[Federal Register Volume 61, Number 200 (Tuesday, October 15, 1996)]
[Rules and Regulations]
[Pages 53595-53601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26067]



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  Federal Register / Vol. 61, No. 200 / Tuesday, October 15, 1996 / 
Rules and Regulations  

[[Page 53595]]



DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Parts 271, 272, 274, and 278

[Amendment No. 343]
RIN 0584-AB02


Food Stamp Program: Miscellaneous Farm Bill Provisions Relating 
to the Authorization of Retail Firms and Wholesale Food Concerns

AGENCY: Food and Consumer Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This Food Stamp Program rulemaking implements the three 
following provisions of the Food, Agriculture, Conservation and Trade 
Act of 1990 (FACT Act): homeless food stamp households may purchase 
meals with food stamps in restaurants approved by State agencies for 
this purpose, and the Department may periodically require authorized 
retailers and wholesalers to be reauthorized to participate in the Food 
Stamp Program, and no co-located wholesale/retail food concern may be 
authorized as a retail food store unless the firm does a substantial 
level of retail food business, or unless failure to authorize such a 
firm as a retail food store would cause hardship to food stamp 
households. This rulemaking is necessary to implement sections 1713, 
1733 and 1734 of the FACT Act. The intended effects are: to expand the 
sources of low-cost food to homeless recipients; to provide the 
Department with complete and current information on retailers and 
wholesalers participating in the Food Stamp Program and ensure that 
only those firms qualified to participate in the program are 
authorized; and to preclude the authorization of the firms not needed 
to effectuate the purposes of the program.

EFFECTIVE DATE: These provisions were effective February 1, 1992, 
except the provisions of 7 CFR 278.1(i) which have been submitted to 
the Office of Management and Budget for approval under the Paperwork 
Reduction Act of 1995. The provisions of this section will become 
effective upon approval. FCS will publish a document in the Federal 
Register announcing the effective date.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking 
should be addressed to Suzanne Fecteau, Chief, Coupon and Retailer 
Branch, Food Stamp Program, 3101 Park Center Drive, Alexandria, 
Virginia 22302, or by telephone at (703) 305-2418.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule and related Notice(s) to 7 CFR part 3015, subpart V (48 FR 29115, 
June 24, 1983), this program is excluded from the scope of Executive 
Order 12372 which requires intergovernmental consultation with State 
and local officials.

Regulatory Flexibility Act

    The final rule has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.). William 
E. Ludwig, the Administrator of the Food and Consumer Service (FCS), 
has certified that this final rule will not have a significant economic 
impact on a substantial number of small entities. State and local 
agencies that administer the Program will be affected. Some restaurants 
will be affected because they will be allowed to accept food stamp 
benefits in payment for meals served to homeless food stamp recipients. 
The rule will also affect retail food stores and wholesale food 
concerns which accept and redeem food stamp benefits. Thus, while the 
rule may affect a substantial number of small entities, the effect on 
any one entity will not be significant.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, this notice 
announces the Food and Consumer Service's intention to request Office 
of Management and Budget's approval of a revision to a currently 
approved information collection pertaining to food stamp applications 
to accept and redeem food stamps.
    Comments on this information collection must be received by 
December 16, 1996.
    Send requests for copies of this information collection to: Suzanne 
M. Fecteau, Chief, Redemption Management Branch, Benefit Redemption 
Division, Food and Consumer Service, U.S. Department of Agriculture, 
3101 Park Center Drive, Alexandria, VA 22302 or call (703) 305-2418.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the performance of the functions of the 
agency, including whether the information will have practical utility; 
(b) the accuracy of the agency's estimate of the burden of the proposed 
collection of information including the validity of the methodology and 
assumptions used; (c) ways to enhance the quality, utility and clarity 
of the information to be collected; and (d) ways to minimize the burden 
of collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    All responses to this notice will be summarized and included in the 
request for OMB approval, and will become a matter of public record.
    For further information contact Suzanne M. Fecteau, (703) 305-2418.
    Supplementary information: Title: Food Stamp Application for 
Stores, Form FNS-252 (9-93); Food Stamp Program for Stores-
Reauthorization, Form FCS-252R (2-95);Food Stamp Program Application 
for Stores--Supplement, Form FNS-252A (8-94);Food and Nutrition Service 
Meal Services, Form FNS-252-2 (10-79).
    OMB Number: 0584-0008.
    Expiration Date of Approval: Three years from date of approval.
    Type of Request: Revision of a currently approved collection. 
Request

