[Federal Register Volume 62, Number 141 (Wednesday, July 23, 1997)]
[Proposed Rules]
[Pages 39610-39657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19062]


      

[[Page 39609]]

_______________________________________________________________________

Part II





Department of Health and Human Services





_______________________________________________________________________



Administration for Children and Families



_______________________________________________________________________



45 CFR Parts 98 and 99



Child Care and Development Fund Block Grant Regulations Amendments; 
Proposed Rule

  Federal Register / Vol. 62, No. 141 / Wednesday, July 23, 1997 / 
Proposed Rules  

[[Page 39610]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 98 and 99

RIN 0970-AB74


Child Care and Development Fund

AGENCY: Administration for Children and Families (ACF), HHS.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Administration for Children and Families (ACF) proposes to 
amend the Child Care and Development Block Grant (CCDBG) regulations at 
45 CFR Part 98. In large part, the proposed amendments respond to the 
amendments made to the CCDBG Act and the Social Security Act by the 
Personal Responsibility and Work Opportunity Reconciliation Act 
(PRWORA) of 1996 (Pub. L. 104-193). This proposed rule additionally 
includes certain selected amendments and preamble clarifications 
originally proposed for the CCDBG regulations on May 11, 1994 (59 FR 
24510-24527) but never issued as a final rule due to the welfare reform 
initiative that resulted in PRWORA.

DATES: Interested persons and agencies are invited to submit written 
comments concerning these proposed regulations no later than September 
22, 1997.

ADDRESSES: An electronic version of this proposed rule can be found at 
http://www.acf.dhhs.gov/programs/ccb/policy/nprm.htm for your review. 
Comments on the regulation can be submitted electronically following 
the directions at the site, and will be posted according to those 
directions. Comments received from State Lead Agencies for child care 
will also be posted on the web site as a service to the public, 
regardless of the method of submission. Printed copies of the 
electronic comments will be added to the file of written comments and 
be available for public review during the hours described below.
    Comments may also be mailed (facsimile transmissions will not be 
accepted) to the Assistant Secretary for Children and Families, 
Attention: Child Care Bureau, Hubert Humphrey Building, Room 320F, 200 
Independence Avenue, SW, Washington, DC 20201 or delivered to that 
address between 8 a.m. and 4:30 p.m on regular business days. Comments 
received may be inspected during the same hours by making arrangements 
with the contact person shown below.

FOR FURTHER INFORMATION CONTACT: Barbara Binker, Director, Policy 
Division, Child Care Bureau, Hubert Humphrey Building, Room 320F, 200 
Independence Avenue, SW, Washington, DC 20201, telephone (202) 401-
5145. Deaf and hearing-impaired individuals may call the Federal Dual 
Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern 
time.

SUPPLEMENTARY INFORMATION:

Background

    Section 103(c) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) repealed the child care programs 
authorized under title IV-A of the Social Security Act--AFDC Child 
Care, Transitional Child Care and At-Risk Child Care. In addition, 
PRWORA amended section 418 of the Social Security Act to provide new 
Federal child care funds and transfer them to the Lead Agency under the 
amended Child Care and Development Block Grant Act. The funding under 
section 418 is now subject to the CCDBG Act. PRWORA also amended the 
CCDBG Act.
    PRWORA also reformed the Federal welfare program, replacing the Aid 
to Families with Dependent Children (AFDC) program with the Temporary 
Assistance for Needy Families (TANF) program. Under TANF, States have 
great flexibility to design programs that promote work, responsibility 
and self-sufficiency, and strengthen families.
    In preparing to draft this proposed rule, ACF consulted extensively 
with grantees and with organizations interested in child care. In these 
early, pre-drafting consultations we met with representatives of State-
level organizations, such as the National Governors' Association and 
the American Public Welfare Association. We also met with 
representatives of national organizations of local governments such as 
the National Association of Counties, and with national organizations 
such as the Children's Defense Fund and the National Association of 
Child Care Resource and Referral Agencies. We held a national 
teleconference with State child care administrators, and held extensive 
discussions regarding the new statute at ACF's national child care 
conference held in September 1996. We consulted with two on-going Child 
Care Bureau work groups composed of State and tribal child care 
administrators, held 10 regional conference calls with our tribal 
grantees, and conducted two workshops on tribal child care issues at 
ACF's Tribal Welfare Reform Conference, held in Seattle, Washington, in 
October 1996. We also received a number of letters touching on possible 
regulatory approaches to implementing the child care provisions of 
PRWORA.
    The PRWORA provides several child care funds to support low-income 
families, transfers these funds to the CCDBG Lead Agency, and amended 
the CCDBG Act to ensure the consistent quality of child care services 
provided with these Federal funds. Therefore, consistent with the 
intent of the statute, we have named the combined funds the Child Care 
and Development Fund (CCDF). In this proposed rule, references to the 
CCDBG have been revised to refer to the CCDF.

Goals and Purpose of the Proposed Rule

    In developing this proposed rule, our primary goals were to:

--amend the CCDBG regulations in light of the child care amendments 
under title VI of PRWORA,
--achieve a balance between program flexibility and accountability,
--assure the health and safety of children in child care,
--recognize that child care is a key support for work, as envisioned in 
TANF, and
--clarify, streamline, simplify, and unify the Federal child care 
program.

    Our specific efforts toward achieving these primary goals include: 
assuring that States have adequate information upon which to base their 
child care payments; promoting public involvement in the Plan process; 
strengthening health and safety in child care by requiring children 
receiving CCDF subsidies to be age-appropriately immunized; requiring 
coordination between child care Lead Agencies and agencies 
administering TANF, health, education and employment programs; 
streamlining the CCDF application and Plan; and providing 
clarifications based on experience operating both the CCDBG program and 
the now-repealed title IV-A programs.
    We believe that our proposed regulatory changes respond to the 
statutory changes and also represent a balancing of viewpoints in cases 
where there were multiple views on a single issue. For example, in our 
consultations we asked for information on how the statutory amendments 
around payment rates and the concept of ``equal access'' should be 
implemented. In the responses we received, there was a central tension 
between the desire for complete flexibility by States to establish 
child care subsidy payment

[[Page 39611]]

rates and the need to assure that the established rates promoted both 
work and parental choice. To achieve balance on the issue, we propose 
to give Lead Agencies the flexibility to set payments, but to require 
that the rates be based on a market survey conducted no earlier than 
two years prior to the effective date of the currently approved CCDF 
Plan. Using this approach, we assure that Lead Agencies have an 
appropriate frame of reference for establishing payments that meet the 
needs of work and family.
    Another issue on which we heard opposing views was the amended 
public hearing requirements concerning the CCDF Plan. States and their 
organizations desired complete flexibility, i.e., no further regulation 
beyond the requirements that the hearing be announced with sufficient 
time and statewide notice. Others with whom we consulted wanted 
regulations that specified both the timing and the manner of the 
notice, as well as details on the locations of the hearing. Our 
proposed rule contains basic requirements on the timing of the notice 
and the hearing, but we provided flexibility regarding the number, 
location(s), and other details of the hearings. Here we believe we have 
established a balance between the flexibility of Lead Agencies to take 
into account such considerations as variations in geography and the 
calendars of State legislatures, and the statute's strengthening of the 
basic accountability of Lead Agencies to the public during the child 
care planning process.
    We continue to believe in the need for immunization of children in 
child care as an essential part of health and safety. Immunization is a 
critical part of what we consider to be a natural connection between 
child care and healthy children, and we again propose, as we did in 
1994, that children in subsidized care be age-appropriately immunized. 
Since there is a natural connection between child care and healthy 
children, we also are proposing a specific requirement that Lead 
Agencies for child care coordinate with public health agencies, 
including those responsible for immunization.
    We also propose specifically to require coordination between child 
care Lead Agencies and other entities that we believe are crucial to 
supporting a strong child care program. Since the relationship between 
the CCDF and the TANF program is especially important, we would be 
requiring coordination between the CCDF agency and the TANF agency. We 
also propose to require that child care consumer information provided 
by the CCDF Lead Agency include information regarding the TANF agency's 
implementation of the TANF exception to sanctioning a single custodial 
parent with a child under age six who refuses to work due to lack of 
appropriate, accessible, or affordable child care.
    In addition to our proposed requirements regarding coordination 
with TANF, our proposed rules include specific requirements relating to 
coordination between CCDF Lead Agencies and public education, 
employment, and public health agencies, including those agencies 
responsible for immunizations. There are numerous opportunities for 
linkages between child care and these agencies. We believe that the 
connections between child care programs and these agencies are pivotal 
in promoting family self-sufficiency and general well-being. It is 
important, for example, that such coordination support the linkage of 
families to a system of continuous, accessible health care.
    Our goals in developing these proposed amendments included 
clarification, simplification, and streamlining to support the strong, 
unified child care system that PRWORA provides. Further, since the 
changes under PRWORA necessitated Plan revisions, we chose to use this 
as an additional opportunity to reorganize and simplify the application 
and CCDF Plan document, and to create a separate Plan document 
specifically for Tribes. We have aimed for clarity in this regulation 
on a number of points. In the regulations at subparts F, Use of Child 
Care and Development Funds, and G, Financial Management, we clarified 
new statutory provisions regarding such areas as administrative costs, 
quality, matching (including the use of pre-kindergarten funds as 
match), maintenance-of-effort, and reallotment.
    Finally, we are again proposing certain changes and clarifications 
that were contained in an earlier proposed rule (59 FR 24510-24527, May 
11, 1994). The 1994 proposed rule was published in response to requests 
from States, child care providers, and organizations for certain 
amendments to promote the health and safety of children receiving 
subsidized care and to enable the improved coordination between the now 
repealed title IV-A child care programs and the Child Care and 
Development Block Grant. The enactment of the child care provisions of 
PRWORA provided even greater opportunities for unifying the Federal 
child care programs and made many of those proposed child care 
amendments unnecessary. However, we are carrying over into this 
proposed rule the changes to the CCDBG health and safety standards 
included in the earlier proposed rule, and we also include the 
clarification contained in the preamble to the 1994 proposed rule 
regarding the availability of child care certificates. We have again 
offered the clarification contained in the 1994 proposed rule regarding 
inclusion of foster care in the definition of protective services and 
have added clarifications regarding respite care and parental choice in 
protective services cases, which we felt were necessary based on our 
experience with the CCDBG program. Also, as we did in 1994, we propose 
to give Lead Agencies additional flexibility in offering in-home child 
care.
    The rules and clarifications that we proposed in 1994 and repeated 
in this proposed rule received public support at the time they were 
originally proposed. In view of this support, the changes had been 
planned for publication as final rule. However, our plans for 
publication were overtaken by the welfare reform legislative agenda 
that culminated in the passage of PRWORA. Since over two years have 
passed from the date of these original proposals, however, ACF is again 
soliciting comments on the amendments and clarifications that we 
carried over from our 1994 proposed rule.

Statutory Authority

    Section 658E of the Child Care and Development Block Grant Act of 
1990 requires that the Secretary shall by rule establish the 
information needed in the Block Grant Plan.

Regulatory Impact Analysis

    This proposed rule has been reviewed by the Office of Management 
and Budget (OMB) pursuant to Executive Order 12866. Executive Order 
12866 requires that regulations be reviewed to ensure that they are 
consistent with the priorities and principles set forth in the 
Executive Order. The Department has determined that this rule is 
consistent with these priorities and principles. An assessment of the 
costs and benefits of available regulatory alternatives (including not 
regulating) demonstrated that the approach taken is the most cost-
effective and least burdensome while still achieving the regulatory 
objectives.
    For the most part, the proposed regulations are required by PRWORA 
and represent changes to the existing regulations or deletions from the 
existing regulations.
    As in 1994, we are again proposing a requirement that children be 
immunized in order to receive services under the Child Care and 
Development

[[Page 39612]]

Fund and clarifying that such immunizations be age-appropriate. The 
CCDBG health and safety regulations currently require grantees to 
include provisions about immunizations in their CCDBG Plans and to 
provide assurances that requirements with respect to immunizations are 
in place. In addition, most States already include immunizations in 
their child care standards.
    We do not anticipate that our proposal will have a significant 
negative impact on either grantees or families, since grantees will not 
be required to provide immunizations directly. The Vaccines for 
Children Program, an important component of the Childhood Immunization 
Initiative (CII), provides immunizations to eligible children, 
including those without insurance coverage, those eligible for 
Medicaid, and American Indians and Alaskan Natives. In addition, every 
State receives grant funds for immunization activities, including 
hiring nurses, expanding clinic hours, assessing coverage levels, and 
conducting outreach. Immunization levels of children 19-35 months of 
age are measured by the National Immunization Survey, the first ever 
survey conducted throughout the U.S. that provides comparable State 
vaccination coverage estimates.
    The immunization provision was considered the most cost-effective 
and least burdensome approach because: (1) it helps ensure that 
vulnerable young children are age-appropriately immunized; (2) 
immunization of such children is highly cost-effective; and (3) it 
provides flexibility to grantees in determining how to implement the 
provision.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (Pub. L. 96-354) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. 
The primary impact of these proposed rules is on State, tribal and 
territorial governments. To a lesser extent the regulation could affect 
individuals and small businesses. However, the number of small 
businesses affected should be limited, and the expected economic impact 
on these businesses would not be so significant that a full regulatory 
flexibility analysis is indicated.
     First, the regulations retain many provisions designed to 
ensure broad participation by small businesses in the program. The 
regulations still require that parents have a choice among a variety of 
providers including family day care providers. These and other 
provisions in the current rules will help ensure that States exercise 
restraint in imposing any additional requirements on small entities 
providing child care.
     The proposed rule contains a number of provisions that 
could result in some decrease in the regulatory and economic burdens on 
providers that are small businesses. Most importantly, because States 
will be required to operate their programs under a more consistent set 
of program rules, participating providers will face a simpler and more 
streamlined set of Federal regulatory requirements.
     The providers who would potentially be most affected by 
this rule are in-home providers. These providers are generally not 
operating as small businesses, but as domestic employees; thus, any 
impact on them need not be specifically addressed under this Act.
     The regulation could ultimately result in some additional 
State or tribal regulatory requirements or health and safety standards 
for other providers, such as family day care providers that are small 
businesses. However, the impacts on small businesses, if any, would not 
be directly attributable to this regulation. With the possible 
exception of the immunization provision, the regulation does not direct 
any expansion of Federal, State or tribal regulatory requirements or 
health and safety standards for providers; thus, any impacts on 
providers should arise only as the result of independent State and/or 
local decisions to impose additional requirements.
    State, local and tribal governments already have authority to set 
general regulatory requirements and health and safety standards for 
child care providers. If States (or other grantees) believe that there 
was a substantial need for additional requirements (to protect the 
well-being of children in care), we would have expected them to act 
under this general authority.
    While States generally have immunization requirements for children 
in child care, the proposed immunization provision might result in some 
additional children being subject to immunization requirements or 
stronger requirements for some children. However, States have 
flexibility in deciding how immunization requirements are to be 
implemented. Our proposal does not dictate that States impose 
requirements on providers; rather, States can choose to impose them on 
eligible families. Thus, the immunization provision in this proposed 
rule does not necessarily affect small businesses. Further, where 
States do choose to impose additional requirements on providers related 
to the immunization provision, such requirements would be basically 
administrative in nature (e.g., documentation); we expect the costs of 
immunization to be covered through other funding sources. Thus, this 
provision would not have a significant economic impact on providers.
    Thus, the number of entities affected, and the net economic impact 
on them, should not be significant.

Paperwork Reduction Act

    Sections 98.16 and 98.81 contain the Lead Agency Plan information 
requirements of the ACF-118 and ACF-118-A respectively. Sections 98.70 
and 98.71 contain the information required by both the ACF-800 and ACF-
801 child care data collections. As required by the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3507 (d)), the Administration for Children and 
Families has submitted a copy of these sections to the Office of 
Management and Budget (OMB) for its review.
    Title: State/Territorial Plan Pre-Print (ACF-118) and Tribal Plan 
Pre-print (ACF-118-A) for the Child Care and Development Fund (Child 
Care and Development Block Grant).
    Description: These legislatively-mandated plans serve as the 
agreement between the Lead Agency and the Federal Government as to how 
CCDF programs will be administered in conformance with legislative 
requirements, pertinent Federal regulations, and other applicable 
instructions and guidelines issued by ACF. This information will be 
used for Federal oversight of the Child Care and Development Fund.
    Respondents: State governments and territories, Tribal 
organizations

[[Page 39613]]



                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                          Number of                             
                                                            Number of     responses      Average    Total burden
                       Instrument                          respondents       per      burden hours      hours   
                                                                         respondent   per response              
----------------------------------------------------------------------------------------------------------------
ACF-118.................................................            56            .5            30           840
ACF-118.................................................           240            .5            30         3,600
    Estimated Total Annual Burden Hours.................  ............  ............  ............         4,440
----------------------------------------------------------------------------------------------------------------

    Title: Child Care Biannual Aggregate Report--ACF-800.
    Description: This legislatively mandated report collects program 
and participant data on all children and families receiving direct CCDF 
services. Aggregate data will be collected and will be used to 
determine the scope, type, and methods of child care delivery, and to 
provide a report to Congress.
    Respondents: State governments, Guam, Virgin Islands, Puerto Rico 
and the District of Columbia.

                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                          Number of                             
                                                            Number of     responses      Average    Total burden
                       Instrument                          respondents       per      burden hours      hours   
                                                                         respondent   per response              
----------------------------------------------------------------------------------------------------------------
ACF-800.................................................            54             2            40         4,320
    Estimated Total Annual Burden Hours.................  ............  ............  ............         4,320
----------------------------------------------------------------------------------------------------------------

    Title: Child Care Quarterly Unit Report, ACF-801
    Description: This legislatively-mandated report collects program 
and participant data on children and families receiving direct CCDF 
services. Disaggregate data will be collected and will be used to 
determine the participant and program characteristics as well as cost 
and level of child care services. The data will be used to provide a 
report to Congress. Form ACF 801 represents the data elements to be 
collected and reported to ACF.
    Respondents will be asked to sample the population of families 
receiving benefits on a monthly basis and submit the three most current 
monthly samples to ACF quarterly. Each monthly sample is drawn 
independent of the other samples and retained for submission within a 
quarterly report. ACF is not issuing specifications on how respondents 
compile overall database(s) from which samples are drawn. ACF will 
provide to the respondents a sampling plan which will specify minimum 
sample size. It is expected to be a monthly sample of approximately 150 
cases for large States with smaller samples based on population size 
adjustments for smaller respondents.
    Respondents: States, D.C., Guam, Virgin Islands and Puerto Rico

                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                          Number of                             
                                                            Number of     responses      Average        Total   
                       Instrument                          respondents       per      burden hours     burden   
                                                                         respondent   per response      hours   
----------------------------------------------------------------------------------------------------------------
ACF-801.................................................            54             4            20         4,320
    Estimated Total Annual Burden Hours:................  ............  ............  ............         4,320
----------------------------------------------------------------------------------------------------------------

    The Administration for Children and Families will consider comments 
by the public on these proposed collections of information in:

--Evaluating whether the proposed collections are necessary for the 
proper performance of the functions of ACF, including whether the 
information will have practical utility;
--Evaluating the accuracy of the ACF's estimate of the burden of the 
proposed collections of information, including the validity of the 
methodology and assumptions used;
--Enhancing the quality, usefulness, and clarity of the information to 
be collected; and
--Minimizing the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technology, e.g., permitting 
electronic submission of response.
    OMB is required to make a decision concerning the collections of 
information in these proposed regulations between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment is best assured of having its full effect if OMB receives it 
within 30 days of publication. This does not affect the deadline for 
the public to comment to the Department on the proposed regulations. 
Written comments to OMB for the proposed information collection should 
be sent directly to the following: Office of Management and Budget, 
Paperwork Reduction Project, 725 17th Street, N.W., Washington, D.C. 
20503, Attn: Laura Oliven.

Proposed Amended Regulations, 45 CFR Part 98

    We have chosen to present the proposed amendments by publishing a 
proposal to completely revise 45 CFR Part 98. We believe that the 
publication of the whole text of Part 98 will facilitate understanding 
of the impact of the amendments on the regulations that are retained. 
The preamble discussion

[[Page 39614]]

in this proposed rule primarily discusses the changed regulations. It 
also contains certain clarifications based on ACF's experience in 
implementing the prior final rule. Where regulations are retained, the 
preamble explanation and interpretation of those regulations published 
with the prior final rule (57 FR 34352-413, August 4, 1992) is also 
retained unless specifically modified in the preamble to this proposed 
rule. The following table describes in detail the substantive changes 
to the amended sections. In addition, we made a number of other minor 
editorial changes throughout the regulations to enhance clarity, to 
reflect the change of program name from the Child Care and Development 
Block Grant (CCDBG) to the Child Care and Development Fund (CCDF), and 
to reflect the change from ``Grantee'' to ``Lead Agency'' for reasons 
explained in this preamble at Sec. 98.2.
    We have made the following changes to the regulations.
    Title/heading: Part 98; Subparts--A, E and F; Sections--98.1, 
98.13, 98.15, 98.43, 98.45, 98.51, 98.52, 98.53, 98.61, 98.62, 98.63, 
98.64, 98.65, 98.70, 98.71, and 98.81.
    Definitions: Sec. 98.2 is now an alphabetical listing.
    Removed: (e), (f), (n), (o), (s), (gg), (nn) and (oo).
    Added: Child Care and Development Fund (CCDF), Construction, 
Discretionary Fund, Facility, Major Renovation, Mandatory Funds, 
Matching Funds, Modular unit, Real property, and Tribal Mandatory 
Funds.
    Assurances and Certifications: Sec. 98.15 has been reorganized to 
reflect the statute intent that states ``assure'' they meet certain 
requirements and ``certify'' that they meet others.
    Tribes: We have consolidated tribal regulations from 
Secs. 98.16(b), 98.17(b) and 98.60(g) into Subpart I.
    The following distribution table summarizes what has been added, 
removed, revised and redesignated in 45 CFR Part 98.

