[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24673]

[[Page Unknown]]

[Federal Register: October 6, 1994]



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: Final rule.


SUMMARY: This final rule amends regulations governing 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 
amendments 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, provide all State agencies with stability 
funding, adjusted for inflation, to the extent funds are available, and 
simplify the food funding allocation process by eliminating obsolete 

EFFECTIVE DATE: This rule is effective on October 1, 1994.

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.


Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

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 final rule.

Executive Order 12372

    The Special Supplemental Food Program for Women, Infants and 
Children (WIC) 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 final 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 
Sec. 246.18; (2) applicants and participants--State agency hearing 
procedures issued pursuant to 7 CFR Sec. 246.9; (3) sanctions against 
State agencies (but not claims for repayment assessed against a State 
agency) pursuant to 7 CFR Sec. 246.19--administrative appeal in 
accordance with 7 CFR Sec. 246.22; and (4) procurement by State or 
local agencies--administrative appeal to the extent required by 7 CFR 
Sec. 3016.36.


    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 equity 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 
Department published a proposed rule on June 8, 1994 to revise the food 
funding formula in order to meet 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 
    The proposed rule provided for a 60-day comment period, which ended 
on August 8, 1994. Thirty-six comment letters were received from a 
variety of sources, including State and local agencies, advocacy groups 
and other public interest groups. The Department has given all comments 
careful consideration in the development of this final rule and would 
like to thank all commenters who responded to the proposal.

Assumptions Under Full Funding

    As explained in the preamble to the proposed rule, full funding is 
not intended to replace or discourage efficient and effective program 
management. Accordingly, mandatory cost containment efforts recently 
undertaken must continue, and additional voluntary cost containment 
efforts are encouraged. Funds will continue to be allocated based on a 
national average food package cost as an incentive for State agencies 
to manage their food package costs more efficiently to serve more 
eligibles. Finally the commitment to WIC full funding can only be met 
if States continue to utilize risk-related eligibility criteria that 
are based on sound medical, nutritional and preventive health research. 
Income eligibility alone is not a sufficient condition for program 
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 establishes a 
funding formula to meet this overall goal. The following is a 
discussion of each provision, as proposed, comments received on the 
proposal, and an explanation of the provisions set forth in this final 
1. Section 246.16(c)(1) Allocation Formula--Use of participation data 
in the formula. 
    The Department proposed to revise Section 246.16(c)(1) to eliminate 
the use of priority participation data or data reflecting State-funded 
participation for imputing the figures needed for the targeting 
components of the formula described in Section 246.16 (c)(3)(ii) and 
    All commenters on this provision supported it as proposed. 
Therefore, the provision remains unchanged from the proposed rule. 
2. 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 as ``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 retained this component with some 
modification. The principle of stability was maintained to help assure 
that each State agency would receive enough funds to support its 
current participation level. However, the proposed rule deleted the 
provision allowing a State agency the option to retain 50 percent of 
funds it returns before July 16 of any given year as a part of its 
stability grant the next fiscal year. 
    The majority of commenters addressing this issue opposed the 
provision and stated that the current 50 percent recovery credit should 
be maintained. The commenters indicated that eliminating the credit 
would be a disincentive for State agencies to return funds, thereby 
delaying the reallocation of unspent funds. Several commenters 
suggested maintaining the 50 percent credit for one year only. A few 
commenters were strongly in support of the provision to delete the 50 
percent recovery credit. 
    The 50 percent credit was originally 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. However, 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. 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 receiving its fair share funding to retain funds it does 
not need. In addition, the credit effectively increases stability 
grants in the subsequent year by 150 percent of the amount of funds 
returned, since the State agencies returning funds receive a 50 percent 
credit in the subsequent year's stability grant, while the State 
agencies to which the returned funds are reallocated have their 
subsequent year's stability grants increased by the full amount of the 
reallocation. If there are increases in appropriation levels for the 
subsequent year, this additional liability can be funded. However, if 
funds in the subsequent year are not adequate to meet all stability 
grants, all State agencies share in a grant decrease to accommodate the 
50 percent credit. Accordingly, to ensure equity, the 50 percent 
recovery credit is deleted in this rule. 
3. 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 was 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). 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 proposed rule took a more straight-forward approach by 
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 proposed funding formula would reduce State agency 
grants to allow for funds allocation within available funding. Those 
State agencies with under fair share allocations would receive first 
priority for any available inflationary increases, and State agencies 
at or above their fair share allocation for that fiscal year would 
receive second priority. The proposal sought to assure continued 
progress in increasing the grants of States that are under their fair 
    All of the commenters addressing this issue were opposed to this 
provision. The consensus was that if funds were insufficient to provide 
full inflationary increases, then all State agencies should take a 
prorata reduction for that fiscal year. The commenters were opposed to 
the two-tier concept and stated that small reductions in all State 
agency grants would be less disruptive to WIC operations than large 
cuts to a few State agencies. 
    The Department is persuaded by the concerns raised by commenters on 
this aspect of the proposed rule. Therefore, Section 246.6 (c)(3)(ii) 
in this final rule provides that in the event that funds are 
insufficient to support prior year grant levels plus full inflation, 
all state agencies would take a prorata reduction for that fiscal year. 