[[Page 53596]]

for approval of application forms has been previously submitted. This 
submission is for an additional requirement under section 278.1(i) of 
the Food Stamp Program regulations as described below. The burden 
associated with this requirement applies to one class of respondents 
which complete the form FNS-252-2.
    Abstract: FCS of the Department of Agriculture is the Federal 
Agency responsible for the Food Stamp Program. The Food Stamp Act of 
1977, as amended (7 U.S.C. 2011 et seq.) requires that the Agency 
determine the eligibility of firms and certain food service 
organizations to accept and redeem food stamp benefits and to monitor 
them for compliance and continued eligibility.
    Part of FCS' responsibility is to accept applications from retail 
food stores, restaurants and programs that wish to participate in the 
Food Stamp Program, review the applications in order to determine 
whether or not applicants meet eligibility requirements, and make 
determinations whether to grant or deny authorization to accept and 
redeem food stamp benefits. FCS is also responsible for requiring 
updates to application information and reviewing the information to 
determine whether or not the firms or services continue to meet 
eligibility requirements.
    Section 278.1(i) of this rule contains an information collection 
requirement. It requires that restaurants interested in serving 
homeless food stamp recipients are responsible for obtaining contracts 
with the appropriate State agency and providing to the State agency the 
approximate prices that will be charged for meals served to homeless 
food stamp recipients.
    Estimate of Burden: The public reporting burden for the collection 
of information for all applicant firms wishing to participate, or 
continue to participate, in the FSP is estimated to average .280 hours 
per response.
    Respondents: Retail food stores, restaurants and State or local 
governments.
    Estimated Number of Respondents: 80,613.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden: 18,396.
    The individual components of the burden are as follows:

------------------------------------------------------------------------
                                                        Hours           
    Form No. and/or title          Use       Annual      per     Annual 
                                           responses  response   burden 
------------------------------------------------------------------------
Form FNS 252, FSP Application  New.......     26,431       .45    11,894
 for Stores.                                                            
Form FNS 252-2 FSP...........  New.......    \1\ 817  \1\ .226   \1\ 185
Application for Meal Services  Update....      1,775     .1667       296
 (including private                                                     
 restaurants).                                                          
Form FCS-252R FSP              Update....     51,590     .1167      6021
 Reauthorization Application.                                           
                              ------------------------------------------
                                              80,613             18,396 
------------------------------------------------------------------------
\1\ Of the 817 new meal service applications, we estimate that 98 will  
  be private restaurants which will be required to obtain a contract    
  with an appropriate State agency. We estimate that the contract       
  requirement will take .50 hours per response, for a total of 49 hours 
  annually.                                                             

    Send comments regarding the burden estimate or any other aspect of 
the information collection, including suggestions for reducing the 
burden, to the following address. Please refer to the OMB Control No. 
0584-0008. Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention: Desk Officer for FCS, 725 17th 
Street, N.W., Washington, D.C. 20503.

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 Food Stamp Program the 
administrative procedures are as follows: (1) for program benefit 
recipients--state administrative procedures issued pursuant to 7 U.S.C. 
s 2020 (e)(10) and 7 CFR s 273.15; (2) for State agencies--
administrative procedures issued pursuant to 7 U.S.C. s 2023 set out at 
7 CFR s 276.7 (for rules related to non-quality control (QC) 
liabilities) or Part 283 (for rules related to QC liabilities); (3) for 
program retailers and wholesalers--administrative procedures issued 
pursuant to 7 U.S.C. s 2023 set out at 7 CFR s 278.8.

Background

    On October 23, 1991, the Food and Nutrition Service, which has 
since been redesignated the Food and Consumer Service (FCS), published 
a proposed rule at 56 FR 54799 to implement the three following 
provisions of the Food, Agriculture, Conservation and Trade Act of 1990 
(Pub. L. No. 101-624, 104 Stat. 3359): (1) restaurants may accept food 
stamp benefits in exchange for meals from homeless recipients, and (2) 
the Department may require a periodic reauthorization of authorized 
firms, and (3) no co-located wholesale/retail food concern may be 
authorized as a retail food store unless the concern does a substantial 
level of retail food business, or failure to authorize such firm would 
cause hardship to food stamp households. These amendments to the Food 
Stamp Act of 1977, as amended, (the Act) (7 U.S.C. 2011 et seq.) are 
found in Pub. L. No. 101-624 at sections 1713, 1733, and 1734, 
respectively. The public was provided a 30-day period to submit 
comments on the proposed provisions. Thirteen comments were received in 
response to the proposed rule. The major concerns raised by the 
commentors are discussed below.

Authorization of Restaurants to Serve Prepared Meals to Homeless 
Persons

    One State agency commented that use of the terms ``private 
establishment'' and ``restaurant'' interchangeably in the proposed rule 
is confusing and that the term ``private homeless meal providers'' 
should be used instead. The Department concurs that use of the two 
aforementioned terms is confusing. However, the term ``private homeless 
meal providers'' would also be confusing since the regulations contain 
other references to ``private nonprofit homeless meal providers.'' In 
order to avoid confusion and to clarify which types of establishments 
are being referred to, the Department has used the word ``restaurant'' 
in this preamble and also in the regulatory text. In addition, to 
further assist with clarification, the Department has in this 
rulemaking specified that those entities other than restaurants feeding 
the homeless are referred to as ``public or private