------------------------------------------------------------------------
       Existing section               Action            New section     
------------------------------------------------------------------------
                                Added............  98.1(a)              
98.1 (a) and (b)..............  Redesignated.....  98.1 (b) and (c)     
98.1(b)(7)....................  Removed..........  .....................
98.1(b)(8)....................  Redesignated.....  98.1(c)(7)           
98.2(a), (j), (q), (mm).......  Revised..........  98.2--Alphabetical   
98.10 (b) and (e).............  Revised..........  98.10 (b) and (e)    
98.11(a) and (b)(8)...........  Revised..........  98.11 (a) and (b)(8) 
98.12 (a) and (c).............  Revised..........  98.12 (a) and (c)    
                                Added............  98.12 Introductory   
                                                    text                
98.13(a)......................  Revised..........  98.13 (a) and (b)    
98.13 (b) and (c).............  Removed                                 
98.13(a)(10)..................  Redesignated.....  98.13(c)             
98.13(a)(11)..................  Redesignated.....  98.13(d)             
98.14 (a)-(c).................  Revised..........  98.14(a)-(c)         
98.15.........................  See note above                          
98.16(a)......................  Redesignated.....  98.16 Introductory   
                                                    text                
98.16(a) (1)-(12).............  Revised..........  98.16 (a)-(l)        
98.16(a) (13)-(16)............  Removed                                 
                                Added............  98.16 (m)-(q)        
98.16(a)(17)..................  Redesignated.....  98.16(r)             
98.17(a)......................  Revised..........  98.17(a)             
98.17(c)......................  Redesignated.....  98.17(b)             
98.20(a)......................  Revised..........  98.20(a)             
98.21.........................  Removed                                 
                                Added............  98.30(c)(3)          
98.30(c) (3)-(5)..............  Redesignated.....  98.30(c) (4)-(6)     
98.30(d)......................  Removed                                 
98.30 (e)-(g).................  Redesignated.....  98.30 (d)-(f)        
98.31.........................  Revised..........  98.31                
                                Added............  98.32(c)             
98.33.........................  Revised..........  98.33                
98.40(a)......................  Revised..........  98.40(a)             
98.41(a)(1)...................  Revised..........  98.41(a)(1)          
98.41 (c) and (d).............  Removed                                 
98.41 (e)-(g).................  Redesignated.....  98.41 (c)-(e)        
98.42(d)......................  Removed                                 
98.43 (a) and (b).............  Revised..........  98.43 (a) and (b)    
                                Added............  98.43(c)             
98.43 (c) and (d).............  Redesignated.....  98.43 (d) and (e)    
98.43 (e) and (f).............  Removed                                 
98.45.........................  Revised..........  98.45                
98.50 (a) and (c).............  Revised..........  98.50 (a) and (c)    
98.50(d)......................  Removed                                 
                                Added............  98.50 (d)-(f)        
98.51 (a) and (b).............  Revised..........  98.51(a)             
98.51 (c)-(f).................  Removed                                 
98.51(g)......................  Redesignated.....  98.51(b)             
                                Added............  98.51(c)             
98.52 (a) and (b).............  Revised..........  98.52(a)             
98.52(c)......................  Revised..........  98.52(c)             
98.53.........................  Revised..........  98.53                
98.54(a)......................  Revised..........  98.54(a)             
                                Added............  98.54(b)(3)          

[[Page 39615]]

                                                                        
98.60 (a), (d) and (f)........  Revised..........  98.60 (a), (c) and   
                                                    (e)                 
98.60(b)......................  Removed                                 
98.60 (c)-(f).................  Redesignated.....  98.60 (b)-(e)        
98.60 (h)-(j).................  Redesignated.....  98.60 (g)-(i)        
98.61 (a) and (b).............  Revised..........  98.61(a)             
98.62(a)-(c)..................  Redesignated.....  98.61 (b)-(d)        
                                Added............  98.61(e)             
                                Added............  98.62 (a) and (b)    
98.63 (a) and (b).............  Redesignated.....  98.64(b)             
                                Added............  98.63 (a)-(c)        
98.64 (a)-(d).................  Removed                                 
                                Added............  98.64 (a), (c) and   
                                                    (d)                 
                                Added............  98.65 (f) and (g)    
98.67(c)......................  Revised..........  98.67(c)             
98.70.........................  Revised..........  98.70                
98.71.........................  Revised..........  98.71                
98.80 Introductory text.......  Revised..........  98.80 Introductory   
                                                    text                
98.80 (b) and (f).............  Revised..........  98.80 (b) and (f)    
98.81(a)......................  Revised..........  98.81(a)             
                                Added............  98.81(b)             
98.81(b)......................  Redesignated.....  98.81(c)             
98.82 Introductory text.......  Revised..........  98.82 Introductory   
                                                    text                
98.83 (c)-(f).................  Revised..........  98.83 (c)-(f)        
98.83 (g) and (h).............  Removed                                 
98.83(i)......................  Redesignated.....  98.83(g)             
                                Added............  98.84                
98.90(e)......................  Revised..........  98.90(e)             
98.92(a)......................  Revised..........  98.92(a)             
98.92(b)......................  Removed                                 
98.92(c)......................  Revised..........  98.92(b)             
98.92 (d) and (e).............  Redesignated.....  98.92 (c) and (d)    
                                Added............  98.92(e)             
------------------------------------------------------------------------

Subpart A--Goals, Purposes and Definitions

Goals and Purposes (Section 98.1)
    This section of the regulations has been modified to incorporate 
the goals for the Child Care and Development Fund (CCDF) contained in 
section 658A of the amended CCDBG Act. We incorporated the goals as 
Sec. 98.1(a), and we retained but moved the subparagraphs on the 
purpose of the CCDF program and the regulations to Sec. 98.1 (b) and 
(c), respectively.
    In subparagraph (c), we eliminated the items relating to non-
supplantation and administrative costs. The PRWORA amendments 
eliminated the non-supplantation requirement and, for the first time, 
placed statutory limits on administrative costs. The new regulations 
relating to the statutory limits on administrative costs are proposed 
at Sec. 98.52.
Definitions (Section 98.2)
    The amendments proposed for this section are related to changes 
necessitated by the new statute, including additions and deletions. We 
have made the following changes: updated the definition of the Child 
Care and Development Block Grant Act to reflect it as amended; amended 
the definition of a child care certificate to reflect the new statutory 
language allowing the use of a certificate as a required deposit for 
child care services; and amended the definition of relative child care 
provider to reflect the statutory addition of great grandparents and 
siblings (if living in a separate residence) as relative providers.
    Since the new statute created a multi-part child care fund subject 
to the provisions of the Act, we have substituted the term ``Child Care 
and Development Fund (CCDF)'' for ``Block Grant.'' Use of the term 
``CCDF'' reflects the multiple sources of monies with a shared purpose. 
We have also defined the constituent parts of the CCDF: Mandatory 
Funds, Matching Funds, Discretionary Funds, and Tribal Mandatory Funds.
    The new section 658O(c)(6) of the Act provides for Tribes to use 
CCDF funds for construction and renovation of child care facilities, 
with the Secretary's approval. Therefore, we have proposed definition 
of several new terms related to this provision: construction, facility, 
major renovation, modular unit, and real property. ACF especially seeks 
comments on this proposed terminology, which is a first step towards 
developing program instructions on tribal applications for use of CCDF 
funds for construction and renovation.
    The amended Act deleted the terms ``elementary school'' and 
``secondary school'' formerly found at sections 658P(3) and (10). 
Therefore, we have also deleted these terms from our regulatory 
definitions. In so doing, we want to emphasize that child care services 
to school-aged children are still allowable under the CCDF, and we 
strongly encourage Lead Agencies to continue providing such services. 
Although the definitions of these terms have been removed as 
unnecessary, the Lead Agency has the flexibility to retain these very 
necessary services.
    We have replaced separate terms for ``Grantee'' and ``Lead Agency'' 
with the single term ``Lead Agency.'' We did this for a number of 
reasons. First, there was not a meaningful difference between those 
terms. Second, we wished to remove any ambiguity that could result from 
the use of two different terms. Third, we wanted to emphasize the 
streamlined administration of all child care programs in a State that 
resulted from PRWORA. We believe that use of the term ``Lead Agency'' 
conveyed that sense of unified and expanded responsibility better than 
the term ``Grantee.'' Lastly, we wanted to avoid any confusion that 
could arise when the State uses subgrantees in implementing the CCDF. 
We have replaced the specific term ``Grantee,'' as formerly defined,

[[Page 39616]]

with ``Lead Agency'' throughout these regulations, although there 
remain some instances where the word ``grantee'' appears in its common 
usage.
    Finally, we have eliminated the numbering to conform with Federal 
Register style which requires only alphabetical order for definitions. 
This will simplify any future additions or deletions to this section.

Subpart B--General Application Procedures

Lead Agency Responsibilities (Section 98.10)
    The new statute did not change the responsibilities of the Lead 
Agency. The amended statute at section 658D(b)(1)(A), however, expands 
the CCDF Lead Agency's ability to administer the CCDF program through 
other agencies. This change broadens the ability of the Lead Agency to 
administer the CCDF program through governmental or non-governmental 
entities, not just ``other State agencies'' as provided in the original 
CCDBG Act. These entities could include local governmental agencies and 
private organizations. The new statute and the Conference Agreement 
report (H.R. Rep. No. 725, 104th Cong., 2d Sess. (1996)) are silent 
regarding whether the non-governmental agencies cited in this statutory 
change must be non-profit organizations, so ACF has not regulated on 
the characteristics of the agencies through which the Lead Agency may 
administer the program.
Administration Under Contracts and Agreements (Section 98.11)
    Under the latest statutory amendments, the Lead Agency remains the 
single point of contact and retains overall responsibility for the 
administration of the CCDF program. We have amended this section, 
however, to reflect the statutory change discussed at Sec. 98.10 
regarding the Lead Agency's additional flexibility to administer the 
program through other governmental or non-governmental agencies.
    Further, since we made revisions corresponding to the added 
administrative flexibility granted to the Lead Agency, we also wanted 
to align the wording of this section more closely with the statute 
concerning the overall, lead responsibility of the Lead Agency. Thus, 
we have re-worded the paragraphs in this section that suggested that 
the Lead Agency ``shares'' administration of the program with other 
entities, because the relationship between the Lead Agency and other 
entities through which it administers the CCDF is not co-equal.
Coordination and Consultation (Section 98.12)
    Section 658D(b)(1)(D) of the Act requires the Lead Agency to 
coordinate the provision of CCDF child care services with other 
Federal, State, and local child care and early childhood development 
programs. Coordination is crucial to the successful implementation of 
child care programs and quality improvement activities. Therefore, we 
propose at Sec. 98.12(a) to require the Lead Agency to coordinate its 
child care services with the specific entities required at 
Sec. 98.14(a) to be involved in the CCDF Plan development process: 
Temporary Assistance for Needy Families (TANF), public health, 
employment services, and public education.
    The statutory changes under PRWORA significantly heighten the need 
for enhanced coordination between TANF and child care. The new 
temporary assistance program, TANF, imposes increased work requirements 
both regarding the number of TANF families participating in work and 
the number of hours they must work. At the same time, the guarantee of 
child care for families who are in work or approved education and 
training and the guarantee of Transitional Child Care program 
assistance were eliminated when PRWORA repealed the title IV-A child 
care programs.
    Moreover, the new statute provides new child care funding and gives 
the CCDF Lead Agency administrative oversight over the new funds in 
addition to the funds authorized under the amended Child Care and 
Development Block Grant Act. The law requires that States dedicate 70 
percent of these new funds to the child care needs of families who are 
receiving assistance under a State program under Part A of title IV of 
the Social Security Act, families who are attempting through work 
activities to transition from such assistance, and families who are at 
risk of becoming eligible for such assistance. Under the new law, 
Tribes also receive additional child care funding and have the option 
to operate TANF programs. Tribes that operated tribal programs under 
the now-repealed Job Opportunities and Basic Skills Training (JOBS) 
program, may continue to operate work programs. Considered together, 
these changes present both an opportunity and a challenge for Lead 
Agencies to serve the child care needs of TANF families.
    It is extremely important that children and their families be 
linked to a system of continuous and accessible health care services, 
and there are numerous opportunities for linkages between health and 
child care programs. Overall coordination between child care programs 
and agencies responsible for children's health is key to supporting the 
healthy development of children. An ongoing Departmental initiative 
encourages the linkage between child care and health care. In May 1995, 
Secretary Shalala initiated the Healthy Child Care America Campaign, 
which encourages States and localities to forge linkages between the 
health and child care communities. Recognizing their mutually 
beneficial roles, we propose to require that the Lead Agency, as part 
of its health and safety provisions, assure that children in subsidized 
care be age-appropriately immunized. We believe that children will 
benefit substantially from this enhanced linkage we are making between 
child care and health services.
    Employment is the goal of most TANF families and employment 
services are critical to the low-income working families served by the 
CCDF. Therefore, we believe that it is only prudent that the Lead 
Agency coordinate with those State agencies that are responsible for 
providing employment and employment-related services. But child care is 
also emerging as an important workforce development issue for the 
entire population. As such, we believe that Lead Agencies should also 
undertake policies that support and encourage public-private 
partnerships that promote high quality child care.
    Linkages with education agencies are crucial for leveraging 
additional services and enhancing child development. One important 
aspect of this linkage is the role played by public schools as a 
critical on-site resource for child care. Although PRWORA repealed 
section 658H of the Child Care and Development Block Grant Act, which 
directly addressed before- and after-school child care, in the fiscal 
year 1997 budget Congress nevertheless set aside $19 million 
specifically to use for before- and after-school child care activities 
and child care resource and referral. We, therefore, believe that the 
repeal of section 658H should not result in a lessening of coordination 
with before- and after-school programs. We have included requirements 
to coordinate with public education agencies, both for the purpose of 
child care planning and development, as well as for more general 
coordination initiatives.
    Aside from proposing to require Lead Agency coordination with 
specific entities discussed above, we also

[[Page 39617]]

strongly encourage coordination with other agencies with potential 
impact on child care, including: Head Start collaborative offices, 
child support, child protective services (especially when the Lead 
Agency chooses to include children receiving protective services among 
the families eligible for CCDF subsidies), transportation, National 
Service, and housing.
    The Head Start comprehensive model of health, parent involvement, 
family support and education, when linked with child care, can provide 
parents and children with quality comprehensive full day/full year 
services. Promising models that fund Head Start-eligible children in 
community-based child care provided in child care centers and homes are 
emerging across the country, and we encourage Lead Agencies to explore 
and support such efforts.
    Partnerships with National Service programs present promising 
opportunities for collaborations that can expand and enhance child care 
for both young children and school-aged children. National Service 
programs have developed several effective and replicable models for 
providing the tools and skills necessary to build the capacity and 
sustainability of local child care programs, involving parents and 
community volunteers in child care activities, and enlisting private 
sector participation in meeting community needs, including child care.
    The availability of transportation is key to enabling families to 
access child care services and, ultimately, work. Coordination with 
transportation agencies and planning groups can ensure that child care 
facilities are located near major transportation modes for easier 
access and that systems of public transportation support travel 
patterns of low-income workers. Alleviating transportation difficulties 
for child care cuts down on travel time and stress, and allows parents 
to focus on achieving self-sufficiency through work and education.
    Child care and child support enforcement programs serve many of the 
same families and have a shared mission--to promote self-sufficiency of 
families and the well-being of children. As a result, we encourage 
collaborative outreach initiatives between these programs. For example, 
child care programs can disseminate information to parents about 
paternity establishment and child support enforcement. We also 
encourage the two programs to coordinate on policy issues. For example, 
the programs have a common interest in assuring that the State 
guidelines used to calculate child support awards adequately consider 
the cost of child care.
    Coordinating with housing agencies is crucial for the millions of 
TANF recipients and low-income workers who receive child care subsidies 
and reside in public housing. Locating child care facilities in or near 
public housing makes services more accessible, and can provide parents 
with a more stable and familiar environment for their children's care. 
Lead Agencies can work with public housing authorities to identify 
opportunities where co-located housing and child care can serve as an 
employment or entrepreneurial strategy, and a support service for 
residents.
    We also wish to highlight that the regulation at Sec. 98.12(c), 
which requires States to coordinate, to the maximum extent feasible, 
with any Indian Tribes that receive CCDF funds has new meaning in the 
context of the changes made by PRWORA. As we have noted above, Tribes 
are eligible to directly receive additional child care funding, and to 
operate TANF as well as continue to operate work programs if they 
operated a JOBS program. Nonetheless, the new law did not amend section 
6580(c)(5), which specifically provides tribal children with dual 
eligibility for both tribal and State child care programs funded under 
CCDF. A broad range of options for implementing and designing programs 
is available to both States and Tribes. States and Tribes, therefore, 
have a mutual responsibility to undertake meaningful coordination in 
designing child care services for Indian families.
Applying for Funds (Section 98.13)
    We are proposing to simplify the application process in order to 
reduce the administrative burdens of duplicative information requests 
and to provide budget information in the CCDF Plan, which is a public 
document. The current regulations require an annual ``application,'' 
separate from the Plan. This separate application must indicate the 
amount of funds requested, broken down by proposed use (e.g., direct 
services, administration, quality activities, etc.). A Plan that 
describes the entire child care program in detail is also required, but 
only once every two years. The Plan currently does not provide a 
``fiscal context'' for the program, since it does not include budgetary 
information.
    In the past, the separate application requested extensive budget 
information, largely due to the requirements related to the now-
discontinued 25 percent setaside of funds for quality and supply 
building. Because we knew that the budget data was preliminary, we had 
not required its inclusion in the Plan or made it subject to the 
compliance process. More importantly, the budget information was not 
subject to the public hearing process.
    We believe that the Lead Agency, in setting the goals and 
objectives of the program and in determining how to achieve them, must 
consider the allocation of funds, as well as the program and 
administrative activities that will be undertaken. We also believe that 
public knowledge of how funds might be allocated among activities and 
eligible populations is critical to the planning process. Therefore, we 
are requiring the Lead Agency to include in its Plan an estimate of the 
percent or amount of funds that it will allocate to direct services, 
quality activities, and administration. These estimates are for the 
public's consideration in the hearing process; they will not be used to 
award funds. The ACF 696, when approved by OMB, will be the formal 
vehicle for providing estimates to ACF for the purpose of awarding 
funds.
    These Plan estimates will be macro-level estimates. That is, the 
Plan will reflect an estimated amount (or percentage) of funds that the 
Lead Agency proposes to use for: all direct services, for all quality 
activities and for administration. We will not ask that these estimates 
be broken down into subcategories as we had in the separate 
application. We wish to reiterate that we recognize that these are 
estimates and, as such, will not be subject to compliance actions. Nor 
will approval of a Plan be withheld based on the Lead Agency's 
allocation of funds among activities, unless the Plan indicates that 
the requirements for administrative cost or quality expenditures will 
be violated.
    It is because of our strong belief in full public participation in 
the planning process for CCDF-funded child care services that we make 
this requirement. We remind Lead Agencies that, pursuant to section 
658K of the Act, they must provide information on the actual use and 
distribution of funds at the end of the program period to ACF.
    At Sec. 98.13(a) we have retained the requirement that the Lead 
Agency apply for funds. We intend to use the financial form ACF-696 to 
fulfill this requirement, so that the need for a separate application 
is obviated.
    We continue to request the various certifications and assurances 
that are required by other statutes or regulations and that apply to 
all applicants for Federal financial assistance, specifically:
     Pursuant to 45 CFR part 93, Standard Form LLL (SF-LLL), 
which assures that the funds will not be used