4. 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. The current regulations 
stipulated 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 over-all funding increases.
    The rule proposed 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 will not distort subsequent grant 
allocations, yet will establish 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.
    The Department believes that State agencies must estimate and 
accommodate such changes according to the information available from 
State and local sources. Therefore, it was proposed that, for planning 
purposes, expenditure targets would 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.
    Most of the commenters supported this provision. However, two 
commenters thought the proposed change was unclear and implied 
additional reporting requirements. In addition, it was suggested that 
the methodology to be used be clarified.
    The Department is not imposing any additional reporting 
requirements regarding migrant participants. State agencies will 
continue to report migrant participation as in past years. For purposes 
of clarity, the Department has deleted the last sentence in section 
246.16(c)(3)(iv) of the proposed regulation which erroneously implied 
that migrant funds would be deducted from the State agency's stability 
allocation. Since this was not the intent of the regulation, this 
language was removed for clarification. The remainder of section 
246.16(c)(3)(iv), which designates a migrant service expenditure 
target, is adopted final as proposed.

5. 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''. The Department 
proposed eliminating the targeting component and modifying the growth 
component as discussed below.

``Targeting'' Component for Food Funds (Section 

    As explained in detail in the preamble, the targeting component is 
no longer needed to encourage service to Priority I participants, and 
is a barrier to achieving funding equity among State agencies. 
Therefore, the Department proposed the elimination of the targeting 
component to simplify the formula, and ensure greater funding equity 
based on each State agency's eligible population.
    All of the commenters on this provision supported it, and the final 
rule retains the provision that would eliminate targeting as a 
consideration in funds allocation. However, five commenters stated that 
they would oppose the provision unless all States were guaranteed prior 
year funding levels plus full inflation if funds are available. In the 
event that funds are insufficient, the commenters wanted a prorata 
reduction for all States. These concerns were addressed above in the 
discussion of the stability allocation (Section 246.16(c)(3)(ii)).