[[Page 53597]]

nonprofit'' homeless meal providers. To further elucidate the types of 
establishments to be considered ``restaurants'' for the purposes of 
serving meals to eligible categories of recipients, the Department is 
clarifying that such facilities must be primarily in the business of 
selling food. Thus, section 7 CFR 278.1(d)(3) is being revised to state 
that a restaurant must have more than 50 percent of its total sales in 
food.
    The Food Stamp Act and the proposed rule permit restaurants to 
accept food stamp benefits from homeless recipients but require that 
restaurants sell the meals at concessional (reduced) prices. Several 
public interest groups and certain state agencies expressed concern 
that restaurants would not wish to participate in the program if they 
were required to provide meals at reduced prices to homeless 
participants. Another commentor asked whether a restaurant could argue 
that its prices are so low that a further reduction is not reasonable. 
The Department has further considered the requirement for a 
``concessional'' price and has concluded that an already low price can 
be considered to meet this requirement. This interpretation is 
consistent with a reference in the relevant legislative history to a 
concessional price as a ``cheap or reduced'' price in the discussion of 
restaurants serving elderly and disabled persons offering concessional 
prices. H.R. Rep. No. 464, 95th Cong., 1st Sess. 333. Due to the 
similarities in the two provisions, this final rule also refers to a 
concessional price as a ``low or reduced price.''
    Another commentor asked whether concessional prices would be 
determined for each restaurant or for each food item. The same 
commentor also asked if there is a predetermined methodology to 
determine concessional prices. Provisions for concessional prices will 
be determined by the contract between the restaurant and the State. 
There is no predetermined methodology for determining concessional 
prices. It could include, but would not be limited to, a simple 
percentage reduction, a set dollar amount reduction, or an offer of a 
free food item or beverage (excluding alcoholic beverages). Price 
reductions for homeless individuals must be negotiated between the 
restaurant and the State.
    One commentor asked what is considered a reasonable rate of price 
reduction. In addition, it has come to the Department's attention that 
there is a perception that if a restaurant's means of arriving at 
reduced prices consists of a percentage reduction, that percentage 
reduction must be 10 percent. This is not correct. If a restaurant 
chooses a percentage reduction as a means of arriving at reduced 
prices, the amount of the reduction may be a subject for negotiation 
between the restaurant and the State agency. Thus, the final rule does 
not prescribe a specific rate of reduction in prices of meals sold to 
homeless participants.
    One commentor asked whether restaurants would be required to post 
two meal prices--one for the homeless and one for the other customers. 
As long as the restaurant charges the homeless concessional prices, it 
will not be necessary for the restaurant to post separate prices in 
order to comply with this rule.
    One State agency asked if a restaurant which is approved to serve 
meals to the elderly and disabled recipients and their spouses would be 
required to serve the homeless. It is the Department's position that 
restaurants approved for providing meals to elderly and disabled 
recipients would not be required to sell meals to the homeless. 
Restaurant participation in either of these programs is strictly 
voluntary.
    One public interest group stated that change in restaurant 
transactions should not be limited to 99 cents. Section 7(b) of the Act 
(7 U.S.C. 2016(b)) provides that eligible households using coupons may 
receive cash in change so long as the cash received does not equal or 
exceed the value of the lowest coupon denomination issued. Thus, cash 
change must be limited to 99 cents as mandated by the Act. The 
Department has no discretion to change this provision and has adopted 
it as final in this rulemaking. However, in addition to giving up to 99 
cents in change, a restaurant may use the lowest denomination coupon, 
which is $1. These coupons must be unmarked and uncancelled for making 
change. For example, if change in the amount of $2.50 is due, the 
restaurant would give the recipient two one-dollar coupons and 50 cents 
in cash change.
    One State agency commented that it presumed that State sales tax is 
applicable to restaurant meals purchased with coupons by homeless 
persons. Section 4(a) of the Act (7 U.S.C. 2013(a)) provides that a 
State agency may not participate in the Food Stamp Program if State or 
local taxes are collected within that State on purchases made with food 
stamp benefits. The Department cannot waive this provision. Sales tax 
cannot be collected on any purchase with food stamp benefits, whether 
it be restaurant meals or food purchased in retail food stores.
    Several commentors stated that the requirement that State agencies 
contract with restaurants would create a new function for State 
agencies which are suffering from a lack of resources. These commentors 
recommended that USDA should handle the negotiations and contracts with 
restaurants as well as monitor restaurants. Another commentor 
recommended that the State agency delegate this function to a private 
nonprofit organization. Congress stated in Pub. L. 101-624 which 
amended section 3(g)(9) of the Act (7 U.S.C. 2012 (g)(9)), that 
restaurants eligible for authorization to accept food stamp benefits 
are those that shall contract with the appropriate agency of the State 
to offer meals to homeless individuals. However, there is no 
restriction in the statute which would preclude State agencies from 
contracting with private nonprofit organizations to administer the 
restaurant program contracts. The State agency would, however, remain 
responsible and the Department would hold the State agency liable for 
any action related to the contract.
    One State agency questioned whether the Food and Consumer Service 
(FCS) has review and approval authority over contracts with 
restaurants. State agencies have the initial responsibility for 
ensuring that contracts comply with the provisions of the Act and these 
regulations. While FCS is responsible for implementing and enforcing 
the law and accompanying regulations regarding the purchase of meals by 
homeless participants, FCS is not assuming any direct responsibility 
for prior review and approval of contracts between State agencies and 
restaurants. However, at the time a restaurant applies to FCS for 
authorization to accept food stamp benefits from homeless persons, the 
restaurant must present a copy of the contract with the State agency. 
At that time, FCS will review the contract to ensure it meets minimum 
regulatory requirements. Should a restaurant have a complaint during 
negotiation of the contract about any of the provisions being required 
by the State agency, the restaurant may request that FCS review the 
issue.
    One State agency commented that the State has no outreach funds to 
solicit participation of restaurants. The proposed rule did not mandate 
that States employ outreach efforts to solicit participation of 
restaurants. However, if the State wishes to do so, the Department 
suggests that the State could contact the State restaurant association 
to determine the level of interest of restaurants in participating in 
this program.