[[Page 39618]]

for lobbying purposes. (Tribal applicants are not required to submit 
this form.)
     Pursuant to 45 CFR 76.600, an assurance (including any 
required forms) that the grantee provides a drug-free workplace.
     Pursuant to 45 CFR 76.500, certification that no 
principals have been debarred.
     Assurances that the grantee will comply with the 
applicable provisions regarding nondiscrimination at 45 CFR part 80 
(implementing title VI of the Civil Rights Act of 1964, as amended), 45 
CFR part 84 (implementing section 504 of the Rehabilitation Act of 
1973, as amended), 45 CFR part 86 (implementing title IX of the 
Education Amendments of 1972, as amended) and 45 CFR part 91 
(implementing the Age Discrimination Act of 1975, as amended).
    We have retained but sightly modified the requirement at Sec. 98.13 
to provide that the Lead Agency, not the Chief Executive Officer, must 
supply the requested information. While the Chief Executive Officer 
designates the Lead Agency, we feel that it is unnecessary for the 
Chief Executive Officer to thereafter apply for funding each year. This 
proposed change gives grantees the flexibility to simplify the 
application process further.
    In summary, the proposed CCDF application process for States and 
Territories consists of the two-year CCDF Plan as required in 
Sec. 98.17 and such other information as may be specified by the 
Secretary. For the second year of the Plan, the Lead Agency will use 
financial reporting forms to provide ACF with its estimates of funds 
needed quarterly--there is no longer a separate ``application'' needed 
from States and Territories in the second year of the Plan period. 
Accordingly, we have changed the title of this section from 
``Application Content and Procedures'' to ``Applying for Funds.''
    The requirements for Tribes have been moved to Subpart I and are 
discussed there. We have separated the tribal requirements in order 
that the discussion of tribal requirements may be more focused and 
coherent.
Plan Process (Section 98.14)
    Section 658D(b) of the Act requires the Lead Agency in developing 
the Plan to: (1) coordinate the provision of services with Federal, 
State and local child care and early childhood development programs; 
(2) consult with appropriate representatives of local governments; and 
(3) hold at least one hearing in the State with sufficient time and 
statewide notification to provide an opportunity for the public to 
comment on the provision of child care services.
    In amending the CCDBG Act to require that the Lead Agency provide 
``sufficient time and Statewide distribution'' of the notice of 
hearing, Congress established a higher standard for public comment than 
previously existed in the Act. Affording the public a meaningful 
opportunity to comment on the provision of child care services advances 
public participation, Lead Agency accountability and the overall goals 
of welfare reform. Accordingly, we have established a minimum 20-day 
notice-of-hearing requirement at Sec. 98.14(c). That is, the Lead 
Agency must allow a minimum of 20 days from the date of the statewide 
distribution of the notice of the hearing before holding the hearing. 
Many Lead Agencies have ongoing planning processes with broad community 
involvement that convene regularly during the year. We applaud such 
broad participatory approaches as they are especially responsive to 
changing needs and these approaches may fulfil the requirements of 
Sec. 98.16.
    In the interest of State flexibility, we have established only a 
minimum amount of time that the public should be notified of the 
hearing. However, we encourage Lead Agencies to consider providing 
longer lead times that would allow the public more time to prepare for 
hearings, especially when only a single hearing is held in the State. 
Although the Act requires the Lead Agency to hold only one public 
hearing, the Lead Agency may, of course, hold additional public 
hearings.
    We considered establishing regulations around the newly added 
statutory language that requires ``statewide distribution of the notice 
of hearing.'' Clearly, the expanded Child Care and Development Fund 
potentially impacts a much wider segment of the population than may 
have been the case under the CCDBG. In light of the stronger statutory 
language about public hearings, we considered, for example, a 
regulation to require the Lead Agency to employ specific media in 
publicizing its hearing or to ensure that specific portions of the 
population be potentially exposed to the hearing notice.
    We rejected these and other alternatives as restricting State 
flexibility. Nevertheless, we remain concerned that some Lead Agencies 
may not respond to the heightened statutory requirement. We, therefore, 
expect the Lead Agency to describe how it achieved statewide 
distribution of the notice of hearing in its description of the hearing 
process required in the Plan by Sec. 98.16(e). Although we decline to 
propose a prescriptive rule in this matter at this time, we 
specifically reserve the authority to regulate further if Lead Agency 
Plans or actions indicate a less than ``statewide distribution of the 
notice of hearing'' as exemplified above.
    Similarly, we have not established a specific requirement 
concerning written comments from the public. We believe, however, that 
a meaningful public comment process must consider written comments from 
persons or organizations, especially those who are unable to attend a 
hearing.
    At Sec. 98.14(c)(2) we have proposed that the hearing be held 
before the Plan is submitted to ACF, but no earlier than nine months 
prior to the effective date of a Plan. We recognize that States may 
have established public comment mechanisms that coincide with their 
budgetary cycle but not with our usual time frames for public hearings 
and Plan submittal. Therefore, we wish to clarify our intention in this 
area.
    It is our expectation that the Lead Agency will submit at least a 
draft of the Plan for public comment through a hearing. We believe 
that, in some instances, the CCDF Plan may be the only public document 
that summarizes the child care policy of the State. As such, the Plan 
is an important part of the effort to keep the public well informed of 
State policies and programs.
    ACF does not believe that the public hearing is held for the 
purposes of ``approving'' the Plan as it will be submitted, but rather 
to solicit public comment and input into the services that will be 
provided through the CCDF. For this reason, we are proposing a flexible 
process that does not create an undue burden on Lead Agencies, yet 
insures that the statutorily required public input is obtained.
    The Plan that is submitted to ACF must reflect the program that 
will be conducted and must incorporate any changes to the program that 
the Lead Agency chooses to adopt as a result of the input received 
during the public hearing. We advise the Lead Agency to retain a copy 
of the draft Plan that it made available for public comment in 
fulfillment of this requirement. We also remind Lead Agencies that 
substantive changes in their programs, after their Plans are submitted 
to ACF, must be reflected by amending the Plan per Sec. 98.18(b).
    The potential impact of PRWORA on the child care programs in every 
State cannot be underestimated. We believe the public should be 
involved in creating the flexible child care systems allowed by PRWORA. 
Therefore, the Plan to be submitted to ACF for the Federal Fiscal Year 
beginning October 1,

[[Page 39619]]

1997, is subject to the amended statutory hearing requirement. All Lead 
Agencies must conduct a new public hearing before submitting the Plan 
to ACF.
    As discussed above at Sec. 98.12, we believe that ongoing 
coordination and consultation processes are vital to the design of a 
successful program. Therefore, at Sec. 98.14(a) we have included a 
minimum list of State agencies with which the Lead Agency must 
coordinate the provision of services under the CCDF. The results of the 
coordination with these State agencies must be reflected in each 
biennial Plan submitted to ACF.
    Both the public hearing and the coordination and consultation 
processes must be undertaken each time the entire Plan is required to 
be submitted. Although an amendment to the Plan is not subject to the 
regulatory hearing requirement, State rules may require a hearing or 
public comment period.
Assurances and Certifications (Section 98.15)
    The PRWORA amendments made a number of changes to the assurances 
under the CCDBG. In several instances the term ``assure'' was replaced 
by the term ``certify.'' Also, as described below, the amendments 
changed the content of two of the former assurances and some assurances 
were eliminated.
    While ACF believes that there is no practical difference between an 
assurance or certification, when both are given in writing, the 
proposed amendments have grouped the assurances together at 
Sec. 98.15(a) and the certifications together at Sec. 98.15(b).
    Regarding specific substantive changes, the new section 
658E(c)(2)(D) of the Act replaces the former assurance regarding 
consumer education. The proposed corresponding regulatory amendment at 
Sec. 98.15(b)(3) uses the statutory language requiring the Lead Agency 
to certify it ``will collect and disseminate to parents of eligible 
children and the general public, consumer education information that 
will promote informed child care choices.''
    The new section 658E(c)(2)(E) does not contain prior language 
requiring Lead Agencies to have in place a registration process for 
unregulated care providers that provided care to children receiving 
subsidized care under the CCDBG Act. We, therefore, removed the 
assurance formerly found at Sec. 98.15(i). We note, however, that the 
Lead Agency has the flexibility to continue to maintain a registration 
process for providers if it chooses. This process has enabled States to 
maintain an efficient payment system. In addition it has provided a 
means to transmit relevant information, such as health and safety 
requirements and training opportunities, to providers who might 
otherwise be difficult to reach.
    The Act also revises the requirement that providers meet all 
licensing and regulatory requirements applicable under State and local 
law. The revised requirement proposed at Sec. 98.15(b)(4) mirrors the 
new statutory language that there be ``in effect licensing requirements 
applicable to child care services provided within the State.''
    For tribal programs, the amendments specifically provide that, ``in 
lieu of any licensing and regulatory requirements applicable under 
State and local law, the Secretary, in consultation with Indian tribes 
and tribal organizations, shall develop minimum child care standards 
(that appropriately reflect tribal needs and available resources) that 
shall be applicable to Indian tribes and tribal organizations receiving 
assistance under this subchapter'' (section 658E(c)(2)(E)(ii)). ACF is 
in the process of arranging those consultations.
    The PRWORA deleted requirements formerly found in the statute at 
section 658E(c)(2)(H), (I), and (J). These provisions, which related to 
reporting reductions in standards, reviewing State licensing and 
regulatory requirements, and non-supplantation would therefore be 
deleted by this proposed revised rule.
    Finally, we propose at Sec. 98.15(a)(6) that States provide an 
assurance that they have not reduced their level of effort in full-day/
full-year services if they use pre-K expenditures to meet the MOE 
requirement, as discussed further at Sec. 98.53.
Plan Provisions (Section 98.16)
    We have amended Sec. 98.16 to reflect changes in the Plan resulting 
from PRWORA. For example, we have deleted the language on registration 
and the calculation of base-year level-of-effort previously found at 
Sec. 98.16(a)(13), (14) and (16). We substituted for them the statutory 
requirements for the Lead Agency to provide detailed descriptions of 
its parental complaints process at Sec. 98.16(m) and its procedures for 
parental access at Sec. 98.16(n). Similarly, we have modified some 
language to reflect new statutory language. For example, Sec. 98.16(h) 
now discusses the additional purposes for which funds may be used, and 
Sec. 98.16(l) now requests the summary of facts upon which payment 
rates were determined, including the conduct of a market rate survey. 
Section 98.16(c) has been expanded to include the entities designated 
to receive private donated funds pursuant to Sec. 98.53(f). We have 
also modified the language at Sec. 98.16(g)(2) to reflect broader 
flexibility concerning the use of in-home care. This change is 
addressed more fully under our discussion of parental choice later in 
this Preamble. The other changes in Plan provisions are more fully 
discussed in the related sections that follow.
    We take this opportunity to correct the wording of Sec. 98.16(j), 
formerly Sec. 98.16(a)(10), concerning health and safety requirements. 
We have removed the word ``minimum'' here since the legislation 
contains no such qualification, nor do our regulations limit the 
flexibility to establish such requirements. We note that Sec. 98.41 
remains unaffected by this correction since that section did not 
include the use of the word ``minimum.''
    We have also proposed to add Sec. 98.16(p), which would require the 
Lead Agency to include in the CCDF Plan the definitions or criteria 
used to implement the exception to TANF work requirement penalties that 
applies when a single custodial parent with a child under age six has 
demonstrated an inability to locate needed child care. Among others, 
the definitions or criteria would include ``appropriate child care,'' 
and ``affordable child care arrangements.'' We elaborate on this 
requirement in the discussion of consumer education at Sec. 98.33.
    Finally, we propose to add Sec. 98.16(q), which provides that the 
Lead Agency describe State efforts to ensure that pre-Kindergarten 
programs, for which Federal matching funds are claimed, meet the needs 
of working parents. This requirement is discussed at Sec. 98.53.
Period Covered by Plan (Section 98.17)
    The statute was amended at section 658E(b) to eliminate the three-
year initial period for State Plans. We therefore made corresponding 
amendments in this proposed rule to provide that all Lead Agencies for 
States, Territories, and Tribes must submit new Plans every two years. 
This process begins with the Plans to be submitted in summer 1997 for 
approval for implementation on October 1, 1997. Those Plans, when 
approved, will be applicable for Federal Fiscal Years 1998 and 1999. 
All current Lead Agencies must submit new Plans if they wish to receive 
the CCDF funds that become available on October 1, 1997.

[[Page 39620]]

Subpart C--Eligibility for Services

A Child's Eligibility for Child Care Services (Section 98.20)
    General eligibility. The amended statute at 658P(4)(B) expands the 
definition of ``eligible child'' to include families whose income does 
not exceed 85 percent of the State median income for a family of the 
same size, instead of the 75 percent level previously stipulated. 
Therefore, Sec. 98.20(a)(2) is amended to reflect that change.
    We amended the regulation at Sec. 98.20(a)(1)(ii) regarding the 
option to serve dependent children age 13 and over who are physically 
or mentally incapacitated or under court supervision. We retained the 
State option to serve older children. However, our amendment removes 
the reference to the definition of ``dependent child'' in the State 
plan under title IV-A of the Social Security Act, since the amended 
title IV-A of the Social Security Act no longer requires a State to 
adopt a single definition of ``dependent child.'' We are proposing 
instead that States may elect to serve children age 13 or older who are 
physically or mentally incapacitated or under court supervision up to 
age 19, if they include the age limit in the eligibility and priority 
terminology section of their CCDF Plan.
    Additionally, the statute eliminates the requirement for States to 
reserve a specific portion of their funds for activities designed to 
establish or expand and conduct early childhood development or before- 
and after-school care programs. Therefore, the regulations providing 
additional conditions for eligibility for before- and after-school and 
early childhood development services at Sec. 98.21 are deleted. ACF 
believes that the setaside enabled many States to develop and expand 
such services. Further, the FY 1997 Appropriations Bill included $19 
million in Discretionary funds which, according to the Conference 
Report, H.Rpt. 104-863 (1996), were targeted specifically for resource 
and referral activities and for school-age child care activities. This 
action acknowledges the important role that school-age child care plays 
in the lives of families. With the added flexibility under the amended 
CCDBG Act States can continue to provide child care services to all 
eligible children, including these targeted populations, without a 
requirement that specific portions must go to any particular program.
Foster Care and Protective Services
    We are clarifying that grantees have the flexibility to include 
foster care in their definition of protective services in their Plan 
and thus provide child care services to children in foster care in the 
same manner in which they provide services to children in protective 
services.
    We previously distinguished between children in protective services 
and children in foster care by allowing child care subsidies for foster 
care only when the foster parent is working, in education or in 
training. The distinction was made only in the preamble language; the 
regulatory and statutory language provides for child protective 
services as a separate eligibility criterion but is silent about foster 
care. Therefore, this change in interpretation does not require a 
regulatory change.
    Under the existing regulations, a child in a family that is 
receiving, or needs to receive, protective intervention is eligible for 
child care subsidies if he or she remains in his or her own home even 
if the parent is not working, in education or in training. In these 
instances, child care serves the child's needs as much or more than the 
parent's needs. In many States, Territories and Tribes, however, foster 
care is an integral part of the protective services system. Some 
grantees do not differentiate between protective services for families 
who remain intact and for those children who are in a foster placement.
    Lead Agencies electing to include foster care in their definition 
of protective services are required to state so in their CCDF Plan. If 
Lead Agencies do not include foster care in their definition of 
protective services, they must tie eligibility for CCDF child care of 
children in foster care to the status of the foster parent's work, 
education or training.
    We also wish to clarify the type of CCDF-funded child care services 
allowable for families who also receive protective services. In the 
preamble to the current regulations (57 FR 34360, Aug 4, 1992), we gave 
Lead Agencies the option to allow child care for more than 24 
consecutive hours when it is due to the nature of the parent's work, 
and as long as the care is actually child care, not ``institutional'' 
services. Thus, child care normally covers a less than 24-hour period 
except in instances where the work schedule of the parent(s) requires 
longer periods of care.
    Regarding respite child care, we said in the preamble (57 FR 34368, 
Aug. 4, 1992), ``Grantees have the flexibility to allow a child 
receiving, or in need of, protective services, to receive respite child 
care.'' We wish to clarify that respite child care is allowable for 
only brief, occasional periods in excess of the normal ``less than 24 
hour period'' in instances where protective services parent(s)--
including foster parents where the Lead Agency has defined protective 
service families to include foster care--need relief from caretaking 
responsibilities. For example, a child care arrangement by someone 
other than the custodial parent for one weekend a month to give relief 
to the custodial parent(s) that are protective service families is 
acceptable. We believe that this kind of respite child care, if 
necessary for support to families with children in protective services, 
would be an acceptable use of CCDF funds.
    If a State or Tribe uses CCDF funds to provide respite child care 
service, i.e., for more than 24 consecutive hours, to families 
receiving protective services (including foster families when defined 
as protective services families), the CCDF Plan must include a 
statement to that effect in the definition of protective services. We 
note this definition of ``respite child care'' may differ from how 
States or Tribes define it for other purposes (e.g., child welfare). 
Thus, respite child care must be specified in the Lead Agency's Plan if 
it is to be considered an allowable expenditure under CCDF.
    Finally, we have reconsidered our position concerning the selection 
of providers in child protective services (CPS) cases. In the preamble 
at 57 FR 34369, Aug. 4, 1992 we suggested that the CPS caseworker could 
question, but only on a case-by-case basis, a parent's choice of 
provider and could determine that the choice of provider is not in the 
best interest of the child.
    The children and families who receive, or who need to receive, 
protective services are obviously in crisis. The CPS system must 
respond quickly and appropriately, yet sensitively, to the needs of 
such families--the need to protect the child should be foremost.
    To meet these needs, some States have higher licensing standards 
for, or established networks of, specially trained child care providers 
to be used in CPS cases. In such instances, we believe that the State's 
obligation to protect the child would best be accomplished by allowing 
the State to require the use of such providers as the norm in CPS 
cases, if the State so chooses. The parent could, nevertheless, request 
another provider, which the CPS caseworker would consider on a case-by-
case basis. Because our policy was originally only stated in preamble, 
no change to the regulations is required.

[[Page 39621]]

Subpart D--Program Operations (Child Care Services)--Parental Rights 
and Responsibilities

Parental Choice (Section 98.30)
    Cash as a certificate. Since welfare reform has raised issues about 
methods of paying for child care, we wish to provide clarification with 
respect to child care certificates provided in the form of cash. In 
defining the term ``certificate,'' the statute at 658P(2) says, ``The 
term `child care certificate' means a certificate (that may be a check 
or other disbursement) that is issued by a State or local government * 
* * directly to a parent who may use such certificate only as payment 
for child care services or as a deposit for child care services if such 
a deposit is required of other children being cared for by the 
provider.''
    With a certificate or two-party check, the Lead Agency can ensure 
that money is paid to a provider who meets applicable health and safety 
requirements. This is not the case when a Lead Agency provides cash to 
a parent. We strongly discourage a cash system, because providers must 
meet health and safety standards, and we believe that the use of cash 
can severely curtail the Lead Agency's ability to conform with this 
statutory requirement.
    If, nevertheless, a Lead Agency chooses to provide cash, it must be 
able to demonstrate that: (1) CCDF funds provided to parents are spent 
in conformity with the goals of the child care program as stated at 
section 658A of the Act, i.e., that the money is used for child care; 
and (2) that child care providers meet all applicable licensing and 
health and safety standards, as required by section 658E(c)(2) (E) and 
(F) of the Act. Lead Agencies, therefore, may wish to consider having 
parents who receive cash attest that the funds were used for child care 
and to identify the provider. Such a statement would help assure that 
the funds were expended as intended by the statute and lessen the 
possibilities for fraud. Finally, Lead Agencies are reminded that they 
must establish procedures to ensure that all providers, including those 
receiving cash payments from parents, meet applicable health and safety 
standards.
    Availability of certificates. Section 658E(c)(2)(A) of the Act 
requires States to provide assurances that parents of each eligible 
child who receives or is offered CCDF child care services are given the 
option of (1) enrolling their children with a provider who has a grant 
or contract to provide services; or (2) receiving a child care 
certificate. The Act also requires that children who are to be enrolled 
in contracted slots must be placed with the provider of their parents' 
choice whenever possible. This statutory requirement is reflected in 
the regulations at Sec. 98.30(a). The requirement basically is repeated 
at Sec. 98.30(d) (formerly Sec. 98.30(e)).
    Based on our experience administering the CCDBG program, we have 
found that the duplication of the certificate option in the regulations 
has created some misunderstanding that the CCDBG Act gives preeminence 
to certificates. We wish to clarify that repetition of the provision 
should not be interpreted as giving preeminence to certificates. Both 
the statute and the regulations promote parental choice, not a specific 
method for achieving choice. Neither the statute nor the regulation can 
be interpreted accurately as giving a preference to certificates or to 
contracted slots.
    If a choice of providers is denied to parents to whom services are 
offered, the complaints process set forth in Sec. 98.93 provides an 
appropriate mechanism for redress. The Administration for Children and 
Families will respond to all complaints filed through this process.
    We want to clarify that, although certificates must be an option 
for parents whenever services are offered, it may not be necessary to 
offer certificates whenever services are being used. For example, a 
local program might not offer new child care services during some 
portion of the program year because all available funds have been 
assigned to participating eligible children and are being used or 
``reserved'' for those specific children. Availability of funding will 
continue to determine when child care subsidies are to be offered.
    We want to emphasize that Lead Agencies are not precluded from 
entering into grants or contracts for child care services. Depending 
upon the child care needs of the eligible population in discrete 
geographic markets, grants and contracts may be necessary to ensure a 
stable supply of child care services. In essence, the Lead Agency must 
make a good faith effort to balance the funding for grants or contracts 
and certificates to ensure that parents have optimum choice among 
quality child care options as stipulated in the legislation and 
reinforced in the existing regulation.
    In conducting on-site program reviews, we have found that Lead 
Agencies are operating certificate programs that provide for parental 
choice. While some offer only certificates, others commit funds on a 
proportional basis between certificates and contracts based on the 
particular needs of individual areas or populations. Some Lead 
Agencies, for example, have found that stable child care is more 
difficult to find in rural or inner-city areas, for infants, or for 
children with special needs and have therefore contracted with 
competent providers to address these specific shortages.
    In planning the distribution of funds for grants or contracts and 
certificates, Lead Agencies should ensure that parents who choose 
certificates are not placed on a waiting list while substantial numbers 
of contracted slots in the same area remain unutilized.
    Child care administrators have told us that there are areas where 
the need for subsidized low-income child care exceeds the available 
resources. Thus, if certificate funds are fully reserved for children 
who are already enrolled, and no subsidized slots are available, it may 
be necessary to begin a waiting list for certificates. Similarly, 
because many Lead Agencies allocate funds on a locality-by-locality 
basis, there may be waiting lists in some areas, while services are 
still available in others.
    In addition to a certificate's being used for child care services, 
the statute at amended section 658P(2) stipulates that a certificate 
can also serve as a deposit for child care services, if such a deposit 
is required of other children being served by the provider. We have 
added regulations at Sec. 98.30(c)(3) to reflect this new provision.
    The amendments eliminated language at section 658E(c)(2)(A)(iii) 
requiring a certificate program to be in place by October 1, 1992, 
since all Lead Agencies must now have a certificate program in place, 
except for Tribes that are exempt under Sec. 98.83(f). We have amended 
Sec. 98.30 of the regulations accordingly.
    We have also amended Sec. 98.30 to reflect that section 
658E(c)(2)(E) of the Act no longer requires registration of providers. 
For further discussion about registration, see the preamble at 
Sec. 98.45.
    In-home care. In-home child care is still a required category of 
care; however, since this care is provided in the child's own home it 
has unique characteristics that deserve special attention. First, in-
home care is affected by interaction with other laws and regulations. 
For example, in-home providers are classified as domestic service 
workers under the Fair Labor Standards Act (FLSA) (29 U.S.C. Section 
206(a)) and are therefore covered under minimum wage. As employees, in-
home child care providers are also subject to tax requirements. In 
highlighting these special considerations, we also note that