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

    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 used a mathematical 
equation to create an estimate of each State's eligible WIC population. 
The estimate began 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.
    As explained below, the Department proposed 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 was 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 for the 
fair share allocation provided in Section 246.16(c)(3)(ii) is discussed 
    Income Eligibles. 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. The proposed rule did 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. 
This was supported by the majority of commenters who commented on the 
eligibles data.
    Under the proposed rule, fair share funding allocations would be 
based on estimates of the State agency's eligible population at or 
below 185 percent of poverty rather than estimates of the fully-
eligible population (persons income eligible and at nutritional risk). 
Unlike the national estimate of eligibles, State agency allocations are 
not adjusted for an estimate of fully eligible persons as nutritional 
risk standards vary by State agency and application of a ``national'' 
estimate would serve no useful purpose for funding allocation purposes. 
The State level income-eligible estimates were 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 proportion of income 
eligibles and the total amount of funds available nationally.
    Most commenters stated that they concur with the proposed ``fair 
share'' concept, but that more timely updates of eligibles data are 
critical. Commenters consistently stated that the current data 
seriously under counts the number of WIC eligibles and they strongly 
encourage FNS to continue working on obtaining new and better 
estimates. However, two commenters stated that FNS should withdraw the 
current proposal until better data is obtained. One commenter 
maintained that Medicaid participants should be included in the 
estimates. One commenter proposed an alternative approach similar to 
fair share using a ``full funding'' concept. However, after much 
consideration of this particular alternative, the Department believes 
that it would impede under fair share State agencies progress in moving 
towards full funding. The Department will retain the fair share 
principle as proposed, using the best available indicators to determine 
each State agency's population of income eligibles. At the same time, 
the Department continues its commitment to develop more timely and 
accurate estimates of eligibles to be used in the WIC food funding 
    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 certain health indicators 
(infant mortality and low birth weight rates) in the food funding 
formula. As explained in the preamble to the proposed rule, the 
population targeted by the health indicators is now largely served. 
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. Furthermore, the inclusion of 
the health indicators unduly complicates and reduces understanding of 
the food funding formula. Therefore, the Department proposed to 
eliminate the use of the health indicator adjustments. All commenters 
who commented on this provision were supportive of removing the health 
indicators from the formula. Therefore, this final rule retains the 
provision as proposed.
    Adjustments for Higher Cost Areas. The current growth component 
also makes an adjustment for the higher food costs of four specific 
State agencies located outside of the continental United States (or 
Indian State agencies located within their borders). These State 
agencies currently are Alaska, Hawaii, Guam, and the Virgin Islands. 
The Department proposed to retain this adjustment, but to allow more 
flexibility than the current regulation. The majority of commenters 
supported the proposed provision. However, some commenters 
misinterpreted this provision to mean that State agencies or portions 
of State agencies (urban areas, rural areas, Indian Tribal 
organizations) within the continental United States (i.e., within the 
48 contiguous States and the District of Columbia) that can document 
higher food costs should receive an adjustment. Other commenters 
specifically stated that Puerto Rico should be considered as an 
outlying State agency.
    This rule retains the provision as proposed. However, the 
Department would like to clarify that the proposed provision was not 
intended to expand the adjustment for higher cost in areas to those 
State agencies located within the continental United States. At this 
time, there is no data to support adjustments for areas within the 
continental United States. With regard to Puerto Rico, although it is 
potentially eligible for this adjustment under the new provision, it 
must still demonstrate that it meets the requisite requirements set 
forth in Section 246.16(c)(3)(i)(B). In particular, it must document 
that economic conditions result in higher food costs, and that it has 
successfully implemented voluntary cost containment measures.

Adjustments for Indian Tribal Organizations (ITOs)

    The growth allocation for the Indian Tribal Organizations has 
traditionally presented problems due to inadequate data regarding 
eligibles. The Department knows of no data source to resolve this 
problem. Therefore, it proposed to give FNS the authority to oversee 
negotiations between one or more ITOs and the geographic State agency 
or agencies in which the ITO 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.
    Only a few commenters addressed this provision. The commenters were 
generally in favor of the provision but stressed that caution must be 
used in shifting funds from one State agency to another, particularly 
based on eligibles data that is questionable. In addition, there may be 
a misunderstanding that such grant adjustments will occur without input 
from all affected State agencies. The Department would like to clarify 
that any grant adjustments must be agreed upon by all State agencies 
involved, and by FNS. At no time would any affected State agency be 
left out of the negotiation process.
    Additionally, since the proposed rule was published, it has been 
brought to our attention that negotiations may need to also take place 
between two or more ITOs not just between ITOs and geographic State 
agencies. The final rule has been modified to reflect this. In all 
other respects, it remains as proposed.