[[Page 53598]]

    One commentor stated that in order to encourage restaurants to 
participate in the program, a simple application process, minimal State 
regulation and the same prices for homeless and non-homeless alike are 
needed. This rule does not establish new application procedures for 
restaurants; the same procedures used for other retailers are used for 
restaurants. Further, the Department does not expect States to impose a 
complex set of regulations in administering this program. In addition, 
as stated above, the Department has no discretion regarding the 
charging of concessional prices since the requirement that restaurants 
provide meals at concessional prices is included in the law. Of course, 
restaurants with already low prices would not be required to further 
reduce prices to homeless food stamp recipients.
    The proposed rule provided that homeless recipients' identification 
(ID) cards would be marked ``CD,'' the same mark on the card issued to 
elderly and disabled persons eligible for communal dining or restaurant 
meals. Several public interest groups and a few State agencies believed 
that the use of a specially-marked ID card for the homeless would 
stigmatize them and publicize their situation. In addition, one 
commentor stated that a declaration system should be used to identify 
homeless persons. In implementing section 1713, the Department has 
looked to its experience with section 3(g)(3) of the Act (7 U.S.C. 
2012(g)(3)), which allows elderly persons and disabled recipients and 
their spouses to purchase meals from restaurants. There is a long-
standing procedure which designates specially-marked ID cards for 
elderly and disabled recipients and their spouses and requires 
restaurants to check ID cards unless restaurant personnel know the 
individual is eligible to purchase meals with food stamp benefits. The 
Department is not aware of any problems which have resulted from this 
procedure. In addition, having the specially-marked ID card will avoid 
the recipient having to verbally declare homelessness in a public 
setting as would the system suggested by the commentor. The legislation 
restricts the use of food stamp benefits in restaurants to only certain 
groups of recipients, and the only effective method for enforcing this 
restriction is to issue the recipients specially-marked ID cards. For 
reasons of program integrity, the Department had decided to require 
specially-marked ID cards. To assist restaurants in recognizing 
recipients eligible to purchase meals, State agencies need to provide 
restaurants with specially-marked sample ID cards. However, to maximize 
flexibility for State agencies, the Department has decided not to 
specify the mark which must be used.
    Some State agencies and a public interest group commented that 
requiring restaurants to check the ID cards of homeless persons is 
discriminatory. One of these commentors further stated that the 
requirement to check ID cards places a more restrictive level of 
accountability on restaurants than is placed on grocery stores. As 
stated above, the use of food stamp benefits in restaurants is 
restricted to elderly and disabled recipients and their spouses, and to 
homeless individuals. Based on this restriction, the Department 
believes that it must ensure that only those individuals entitled to 
use food stamp benefits in restaurants do so.
    Additional commentors suggested that the homeless designation 
should be removed from the ID card once the recipient is no longer 
homeless, and thus, not eligible to purchase meals in restaurants. The 
Department agrees with this suggestion and has amended the regulations 
at 7 CFR 274.10(a)(3) to ensure the applicability of the designation be 
re-established each time that recertification of eligibility occurs.
    One State agency commented that the use of food stamp benefits in a 
restaurant is not the best use of food stamp benefits for those persons 
temporarily living with someone else who may have access to cooking 
facilities. The reference to homeless individuals in Section 3(i)(3) of 
the Act (7 U.S.C. 2012(3)) does not include access to cooking 
facilities as a factor for determining eligibility of a homeless 
person. Thus, the Department does not have the discretion to define 
homeless individuals in terms of whether such individuals have access 
to cooking facilities.
    One commentor asked how complaints about service to the homeless at 
restaurants would be handled. That commentor also asked if such 
complaints would be referred to FCS field offices since restaurants 
operate as authorized retailers. The State agency has primary 
responsibility for enforcement of all provisions of contracts. Thus, 
complaints about service to the homeless (e.g., slow service; rude 
treatment; spoiled food) would be referred to the State agency. 
However, if violations of the Act or regulations are involved (e.g., 
selling meals to persons not eligible to buy them, the selling of 
ineligible items or cash change violations and unequal treatment of 
food stamp customers), complaints should be referred to FCS field 
offices which are responsible for handling such complaints.
    One State agency asked whether fast food restaurants would be 
eligible to participate. Neither the Act nor these regulations exclude 
any specific type of restaurants from participation. Thus, if a fast 
food restaurant agrees to provide meals to homeless participants at low 
or reduced prices, and otherwise qualifies, it could be authorized.
    One State agency was concerned about whether restaurants would be 
able to participate in areas where the Electronic Benefit Transfer 
(EBT) system has been implemented. In accordance with Food Stamp 
Program regulations at 7 CFR 274.12, all authorized retailers 
(including authorized restaurants) must be afforded the opportunity to 
participate in the EBT system.
    One commentor asked whether it is possible to apply for a waiver of 
any of the requirements of the proposed rule. Food Stamp Program 
regulations at 7 CFR 272.3 permit the Department to approve requests 
for waivers to deviate from specific regulatory provisions in some 
situations. However, because the Department does not have the authority 
to waive any provisions of the Act except in special demonstration 
projects, any request must not relate to statutory provisions.