[[Page 39622]]

whenever the FLSA and other worker protections apply, ACF is committed 
to maintaining the integrity of these protections. A strong commitment 
to work, and therefore to worker protections, is critical to welfare 
reform.
    Second, child care administrators have faced a number of special 
challenges in monitoring the quality of care and the appropriateness of 
payments to in-home providers. For that reason, we propose to give Lead 
Agencies greater latitude to impose conditions and restrictions on in-
home care. We have revised Sec. 98.16(g)(2) to require that Lead 
Agencies, in their CCDF Plans, specify any limitations on in-home care 
and the rationale for those limitations.
    We are mindful that in-home care plays a valid and important role 
in meeting the needs of working parents, and that many participants in 
subsidized care programs rely on such care to meet their family needs. 
Access to care that meets the needs of individual families is 
critically important to parents and children, to schools and the 
workplace, and to other community institutions that interface with the 
family. While in-home care represents only a small proportion of all 
available care in most communities, it may be the best or only option 
for some families and may prove valuable, necessary and cost-effective 
when compared to other options. There are a number of situations in 
which in-home care may be the most practical solution to a family's 
child care needs. For example, the child's own home may be the only 
practical setting in rural areas or in areas where transportation is 
particularly difficult. Employees who work nights, swing shifts, 
rotating shifts, weekends or other non-standard hours may experience 
considerable difficulty in locating and maintaining satisfactory 
center-based or family day care arrangements. Part-time employees often 
find it more difficult to make child care arrangements than do those 
who work full-time. Similarly, families with more than one child or 
children of very different ages might be faced with multiple child care 
arrangements if in-home care were unavailable. Many families also 
believe that very young children are often best served in their own 
homes. Given the general scarcity of school-age child care in many 
communities, in-home care may enable some families to avoid latchkey 
situations before school, after school, and when school is not in 
session. For many families, in-home care by relatives also reflects 
important cultural values and may promote stability, cohesion and self-
sufficiency in nuclear and extended families.
    We urge child care administrators to consider the capacity of local 
child care markets to meet existing demand and the role that in-home 
care may play in the ability of parents to manage work and family life. 
Although in-home care does not represent a large share of the national 
supply, it fills an important niche in the structure and functioning of 
local child care markets by extending the ability of parents to care 
for children within their own families, closing gaps in the supply of 
community facilities, and creating a bridge between adult care and 
self- or sibling-care as children near adolescence.
    Some Lead Agencies may choose to limit in-home care because of cost 
factors. For example, a State might determine that minimum wage 
requirements result in payments for in-home care serving only one or 
two children that are much higher than the payments for other 
categories of care. Therefore, the Lead Agency could elect to limit in-
home care to families in which three or more children require care. The 
payment to the in-home provider would then be similar to the payment 
for care of the three children in other settings. This ability to limit 
in-home care allows Lead Agencies to recognize the same cost restraints 
that families whose care is unsubsidized must face.
    However, since in-home care has proven to be an important resource, 
we expect Lead Agencies to consider family and community circumstances 
carefully before limiting its availability. For that reason, we are 
proposing that CCDF Plans specify any limitations placed on in-home 
care and the rationale for those limitations.
    ACF recognizes that giving Lead Agencies greater latitude to impose 
conditions and restrictions on in-home care may affect parents' ability 
to make satisfactory child care arrangements and thus their ability to 
participate in work, education or training. We also recognize the 
challenges of implementing health and safety requirements in the 
child's own home, monitoring in-home providers, and complying with 
Federal wage and tax laws governing domestic workers. Therefore, we are 
seeking focused comments on our regulatory proposals for in-home care 
and would especially appreciate suggestions on how to balance parental 
choice, cost effectiveness, and adherence to other Federal and State 
provisions, such as the FLSA, that are unique to in-home settings.
Parental Access (Section 98.31)
    We have amended the regulations at Secs. 98.31 and 98.16(n) to 
reflect the new statutory requirement at section Sec. 658E(c)(2)(B) 
that Lead Agencies have in effect procedures to ensure unlimited 
parental access and to provide a detailed description of those 
procedures. We have also amended Sec. 98.15(b)(1) to reflect the 
statutory change to certify rather than assure that procedures are in 
effect to ensure unlimited access.
Parental Complaints (Section 98.32)
    We have added paragraph (c) to the regulations at Sec. 98.32 and 
amended Sec. 98.16 by adding paragraph (m) to reflect the new statutory 
requirements at Sec. 658E(c)(2)(C) on parental complaints. Under the 
changes, Lead Agencies must provide a detailed description of how a 
record of substantiated parental complaints is maintained and made 
available to the public on request. We have also amended the regulation 
at Sec. 98.15(b)(2) to reflect the requirement of the statute at 
658E(c)(2)(C) that a Lead Agency ``certify'' rather than ``assure'' 
that it will maintain a record of substantiated parental complaints.
Consumer Education (Section 98.33)
    We have amended the regulation at Secs. 98.33 and 98.15(b)(3) to 
reflect the statutory requirement at section 658E(c)(2)(D) that the 
Lead Agency ``certify'' that it ``will collect and disseminate to 
parents of eligible children and the general public, consumer education 
information that will promote informed child care choices.'' It is 
important to emphasize that the use of the words ``collect and 
disseminate'' is more proactive and forceful than the former 
requirement that consumer education ``be made available'' to parents 
and the public. We also believe that by changing the wording, Congress 
wished to emphasize the importance of consumer education as a service 
to be provided by Lead Agencies. This emphasis is also stressed by the 
third goal of the CCDF, listed at section 658A(b) of the amended 
statute, ``to encourage States to provide consumer education 
information to help parents make informed choices about child care.'' 
Moreover, the amendment to the reporting requirements at section 
658K(a)(2)(D)--reflected in the revised regulations at 
Sec. 98.71(b)(3)--requires Lead Agencies to report twice a year on the 
manner in which consumer education information was provided to parents 
and the number of parents that received such information.

[[Page 39623]]

    The statute previously specified the type of consumer education 
information that the Lead Agency had to provide: ``licensing and 
regulatory requirements, complaint procedures, and policies and 
practices relative to child care services within the State.'' The 
statute now is less prescriptive. Consumer education information is 
defined as that which ``will promote informed child care choices.'' 
Thus, the statute leaves it up to the Lead Agency to determine the type 
of information that will help the public and parents make informed 
child care choices.
    While Lead Agencies have flexibility in providing consumer 
education, ACF strongly encourages Lead Agencies to promote informed 
child care choices by offering information about: the various 
categories of care; the freedom of parents to choose the type of care 
that best meets their needs; the Lead Agency's certificate system; the 
rates for the various categories of care; the sliding fee scale; a 
checklist of what to look for in choosing quality care; providers with 
whom the Lead Agency has contracts for care; the basic health and 
safety regulations that all providers must meet; the Lead Agency's 
policy regarding its file of substantiated complaints by parents that 
is available upon request as required by Sec. 98.32; and local resource 
and referral agencies that can assist parents in choosing appropriate 
child care.
    The best child care arrangements are developed in one-on-one 
consultation with trained or experienced counselors. Professional help 
with locating child care is time-and cost-efficient for both families 
and Lead Agencies. Thus, it may be in the Lead Agency's interest to 
invest in strategies such as co-location of child care resource and 
referral counselors in work development offices or agencies. Economists 
make the argument that good consumer information is critical to making 
the child care market function more like other markets. Moreover, 
experience has shown that printed materials alone may not always be a 
sufficient information source, particularly if parents have low 
literacy rates.
Exception to Individual Penalties in the TANF Work Requirement
    Title I of the PRWORA amends Title IV-A of the Social Security Act 
and replaces the Aid to Dependent Children (AFDC) with a new block 
grant program entitled Temporary Assistance for Needy Families, or 
TANF. The new section 407(e)(2) addresses an exception to the work 
requirement in the TANF program and provides that a State may not 
reduce or terminate TANF assistance to a single custodial parent who 
refuses to work when she demonstrates an inability to obtain needed 
child care for a child under six, because of one or more of the 
following reasons:
    (1) Unavailability of appropriate child care within a reasonable 
distance from the individual's home or work site;
    (2) Unavailability or unsuitability of informal child care by a 
relative or under other arrangements;
    (3) Unavailability of appropriate and affordable formal child care 
arrangements.
    The TANF penalty exception underscores the pivotal role of child 
care in supporting work and also recognizes that the unavailability of 
appropriate, affordable child care can create unacceptable hardships on 
children and families. Since Congress provided that the new Mandatory 
and Matching child care funding be transferred to the Lead Agency under 
the CCDF and also provided that at least 70 percent of the new funding 
must be spent on families receiving temporary assistance, in transition 
from public assistance, or at risk of becoming eligible for public 
assistance, the Lead Agencies will be playing a dominant role in 
providing the child care necessary to support the strong work 
provisions found in TANF. It is critical, therefore, that CCDF Lead 
Agencies help disseminate information about the TANF exception. 
Knowledge of this exception on the part of parents also will be very 
important in promoting informed child care choices.
    Therefore, we propose to require that Lead Agencies include 
information about it in their consumer education programs. This 
responsibility entails informing parents that: (1) TANF benefits cannot 
be reduced or terminated for parents who meet the conditions as 
specified in the statute and as defined by the TANF agency; and (2) the 
time during which an eligible parent receives the exception will count 
toward the time limit on benefits stipulated by the statute at section 
408(a)(7).
    In order for a Lead Agency to comply with this requirement, it will 
need to understand how the TANF agency defines and applies the terms of 
the statute to determine that the parent has a demonstrated inability 
to obtain needed child care. The elements that require definition 
consist of: ``appropriate child care,'' ``reasonable distance,'' 
``unsuitability of informal care,'' and ``affordable child care 
arrangements.''
    In our pre-regulatory consultations, some groups urged us not only 
to ensure that the CCDF agency disseminates information about the TANF 
penalty exception but to regulate the content of the definitions or 
criteria used to determine if a family is unable to obtain needed child 
care. The approach we have taken in this proposed rule provides 
flexibility and strikes an appropriate balance between the roles of the 
CCDF and TANF agencies. We recognize the flexibility of the TANF 
program to define the terms established by the statute. However, we 
strongly encourage TANF agencies to define ``appropriate care,'' at a 
minimum, as care that meets the health and safety standards of the CCDF 
program, specified at Sec. 98.41. The definition should also take into 
account the results of many studies that show the value of quality 
child care for low-income children and the benefits to many of these 
children from more enriched child care.
    We are requiring, under Sec. 98.12 of the regulations, that Lead 
Agencies coordinate with TANF programs to ensure, pursuant to 
Sec. 98.33(b), that case workers, eligibility workers, and others who 
work with TANF recipients in both the TANF and the CCDF programs will 
inform families with young children of their right not to be sanctioned 
if they meet the criteria set forth in the statute and plan. As part of 
this coordination, at Sec. 98.16(p) we are requiring that the Lead 
Agency include in its plan the definitions or criteria the TANF program 
has adopted in implementing this exception to the work requirement.
    The new section 409(a)(11) of the SSA specifies that if the TANF 
program sanctions parents who are eligible for this exception to the 
individual penalties associated with the TANF work requirements, it may 
incur a penalty of up to five percent of its grant. Therefore, 
coordination between the Lead Agency and the TANF program in this 
matter will serve the best interests both of the recipients of TANF 
benefits and the service agencies themselves. ACF will issue proposed 
rules on the TANF penalty provisions later this year.

Subpart E--Program Operations (Child Care Services)--Lead Agency and 
Provider Requirements

Compliance with Applicable State and Local Regulatory Requirements 
(Section 98.40)
    We have amended the regulations at Sec. 98.40(a) to reflect a 
change in Section 658E(c)(2)(E)(i) of the Act. The amendment requires 
Lead Agencies to certify that they have in effect licensing 
requirements applicable to child care services, and to provide a 
detailed description of those requirements and of how they are 
effectively enforced. This

[[Page 39624]]

change is also reflected in Secs. 98.15 and 98.16. The statute notes, 
however, that these licensing requirements need not be applied to 
specific types of providers of child care services.
    Because amendments to section 658P(5)(B) have eliminated the 
requirement for registration of unlicensed providers serving families 
receiving subsidized child care, we have deleted the former regulation 
Sec. 98.40(a)(2) requiring registration. This change, however, does not 
prevent Lead Agencies from continuing to register unlicensed or 
unregulated providers, and we encourage them to do so. Those Lead 
Agencies that choose not to have a registration process will be 
required to maintain a list of providers. We discuss this in more 
detail at Sec. 98.45.
Health and Safety Requirements (Section 98.41)
    Section 658E(c)(2)(F), as amended, requires a Lead Agency to 
certify, rather than assure, that health and safety regulations 
applicable to child care providers are in place. We have amended the 
regulations at Secs. 98.41(a) and 98.15(b)(5) to conform with the 
amended statute.
    We propose to amend the regulation at Sec. 98.41(a)(1) to require 
that States and Territories incorporate in their health and safety 
provisions (by reference or otherwise) the latest recommendations for 
childhood immunizations of their respective State or territorial public 
health agency. While many State and territorial public health agencies 
adopt the recommendations of the Advisory Committee on Immunization 
Practices (ACIP) of the Centers for Disease Control and Prevention 
(CDC), we wish to emphasize that this proposed new requirement does not 
impose Federal standards for immunization but allows for decision of 
the individual State or Territory regarding immunization requirements.
    The proposed new immunization requirements at Sec. 98.41(a)(1) 
apply only to States and Territories. While tribal Lead Agencies must 
meet health and safety requirements that address the prevention and 
control of infectious diseases (including immunizations), they do not 
have to meet the specific immunization requirements that apply to 
States and Territories. In the proposed rule published May 11, 1994 (59 
FR 24510), which was never finalized, ACF proposed specific 
immunization requirements for Tribes. However, consistent with the 
amendments in PRWORA, we have not included those specific requirements 
in this proposed rule. We anticipate that tribal immunization 
requirements will be addressed in the minimum child care standards that 
are being developed by ACF in consultation with Indian Tribes and 
tribal organizations. New section 658E(c)(2)(E)(ii) of the CCDBG Act 
requires the development of minimum child care standards for Indian 
Tribes and tribal organizations.
    Our youngest and most vulnerable children remain at risk for 
vaccine-preventable diseases. The measles epidemic of 1989-1991 
resulted in more than 55,000 reported cases of the disease, 11,000 
hospitalizations, and more than 130 deaths. Half of those who died were 
infants. Although immunization rates for two-year-olds are now at an 
all-time high of 76 percent, and vaccine-preventable diseases are at an 
all-time low, more than one million two-year-olds still are not 
adequately protected. Childhood vaccines protect young children against 
infectious diseases that could lead to serious illness and deaths. Data 
reveal that by age two, when children should have received most of 
their vaccines, more than 24 percent of American children are not 
adequately protected against childhood diseases. Over one million 
children need at least one dose of polio vaccine; 640,000 children 
require a dose of MMR (measles/mumps/rubella); and about 530,000 
children have not received all their pertussis shots.
    Since a large percentage of children receiving child care 
assistance are under five years of age, we believe that the 
immunization requirement will have a positive impact in reducing the 
incidence of infectious diseases among preschool age children. Vaccines 
are the most cost-effective way to prevent childhood diseases. 
Nationally, approximately $10.00 are saved in direct medical costs for 
every dollar spent on the measles/mumps/and rubella (MMR) vaccine, 
$6.00 are saved for every dollar spent on the diphtheria/tetanus/
pertussis (DTP) vaccine, and $3.00 are saved for every dollar spent on 
the oral polio vaccine (OPV). For every dollar spent on immunization, 
as much as $29.00 can be saved in direct and indirect medical costs.
    In requiring children to be age-appropriately immunized, we 
considered that parents may not always be able to access immunizations 
easily. However, a number of national initiatives are under way to 
promote immunizations for all children. In response to disturbing gaps 
in the immunization rates for young children in America, a 
comprehensive Childhood Immunization Initiative (CII) was developed. 
CII addresses five areas:

--Improving immunization services for needy families, especially in 
public health clinics;
--Reducing vaccine costs for lower-income and uninsured families, 
especially for vaccines provided in private physician offices;
--Building community networks to reach out to families and ensure that 
young children are vaccinated as needed;
--Improving systems for monitoring diseases and vaccinations; and
--Improving vaccines and vaccine use.

    The CDC and its partners in the public and private sectors are 
working to build a comprehensive vaccination delivery system. The goals 
of the CII are to ensure that at least 90 percent of all two-year-olds 
receive each of the initial and most critical doses, to reduce diseases 
preventable by childhood vaccination to zero, and put in place a system 
to sustain high immunization coverage. Since 1994, the National 
Immunization Survey (NIS) has been used to provide immunization 
coverage estimates for all 50 States and 28 large urban areas.
    As part of the efforts in the CII, immunization programs on the 
State and local level are collaborating with WIC programs (Special 
Supplemental Food Program for Women, Infants, and Children) to focus on 
children's immunization. For example, local WIC clinics check the 
immunization records of WIC participants, assist families to find a 
primary health care provider, and provide immunization information. On-
site immunization services are sometimes also provided at local WIC 
clinics.
    On September 30, 1996, the CDC awarded funds ranging from $130,000 
to $250,000, to education agencies in four States (New York, South 
Dakota, West Virginia, and Wisconsin) to deliver immunization services 
to preschool-aged children in health centers at elementary schools. 
Over the past four years, welfare reform waivers were granted to 18 
States to allow them to require parents to immunize their children as a 
condition of receiving assistance.
    Surveys of licensed child care facilities indicate that the 
majority of States require some proof of immunizations for children 
enrolled in licensed or regulated child care centers and family day 
care homes. However, individual States differ in their specific 
requirements and regulatory approaches, and requirements for the 
immunization of children in child care settings that are exempt from 
licensure or other regulatory provisions vary widely.

[[Page 39625]]

    Lead Agencies have the flexibility to determine the method they 
will use to implement the immunization requirement. For example, they 
may require parents to provide proof of immunization as part of the 
initial eligibility determination and again at redetermination, or they 
may require child care providers to maintain proof of immunization for 
children enrolled in their care. The requirements established by the 
Lead Agency will generally be applicable to all children receiving CCDF 
assistance and in all child care settings. However, States have the 
option to exempt the following groups:
     Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings--if living in a separate 
residence--aunts and uncles);
     Children who receive care in their own homes;
     Children whose parents object on religious grounds; and
     Children whose medical condition contraindicates 
immunization.
    While families are taking the necessary actions to comply with the 
immunization requirements, Lead Agencies must establish a grace period 
during which children can continue to receive child care services.
    Finally, we encourage all Lead Agencies to consider requirements 
that provide for documenting regular updates of a child's 
immunizations.
    Section 98.30(f) (2) and (3) prohibit any health and safety 
requirements from having the effect of limiting parental access or 
choice of providers, or of excluding a significant number of providers. 
We do not think these new immunization requirements will have such an 
effect. Rather, we are convinced that, when applied to all providers, 
they will have the effect of enhancing parental choice of providers, 
since all providers will have the same requirements. More importantly, 
however, the requirements will promote better health for children, 
their families, and the public.
    Other revisions. Based on former statutory provisions, 
Sec. 98.41(c) of the 1992 regulations required a Lead Agency to include 
in its annual report a rationale for any reduction it might have made 
in standards applicable to child care, and paragraph (d) required each 
Lead Agency to review the licensing requirements of each licensing 
agency in the area served by the Lead Agency and report its findings in 
its first or second annual report. We have deleted both these 
requirements because of changes in the statute at section 658E(c)(2) 
(H) and (I).
    Pursuant to section 658P(5)(B) of the amended statute, we have 
added ``great grandparents, and siblings (if such providers live in a 
separate residence)'' to the list of relatives who, at State option, 
may be exempted from the health and safety requirements at 
Sec. 98.41(e) and to the definition of ``eligible child care provider'' 
at Sec. 98.2.
Sliding Fee Scales (Section 98.42)
    We have simplified Sec. 98.42 of the regulations by removing 
separate references to services under Secs. 98.50 and 98.51.
    For a further discussion of copayments, see Sec. 98.43.
Equal Access (Section 98.43)
    We have changed the title of this section to ``Equal Access,'' from 
``Payment Rates,'' because the amended CCDBG Act now focuses on equal 
access for families receiving subsidies to child care services. Under 
the amendments, Lead Agencies are required to certify that payment 
rates are sufficient to provide access to child care services for 
eligible families that are comparable to those provided to ineligible 
families. The amended section 658E(c)(4)(A) also requires the Lead 
Agency to provide a summary of the facts relied on to determine that 
its payment rates are sufficient to ensure equal access.
    The proposed regulation at Sec. 98.43(b) requires a Lead Agency to 
show that it considered the following three key elements in determining 
that its child care program provides equal access for eligible families 
to child care services:
    1. Choice of the full range of categories and types of providers, 
e.g., the categories of center-based, group, family, in-home care, and 
types of providers such as for-profit and non-profit providers, 
sectarian providers, and relative providers as already required by 
Sec. 98.30.
    2. Adequate payment rates, based on a local market survey conducted 
no earlier than two years prior to the effective date of the current 
Plan; and
    3. Affordable copayments. These elements must be addressed in the 
summary of facts submitted in a Lead Agency's biennial Plan, pursuant 
to Sec. 98.16(l).
    1. Full range of providers. All working parents, regardless of 
income, need a full range of categories and types of providers from 
which they may choose their child care services, because their child 
care needs vary considerably according to the child's age and special 
needs, the parents' work schedule, provider proximity, cultural values 
and expectations. Therefore, we believe that the statutory requirement 
of equal access means that low-income working parents receiving CCDF-
subsidized care must have a full range of the categories and types of 
providers from which to choose care that they believe best meets their 
needs and those of their children. The parental choice requirements at 
Sec. 98.30 already require that parents who receive certificates be 
afforded such variety.
    2. Adequate payment rates. The statute at section 658E(c)(4)(A) 
eliminated the requirement that, in establishing payment rates, the 
Lead Agency take into account variations in the cost of providing care 
in different categories of care, to different age groups, and to 
children with special needs. We have amended Sec. 98.43 to conform with 
the statute. However, while eliminating the requirement for different 
payment rates for different categories of care, Congress added a 
requirement that Lead Agencies provide ``a summary of the facts relied 
on by the State to determine that such rates are sufficient to ensure 
such [equal] access.''
    The statute suggests that if families receiving child care 
subsidies under the CCDF are to have equal access to child care, the 
payment rates established by a Lead Agency should be comparable to 
those paid by families who are not eligible for subsidies. In other 
words, the payment rates should reflect the child care market. Although 
the statute has changed, the reality remains that the market reflects 
differences along several dimensions, and we do not believe that 
Congress expected Lead Agencies to establish a single payment rate for 
all types of child care.
    Child care is often the major factor in whether families are able 
to work--and access to a variety of child care arrangements is 
necessary both to support today's increasingly diverse workforce and 
workplace demands, and to ensure that the healthy development of 
children is not compromised. The focus of PRWORA on work further 
highlights the need for CCDF Lead Agencies, which now are required by 
statute to administer the new Mandatory and Matching Funds, to 
establish payment rates that support work as well as enable the 
developmental needs of children to be met.
    The major variable in the cost of child care is the age of the 
child, especially the added expense of caring for infants and very 
young children. Under PRWORA, many more families with infants and pre-
school-aged children will be required to participate in work activities 
for longer hours per week. Payments that do not reflect the expense of 
caring for very young children will frustrate the ability of families 
to work. In providing the exception to the