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 budget 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 estimated as 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 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 proposed to make three changes to this deduction 
from the WIC eligibles database. First, it proposed to modify the 
method for determining the number of CSFP women, infants and children 
to subtract from the WIC eligibles database. It proposed to base the 
deduction upon the authorized caseload for CSFP women, infants and 
children, rather than actual participation. Second, it proposed to base 
the deduction on the CSFP caseload authorized at the beginning of the 
caseload cycle of the prior fiscal year (generally announced on 
December 1). Finally, it proposed that 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) would no longer be made. The Department believed that 
utilizing the total CSFP caseload level for women, infants and 
children, rather than actual participation, more equitably accounts for 
the resources provided to a State agency to serve the WIC target 
population under CSFP. These changes were intended to ensure that 
States that do not have access to CSFP were not disadvantaged in their 
access to WIC funds when compared with States that operate both 
    Uniformly, commenters were strongly opposed to reducing the WIC 
eligibles data by the CSFP caseload, particularly with no reduction for 
non-WIC eligibles participating in CSFP. Commenters felt that deducting 
CSFP caseload from the WIC eligibles would improperly reduce estimates 
of income eligibles. They also stated that it was inequitable to no 
longer adjust the deduction to account for non-WIC eligible CSFP 
recipients. Most commenters suggested retaining the method used in the 
current formula. However, several commenters suggested perhaps there 
are States that could report WIC eligibles actually served by CSFP and 
then that data could be used to determine income eligibles.
    In view of the concerns raised by commenters, the Department has 
decided not to adopt the proposed rule. Instead, the method used in the 
current regulations for deducting the CSFP participants eligible for 
WIC from the WIC income eligible data base will be retained.

Performance Standard

    The Department also proposed to revise the 95 percent performance 
standard which reduces the current year grant for any State agency that 
does not spend at least 95 percent of its food grant. The Department is 
concerned that expenditure of only 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 in meeting 
the 95 percent expenditure level, State agencies with relatively stable 
funding and participation do not face the same difficulties. For State 
agencies at or exceeding their fair share level, expending less than 
the 95 percent of allocated food funds is likely to indicate they have 
funds they cannot use. The Department proposed to retain the 95 percent 
standard for State agencies receiving less than their fair share 
allocation, and to increase the performance standard to 98 percent for 
those at or over their fair share level.
    The majority of commenters were adamantly opposed to two different 
performance standards for over and under fair share State agencies. 
Additionally, most commenters felt the 98 percent performance standard 
was much too stringent and unrealistic due to food cost fluctuations, 
infant formula rebates, variations in participation and other factors 
not directly controlled by the WIC State agency. In view of these 
comments, the final rule deletes the proposed two-tier performance 
standard for over and under fair share State agencies. However, the 
Department continues to be concerned that unspent funds be directed to 
States with documented need, especially as State demographic and 
socioeconomic situations fluctuate from year to year. This is 
particularly critical in a full funding environment. Therefore, the 
Department has decided to retain a uniform performance standard, and to 
gradually increase it over time. Accordingly, paragraph 246.16 
(e)(2)(i) in the final rule establishes a 96 percent performance 
spending standard in fiscal years 1995 and 1996, and a 97 percent 
standard for fiscal year 1997 and beyond for all WIC State agencies.
    Additionally, prior to applying the performance standard, the 
current regulations in section 246.16(e)(3)(i) allow for exclusion from 
the grant of food funds that are spent forward into a succeeding fiscal 
year as authorized by section 246.16(b)(3)(ii), and (iv) and (v). Since 
spentforward funds are merely unspent funds that the State agency can 
retain, the Department proposed that they should no longer be excluded 
when assessing spending performance. A few commenters opposed this 
provision, but the Department continues to believe that spendforward 
funds should not be deducted when calculating the performance standard. 
This deduction has led to the current situation in which there are 
significant amounts of unspent money moving from one fiscal year to 
another. If not rectified, this will compound the extreme pressure that 
will be placed on all Departmental discretionary spending in order to 
meet the commitment to WIC full funding. Therefore, the final rule 
retains this provision as proposed. Any food funds backspent under 
section 246.16(b)(3)(i) or converted to nutritional services and 
administration (NSA) funds under section 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.