Periodic Reauthorization of Retail Food Stores/Wholesale Food Concerns

    In order to ensure that participating firms continue to be eligible 
to accept food stamp benefits, Section 1733 of Pub. L. No. 101-624 
permits FCS to require a full and complete periodic reauthorization of 
all firms. The information obtained in the reauthorization will be used 
to update any or all of the information on the firm's application form.
    One commentor stated that the rule did not set forth adequate 
criteria for determining whether a retail food store will be 
reauthorized and that it would be appropriate to withdraw the proposed 
rulemaking and issue a further rulemaking which sets forth criteria for 
reauthorization. The criteria set forth in sections 3(k), 3(u) and 9 of 
the Act for the authorization of firms will be used during the 
reauthorization process to determine whether firms are qualified to 
participate. The criteria for authorization (and, thus, periodic 
reauthorization) of firms are not affected by this rule and are the 
same as those specified in the current Act. Therefore, it is not 
necessary to reissue those standards through this rulemaking action. 
The Department would call attention to the new authorization criteria 
made effective on March 25,

[[Page 53599]]

1994 with the passage of section 205 of P.L. 103-225, 108 Stat. 108-
110.
    The reauthorization will utilize the same criteria for authorizing 
new stores to determine whether firms continue to qualify. If FCS finds 
during the reauthorization process that a firm no longer qualifies, the 
firm will be withdrawn. If the firm does meet the appropriate criteria, 
it will be allowed to continue program participation.
    One commentor stated that the proposed rule does not provide 
adequate notice to existing firms regarding the time period for the 
periodic reauthorization. The Department is unable to specify an exact 
date or timetable for updating data on authorized firms. The periodic 
reauthorization of firms will be conducted as resources and time 
permit. However, the Department will provide firms with sufficient 
notice and time to respond to the request for updated information.