[[Page 39626]]

individual penalties under TANF for single custodial parents with a 
child under age six who cannot obtain needed child care, Congress 
recognized the special difficulties of locating care for young 
children. We have proposed a consumer education provision at Sec. 98.33 
that recognizes the relationship between the TANF provision and the 
responsibilities of the CCDF Lead Agency. Consequently, we also expect 
Lead Agencies to ensure that their payment rates reflect the market 
rate variations in the cost of providing child care to different age 
groups as well as the additional costs of providing care to children 
with special needs. We anticipate that market rate surveys will also 
show variations in rates among categories of care, and we expect any 
significant variations to be reflected in the Lead Agency's payments.
    A system of child care payments that does not reflect the demands 
of the market makes it economically infeasible for many providers to 
serve low-income children. This undermines the statutory and regulatory 
requirements of equal access and parental choice. Experience with the 
now-repealed title IV-A child care programs and the CCDBG suggests that 
providers limit their enrollment of children with subsidies because the 
subsidy payments were too low. Similarly, failing to compensate 
providers timely or not reimbursing them for days when children are 
absent also causes providers to refuse care to children with subsidies.
    At Sec. 98.43(c) we have added a provision prohibiting different 
payment rates based on a family's eligibility status or circumstances. 
This provision means that the Lead Agency may not establish payments 
for TANF families that differ from the payments for the families of the 
working poor, or for families in education or training, for example. We 
believe that multiple payment rates based on an eligibility status 
precludes the statutorily-required equal access to child care for 
families receiving CCDF subsidies. Additionally, such multiple payment 
rates would frustrate one of the main intents in amending the Act--to 
have a unified child care system with only a single set of rules. This 
purpose would be undercut if different payment rates based on 
eligibility criterion were permitted.
    With the exception of payments for children with special needs, who 
sometimes require services on a highly individualized basis, we believe 
that a survey of market rates is the only methodologically sound way 
for Lead Agencies to gather the facts necessary to establish payments 
that are realistic and thus provide the required equal access for low 
income families. Implementation of this provision should not be a 
burden to States, which were required to conduct local market surveys 
in implementing the now-repealed title IV-A child care programs. We 
also know from comparing State plans for the two programs, that the 
great majority of States used the IV-A payment rates for subsidies 
provided under the Child Care and Development Block Grant. Thus, States 
have had a number of years' experience with the survey process. States 
retain the flexibility to design such surveys; we have not proposed a 
survey methodology.
    We propose that Lead Agencies conduct such a survey biennially to 
ensure that their payments reflect reasonably current market 
conditions. We have amended the regulations at Secs. 98.43(b)(2) and 
98.16(l) to include this proposed requirement. Lead Agencies must 
provide evidence in the biennial Plan to show that a local market rate 
survey was conducted no earlier than two years prior to the effective 
date of the currently approved Plan, together with an explanation of 
how the survey was conducted.
    We have not established specific requirements for the payments 
established by Lead Agencies. Lead Agencies have the flexibility to 
establish payments, based on a biennial survey, which provide CCDF-
subsidized families with equal access to the full range of care in 
their areas. We would consider parents to have equal access, however, 
if payments are established at least at the 75th percentile of the rate 
in the child care market. States and families have both recognized that 
the 75th percentile, which we required in the now-repealed title IV-A 
child care programs, generally provided families receiving subsidies 
with a range of care that was adequate to support their work schedules 
and the needs of their children.
    Since the requirement to conduct a market survey biennially is 
intended to ensure that payments reflect reasonably current market 
conditions, lengthy delays between the survey and basing the payments 
on that survey would undermine the intent of the requirement. 
Therefore, we propose that a Lead Agency conduct its survey no earlier 
than two years prior to the effective date of the currently approved 
Plan; and payments derived from that survey must be in place no later 
than the beginning of the second year of the Plan for which the survey 
was conducted. The survey will be the basis for payments for only two 
years.
    We propose to revise Secs. 98.43 and 98.16 to remove the ten 
percent limit on payment differences within a category of care. We also 
propose to remove the reference to limits on payment differences in 
Sec. 98.16. This revision recognizes the change in focus of the statute 
to a factual basis for the establishment of payments and the 
elimination of the requirement to establish payment rates by category 
of care. It will also provide Lead Agencies the flexibility to 
recognize and compensate higher quality child care facilities and 
providers, including those that have obtained nationally recognized 
accreditation or special credentials. This will also give the Lead 
Agency the flexibility to address possible shortages of certain types 
of care--for example, care during non-traditional hours or on 
weekends--when the survey results for this care are incomplete, not 
obtainable, or contradict the agency's experience in providing such 
care.
    3. Affordable copayments. The third essential element of equal 
access is that any copayment or fee paid by the parent is affordable 
for the family and sliding fee scales should not be designed in a way 
that limits parental choice. We wish to emphasize that Lead Agencies 
have flexibility in establishing their sliding fee scales. However, in 
our view, copayment scales that require a low-income family to pay no 
more than ten percent of its income for child care, no matter how many 
children are in care, will help ensure equal access.
    Recent reports by the Census Bureau indicate that families with 
income below the poverty level pay a disproportionate share of their 
income--18 percent--for child care; whereas families above the poverty 
level pay only seven percent of their income for child care. The size 
of the fee paid by a low-income working parent can be crucial in 
determining whether she and her family become, and remain, self-
sufficient. When devising the fee scale Lead Agencies should try to 
ensure that small wage increases do not trigger large increases in 
copayments, lest continuation on the path to self-sufficiency be 
jeopardized for any family. The size of a fee increase is an especially 
important consideration because recent changes in the Food Stamp, 
housing assistance, Medicaid, SSI, and the Earned Income Credit 
programs may also affect the resources now available to a low-income 
working family.
    Sliding fee scales must continue to be based on family size and 
income, as currently required at Sec. 98.42(b). While Lead Agencies 
have flexibility to take

[[Page 39627]]

additional elements into consideration when designing their fee scales, 
basing fees on the cost or category of care could violate the statutory 
requirements of equal access and parental choice. Similarly, multiple 
fee scales based on factors such as a family's eligibility status would 
be precluded.
List of Providers (Section 98.45)
    We have renamed this section ``List of Providers'' because the 
amendments to section 658(E)(c)(2)(E) of the Act eliminated the 
language on the registration of unlicensed or unregulated providers. We 
have also deleted the requirement at Sec. 98.16 to describe the 
registration process in the biennial Plan.
    At Sec. 98.45, however, we propose to require any Lead Agency not 
having a registration process to maintain a list of the names and 
addresses of all unregulated providers. It is essential that Lead 
Agencies have some simple, standardized system to record the names and 
addresses of unlicensed providers in order to pay them and to provide 
them with pertinent information about health and safety regulations and 
training.
    The regulations would no longer specifically require Lead Agencies 
to have a registration process for providers not licensed or regulated 
under State or local law before paying them for child care services. 
However, Lead Agencies should note that they may continue such a 
system, and we strongly encourage them to do so.

Subpart F--Use of Block Grant Funds

Child Care Services (Section 98.50)
    The 70 percent requirement. Section 418(b)(2) of the PRWORA 
specifically requires the State to ensure that not less than 70 percent 
of the funds received by the State are used to provide child care 
assistance to families who are receiving assistance under a State 
program under Part A of title IV of the Social Security Act, families 
who are attempting through work activities to transition off of such 
assistance program and families that are at risk of becoming dependent 
on such assistance program. We wish to clarify that the 70 percent 
requirement applies only to the Mandatory and Matching Funds. Further, 
the amended statute at 658E(c)(2)(H) requires the State to demonstrate 
in its CCDF plan the manner in which the State will meet the specific 
child care needs of these families.
    States have great flexibility in designing a single comprehensive 
program to serve families. The need to coordinate and consult closely 
with the TANF program has been discussed at length in Subpart A of the 
preamble. In our consultation process we heard concerns that further 
regulations regarding the 70 percent requirement could hamper the 
State's ability to coordinate and develop a comprehensive program. We 
therefore will not regulate beyond the statutory language of this 
provision but have amended the regulation by adding the statutory 
provisions at Sec. 98.50 (e) and (f).
    Serving other low-income working families. Section 658E(c)(3)(D) as 
amended directs the State to ensure that a ``substantial portion'' of 
the amounts available (after a State has complied with the 70 percent 
requirement discussed above) is used to provide assistance to low-
income working families other than those who are receiving assistance, 
transitioning off assistance or at risk of becoming dependent on 
assistance under Part A of title IV of the Social Security Act.
    Since the income level for eligible children is increased in the 
statute to 85 percent of the State median income, it is clear that 
Congress intended for child care assistance to be available to more 
low-income working families than were previously eligible. We believe, 
however, that families whose income is less than 85 percent of the 
State median income may well be at risk of becoming dependent on 
assistance. Thus the two populations overlap.
    The regulation at Sec. 98.50(e) now provides the statutory 
description of the families who are to be served under the 70 percent 
provision. In addition Sec. 98.50(f) is added to require the State, 
pursuant to the statute, to specify in its plan how the State will meet 
the needs of these families. We believe, based on our consultations, 
that the circumstances of low-income working families (whose income is 
below 85 percent of the State median income) are no different than the 
families specifically mentioned in those regulations and thus would 
expect that they would be treated similarly.
    Since States are required to collect and report data concerning 
family income, including the number of families who are receiving 
temporary assistance under title IV of the Social Security Act, ACF 
will have the opportunity to monitor such reports to determine whether 
States are serving both welfare and at-risk families as the statute 
intends. Additionally, ACF will have the CCDF Plan, which includes the 
manner in which the State will meet the needs of families receiving 
assistance, transitioning off assistance or at risk of becoming 
dependent on assistance under Part A of title IV of the Social Security 
Act.
    We therefore do not plan to require additional definitions of these 
populations. However, if the State elects to have a specific 
description of at-risk families, it could, for example, be included 
when defining very low income or in providing additional terminology 
related to conditions of eligibility or priority in the CCDF plan.
Activities to Improve the Quality of Child Care (Section 98.51)
    Not less than four percent. Section 658G of the CCDBG Act was 
amended to direct that a State that receives CCDF funds shall use not 
less than four percent of the amount of such funds for activities to 
improve the quality of child care and availability of child care (such 
as resource and referral services). Section 98.51(a) provides that the 
not less than four percent requirement for quality applies to the 
aggregate amount of expenditures (i.e., Discretionary, Mandatory, and 
both the Federal and State share of Matching funds); it need not be 
applied individually to each of the component funds. Section 98.51(a) 
also provides that the four percent requirement applies to the funds 
expended, rather than the total of funds that are available but may not 
be used. Lead Agencies, however, have the flexibility to spend more 
than four percent on quality activities. Section 98.51(c) provides that 
the quality expenditure requirement does not apply to the maintenance-
of-effort expenditures required by Sec. 98.53(c) in order to claim from 
the Matching Fund.
    The statute details specific activities that may be undertaken: 
activities designed to provide consumer education to parents and the 
public; activities that increase parental choice; and activities 
designed to improve the overall quality and availability of child care. 
ACF believes that activities that provide parents and the public with 
information about child care options will help to improve the quality 
of child care. As the public learns more about the need for and 
benefits of quality child care, we expect that the availability of 
quality child care will also expand, creating increased choices for 
parents.
    The statute formerly provided five examples of activities to 
improve the quality of child care. These included resource and referral 
programs (cited in the amended statute), grants or loans to assist in 
meeting state and local standards, monitoring of compliance with 
licensing and regulatory requirements, training, and compensation. 
These activities continue

[[Page 39628]]

to be allowable quality activities under this minimum four percent 
requirement.
    Lead Agencies have used these activities over the years to improve 
the quality of child care and we believe that they can continue to be 
used successfully. We also want to provide Lead Agencies with increased 
flexibility to develop other successful strategies by not restricting 
their options. We have added, therefore, regulations at Sec. 98.51(a) 
based on the broad statutory language, while retaining the former 
options for specific activities. We will continue to collect, in the 
plan, descriptions of activities to improve the quality of child care 
services. We encourage Lead Agencies to evaluate the success of their 
efforts to improve quality and will disseminate promising practices.
    States will need flexibility to design a child care delivery system 
that is customized to the needs of their families and that includes 
flexibility in the choice of activities that will improve the quality 
of child care. Since the requirement is expressed as a baseline it is 
clear that quality activities are important and must be included in 
developing a comprehensive plan.
Administrative Costs (Section 98.52)
    Section 658E(c)(3)(C) of the amended Act limits the amount of funds 
available for the administrative costs of the CCDF program to ``not 
more than five percent of the aggregate amount of funds available to 
the State.'' Section 98.52(a) provides that the five percent limitation 
on administrative costs applies to the funds expended, rather than to 
the total of funds that are available but which may not be granted or 
used. Thus, Lead Agencies may not use five percent of the total funds 
available to them for administrative costs unless they use all the 
available funds including Matching Funds.
    This provision also makes clear that the five percent limitation 
applies to the total Child Care and Development Fund. The five percent 
limitation need not be applied individually to each of the component 
funds--the Discretionary, Mandatory, and Matching (including the State 
share) Funds. We believe this flexibility will streamline the overall 
administration of the Fund. The limitation does not apply to the 
maintenance-of-effort expenditures required by Sec. 98.53(c) in order 
to claim from the Matching Fund.
    Section 98.52(a) lists administrative activities and is derived 
from the current regulations as modified by the PRWORA amendments and 
the Conference Agreement (H.R. Rep. 104-725 at 411). While the statute 
does not define administrative costs, it does preclude ``the costs of 
providing direct services'' from any definition of administrative 
costs.
    The Conference Agreement specifies that the following activities 
``should not be considered administrative costs'':
    (1) Eligibility determination and redetermination;
    (2) Preparation and participation in judicial hearings;
    (3) Child care placement;
    (4) The recruitment, licensing, inspection, reviews and supervision 
of child care placements;
    (5) Rate setting;
    (6) Resource and referral services;
    (7) Training [of child care staff]; and
    (8) The establishment and maintenance of computerized child care 
information systems.
    Therefore, we have deleted from the current regulation's list of 
administrative activities at Sec. 98.52(a) three activities: 
determining eligibility, establishing and operating a certificate 
program, and developing systems (formerly Sec. 98.52(b)(1) (i), (iii), 
and (vi) respectively). We deleted ``establishing and operating a 
certificate program'' as an administrative activity, even though it was 
not listed in the Conference Agreement, because it appears that most of 
the components of a certificate program would not be considered to be 
administrative costs per the Conference Agreement. For example, 
certificate programs must determine and redetermine eligibility, 
provide the public with information about the program, develop and 
maintain computer systems, place children, offer resource and referral 
services, etc. Although we believe that many of the costs of a 
certificate program are not administrative, Lead Agencies must examine 
their certificate programs and ascribe to administrative cost those 
activities that are clearly administrative per Sec. 98.52(a). Lead 
Agencies may wish to examine the components of other activities in this 
manner to ensure that they are correctly considering administrative 
costs in accordance with Sec. 98.52(a) and the Conference Agreement.
    While these proposed regulations reflect the Conference Agreement 
language, we are nevertheless concerned that States will misinterpret 
the intent of the change and re-direct a disproportionate amount of 
expenditures on these redesignated activities rather than on direct 
services to children. We wish to emphasize that services to children is 
the purpose for which the CCDF was created. Therefore, we would not 
expect a large increase in costs to activities that are not direct 
services to children. We will closely monitor such expenditures to 
determine if States are overspending for such activities at the expense 
of services. As one method of monitoring, we intend to require that the 
proposed CCDF financial reporting forms separately collect the amounts 
that are expended on developing systems and other kinds of non-direct 
service activities. If we determine that there are problems, we reserve 
the right to re-visit the policy and regulate in the future. 
Nevertheless, States should know that any administrative components of 
the activities that have been re-designated as non-administrative in 
nature are subject to the CCDF administrative cost cap.
    Lastly, we clarify in Sec. 98.52(c) that the non-Federal 
expenditures required of the State in order to meet its maintenance-of-
effort threshold for receiving matching funds are not subject to the 
five percent limitation on administrative costs. Nevertheless, audits 
of State reports of maintenance-of-effort expenditures should indicate 
that administrative expenditures included in those MOE amounts are 
reasonable, necessary for carrying out the services provided, and 
consistent with other provisions of law.
    Administrative costs for Tribes. We have specifically noted at 
Sec. 98.52(b) that Tribes, and tribal organizations are exempt from the 
five percent cap on administrative costs as it applies only to the 
entities defined as ``States.'' Tribes and tribal organizations are not 
currently subject to the administrative cost limitation at 
Sec. 98.50(d) and we wanted to codify this existing exemption. Tribes, 
however, are subject to the requirements at Sec. 98.83(g) regarding 
limits on administrative expenditures.
Matching Fund Requirements (Section 98.53)
    Section 98.53 used to describe non-supplantation requirements. As 
those have been repealed by the PRWORA amendments, we are now using 
this section to discuss the Matching Fund requirements.
    Terminology and general requirements. In this section we have used 
the phrase ``expenditures in the State'' to encompass not only local 
expenditures on child care but also private, donated funds that meet 
the requirements at Sec. 98.53(e)(2), as explained below. Whenever the 
term ``State funds,'' ``State expenditures'' or ``non-Federal 
expenditures'' is used it should be understood to include State, local 
or permissible private donated funds that meet these requirements and

