue to be excluded from the food grant for 
purposes of applying the performance standard. These two reductions are 
appropriate in that they reflect food funds actually expended in the 
current year, and not merely reserved for future use.

List of Subjects in 7 CFR Part 246

    Food assistance programs, Food donations, Grant programs--Social 
programs, Infants and children, Maternal and child health, Nutrition 
education, Public assistance programs, WIC, Women.

    Accordingly, 7 CFR part 246 is proposed to be amended as follows:

PART 246--SPECIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, INFANTS AND 
CHILDREN

    1. The authority citation for part 246 continues to read as 
follows:

    Authority: 42 U.S.C. 1786.

    2. In Sec. 246.16
    a. Paragraph (c)(1) is revised.
    b. Paragraph (c)(3) is revised.
    c. Paragraph (e)(2)(i) is revised.
    The revisions read as follows:


Sec. 246.16  Distribution of Funds.

* * * * *
    (c) Allocation formula. * * *
    (1) Use of participation data in the formulas. Wherever the formula 
set forth in paragraphs (c)(2) and (c)(3) of this section require the 
use of participation data, the Department shall use participation data 
reported by State agencies according to Sec. 246.25(b).
* * * * *
    (3) Allocation of food benefit funds. In any fiscal year, any 
amounts remaining from amounts appropriated for such fiscal year and 
amounts appropriated from the preceding fiscal year after making 
allocations under paragraph (a)(6) of this section and allocations for 
nutrition services and administration (NSA) as required by paragraph 
(c)(2) of this section shall be made available for food costs. 
Allocations to State agencies for food costs will be determined 
according to the following procedure:
    (i) Fair share allocation. (A) For each State agency, establish a 
fair share allocation which shall be an amount of funds proportionate 
to the State agency's share of the national aggregate population of 
persons who are income eligible to participate in the Program based on 
the nationally uniform 185 percent of poverty criterion. The Department 
will determine each State agency's population of income eligible 
persons through the best available indicators as determined by the 
Department. If the CSFP also operates in the area served by the WIC 
State agency, the CSFP women, infants and children caseload level at 
the beginning of the caseload cycle of the prior fiscal year shall be 
deducted from the WIC State agency's population of income eligible 
persons.
    (B) The Department may adjust the respective amounts of food funds 
that would be allocated to a State agency which is outside the 48 
contiguous states and the District of Columbia when the State agency 
can document that economic conditions result in higher food costs for 
the State agency. Prior to any such adjustment, the State agency must 
demonstrate that it has successfully implemented voluntary cost 
containment measures, such as improved vendor management practices, 
participation in multi-state agency infant formula rebate contracts or 
other cost containment efforts. The Department may use the Thrifty Food 
Plan amounts used in the Food Stamp Program, or other available data, 
to formulate adjustment factors for such State agencies.
    (ii) Stability allocation. If funds are available, each State 
agency shall receive a stability allocation equal to its final 
authorized grant level as of September 30 of the prior fiscal year. If 
funds are not available to provide all State agencies with their prior 
year final authorized grant level, all State agencies shall receive a 
pro-rata reduction from their prior year grant level as required by the 
short fall of available funds. If additional funds are available after 
each State agency receives a stability allocation, the balance of funds 
shall be allocated first to meet the requirement in 
paragraph(c)(3)(ii)(A) of this section, then paragraph (c)(3)(ii)(B) of 
this section.
    (A) Each State agency with a prior year final authorized grant 
level which is less than its current fair share allocation shall 
receive its prior year final authorized grant level, increased by an 
inflation factor which reflects the anticipated rate of food cost 
increases as determined by the Department; not to exceed its fair share 
allocation. Should funds be inadequate to fully meet this requirement, 
each State agency will receive an equal percent increase as permitted 
by the funds available.
    (B) Each State agency with a prior year final authorized grant 
level that is at or greater than its fair share allocation shall 
receive its prior year final authorized grant level, increased by an 
inflation factor which reflects the anticipated rate of food cost 
increases as determined by the Department. Should funds be inadequate 
to fully meet this requirement, each State agency will receive an equal 
percent increase as permitted by the funds available.
    (iii) Growth allocation. (A) If additional funds remain available 
after the allocation of funds under paragraph (c)(3)(ii) of this 
section, each State agency which has a stability allocation, as 
calculated in paragraph (c)(3)(ii)(A) of this section, which is less 
than its fair share allocation shall receive additional funds based on 
the difference between its stability allocation and fair share 
allocation. Each State agency's difference shall be divided by the 
total of the differences for all such State agencies, to determine the 
percent share of the available growth funds each State agency shall 
receive. In the event a State agency declines any of its allocation in 
paragraph (c)(3)(ii) of this section or this paragraph, the funds 
declined shall be allocated to the remaining State agencies which are 
still under their fair share.
    (B) In the event funds still remain after completing the 
distribution in paragraph (c)(3)(iii)(A) of this section, these funds 
shall be allocated to all State agencies including those with a 
stability allocation at, or greater than, their fair share allocation. 
Each State agency which can document the need for additional funds 
shall receive additional funds based on the difference between its 
prior year grant level and its fair share allocation. State agencies 
closest to their fair share allocation shall receive first 
consideration.
    (iv) Migrant services. At least \9/10\ of one percent of 
appropriated funds for each fiscal year shall be available first to 
assure service to eligible members of migrant populations. For those 
State agencies serving migrants, a portion of the grant shall be 
designated to each State agency for service to members of migrant 
populations based on that State agency's prior year reported migrant 
participation. The national aggregate amount made available first for 
this purpose shall equal \9/10\ of one percent of all funds 
appropriated each year for the Program. Funds designated or used for 
migrant services shall not be included in a State agency's stability 
allocation, under paragraph (c)(3)(ii) of this section.
    (v) Special provisions for indian state agencies. The Department 
may choose to adjust the allocations and/or eligibles data among Indian 
State agencies and the geographic State agencies in which they are 
located when eligibles data for the State agencies' population is 
determined to not fairly represent the population to be served. Such 
allocations may be redistributed from one State agency to another, 
based on negotiated agreements among the affected State agencies 
approved by FNS.
* * * * *
    (e) Recovery and reallocation of funds.
* * * * *
    (2) * * *
    (i) The amount allocated to any State agency for food benefits in 
any fiscal year shall be reduced if such State agency's food 
expenditures for the preceding fiscal year were less than the 
established performance standard. For State agencies which received 
less than their fair share allocation as defined in paragraph (c)(3)(i) 
of this section, the performance standard shall be the expenditure of 
funds at no less than 95 percent of the food grant. For State agencies 
over their fair share allocation, the performance standard shall be the 
expenditure of funds at no less than 98 percent of the food grant. Such 
reduction shall equal the difference between the State agency's 
preceding year food expenditures and applicable percent performance 
standard applied to the amount allocated to the State agency for such 
benefits. For purposes of determining the amount of such reduction, the 
amount allocated to the State agency for food benefits for the 
preceding fiscal year shall not include food funds expended for food 
costs incurred under the spendback provision in paragraph (b)(3)(i) of 
this section or conversion authority in paragraph (g) of this section. 
Temporary waivers of the performance standard may be granted at the 
discretion of the Department.
 * * * * *
    Dated: June 2, 1994.
Ellen Haas,
Assistant Secretary for Food and Consumer Services.
[FR Doc. 94-13891 Filed 6-7-94; 8:45 am]
BILLING CODE 3410-30-U