Authorization of Wholesale Firms Co-Located With Retail Food Stores

    The October 23, 1991, proposed rulemaking included a provision 
mandated by Section 1734 of Pub. L. No. 101-624, that no co-located 
wholesale/retail food concern may be authorized as a retail food store 
unless (A) such firm does a substantial level of retail food business 
or (B) the Secretary determines that failure to authorize such a 
wholesale/retail food concern as a retail food store would cause 
hardship to food stamp households. The proposed rule would have 
required that a wholesaler's retail food sales constitute at least 50 
percent of its total sales in order to be considered as having 
``substantial'' retail food business.
    A commentor stated that the requirement that a firm which is 
primarily a wholesaler must have 50 percent of its sales in retail food 
sales would be virtually impossible since having 50 percent retail food 
sales would mean the firm was primarily a retailer and not a 
wholesaler. The Department concurs with the logic of this comment and 
notes that the statute requires that such firms have a substantial 
retail business. Webster's Dictionary defines substantial as ``being 
largely, but not wholly that which is specified.'' In keeping with the 
definition and Congressional concern about integrity problems with 
firms with wholesale components, the Department has provided in this 
final rule that a firm which has more than 50 percent of its total 
sales in retail food sales shall not have to meet the criteria 
contained in this final rule in order to be authorized to accept and 
redeem food stamps, but will be subject to the criteria for authorizing 
retail firms set forth in Sections 3(k) and 3(u) of the Food Stamp Act 
of 1977, as amended.
    As stated above, Section 1734 mandated that no co-located 
wholesale/retail food concern may be authorized unless it does a 
substantial retail food business. A wholesale firm should have what can 
clearly be recognized as a retail outlet in order to participate in the 
program. It is not the Department's intent to prevent the participation 
of any wholesaler having a legitimate, substantial retail food 
business. On the other hand, a wholesale firm which sells little food 
at the retail level should not be authorized as a retailer.
    The first criterion against which an applicant will be evaluated is 
whether the firm has what can be considered a legitimate retail outlet. 
In determining this, several indicators shall be considered. For 
example, is the business licensed solely as a wholesale business, or is 
there a separate and distinct license for retail sales? Does the firm 
have separate retail sales tax records and/or separate bookkeeping 
records? In addition, the way the firm holds itself out to the public 
shall be evaluated in determining whether a firm is a legitimate retail 
outlet. This would include the layout of the retail sales space (e.g., 
presence of a counter for retail customers). Whether a firm actively 
seeks out retail trade through advertisements, offers specials to 
attract retail customers, or posts retail prices shall also be 
considered in determining if a firm is a legitimate retail outlet. In 
addition, the hours of operation should be considered as well as 
whether the firm has parking for retail customers as opposed to just a 
loading dock area.
    The Department is adding a new paragraph (A) at 7 CFR 
278.1(b)(1)(iv) to emphasize the fact that a co-located wholesale/
retail firm must be a legitimate retail outlet. This reflects the 
longstanding Departmental policy that no firm shall be authorized as a 
retail outlet unless it is a legitimate retailer.
    Once it has been determined that the firm is a legitimate retail 
outlet, a determination must be made as to whether the co-located firm 
has a ``substantial'' level of retail food sales. One commentor 
suggested that ``substantial'' be defined as a dollar amount (rather 
than as a percentage), specifically at least $100,000 in retail food 
sales annually. Some wholesalers may have only a small percentage of 
their total sales in retail trade, but this may still be a significant 
dollar amount.
    The Department agrees with these comments and has determined that 
the use of a specific dollar threshold is more appropriate in defining 
the term ``substantial''. There will be no required percentage of total 
sales which must be in retail food business.
    The Department believes that the restriction on the authorization 
of co-located retail/wholesale firms is intended to limit the 
participation of firms not needed to effectuate the purpose of the 
program. For the most part, these firms do limited retail food 
business. FCS data show that firms with very limited retail food sales 
have a higher propensity to violate than firms with relatively high 
retail food sales. Thus, the final rule allows a firm that has at least 
$250,000 in annual retail food sales to be authorized. The Department 
believes that the $250,000 threshold is a reasonable definition of 
``substantial'' and effectively meets the intent of Congress. The 
Department is confident that this criterion is fair to all wholesale 
food concerns--large and small--which provide retail services to the 
community and at the same time protects the integrity of the program. 
The Department would like to again emphasize that a co-located firm may 
be authorized to accept food stamps, even if it does not have 
substantial retail food business, if failure to authorize the firm 
would cause hardship to food stamp households.
    A co-located wholesale/retail firm must either have a substantial 
retail food business or demonstrate that a hardship to recipients would 
result if it were not authorized. The proposed rulemaking specified the 
following criteria for determining whether a hardship to recipients 
would result from not authorizing a co-located firm: (1) Program 
recipients would have difficulty in finding authorized firms to accept 
food stamp benefits for eligible foods; (2) special ethnic foods would 
not otherwise be available to recipients; or (3) recipients would be 
deprived of an opportunity to take advantage of unusually low prices 
offered by the firm. The Department did not receive any comments on 
these criteria; therefore, they are adopted in this final rule. The 
Department wishes to stress that a hardship exception can only be 
granted to a legitimate retail firm.
    Finally, if it has been determined that a co-located firm has a 
legitimate retail business and either has annual retail food sales of 
at least $250,000, or can demonstrate recipient hardship, its retail 
food business must then be subject to the criteria for authorizing 
retail firms set forth in Sections 3(k) and 3(u) of the Food Stamp Act 
of 1977, as amended.
    A commentor stated that the proposed rule would impose an 
unnecessary paperwork burden on retailers and

[[Page 53600]]

wholesalers. The authority to request information from applicant firms 
(including those requesting reauthorization) is contained in 7 CFR 
278.1(b) of the regulations and is approved under OMB Number 0584-0008. 
This rule does not add any new information collection requirements. 
Instead, it modifies current requirements to allow determinations to be 
made on the qualifications of co-located retail/wholesale firms.
    The same commentor stated that the rule would require applicant 
stores to provide data concerning their sales volume for both wholesale 
and retail segments of their business and that such data is classified 
as trade secrets and is therefore confidential. Retail and wholesale 
sales data are necessary to allow a determination on a co-located 
retail/wholesale firm's qualification for authorization to accept food 
stamps as a retail food store. Section 9(c) of the Act (7 U.S.C. 
2018(c)) requires that such information be submitted. Section 1734 of 
Pub. L. No. 101-624 specifies that retailer/wholesaler firms must have 
a substantial retail food business, and the review of sales data is 
necessary for the meaningful enforcement of the provision. It should be 
noted, however, that section 9(c) contains safeguards which restrict 
the use or disclosure of such information.

List of Subjects

7 CFR Part 271

    Administrative practice and procedure, Food stamps, Grant 
programs--social programs.

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs--social programs. 
Reporting and recordkeeping requirements.