[[Page 39629]]

are expended for allowable child care purposes.
    Section 418(a)(2)(C) of the Social Security Act creates a two-part 
matching requirement. First, a State must expend an amount that at 
least equals its allowable expenditures for the title IV-A child care 
programs during 1994 or 1995, whichever is greater. We refer to this 
amount as the ``maintenance-of-effort'' (MOE) threshold.
    State expenditures in excess of its MOE threshold, up to a maximum 
determined by the statute, are matched at the 1995 Federal medical 
assistance rate. The total amount that can be matched rises each year 
and is equal to the sum appropriated for that year, less the amounts of 
the Mandatory Fund, the tribal allocation and the allocation for 
technical assistance. The maximum to be matched for each State is its 
share of that total based upon the proportion of the State's children 
under age 13 in 1995 to the national total of children under age 13 in 
1995.
    Section 98.53(c) lists the requirements that States must meet if 
they wish to claim Federal Matching Funds. In summary, this section 
requires that the State obligate all of its Mandatory Funds by the end 
of the fiscal year (FY) they are granted. Mandatory Funds need not be 
obligated before Matching Funds are claimed, provided that all 
Mandatory Funds will be obligated by the end of that FY. Second, they 
must expend State-only dollars in an amount that equals the State's MOE 
threshold described at Sec. 98.53(c)(1). And third, they must obligate 
the Federal and State share of the Matching Fund by the end of the FY.
    Section 98.53(b)(1) provides that all costs are matched at the 
Federal Medical Assistance Percentage (FMAP) for FY 1995, irrespective 
of the year of expenditure as directed by the statute. The FMAP rate 
pertains to both child care services and administrative expenditures.
    State expenditures allowable for MOE and Federal Matching Funds. 
State expenditures on any activities or services that meet the goals of 
the CCDBG Act and that are described in the approved CCDF Plan, if 
appropriate, may be used to meet the MOE requirement or may be claimed 
for Federal Matching Funds (proposed Secs. 98.53(c)(2) and (b)(2)). For 
MOE, these proposed regulations offer greater flexibility than we 
offered in our interim guidance provided in our Program Instruction, 
ACYF-PI-CC-96-17, dated October 30, 1996. However, as provided at 
Sec. 98.53(d), the same expenditure still may not be counted for both 
MOE and match purposes.
    Under the regulations we propose, States will have flexibility to 
define child care services, so long as those services meet the 
requirements of the statute. For example, State expenditures for child 
care for those populations previously served by the title IV-A or CCDBG 
child care programs would be eligible for Federal match. Similarly, 
State investments in child care through the use of State funds to 
expand Head Start programs or to otherwise enhance the quality or 
comprehensiveness of full-day/full-year child care would also be 
eligible for Federal Matching funds since these activities meet the 
goals of the Act.
    Sections 98.53(e) and (f) contain additional qualifications on what 
constitutes an expenditure in the State for purposes of this Part. 
These qualifications are the same that generally apply to Federal 
programs that provide for matching State expenditures, with two 
important clarifications.
    First, the proposed Sec. 98.53(e)(1)(i) would allow public 
agencies, other than the Lead Agency, to certify their expenditures as 
eligible for Federal match. This provision allows States, for example, 
to use pre-kindergarten (pre-K) expenditures to meet the MOE 
requirement (when the regulatory provisions for use of pre-K funds are 
met) and/or receive Federal Matching funds. The second clarification, 
proposed at Sec. 98.53(f), concerns the treatment of private donated 
funds. It provides greater flexibility than previously offered as 
interim guidance under ACF Program Instruction, ACYF-PI-CC-96-17, dated 
October 30, 1996.
    In our consultations we were asked several questions about the 
relationship between the child care and certain TANF requirements. 
Regarding the MOE requirements, the same State expenditure may be used 
to meet both the child care and TANF MOE requirements provided the 
expenditure meets the requirements of both programs. However, pursuant 
to section 409(a)(7)(B)(iv) of PRWORA, expenditures which States make 
as a condition of receiving Federal funds under other programs (e.g., 
expenditures for which the State receives CCDF Matching Funds) may not 
be included as part of the State MOE for TANF. ACF's Office of Family 
Assistance issued preliminary guidance concerning these questions in 
their policy announcement dated January 31, 1997 (TANF-ACF-PA-97-1). 
Since these questions relate to the TANF provisions of PRWORA no 
regulations are proposed for Parts 98 or 99.
    Use of private agencies to receive donated funds. Historically, 
private donations to State-level programs have been very limited; 
locally controlled donations have been somewhat more prevalent. 
Frequently cited reasons for this lack of public support for seemingly 
worthwhile programs have included suspicion of government, in general, 
especially government outside the immediate community, coupled with 
regulations that appeared to limit the State's ability to assure the 
donor that the donated funds will be used in a specific area or for the 
donor's intended purpose.
    At a time when child care programs face increased demands, and 
State budgets face constraints, we realize that we must reexamine prior 
ACF policies on donated funds. We have tried to respond to the issues 
that we were told have inhibited private donations in the past by 
proposing to include in the definition of State expenditures donated 
funds that meet the qualifications at Sec. 98.53(e)(2) even though they 
are not under direct State control. At Sec. 98.53(f) we have added that 
private donated funds need not be transferred to or under the 
administrative control of the Lead Agency to be eligible for Federal 
match. Instead they may be donated to an entity designated by the State 
to receive donated funds. Both the Lead Agency and the donor must, 
however, certify that the donated funds are available and eligible for 
Federal match. In addition to this dual certification requirement, we 
want to ensure Lead Agency accountability for funds that may not be 
under its direct control. Therefore, we also propose that the Lead 
Agency separately report the amount of private donated funds it claims 
as match. And finally, Lead Agencies should be aware that private 
donated funds claimed as match are also subject to the audit 
requirements at Sec. 98.65.
    This proposed rule will allow Lead Agencies to cooperate more 
closely with various organizations, foundations, and associations that 
already support high quality child care and related activities. It will 
also allow the Lead Agency to leverage private funds in order to serve 
more families, while working within State and Federal budget 
restrictions.
    We also take this opportunity to clarify the regulation at 
Sec. 98.53(e)(2)(i) which requires that private funds be donated 
without restriction on their use for a specified individual, 
organization, facility or institution. Under this clarification a donor 
could designate a specific geographic location for the receipt of 
funds. Such a geographic specification can be broad, such as within the 
limits of a specific city, or

[[Page 39630]]

extremely narrow, such as a single neighborhood. Such geographic 
specification is possible whenever funds are donated, whether the funds 
are donated to the Lead Agency or to an entity specially designated to 
receive private donations.
    Lead Agencies will be asked to identify those entities that are 
designated to receive private donated funds and the purposes for which 
those donated funds are expended in their Plan, pursuant to 
Sec. 98.16(c)(2).
    Claims for pre-K expenditures for MOE and match purposes. Many 
States fund pre-K programs for young children. These are important 
early childhood services that contribute to school readiness. 
Expenditures for State-funded public pre-K services to children from 
families who meet the CCDF eligibility criteria (as outlined in the 
Plan) may meet the requirements for allowable child care services 
expenditures for MOE and match purposes. The pre-K program must meet 
each of the following four conditions:
     Attendance in the pre-K program must not be mandatory.
     The pre-K program must meet applicable standards of State, 
local or tribal law.
     The pre-K program must allow parental access.
     The pre-K program must not be Federally funded (unless 
funded with ``exempt'' Federal funds for matching purposes), and its 
State funding may not be used as basis for claiming other Federal 
funding.
    In addition, the pre-K program must serve families who are at or 
below 85 percent of the State median income (SMI) (or lower SMI 
established as the CCDF eligibility criterion by the Lead Agency) and 
who meet other State eligibility criteria.
    During our consultations we heard the full range of issues around 
allowing States to use their pre-K expenditures to meet the matching 
and MOE requirements of the CCDF. We came away from those consultations 
with some reservations about the use of pre-K expenditures, but we also 
came away with increased respect for the importance of these programs.
    A chief concern to working parents is that many pre-K services are 
only part-day and or part-year and such programs may not serve the 
family's real needs. Some have expressed concerns that an excessively 
broad approach to counting pre-K expenditures might result in a real 
reduction in full-day child care services to potentially eligible 
working families. The potential exists for a State with a sufficiently 
large pre-K program to divert all state funds away from other child 
care programs and fulfill its MOE and Matching requirements solely 
through pre-K expenditures. On the other hand, allowing pre-K 
expenditures to be counted toward MOE or match could provide a critical 
incentive for States to more closely link their pre-K and child care 
systems. This could result in a coordinated system that would better 
meet the needs of working families for full-day/full-year services that 
prepare children to enter school ready to learn. We struggled with 
these issues and considered various alternative approaches to counting 
pre-K expenditures in the CCDF.
    In the end, we decided on a policy that attempts to balance 
concerns about the use of pre-K expenditures in meeting CCDF 
requirements. At Sec. 98.53(h) (3) and (4) we have addressed our 
concerns about balance by proposing a maximum amount of State 
expenditures for pre-K services that can be claimed for match or MOE. 
Expenditures for pre-K programs may constitute no more than 20% of the 
State's expenditures which are matched. Similarly, expenditures for 
pre-K programs may constitute no more than 20% of the State's 
expenditures counted in fulfilling the MOE requirement. However, if a 
State intends to exceed 10% of either its MOE or matching requirements 
with pre-K expenditures, its CCDF plan, which is subject to approval, 
must reflect that intent. Additionally, if a State intends to exceed 
10% of either MOE or matching with pre-K expenditures, the CCDF plan 
must describe how the State will coordinate its pre-K and child care 
services to expand the availability of child care. We propose the 20% 
limits because they approximate the proportion of pre-school age 
children nationwide currently receiving services under the CCDBG. (This 
level also approximates the average monthly proportion of pre-school 
age children of JOBS participants who received child care assistance in 
the past.)
    States may count only those pre-K expenditures that meet the 
criteria as allowable child care services explained above (i.e., 
attendance is not mandatory, the program meets applicable standards, 
allows parental access, serves CCDF eligible families as provided in 
the Plan, etc.). We also intend to require the Lead Agency, using 
financial forms to be proposed later, to separately report the amount 
of pre-K expenditures it claims as match or uses to meet the MOE 
requirement.
    In addition, for MOE purposes, we propose at Sec. 98.53(h)(1) that 
States cannot reduce their level of effort in full-day/full-year child 
care services if they use pre-K expenditures to meet the MOE 
requirement. And, States will be required to provide an assurance of 
this, pursuant to Sec. 98.15(a)(6). Our proposal reflects the fact that 
although the statute eliminated the non-supplantation requirement 
formerly found at section 658E(c)(2)(J) of the CCDBG Act, another non-
supplantation requirement was created by section 418(a)(2)(C) of the 
Social Security Act. That non-supplantation requirement--the MOE 
requirement--requires States to continue to spend at least the same 
amount on child care services that they spent on the repealed title IV-
A child care programs, in order to receive the new Matching Fund. Such 
a provision would be meaningless if States used MOE expenditures for 
services that were not responsive to the real child care needs of 
working families that the CCDF was intended to assist, i.e., the State 
``buys out'' with pre-K expenditures the full-day/full year child care 
services it previously provided under title IV-A. In the interest of 
State flexibility we have not otherwise regulated on the types of 
services that may be counted in meeting the MOE requirement and, as 
discussed below, have eased the burden on the State in calculating the 
amount of pre-K expenditures that may be used to meet the MOE and 
matching requirements.
    In contrast, we have not proposed a similar requirement if pre-K 
expenditures are claimed for match. We view the Matching Fund, since it 
is ``new money,'' as not subject to the same requirements as 
expenditures that are used to meet a non-supplantation requirement. 
However, we are proposing at Secs. 98.53(h)(2) and 98.16(q) that States 
describe in their CCDF Plan any efforts they will undertake to ensure 
that pre-K programs meet the needs of working parents if pre-K 
expenditures are claimed for match. Our different treatment of pre-K 
expenditures in the MOE and matching requirements, then, reflects a 
balance between the principles of non-supplantation and state 
flexibility.
    Furthermore, ACF will permit States to use a different method for 
calculating the amount of pre-K services claimed for both MOE and 
matching purposes than was required under the former title IV-A child 
care programs. Under the now repealed title IV-A child care programs, 
ACF required States wishing to claim Federal match for their pre-K 
expenditures to base their claim on the number of title IV-A-eligible 
(or potentially eligible) children who actually participated in the 
pre-K program. As many school districts did not have the information to 
identify

[[Page 39631]]

whether pre-K participants were members of IV-A-eligible families, it 
was difficult for States to claim Federal matching funds for these 
programs. In fact, only a handful of States claimed Federal Match under 
title IV-A for their pre-K expenditures. In our consultations we were 
asked to loosen this child-by-child approach to counting pre-K 
expenditures.
    In the interest of easing administrative burdens on the Lead 
Agency, we will adopt the following policy toward calculating pre-K 
expenditures for purposes of claiming MOE and Matching funds. For pre-K 
expenditures to be claimed, States must ensure that children receiving 
pre-K services meet the eligibility requirements established in the 
CCDF plan. In cases where States do not have exact information, 
however, they must develop a sound methodology for estimating the 
percentage of children served in the pre-K program who are CCDF-
eligible. Expenditure claims must reflect these estimates.
    Although the methodology should be documented, we will not require 
that the methodology be submitted to ACF for prior review or approval. 
In documenting their methodology, Lead Agencies are reminded of the 
requirement at Sec. 98.67(c), which provides that fiscal control and 
accounting procedures must be sufficient to permit the tracing of funds 
to a level of expenditure adequate to establish that such funds have 
not been used in violation of the Act or regulations.
    We specifically request comments on the amounts of pre-K 
expenditures that may be counted in meeting CCDF requirements and the 
basis for placing limits on such expenditures. While we have eased 
policies regarding calculating the amounts of pre-K funds used for MOE 
and matching, we have also capped the amounts that can be used for each 
purpose. We have no historical base for predicting the impact that the 
relaxed calculation requirements will have on the availability of child 
care services. Therefore we are soliciting broad public comment on our 
proposed approach to striking a balance of child care services that are 
used for CCDF MOE and match. We especially want comments on: (1) The 
20% maximum on both funds; (2) the interplay between the relaxation of 
the methodology for calculating the amounts and the cap; (3) the impact 
of the proposed pre-K policy on both parental choice and the overall 
goals and purposes of the CCDF; and (4) the proposed requirement for 
notification in the CCDF plan if a State intends to use pre-K 
expenditures in excess of 10%.
    Family fees and the Matching Fund. Section 98.53(g)(2) clarifies 
that family contributions to the cost of care as required by Sec. 98.42 
are not considered eligible State expenditures under this subpart. This 
policy is based on the fact that family fees are not State 
expenditures.
Restrictions on Use of Funds (Section 98.54)
    Section 103(c) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) repealed the three title IV-A child 
care programs--the AFDC child care program, the Transitional Child Care 
program and the At-Risk Child Care program. However, in appropriating 
new child care funds under section 418 of the Social Security Act, the 
PRWORA provides that these funds must be spent in accordance with the 
provisions of the Child Care and Development Block Grant Act as 
amended. This requirement is incorporated into Sec. 98.54(a). This 
section also provides that TANF funds that are transferred to the Lead 
Agency under the provision of the new section 404(d) of the Social 
Security Act are treated as Discretionary Funds for the purposes of 
Sec. 98.60.
    Other Federal funds expended for child care, unless transferred to 
the Lead Agency, are not required to be spent in accordance with the 
amended CCDBG Act. This means, for example, that child care provided 
with title XX funds or TANF funds that are not transferred to the Lead 
Agency might be subject to different requirements. However, ACF 
cautions States about the administrative and policy problems associated 
with operating a variety of Federally-funded child care programs, e.g., 
one program subject to CCDBG requirements and others not. The 
amendments to the CCDBG Act contained in the PRWORA are intended to 
create a single child care program with consistent standards and 
requirements and to counteract the fragmentation and conflicting 
requirements that had arisen under prior law.
    We have also added a new section at Sec. 98.54(b)(3) which 
clarifies the special provisions on use of funds for construction that 
apply to Tribes and tribal organizations under the PRWORA amendments.

Subpart G--Financial Management

Availability of Funds (Section 98.60)
    Section 418 of the Social Security Act, which was added by PRWORA, 
requires that all Federal child care funds appropriated therein be 
spent in accordance with the provisions of the amended Child Care and 
Development Block Grant. In consolidating the Federal child care 
programs under a single set of eligibility requirements, Congress 
nevertheless instituted three funding sources. We have chosen to refer 
to the combined funding as the Child Care and Development Fund--CCDF. 
This term recognizes the different sources of Federal monies flowing 
into child care but the common purposes for which they may be expended.
    Section 418 of the Social Security Act appropriates Federal funds 
for the 50 States, the District of Columbia and Indian Tribes in the 
form of formula grants which we refer to as the Mandatory Fund. A 
specified amount of Federal funds is also made available under a 
different formula to the 50 States and the District of Columbia to 
match their allowable child care expenditures. We refer to this amount 
as the Matching Fund. Section 658B of the Child Care and Development 
Block Grant (CCDBG) Act authorizes funds to States, Tribes and 
Territories according to a third formula. We refer to the funds 
authorized under the CCDBG Act as Discretionary Funds. The formulas for 
allocating each of the Funds and requirements unique to each Fund are 
discussed at Secs. 98.61, 98.62 and 98.63.
    Both the Mandatory and Discretionary Funds are 100 percent Federal 
Funds--no match is required to use these Funds. Section 418(a)(2)(C) of 
the Social Security Act, however, makes the availability of Matching 
Funds contingent on a State's child care expenditures.
    We have deleted the regulation formerly at Sec. 98.60(g) concerning 
start-up planning costs associated with the initial implementation of 
the CCDBG and have redesignated the remaining regulations. All of the 
States began operating a CCDBG program in FY 1991, therefore the 
regulation at Sec. 98.60(g) is obsolete since the time frames for 
obligating and expending start-up funds have passed. We recognize that 
there still may be Tribes that wish to begin a CCDF program and for 
which the question of start-up funds still applies. Accordingly, we 
have addressed the availability of funds for planning purposes for new 
tribal Lead Agencies at Sec. 98.83(h) in subpart I.
    We have also clarified the wording of Sec. 98.60(f) to indicate 
that 31 CFR part 205 applies only to State Lead Agencies.
    Obligation period/liquidation periods. The following table shows 
the obligation and liquidation periods for the various Funds and the 
maintenance-of-effort (MOE) requirements.

[[Page 39632]]



----------------------------------------------------------------------------------------------------------------
                                    Must be obligated by the                                                    
           These funds                     end of the              And, must be liquidated by the end of the    
----------------------------------------------------------------------------------------------------------------
Discretionary....................  2nd FY...................  3rd FY.                                           
Mandatory (State)................  1st FY--only if Matching   NA, no limit.                                     
                                    is requested.                                                               
Mandatory (Tribes)...............  2nd FY...................  3rd FY.                                           
Matching.........................  1st FY...................  2nd FY.                                           
MOE..............................  1st FY, and expended in    NA, must be liquidated in 1st FY                  
                                    that FY.                                                                    
----------------------------------------------------------------------------------------------------------------

    The PRWORA amended the CCDBG Act to require States and Territories 
to obligate their Discretionary allotments in the fiscal year in which 
they are received, or in the succeeding fiscal year. These amendments 
return the statutory language to its status before the Juvenile Justice 
and Delinquency Prevention Amendments of 1992 (Pub. L. 102-586). Since 
the final regulations which would have incorporated the changes from 
the Juvenile Justice and Delinquency Prevention Amendments of 1992 were 
never published, no change is needed in the regulatory language.
    The FY 1997 Health and Human Services appropriation (Pub. L. 104-
208) changed the date that the CCDF Discretionary Funds will become 
available from September 30 of the fiscal year in which the funds are 
appropriated to October 1 of the following fiscal year. As a result, 
when existing regulatory language is applied, States and Territories 
have two full fiscal years to obligate their CCDF Discretionary Funds, 
instead of the year and a day which resulted under earlier 
appropriations. States and Territories continue to have until the end 
of the third fiscal year to liquidate these funds.
    Section 418(b)(1) of the Social Security Act provides that the 
Mandatory Fund is available without fiscal year limitation. However, 
section 418(a)(2)(C) of the Social Security Act, which describes the 
conditions for receiving Matching Funds, indicates they are paid to a 
State for expenditures that exceed the State's Mandatory grant and MOE 
level, and are only available on an annual basis. Moreover, section 
418(a)(2)(D) of the Social Security Act requires that Matching Funds 
that are not used in the fiscal year be made available for 
redistribution in the following fiscal year. Therefore, we propose that 
a State wishing to claim Matching Funds must obligate its Mandatory 
Funds before the end of the fiscal year for which the Mandatory Funds 
are awarded. States not wishing to claim Federal Matching Funds have no 
obligation or liquidation deadline for their Mandatory Funds.
    Also, the amount of a State's MOE requirement must be obligated and 
liquidated before the end of the fiscal year for which Matching Funds 
are awarded. Non-Federal expenditures (exceeding the MOE threshold) for 
which the State wishes to claim monies from the Matching Fund must also 
be obligated before the end of the fiscal year for which they are 
awarded.
    For the tribal funds, we have proposed the same obligation and 
liquidation periods that apply to the State Discretionary Funds. While 
the FY 1997 appropriation changed the date Discretionary Funds become 
available, under the revision Tribes will continue to have two full 
years to obligate the child care funds they receive. Further, under 
these proposed changes, Tribes will receive an additional year to 
liquidate these Funds. Retaining current regulations would have had the 
consequence of providing three full years to obligate and liquidate 
tribal child care grants.
    The amendments to the Discretionary Fund under PRWORA for the first 
time provide that tribal funds are subject to reallotment. The two-year 
approach to obligation will encourage Tribes to plan for the timely 
commitment of funds and, at the same time, make uncommitted funds 
available on a timely basis to those Tribes that are in need of 
additional child care monies.
    Section 98.60(d)(3) lists the obligation and liquidation periods 
for States that receive Matching Funds. In order to accommodate the 
redistribution required by section 418(a)(2)(D) of the Social Security 
Act, the regulation requires that Matching Funds must be obligated in 
the fiscal year in which they are granted and liquidated within two 
years.
    Returned funds. We propose to amend the regulation formerly at 
Sec. 98.60(h)--now (g)--concerning the treatment of returned funds. As 
a result of the changes made by PRWORA and the change in the date of 
availability of the CCDF Discretionary Funds made by the FY 1997 HHS 
appropriation, we are proposing that funds returned to the Lead Agency 
after the end of the applicable obligation period must be returned to 
the Federal government. Under this proposed revision, however, and as 
previous regulations permitted, funds returned during the obligation 
period may be re-obligated for activities specified in the Plan, 
provided they are obligated by the end of the obligation period. The 
re-obligation of funds will not result in any extension of the 
obligation period.
    The initial CCDBG regulations allowed States to follow State or 
local law or procedures regarding funds returned after the end of the 
obligation period. The provision was applicable only to what now are 
the Discretionary Funds part of the CCDF. It recognized that although 
section 685J(c) of the Act provided for a two-year obligation period 
for those funds, the Departments of Labor, Health and Human Services 
and Related Agencies Appropriations Act, 1991 (Pub. Law 101-517) 
provided that FY 1991 funds became available on September 7, 1991. The 
impact of that appropriation was that CCDBG funds (now called 
Discretionary Funds) were available for obligation only for barely over 
a year, instead of for two full years. The provision regarding returned 
funds at former Sec. 98.60(h) reflected ACF's desire that States not be 
put in the position of having to make premature decisions regarding 
obligations in a new program due to a truncated obligation period. 
Also, our reasoning for the former provision included the consideration 
that, even though the Act contained a reallotment provision for these 
funds, there appeared to be little likelihood that the States would 
return them for redistribution since they were 100 percent Federal 
funds.
    The FY 1992 HHS appropriation (Pub. Law 102-170) moved the 
availability of CCDBG funds to the last day of the fiscal year, and the 
CCDBG funds continued to be paid on the last day of the fiscal year in 
subsequent years, until the Departments of Labor, Health and Human 
Services and Related Agencies Appropriations Act, 1997 (Pub. L. 104-
208) again changed the date of the availability of these funds. The 
1997 appropriation provides that, starting with the FY 1998 
Discretionary Funds, Discretionary Funds will be made available on the 
first day of each fiscal year. The result of this change is that there 
now will be two full years to obligate Discretionary Funds.
    Further, the regulations at the former Sec. 98.60(h) would have 
been inappropriate to the new Mandatory and