Summary of the Final Food Funding Formula

    The foregoing has described the decisions reached on the proposed 
provisions. To ensure that the new formula in this final rule is fully 
understood, the following describes the allocation process and provides 
simplified examples of the funding process.

Fair Share Allocation Objective

    The funding objective is to give each State agency its fair share 
allocation of funds to the extent funds are available. Funds available 
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 section 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. 

                                                  Fair share            
             State agency              Eligibles  percentage  Fair share
                                          No.                 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 strives to protect this service 
depending on total funds available. A stability allocation is provided 
to protect prior year grant levels contingent on availability of funds.
    If funds are not adequate to fully fund prior year grants, all 
State agencies will receive a prorata 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, all State 
agencies will receive an inflation adjustment.
    This inflation adjustment will reflect 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 inflation increase as permitted by the amount 
of funds available.

Growth Allocation

    If funds remain after the stability allocation, then these 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. All State agencies receive 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 year   Inflation    Stability 
    State agency       Fair share  final grant       3%         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                                                    

    2. 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. 

           State agency              Fair share   Stability    Shortfall  ------------- Funds rec'd  Final grant
                                                    grant                      Pct.                             
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 two steps above cannot be used and 
are declined by one or more State agencies, then these funds are 
allocated, using the method in Step 2, 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. The 
Department recognizes that being at or over fair share is a statistical 
definition that may or may not accurately indicate the actual need for 
funding to serve all eligibles within that State. Therefore, over fair 
share States must have the opportunity to receive additional funds, 
should the funding be available.
    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. Additionally, over fair 
share States must demonstrate effective efforts to control food package 
costs. All grants awarded through this process would become the basis 
of the following year's stability allocation.

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 amended as follows:


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

    Authority: 42 U.S.C. 1786.

    2. In Sec. 246.16:
    a. Paragraphs (c)(1), (c)(3) and (e)(2)(i) are revised; and
    b. Paragraph (r) is redesignated as paragraph (p) and all internal 
references to the redesignated paragraph are revised. The revisions 
read as follows:

Sec. 246.16  Distribution of funds.

* * * * *
    (c) Allocation formula. * * *
    (1) Use of participation data in the formula. 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 185 percent of poverty criterion. The Department will determine 
each State agency's population of persons categorically eligible for 
WIC which are at or below 185% of poverty, through the best available, 
nationally uniform, indicators as determined by the Department. If the 
Commodity Supplemental Food Program (CSFP) also operates in the area 
served by the WIC State agency, the number of participants in such area 
participating in the CSFP but otherwise eligible to participate in the 
WIC Program, as determined by FNS, 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 plus 
a full inflation increase. The inflation factor shall reflect the 
anticipated rate of food cost increases as determined by the 
Department. If funds are not available to provide all State agencies 
with their full stability allocation, all State agencies shall receive 
a prorata reduction from their full stability allocation as required by 
the short fall of available funds.
    (iii) Growth allocation. (A) If additional funds remain available 
after the allocation of funds under (c)(3)(ii) of this section, each 
State agency which has a stability allocation, as calculated in 
paragraph (c)(3)(ii) 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 
    (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.
    (v) Special provisions for Indian State agencies. The Department 
may choose to adjust the allocations and/or eligibles data among Indian 
State agencies, or 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) Performance standards. * * *
    (i) The amount allocated to any State agency for food benefits in 
the current fiscal year shall be reduced if such State agency's food 
expenditures for the preceding fiscal year do not equal or exceed 96 
percent of the amount allocated to the State agency for such costs for 
fiscal year 1995 and fiscal year 1996 and 97 percent for fiscal year 
1997 and beyond. Such reduction shall equal the difference between the 
State agency's preceding year food expenditures and the performance 
expenditure standard amount. 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: September 30, 1994.
Ellen Haas,
Assistant Secretary for Food and Consumer Services.
[FR Doc. 94-24673 Filed 10-4-94; 11:08 am]