7 CFR Part 274

    Administrative practice and procedures, Food stamps, Grant 
programs, social programs, Reporting and recordkeeping requirements.

7 CFR Part 278

    Administrative practice and procedure, Banks, Banking, Claims, Food 
stamps, Groceries--retail, Groceries, General line--wholesaler, 
Penalties.

    Accordingly, 7 CFR parts 271, 272, 274, and 278 are amended as 
follows:
    1. The authority citation for parts 271, 272, 274, and 278 
continues to read as follows:

    Authority: 7 U.S.C. 2011-2032.

PART 271--GENERAL INFORMATION AND DEFINITIONS

    2. In Sec. 271.2:
    a. The definition of ``Eligible foods'' is amended by removing the 
word ``and'' at the end of paragraph (7), removing the period after 
paragraph (8) and adding a semi-colon and the word ``and'' in its 
place, and by adding a new paragraph (9).
    b. The definition of ``Homeless meal provider'' is revised.
    c. The definition of ``Retail food store'' is amended by adding the 
words ``or a restaurant that contracts with an appropriate State agency 
to provide meals at concessional (low or reduced) prices to homeless 
food stamp households;'' at the end of paragraph (2).
    The addition and revision read as follows:


Sec. 271.2  Definitions.

* * * * *
    Eligible foods * * * (9) In the case of homeless food stamp 
households, meals prepared by a restaurant which contracts with an 
appropriate State agency to serve meals to homeless persons at 
concessional (low or reduced) prices.
* * * * *
    Homeless meal provider means:
    (1) A public or private nonprofit establishment (e.g., soup 
kitchens, temporary shelters) that feeds homeless persons; or
    (2) A restaurant which contracts with an appropriate State agency 
to offer meals at concessional (low or reduced) prices to homeless 
persons.
* * * * *

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    3. Section 272.9 is amended by adding two new sentences after the 
last sentence to read as follows:


Sec. 272.9  Approval of homeless meal providers.

    * * * The State food stamp agency, or another appropriate State or 
local governmental agency identified by the State food stamp agency or 
private nonprofit organization under contract with the State food stamp 
agency shall execute contracts with restaurants wishing to sell meals 
in exchange for food stamp benefits to homeless food stamp households. 
Such contracts shall specify that such meals are to be sold at 
``concessional'' (low or reduced) prices and shall also specify the 
approximate prices which will be charged, or the amount and type of 
price reduction.

PART 274--ISSUANCE AND USE OF COUPONS

    4. In section 274.10:


Sec. 274.10  [Amended]

    a. Paragraph (a)(3) is amended by adding a comma and the words 
``and to homeless households certified for restaurant meals'' after the 
word ``period''.
    b. Paragraph (a)(4)(iii) is redesignated as paragraph (a)(4)(iv) 
and a new paragraph (a)(4)(iii) is added.
    c. Paragraph (j) is amended by adding four new sentences at the end 
of the paragraph. The additions read as follows:


Sec. 274.10  Use of identification cards and redemption of coupons by 
eligible households.

    (a) * * *
    (4) * * *
    (iii) Eligible homeless households may use food stamp benefits to 
purchase meals from restaurants authorized by FCS for such purpose. Any 
homeless household eligible for, and interested in, using restaurants 
in those areas where restaurants are authorized to accept food stamp 
benefits shall have a specially-marked ID card. The State agency shall 
provide samples of specially-marked ID cards to authorized restaurants.
* * * * *
    (j) * * * However, in the case of homeless food stamp households, 
neither cash change nor credit slips shall be returned for food stamps 
used for the purchase of prepared meals from authorized public and 
private nonprofit homeless meal providers. Such meal providers may use 
the lowest denomination coupons that are uncancelled and unmarked for 
making change in food stamp transactions. Restaurants which are 
authorized by FCS under Sec. 278.1 to provide meals to homeless food 
stamp recipients shall return cash change to such recipients in food 
stamp transactions when the amount of change due is less than one 
dollar. If change of one dollar or more is due, uncancelled and 
unmarked one dollar coupons shall also be used for change.

PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD 
CONCERNS AND INSURED FINANCIAL INSTITUTIONS

    5. In section 278.1:
    a. Paragraph (b)(1)(iv) is revised.
    b. Paragraph (c)(5) is revised.
    c. Paragraph (d)(3) is revised.
    d. Paragraphs (i) through (s) are redesignated as paragraphs (j) 
through (t) respectively, and a new paragraph (i) is added.

[[Page 53601]]

    d. Newly redesignated paragraph (n) is revised.
    e. Newly redesignated paragraph (s) is amended by adding the words 
``public and private nonprofit'' before the words ``homeless meal 
provider'' and ``homeless meal providers'' each time they appear. (six 
occurrences).
    The revisions and additions read as follows:


Sec. 278.1  Approval of retail food stores and wholesale food concerns.