[[Page 39633]]

Matching Funds provided under PRWORA. The law, at section 418 of the 
Social Security Act, requires redistribution of the Matching Funds to 
other States, if the State to which they were granted does not use them 
in the fiscal year in which they are granted. Also, the Secretary must 
determine the amount of Matching Funds available for redistribution by 
the end of the first quarter of the fiscal year following the year the 
grant was awarded. The law links use of Matching Funds to use of the 
Mandatory Funds--and, as provided in the regulations at Sec. 98.60, 
Mandatory Funds must be obligated in the year in which they are granted 
if a State requests Matching Funds. Unlike the Discretionary and 
Mandatory Funds, the Matching Funds are not 100 percent Federal funds, 
and there seems to be a greater possibility that some of these funds 
would be returned for redistribution. Thus, the former returned funds 
regulations would not have been workable for these funds.
Allotments From the Discretionary Fund (Section 98.61)
    The allotment formulas for the CCDBG, which we now refer to as the 
Discretionary Fund, are essentially unchanged. We made only minor 
wording changes to the regulations to reflect the existence of other 
funding sources. We also deleted the Trust Territory of the Pacific 
Islands (Palau) from the formula for allotting funds to the 
Territories, to reflect an amendment to section 658P(13) of the CCDBG 
Act.
    In response to an amendment to section 658P(14) of the CCDBG Act, 
we have added a provision allowing for Discretionary Fund grants to a 
Native Hawaiian Organization and to a private nonprofit organization 
established for the purpose of serving Indian or Native Hawaiian youth. 
This provision is discussed below.
    ACF has also reconsidered its policy regarding the data sources for 
allotting Discretionary Funds to Tribes. This policy also impacts the 
allocation of Tribal Mandatory Funds; and we discuss that policy below.
    Data sources. On October 25, 1996 (51 FR 55305), ACF proposed a 
self-certification process for tribal child counts used to calculate 
tribal allotments under the Child Care and Development Block Grant. The 
purpose of utilizing a self-certification process for tribal grantees 
is to assist ACF in fulfilling its mandate to serve low-income Indian 
children through the CCDF.
    The CCDBG statute requires the Secretary to obtain the most recent 
data and information necessary, from each appropriate Federal agency, 
to determine State funding allotments. There is no similar statutory 
requirement for determining tribal allotments.
    The preamble to the current regulations for the CCDBG program 
stated that the BIA Indian Service Population and Labor Force Estimates 
Report, published biennially, was determined to be the most suitable, 
available data source for CCDBG purposes. However, problems have 
developed in its use. For example, the fiscal year (FY) 1997 CCDF 
Tribal Mandatory Fund allotments were based on 1993 data since the 
scheduled 1995 Report had not yet been published.
    In addition, the BIA Report is limited because it does not include 
Alaska-specific data. Consequently, ACF uses Census data to determine 
CCDBG allotments for Alaskan tribal grantees. Thus, for purposes of 
CCDBG allocations, child count data are currently collected from two 
separate data sources which are not compatible with respect to timing 
or types of information collected.
    After a thorough review of the available data options, ACF has 
determined that it would be in the best interest of the Tribes, as well 
as ACF, to utilize a self-certification process since this would afford 
Tribes the opportunity to select a data source, or utilize a method for 
counting tribal children, which most accurately reflects its child 
population.
    Further, through a tribal self-certification process, the child 
count data will be available with minimal lag time and will more 
accurately reflect the natural fluctuations in child population. With 
current national sources, it can take 2 to 3 years for changes in 
population (such as reaching a child population of 50) to be reflected.
    This approach supports the President's April 29, 1994, mandate to 
Federal agencies reaffirming the government-to-government relationship 
between Tribes and the Federal government and directing agencies to 
design solutions and tailor Federal programs, in appropriate 
circumstances, to address specific or unique needs of tribal 
communities.
    ACF will issue instructions for Tribes to follow in submitting 
their self-certified child counts. Each tribal grantee and each Tribe 
participating in a consortium will be required to submit a declaration 
signed by the governing body of the Tribe or an individual authorized 
to act on behalf of the applicant Tribe or organization. For FY 1998 
funds the declaration must certify the number of Indian children under 
age 16 who reside on or near the reservation or other tribal service 
area in the Tribe's most recent count. Beginning with funding that 
becomes available in FY 1999, tribal child count declarations will 
include only children under age 13, in accordance with the CCDBG 
statute. We have allowed self-certified counts for FY 1998 to be based 
on the number of children under age 16 since previous data sources 
included children under age 16. This allows a one-year transitional 
period for tribal Lead Agencies to plan for a self-certified child 
count of children under age 13.
Grants to a Native Hawaiian Organization and a Private Nonprofit 
Organization Serving Indian or Native Hawaiian Youth
    Section 658P(14) of the amended CCDBG Act adds the following second 
definition to the term ``tribal organization'' which are potentially 
eligible for Discretionary Funds:

    Other organizations--Such term includes a Native Hawaiian 
Organization, as defined in section 4009(4) of the Augustus F. 
Hawkins-Robert T. Stafford Elementary and Secondary School 
Improvement Amendments of 1988 and a private nonprofit organization 
established for the purpose of serving youth who are Indians or 
Native Hawaiians.

    Section 4009(4) of the Augustus F. Hawkins-Robert T. Stafford 
Elementary and Secondary School Improvement Amendments of 1988 defines 
a Native Hawaiian Organization as:

    A private nonprofit organization that serves the interests of 
Native Hawaiians, and is recognized by the Governor of Hawaii for 
the purpose of planning, conducting, or administering programs (or 
parts of programs) for the benefit of Native Hawaiians.

    No other changes were made in the Act with respect to Native 
Hawaiians or Native Hawaiian Organizations (NHOs) or private nonprofit 
organizations (PNOs) established for the purpose of serving youth who 
are Indians or Native Hawaiians; nor is the Conference Agreement 
instructive as to Congressional intent. However, given the statutory 
language, we propose at Sec. 98.61(e) that only a single NHO and a 
single PNO will be funded.
    Several options were considered for allocating funds in accordance 
with this expanded definition of tribal organization. We considered, 
for example, treating NHOs and PNOs in the same manner for allocation 
purposes as other tribal organizations (i.e., a base amount plus a per 
child amount, or only a per child amount).
    Based on an analysis of the statute, however, we believe the 
Congress intended for a NHO and a PNO to be

[[Page 39634]]

treated differently from Indian Tribes and tribal organizations which 
are eligible to receive CCDF funding. CCDF funds are awarded on a 
formula basis to all eligible Tribes and consortia. However, only a 
single NHO and a single PNO are to be awarded grants. Determination of 
those entities requires a discretionary grant process rather than the 
formula basis used for Indian Tribes and tribal consortia.
    Eligible NHOs and PNOs, as well as the States, are reminded that 
under Sec. 98.80(d), Indian children continue to have dual eligibility 
to receive services funded by CCDF. Indian children and Native Hawaiian 
children will continue to be eligible for services provided under a 
grant awarded to a NHO or PNO and from the State of Hawaii (or other 
State in the case of a PNO awarded to a grantee not located in Hawaii).
    Therefore, through a grant award to a NHO and a PNO, additional 
child care services (from the Discretionary Fund) will be made 
available to children who are currently eligible to be served under a 
State CCDF program. A more detailed explanation of dual eligibility is 
provided in the Preamble at Subpart I.
    For these reasons, up to $2 million will be reserved from the total 
amount reserved for Tribes under the Discretionary Fund for two grants. 
We believe that such an amount is substantial enough to meaningfully 
serve populations that may have been under-served in the past, without 
jeopardizing existing tribal programs. In choosing to award these 
grants on a competitive basis, we are seeking comments about the 
selection criteria that the Secretary should establish pursuant to 
Sec. 98.61(e) and the funding amounts which should be reserved for this 
purpose.
Allotments From the Mandatory Fund (Section 98.62)
    Section 418(a) of the Social Security Act creates a capped 
entitlement for the 50 States and the District of Columbia. The amounts 
allotted to each State and the District are based on the Federal share 
of expenditures for child care under prior programs under title IV-A of 
the Social Security Act (i.e., the AFDC/JOBS, Transitional and At-Risk 
Child Care programs) in FY 1994, FY 1995, or the average of FY 1992-
1994, whichever is greatest. Before funds are allocated to the 
individual States, one-quarter of one percent of the total is reserved 
for the provision of technical assistance and up to two percent is 
reserved for grants to Tribes.
    For Indian Tribes and tribal organizations we have chosen to 
allocate Mandatory Funds solely according to the number of children in 
each Tribe. That is, unlike the Discretionary Fund, there is no base 
amount provided to Tribes under the Mandatory Fund.
    We propose this approach in response to tribal arguments for 
increased funding for direct services. We agree that tribal child care 
programs would especially benefit from additional service funds, and we 
did not wish to divert any new funds into non-service activities. 
Tribes have the flexibility to expend their base amount on 
administration or direct services, including quality activities. 
However, we are concerned that many large consortia already receive 
substantial sums of base amount monies. According to the program 
reports from those consortia, it appears that these large base amounts 
often do not translate into direct child care services for tribal 
children. We do not believe that tribal children would benefit from 
augmenting the existing base amount in lieu of direct child care 
services.
    Lastly, we listed the 13 entities in Alaska that are eligible to 
receive Mandatory Funds pursuant to the amended section 419(4)(B) of 
the Social Security Act. We listed those eligible entities in this 
section of the regulation rather than have two different definitions of 
Tribes at Sec. 98.2.
Allotments From the Matching Fund (Section 98.63)
    As provided in the statute, allotments to each of the 50 States and 
the District of Columbia are based on the formula used to distribute 
funds under the now-repealed At-Risk child care program. The Matching 
Fund consists of the amount remaining from a fiscal year's 
appropriation under section 418(a)(3) of the Social Security Act after 
reserving amounts for technical assistance and for Tribes and awarding 
Mandatory Funds.
Reallotment and Redistribution of Funds (Section 98.64 of the Proposed 
Regulations)
    This section formerly addressed financial reporting requirements. 
We have deleted those requirements since they refer to forms, the SF 
269 and SF 269A, which ACF has proposed to replace. The proposed 
replacement form, the ACF 696, will better reflect the unique nature of 
the CCDF. Financial reporting instructions for the new form will be 
issued separately following approval by OMB. A general financial 
reporting requirement has been reincorporated as a new Sec. 98.65(g).
    Section 418(a)(2)(D) of the Social Security Act provides for the 
redistribution of Federal Matching Funds which are granted to a State, 
but not used. This provision is added to the regulations at 
Sec. 98.64(c)(1). We have adopted the statutory term ``redistribute'' 
when discussing the Matching Fund in the regulation. However, we 
believe that the term is comparable to the ``reallotment'' term used 
for redistribution of the Discretionary Funds and have therefore 
adopted a comparable process. For example, at Sec. 98.64(c)(3) we have 
applied the language from the reallotment process at Sec. 98.64(b)(2) 
to describe the same limits on the amounts of unobligated Matching 
grants that will be redistributed to other States that currently apply 
to the Discretionary Fund. That is, no redistribution will be made if 
the total to be redistributed is less than $25,000. Nor will any grant 
be made to an individual State if it would be less than $500. As 
provided in the statute, redistribution of the Matching Funds will be 
based on a formula similar to that used for the original allotments to 
the 50 States and the District of Columbia.
    At Sec. 98.64(c)(1) we have proposed that Matching Funds granted to 
a State, but not obligated by the end of that fiscal year, be 
redistributed to the other States which did obligate all of the 
Matching Funds allocated to them. Unused Matching Funds, then, would be 
made available only to those States which demonstrated their ability to 
use the entire amount already granted to them. According to the 
statute, such States must request the redistributed funds; the Funds 
will not automatically be redistributed to all qualifying States. We 
considered redistributing unused Matching Funds among each of the 50 
States and the District of Columbia, including the States that returned 
the money being reallotted. We rejected that approach since it raised 
the possibility that States which were unable to use all of their funds 
in one year would again be unable to use them in the following year. 
This would result in funds reverting to the Federal Treasury rather 
than being used to assist families.
    The regulation at Sec. 98.64(c)(2) restates the statutory language 
that funds which are not granted to a State are not redistributed. That 
is, if a State applies for only a portion of its allotment of the 
Matching Fund only that amount will be granted. The difference between 
the amount granted to that State and the State's allotment reverts to 
the Treasury and is not redistributed. As discussed above, it is the 
difference between the amount of the State's grant of Matching Funds--
not the amount allotted for it--and the amount that is not obligated 
within the required time frame, that will

[[Page 39635]]

be redistributed to the other States. This regulation is based on the 
statutory language that provides that it is the amounts that remain 
unused ``under any grant awarded'' that are redistributed, not the 
amounts that might be available to the State but are not awarded.
    We have also proposed a simplified process by which States notify 
us of any unobligated Matching Funds available for redistribution. 
Similarly, although we decided not to automatically redistribute 
Matching Funds among all eligible States, we propose a simple process 
for them to request redistributed Matching Funds. At Sec. 98.64(c) (3) 
and (4) we propose that States use the regular financial reporting 
form, rather than requiring a separate, additional notification from 
the State.
    Section 98.64(c)(6) reflects the statutory language that 
redistributed Matching Funds are to be considered as part of the grant 
for the fiscal year in which the redistribution occurs, not as a part 
of the grant for the year in which the funds were first awarded. This 
is in contrast to reallotment of Discretionary Funds; for Discretionary 
Funds the obligation period is based on the award year and is not 
extended.
    An amendment to section 658O of the Act provides for the 
reallotment of tribal Discretionary Funds. That amendment, at 
658O(e)(4), requires the Secretary to reallot any portion of a tribal 
grant that she determines ``is not being used in a manner consistent 
with the provision of [the Act].''
    Although the statutory language seems to suggest that the Secretary 
may make a determination which is separate and apart from the usual 
audit practice on the manner of use of funds by Tribes, there is no 
discussion in the Conference Agreement to indicate such an 
interpretation. Furthermore, we believe that Congress would have been 
more explicit if it desired the Secretary to create a separate audit or 
investigatory process. Therefore, we have proposed at Sec. 98.64(d) a 
reallotment process that exactly parallels the State process. That is, 
we will determine the amounts to be reallotted based upon reports 
submitted by the Tribes, pursuant to paragraph (d)(1) of this section. 
Each Tribe must submit a report to the Secretary indicating either the 
amount of funds from the previous year's grant it will be unable to 
obligate timely pursuant to Sec. 98.64(d), or that it will obligate all 
funds in a timely manner. These reallotment reports, which must be 
submitted by April 1 of each year, may be in the form of a letter. We 
chose the April 1st deadline to allow the Secretary the necessary time 
to reallot the funds and to allow Tribes the necessary time to obligate 
such funds on a timely basis.
    We will reallot funds that Tribes indicate are available for 
reallotment to the other Tribes, in proportion to their original 
allotment, if the total amount available for reallotment is $25,000 or 
more. If the total amount is less than $25,000, we will not reallot 
these funds; instead, they will revert to the Federal treasury. It is 
administratively impractical for the Department to issue small awards. 
Likewise, the Secretary will not award any reallotted funds to a Tribe 
if its individual grant award is less than $500, as it is 
administratively impractical to do so. These are the same thresholds 
that apply to the States.
    If a Tribe does not submit a reallotment report by the deadline for 
report submittal, we will determine that the Lead Agency does not have 
any funds available for purposes of the reallotment. If a report is 
postmarked after April 1, we will not reallot the amount of funds 
reported to be available for reallotment; instead, such funds will 
revert to the Federal treasury. As previously discussed, late reports 
do not allow the Secretary sufficient time to reallot the funds nor do 
they allow the Tribes sufficient time to obligate such funds timely as 
required by Sec. 98.64(d). We anticipate the Secretary will reallot 
funds made available for reallotment by May 1. Reallotted funds must 
meet the same programmatic and financial requirements as funds made 
available to Tribes in their initial allotments.
    The statute, and hence the regulations, remain unchanged regarding 
the reallotment of Discretionary Funds to the Territories. That is, 
there is no reallotment of Territorial Discretionary Funds.
Audits and Financial Reporting (Section 98.65)
    At Sec. 98.65(a) we have clarified that the Single Audit Act, as 
well as OMB Circular A-128, provide the basis for the required audits.
    We also added a new Sec. 98.65(f) to the requirements for audits. 
Audits must now be conducted by an agency that is independent of the 
State, Territory or Tribe as required by the amended section 658K of 
the CCDBG Act.
    We recognize that in the past some States may have used a State 
audit agency that is independent of the Lead Agency. Such audit 
agencies do not meet the new requirement because they are, 
nevertheless, part of State government. The Lead Agency is reminded 
that the costs of audits are an allowable administrative expense.
    Although we could not envision another regulatory approach that 
would give meaning to the change Congress made in the Act, we still 
welcome focused comments on this provision.
    Finally, we reincorporated from the former Sec. 98.64 a general 
financial reporting requirement. This provision is at Sec. 98.65(g). 
Accordingly we have renamed this section to ``Audits and Financial 
Reporting.''

Subpart H--Program Reporting Requirements

Reporting Requirements (98.70 of the Regulations)
Section 658K(a) of the amended Act requires each State receiving Child 
Care and Development Fund funding to submit two reports: quarterly 
disaggregate data for family units and biannual aggregate data. 
Territories are considered States for reporting purposes. The first 
biannual aggregate report must be submitted by December 31, 1997, and 
every six months thereafter.
    Section 658L of the Act requires the Secretary to summarize 
biennially for Congress the data and information required at section 
658K of the Act and Sec. 98.71 of the regulation.
    Section 658O(c)(2)(C) of the Act specifies that Tribes will report 
on programs and activities under CCDF. We require Tribes to submit 
annual aggregate data appropriate to tribal programs as they have 
previously in the CCDBG program.
    Principles for data reporting. The amended Act significantly 
revised the reporting requirements for all child care services. As a 
result, ACF developed principles to guide the implementation of 
reporting requirements. ACF, in concert with the Lead Agencies, will:
    1. Meet the statutory mandate for data reporting;
    2. Streamline data collection and reporting procedures from the 
previous four programs into a single integrated program;
    3. Build on data collection systems from the former four child care 
programs;
    4. Apply flexibility in phasing in the implementation of the data 
collection requirements;
    5. Apply flexibility in meeting data needs outside the Federal 
requirements;
    6. Provide technical assistance to Lead Agencies in the design of 
new or revised data collection systems and reporting processes, 
encouraging linkages to TANF information systems and to other relevant 
Federal reporting systems;
    7. Provide sampling specifications to Lead Agencies as part of the 
data collection process;

[[Page 39636]]

    8. Provide technical assistance to Lead Agencies in the design and 
use of data for the development of program performance measures; and
    9. Commit to making the data useful for Lead Agencies.
Content of the Reports (Section 98.71)
    For States and Territories. Consistent with the requirements of 
section 658K of the amended Act, we require States to collect monthly 
samples of family unit disaggregated data which are reported to ACF 
quarterly. In order to provide for adequate time for the approval 
process for sampling plans, we are proposing at Sec. 98.70(a)(3) that 
States be required to submit their sampling plan to ACF for approval 60 
days prior to the submission of the first quarterly report. States are 
not precluded from submitting disaggregate data for the entire 
population of children served under the CCDF. Specific aggregate 
information is required in the biannual report.
    We are proposing to use the Social Security Number of the head of 
the family unit receiving child care assistance as the case identifier. 
This would facilitate the use of the data for research tied to TANF, 
employment, and other family- and child-related programs. Public 
comment on this issue is specifically invited.
    Although the statute requires that cost of care information be 
provided in both the disaggregate and aggregate reports 
(658K(a)(1)(B)(ix) and 658K(a)(2)(B)), we will collect this information 
through the disaggregate report only and we will compile the 
information into the aggregate. This will eliminate duplicative 
reporting for the biannual aggregate report. Public comment on this 
issue is specifically invited.
    The statute at 658K(a)(1)(B)(x) requires collection of the average 
hours per week of care. In consultation with the States, we learned 
that it would be less burdensome to report the total hours of service 
per month. We therefore propose to collect the total hours of care per 
month in lieu of the average hours per week. We will be able to 
calculate the average hours of service per week based on this number.
    We propose to continue a data element concerning the reasons care 
was provided. In previous CCDBG data reports, ACF collected the reasons 
for care, i.e. working, education/training, and protective services. 
This is valuable information for State and Federal planning efforts.
    The statute at 658K(a)(2)(C) requires that the number of payments 
made through various methods by type of provider be reported 
biannually. Most States pay providers monthly; a few pay more 
frequently. If the statutory language is strictly interpreted, States 
would be required to report as many as 12-24 payments or more for each 
subsidized child throughout the year. Because this information would be 
of limited value, we are proposing at Sec. 98.71(b)(2) that the Lead 
Agency's report reflect the number of children served by payment method 
and primary type of provider during the final month of the report 
period only (or for the last month of service for those children 
leaving the program before the end of the report period). Changes in 
payment method or primary provider type over the report period should 
be ignored and only the last arrangement reported.
    Information concerning child care disregards is required by the 
statute at 658K(a)(2)(C); however, disregards, if used, would be 
provided under the TANF programs, not child care programs. As a result, 
information on the use of the disregard will be collected through TANF 
reporting procedures, since TANF agencies can collect this information 
more reliably.
    To have a complete picture of child care services in the States, 
quarterly disaggregate and biannual aggregate information will be 
collected on all funds of the Child Care and Development Fund, 
including Federal Discretionary Funds (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds 
and State Matching and MOE Funds. For States that choose to pool CCDF 
funds with non-CCDF funds (e.g. title XX, or State or local funds not 
part of the CCDF MOE) we will allow reporting and/or sampling on all 
children served by the pooled funds, but will require States to 
indicate percentages of CCDF and non-CCDF funds in the pool of funds. 
Detailed instructions on how to construct sampling frames for States 
which pool funds will be included in the sampling specifications 
developed by ACF. Technical assistance will be provided to States 
regarding collecting data across funding streams.
    Additionally, States have indicated a desire to compare data which 
are not a part of the mandatory reporting requirements. To meet this 
need and to make the available child care data more useful to State 
planning efforts, the Department will collaborate with States regarding 
a set of standardized optional data elements. The reporting of these 
data elements will not be required of any grantee.
    We will send additional information to Lead Agencies concerning 
specific reporting requirements, sampling specifications for the 
quarterly disaggregate report, and the submission process. We will 
issue detailed instructions in the future, including approved data 
definitions and reporting formats. Before we issue such instructions, 
however, we will solicit additional comments and secure necessary OMB 
approval.
    For Tribes. Tribes are neither required to submit the new aggregate 
biannual report nor the new disaggregate quarterly report. Instead, 
Tribes will continue to annually submit the ACF-700 which is currently 
in use. They will include information on all children served under the 
Discretionary and Tribal Mandatory funds. As of fiscal year 2000, 
Tribes will no longer be required to submit the second page of the ACF-
700 (fiscal programmatic data), as fiscal information for Tribes will 
be collected on a separate tribal financial reporting form.