* * * * *
    (b) Determination of authorization. * * *
    (1) The nature and extent of the food business conducted by the 
applicant. * * *
    (iv) No co-located wholesale/retail food concern with 50 percent or 
less of its total sales in retail food sales may be authorized to 
redeem food stamps unless it meets the criteria applicable to all 
retail firms and:
    (A) It is a legitimate retail food outlet. Indicators which may 
establish to FCS that a firm is a legitimate retail food outlet 
include, but are not limited to, the following:
    (1) The firm's marketing structure; as may be determined by factors 
such as, but not limited to:
    (i) A retail business license;
    (ii) The existence of sales tax records documenting retail food 
sales; and/or separate bookkeeping records; and
    (2) The way the firm holds itself out to the public as evidenced by 
factors such as, but not limited to:
    (i) The layout of the retail sales space;
    (ii) The use of retail advertisements;
    (iii) The posting of retail prices;
    (iv) Offering specials to attract retail customers;
    (v) Hours of operation for retail business;
    (vi) Parking area for retail customers; and
    (B) It has total annual retail food sales of at least $250,000; or
    (C) It is a legitimate retail outlet but fails to meet the 
requirements in paragraph (b)(1)(iv)(B) of this section, and not 
authorizing such a firm would cause hardship to food stamp households. 
Hardship would occur in any one of the following circumstances:
    (1) Program recipients would have difficulty in finding authorized 
firms to accept their coupons for eligible food;
    (2) Special ethnic foods would not otherwise be available to 
recipients; or
    (3) Recipients would be deprived of an opportunity to take 
advantage of unusually low prices offered by the firm if no other 
authorized firm in the area offers the same types of food items at 
comparable prices.
* * * * *
    (c) Wholesalers. * * *
    (5) For one or more specified authorized public or private 
nonprofit homeless meal providers.
* * * * *
    (d) Meal services. * * *
    (3) It is a restaurant operating under a contract with a State or 
local agency to prepare and serve (or deliver) low-cost meals to 
homeless persons, elderly persons and SSI recipients (and in the case 
of meal delivery services, to elderly persons or handicapped persons) 
and their spouses. Such a facility must have more than 50 percent of 
its total sales in food. The contracts of restaurants must specify the 
approximate prices which will be charged.
* * * * *
    (i) Private homeless meal providers. FCS may authorize as retail 
food stores those restaurants which contract with the appropriate State 
agency to serve meals to homeless persons at ``concessional'' (low or 
reduced) prices. Restaurants shall be responsible for obtaining 
contracts with the appropriate State agency as defined in Sec. 272.9 
and for providing a copy of the contract to FCS at the time it applies 
for authorization to accept food stamp benefits. Contracts must specify 
the approximate prices which will be charged. Examples of reduced 
prices include, but are not limited to, a percentage reduction, a set 
dollar amount reduction, a daily special meal, or an offer of a free 
food item or beverage (excluding alcoholic beverages).
* * * * *
    (n) Periodic reauthorization. At the request of FCS a retail food 
store or wholesale food concern will be required to undergo a periodic 
reauthorization determination by updating any or all of the information 
on the firm's application form. Failure to cooperate in the 
reauthorization process will result in withdrawal of the firm's 
approval to participate in the program.
* * * * *


Sec. 278.2  [Amended]

    6. In Sec. 278.2:
    a. Paragraph (a) is amended by adding the words ``public or private 
nonprofit'' before the word ``homeless'' in the last sentence of the 
paragraph.
    b. The third sentence of paragraph (b) is amended by adding the 
words ``public or private nonprofit'' before the words ``homeless meal 
providers'', and before the words ``homeless meal provider''.
    c. Paragraph (c) is amended by adding the words ``public or private 
nonprofit'' before the words ``homeless meal providers'' the first time 
they appear in the third sentence of the paragraph.
    d. Paragraph (d) is amended by adding the words ``public or private 
nonprofit'' before the words ``homeless meal providers'' in the third 
sentence.
    e. Paragraph (g) is amended by adding the words ``public and 
private nonprofit'' before the words ``homeless meal providers'' 
wherever they occur (two occurrences).
    f. Paragraph (h) is amended by adding the words ``public or private 
nonprofit'' before the words ``homeless meal providers'' in the last 
sentence of the paragraph.
    g. Paragraph (1) is amended by adding the words ``public and 
private nonprofit'' before the words ``Homeless meal provider'' and 
before the words ``homeless meal providers''.


Sec. 278.3  [Amended]

    7. In Sec. 278.3, paragraph (a) is amended by adding the words 
``public or private nonprofit'' before the words ``homeless meal 
providers'' wherever they occur (three occurrences).


Sec. 278.4  [Amended]

    8. In Sec. 278.4, the second sentence of paragraph (c) is amended 
by adding the words ``public or private nonprofit'' before the words 
``homeless meal providers.''

    Dated: September 27, 1996.
Ellen Haas,
Under Secretary for Food, Nutrition, and Consumer Services.
[FR Doc. 96-26067 Filed 10-11-96; 8:45 am]
BILLING CODE 3410-30-U