Subpart I--Indian Tribes

    Subpart I addresses requirements and procedures for Indian Tribes 
and tribal organizations applying for or receiving CCDF funds. In light 
of unique tribal circumstances, Subpart I balances flexibility for 
Tribes with the need to ensure accountability and quality child care 
for children.
    Subpart I specifies the extent to which general regulatory 
requirements apply to Tribes. In accordance with Sec. 98.80(a), a Tribe 
shall be subject to all regulatory requirements in Parts 98 and 99, 
unless otherwise indicated. Subpart I lists general regulatory 
requirements that apply to Tribes. It also identifies requirements that 
do not apply to Tribes.
    Most programmatic issues that apply to Tribes are consolidated in 
Subpart I. However, financial management issues that apply to Tribes, 
including the allotment formulas and underlying data sources, are 
addressed separately in Subpart G--Financial Management.
    Tribes have the option to consolidate their CCDF funds under a plan 
authorized by the Indian Employment, Training and Related Services 
Demonstration Act of 1992 (Pub. L. 102-477). This law permits tribal 
governments to integrate a number of their federally funded employment, 
training, and related services programs into a single, coordinated 
comprehensive program.
    Since Senate Committee Report language for that Act prohibits the 
creation of new regulations for tribal programs operating under the 
102-477 initiative (S. Rep. No. 188, 102 Cong. 2d Sess. (1992)), ACF 
does not propose any additional regulations for the Indian

[[Page 39637]]

Employment, Training and Related Services application and plan process. 
Instead, ACF publishes annual program instructions for Tribes wishing 
to consolidate CCDF funds under an Indian Employment, Training and 
Related Services plan. The Bureau of Indian Affairs, Department of the 
Interior, has lead responsibility for administration of Public Law 102-
477 programs.
General Procedures and Requirements (Section 98.80)
    Demonstrations from consortia. The regulation at Sec. 98.80(c)(1) 
continues to provide that a consortium must adequately demonstrate that 
each participating Tribe authorizes the consortium to receive CCDF 
funds on its behalf. This demonstration would normally be required once 
every two years through the two-year tribal CCDF Plan. However, it is 
the responsibility of each consortium to inform ACF, through an 
amendment to its Plan, of any changes in membership.
    Consortia can demonstrate members' agreement to participate in a 
number of ways. A resolution is acceptable. We will also accept an 
agreement signed by the tribal leader or evidence that a tribal leader 
participated in a vote adopting such an agreement.
    Special requirements for Alaska Native grantees. By statute 
(section 419 of the Social Security Act), only specified Alaska Native 
entities may receive Tribal Mandatory Funds. The Metlakatla Indian 
Community of the Annette Islands Reserve and the 12 Alaska Native 
Regional Nonprofit Corporations are eligible to receive Tribal 
Mandatory Funds. The law provides that Discretionary Funds, however, 
will continue to be available to all the eligible Alaska Native 
entities that could apply under old CCDBG rules.
    For purposes of Discretionary funding, Alaska Native Regional 
Nonprofit Corporations, which are eligible to apply on behalf of their 
constituent villages, would need to demonstrate agreement from each 
constituent village.
    In the absence of such demonstration of agreement from a 
constituent village, the Corporation would not receive the per-child 
amount or the base amount associated with that village. This changes 
the policy stated in the preamble to the final rule issued August 4, 
1992 (57 FR 34406). The former policy permitted Alaska Native Regional 
Nonprofit Corporations to receive the per-child amount (but not the 
base amount) for a constituent village in the absence of a demonstrated 
agreement from the village that the Corporation was applying for 
funding on its behalf. Since all other tribal consortia are required to 
demonstrate agreement from their member Tribes in order to receive 
Discretionary funding, this change makes the funding requirements 
consistent for all consortia grantees.
    For purposes of Tribal Mandatory Funds, since the statute 
specifically cited the 12 Alaska Native Regional Nonprofit Corporations 
as eligible entities, demonstrations are not required by member 
villages for these entities to be funded.
    Since the law provides that only designated Alaska Native entities 
may receive the Tribal Mandatory Funds, there is a difference between 
which Alaska Native entities can be direct grantees for the two tribal 
parts of the CCDF. Our analysis indicates, however, that each of the 
Alaska tribal entities that are eligible to receive Discretionary Funds 
are served by one of the 12 Alaska Native Regional Nonprofit 
Corporations that by law can be direct grantees for the Tribal 
Mandatory Funds. In instances where there are different Alaska Native 
grantees for the two parts of the fund, we strongly encourage grantees 
to work together to ensure a coordinated tribal child care system in 
Alaska.
    Dual Eligibility. Under Sec. 98.80(d), Indian children continue to 
have dual eligibility to receive child care services funded by CCDF. 
Section 658O(c)(5) of the Act asserts that, for child care services 
funded by CCDF, the eligibility of Indian children for a tribal program 
does not affect their eligibility for a State program. To receive 
services under a program, the child must still meet the other specific 
eligibility criteria of that program.
    This provision was in the original Act, and it was not affected by 
the recent PRWORA amendments. Regulations at Sec. 98.20(b)(1) continue 
to provide that Lead Agencies may establish eligibility requirements, 
in addition to Federal eligibility requirements, so long as they do not 
``discriminate against children on the basis of race, national origin, 
ethnic background, sex, religious affiliation, or disability.'' As a 
result, States cannot have a blanket policy of refusing to provide 
child care services to Indian children.
    At the same time, tribal CCDF programs are a valuable source of 
child care for Indian children, including children whose families 
receive TANF assistance. In particular, a Tribe that operates its own 
TANF or work program (or both) will have an important role in promoting 
self-sufficiency for its low-income families, including the provision 
of adequate child care. However, Indian children have dual eligibility 
for CCDF child care services regardless of whether a Tribe operates its 
own TANF or work program. Therefore, we encourage States and Tribes to 
work closely together in planning for child care services. Coordination 
of child care resources will be needed to ensure adequate child care 
for eligible Indian children.
    Eligibility. Under Sec. 98.80(f), tribal Lead Agencies continue to 
have the option of using either the State's median income or the tribal 
median income in determining eligibility for services. However, ``75 
percent of median income'' has been replaced with ``85 percent of 
median income'' to reflect the change to the Act at section 658P(4)(B). 
As a result, in determining eligibility for services pursuant to 
Sec. 98.20(a)(2), a tribal program may use either: (1) up to 85 percent 
of the State median income for a family of the same size; or (2) up to 
85 percent of the median income for a family of the same size residing 
in the area served by the tribal grantee.
Application and Plan Procedures (Section 98.81)
    Section 98.81 contains application and Plan requirements for Tribes 
and tribal consortia. In accordance with Sec. 98.81(a), Tribes must 
apply for funds pursuant to Sec. 98.13, except that the requirement at 
Sec. 98.13(b)(2) does not apply.
    A tribal Lead Agency must submit a CCDF Plan, as described at 
Sec. 98.16, with the additions and exceptions described in 
Sec. 98.81(b).
    At Sec. 98.81(b)(1), we have proposed a new requirement that Tribes 
include a tribal resolution or similar demonstration which identifies 
the tribal Lead Agency. In the past there have been instances where a 
Tribe has left a consortium and requested direct funding. It was 
unclear to us whether the request for direct funding was legitimate 
since the Tribe's resolution to join the consortium was not rescinded. 
The consortium claimed to represent the Tribe, but the Tribe claimed it 
did not. Similarly, some tribal members have voiced concerns that an 
organization could apply for and receive funds on behalf of a Tribe 
without the Tribe's being aware that funds had been requested.
    The proposed requirement is parallel to the requirement that a 
State's chief executive officer must identify the State Lead Agency. 
Requiring a tribal resolution to identify the Lead Agency is not 
burdensome. To the contrary, it raises the profile and importance of

[[Page 39638]]

child care services to the Tribe and offers both ACF and the Tribes a 
measure of protection from erroneous disbursements that does not now 
exist. We invite comments on this proposed requirement.
    Section 98.81(b)(3) requires definitions of ``Indian child'' and 
``Indian reservation or tribal service area'' for purposes of 
determining eligibility.
    Section 98.81(b)(5) requires information necessary for determining 
the number of children for fund allocation purposes and grant 
eligibility requirements (i.e., the requirement that a Tribe must have 
at least 50 children under 13 years of age in order to directly apply 
for funding). The preamble discussion to Subpart G summarizes the data 
sources used to determine tribal allotments.
    Other changes in Plan provisions are more fully discussed in 
related sections under Subpart I.
Coordination (Section 98.82)
    Requirements regarding coordination at Sec. 98.82 remain unchanged 
except for a proposed clarification that tribal Lead Agencies must also 
meet coordination requirements at Secs. 98.12 and 98.14.
    In addition to coordinating with other agencies and programs, 
tribal Lead Agencies must also meet planning requirements at 
Sec. 98.14--including the public hearing requirement at Sec. 98.14(c). 
A Tribe must distribute notice of the hearing throughout its service 
area (rather than statewide).
Requirements for Tribal Programs (Section 98.83)
    In recognition of the unique social and economic circumstances of 
many tribal communities, we are proposing to exempt tribal Lead 
Agencies from a number of the CCDF requirements which apply to State 
Lead Agencies.
    Administrative costs. Based on input from several tribal 
organizations and tribal representatives, we are providing greater 
flexibility for tribal Lead Agencies by exempting them from the five 
percent State administrative cost cap at Sec. 98.52(a). Because of the 
varying infrastructural capabilities of many Indian Tribes, we are 
proposing to permit tribal Lead Agencies to use up to 15 percent of 
their total CCDF per child amount (including funds used for 
construction or major renovation in accordance with Sec. 98.84) for 
administrative costs. A 15 percent administrative limit for tribal Lead 
Agencies was recommended by several tribal organizations during the 
course of our pre-drafting consultations.
    Section 98.52(a) provides a list of administrative activities which 
are subject to the 15 percent cost limitation. The preamble discussion 
of section 98.52(a) provides an additional list of activities which are 
not considered administrative activities for purposes of the 15 percent 
cost cap.
    We recognize that many Federal programs permit Indian Tribes and 
tribal organizations to include an indirect cost rate in their grant 
awards. This rate is arrived at through negotiation between an Indian 
Tribe or tribal organization and the appropriate Federal agency. 
Through the list of activities which are not considered administrative 
costs, the exemption from the five percent State administrative cost 
cap, and the base amount under the Discretionary Fund, tribal Lead 
Agencies will have sufficient flexibility in determining their 
administrative and/or indirect costs to run effective CCDF programs.
    Exempt Tribes. We also realize that many smaller tribal grantees do 
not have the infrastructure in place to support certain requirements. 
As a result, we are exempting Lead Agencies of smaller Tribes and 
tribal organizations (with total CCDF allocations less than an amount 
established by the Secretary) from certain requirements specified at 
Sec. 98.83(f). Exempt tribal grantees are not required to comply with 
the four percent quality requirement at Sec. 98.51(a) or to run a 
certificate program. Non-exempt tribal grantees are required to comply 
with these requirements.
    The dollar threshold for determining which Tribes are exempt will 
be established by the Secretary. The threshold will be set to include 
as non-exempt all Tribes which were non-exempt prior to PRWORA. Some 
Tribes which were previously exempt may move into the non-exempt 
category due to the allocation of Tribal Mandatory funding, which does 
not include a base amount but rather is calculated solely on a per-
child basis. Under interim procedures which are in effect until final 
regulations are issued, all Tribes that were previously exempt (prior 
to PRWORA) continue to be exempt. However, if the threshold had been 
set for FY 1997 in accordance with the parameters described above, the 
amount would have been approximately $460,000 (i.e., tribal Lead 
Agencies with total CCDF allocations below $460,000 would have been 
exempt). The threshold for future fiscal years will likely be somewhat 
different because of changes in the CCDF appropriation. We welcome 
comments on the criteria for setting the exempt/non-exempt threshold.
    Although in the proposed rule we are keeping the existing 
``exempt'' and ``non-exempt'' categories, we are requesting comments on 
whether to eliminate this distinction and have one set of requirements 
for all tribal Lead Agencies. Under such an approach, all tribal Lead 
Agencies would be exempt from: the assurance of giving parents the 
option of enrolling their child with a contracted provider or receiving 
a certificate (at Sec. 98.15(a)(2); the requirement for certificates 
(at Sec. 98.30(a) and (d)); and the requirement for minimum quality 
expenditures at Sec. 98.51(a).
    By exempting all Tribes from these requirements, Tribes would be 
afforded greater flexibility in implementing their CCDF programs. 
Tribes would have the opportunity to determine their own needs and 
design program services which more appropriately reflect their unique 
circumstances.
    We strongly encourage Tribes to consider operating certificate 
programs, as appropriate, since it promotes parental choice. Many 
exempt Tribes currently operate certificate programs, as well as expend 
funds for quality activities, even though they are not required to do 
so by Federal regulation.
    70 percent requirement. The new section 418(b)(2) of the Social 
Security Act provides that States ensure that not less than 70 percent 
of the total amount of the State Mandatory and Matching funds received 
in a fiscal year be used to provide child care assistance to families 
receiving assistance under a State program under Part A of title IV of 
the Social Security Act, families who are attempting through work 
activities to transition from such assistance, and families at risk of 
becoming dependent such assistance. The provision at section 418(b)(2) 
does not apply to tribal Lead Agencies. Nonetheless, Tribes have a 
responsibility to ensure that their child care services provide a 
balance in meeting the needs of families listed in section 418(b)(2) 
and the child care needs of the working poor.
    Tribes that apply for grants from the new Tribal Mandatory Fund 
will have new direct child care resources for providing services, since 
they will receive substantially increased grants. Also, as we pointed 
out in our discussion on dual eligibility of tribal children, Tribes 
now have the option under title IV of the Social Security Act to 
operate their own TANF programs. Additionally, Tribes that operated a 
tribal Job Opportunities and Basic Skills Training (JOBS) program in 
1994 may choose to continue a tribal work program. Whatever the mixture 
of child care, TANF, and work services a Tribe

[[Page 39639]]

chooses to administer, child care services should be designed to ensure 
that all eligible families receive a fair share of services within the 
tribal service area.
    Base amount. A base amount is included in tribal grant awards under 
the Discretionary Fund. As referenced at Sec. 98.83(e), the base amount 
of any tribal grant is not subject to the administrative costs 
limitation at Sec. 98.83(g) or the quality expenditure requirement at 
Sec. 98.51(a).
    The base amount for each tribal grant may be used for any activity 
consistent with the purposes of the CCDF, including the administrative 
costs of implementing a child care program. For examples of 
administrative costs, refer to Sec. 98.52(a). While we encourage exempt 
tribal Lead Agencies to expend CCDF funds on quality activities, they 
are not required to meet this provision.
    Lead agency. Tribal grantees, like States, must designate a Lead 
Agency to administer the CCDF. If a tribal grantee applies for both 
Tribal Mandatory Funds and Discretionary funds, the programs must be 
integrated and administered by the same Lead Agency.
    Consortia. If a Tribe participating in a consortium arrangement 
elects to receive only part of the CCDF (e.g., Discretionary Funds), it 
may not join a different consortium to receive the other part of the 
CCDF (Tribal Mandatory Funds), or apply as a direct grantee to receive 
the other part of the fund. In this situation, individual tribal 
consortium members must remain with the consortium they have selected 
for the fiscal year in which they are receiving any part of CCDF funds. 
(However, an Alaska Native village that must receive Tribal Mandatory 
Funds indirectly through an Alaska Native Regional Nonprofit 
Corporation may still apply directly for Discretionary Funds).
    We have added language in Sec. 98.83(c) to require that a tribal 
consortium include in its two-year CCDF Plan a brief description of the 
direct child care services being provided for each of its participating 
Tribes. We have included this provision for three reasons: (1) It helps 
ensure that services are being delivered to the member Tribes; (2) 
since in some cases consortia receive sizeable base amounts, it will 
provide documentation of the actual services being delivered to member 
Tribes through consortia arrangements; and (3) it provides the 
opportunity for public comment, as part of the public hearing process 
required by Sec. 98.14(c), on the services provided to member Tribes.
    Child care standards. A new section of the Act (section 
658E(c)(2)(E)(ii)) requires the development of minimum child care 
standards for Indian Tribes and tribal organizations. Based on input 
from tribal leaders and tribal child care administrators, we are 
developing a process for Tribes to establish minimum child care 
standards that appropriately reflect tribal needs and available 
resources. Until the minimum standards are developed, Tribes must have 
in effect tribal and/or State licensing requirements applicable to 
child care services pursuant to Sec. 98.40. Tribes must also have in 
place requirements designed to protect the health and safety of 
children (in accordance with Sec. 98.41 of the regulations), including, 
but not limited to: (1) The prevention and control of infectious 
diseases (including immunization); (2) building and physical premises 
safety; and (3) minimum health and safety training appropriate to the 
provider setting.
    Planning costs for initial plan. Former Sec. 98.60(g) regarding 
planning costs associated with the submission of an initial CCDF Plan 
has been revised and moved to Sec. 98.83(h). This provision provides 
that CCDF funds are available for costs incurred by a tribal Lead 
Agency only after the funds are made available by Congress for Federal 
obligation unless costs are incurred for planning activities related to 
the submission of an initial CCDF Plan. Federal obligation of funds for 
planning costs is subject to the actual availability of the 
appropriation.
    We propose to move this provision from Subpart G (Financial 
Management) to Subpart I (Indian Tribes) because it applies only to 
Tribes. All States and eligible Territories are currently CCDF 
grantees, but some Tribes are not current grantees and are eligible to 
submit initial CCDF Plans.
Construction and Renovation (Section 98.84)
    Upon requesting and receiving approval from the Secretary of the 
Department of Health and Human Services, a tribal Lead Agency may use 
amounts from its CCDF allocation for construction and major renovation 
of child care facilities (pursuant to new section 6580(c)(6) of the Act 
and proposed regulations at Sec. 98.84(a)).
    Under the proposed rule, these payments could cover costs of 
amortizing the principal and paying interest on loans for construction 
and major renovation. This policy is consistent with Head Start 
procedures for construction and renovation--which allow use of funds to 
pay for principal and interest on loans. Loans are an essential part of 
many construction and renovation projects.
    Proposed Sec. 98.84(b) reflects the statutory requirement that, to 
be approved by the Secretary, a request to use CCDF funds for 
construction or major renovation must be made in accordance with 
uniform procedures developed by the Secretary. These uniform procedures 
will be provided to tribal Lead Agencies via program instructions.
    By statute (and proposed Sec. 98.84(b)), such requests must 
demonstrate that: (1) Adequate facilities are not otherwise available 
to enable the tribal Lead Agency to carry out child care programs; (2) 
the lack of such facilities will inhibit the operation of child care 
programs in the future; and (3) the use of funds for construction or 
major renovation will not result in a decrease in the level of child 
care services provided by the tribal Lead Agency as compared to the 
level of services provided by the tribal Lead Agency in the preceding 
fiscal year. In light of the requirement that a Tribe cannot reduce the 
level of child care services, a tribal Lead Agency should plan in 
advance for anticipated construction and renovation costs.
    Proposed Sec. 98.84(c) allows tribal Lead Agencies to use CCDF 
funds for reasonable and necessary planning costs associated with 
assessing the need for construction or renovation or for preparing a 
request, in accordance with the uniform procedures established by 
program instruction, to spend CCDF funds on construction or major 
renovation. However, a tribal Lead Agency may not use CCDF funds to pay 
for the costs of an architect, engineer, or other consultant until its 
request is approved by the Secretary.
    Proposed Sec. 98.84(d) requires tribal Lead Agencies which receive 
approval from the Secretary to use CCDF funds for construction or major 
renovation to comply with specified requirements in 45 CFR Part 92 and 
any additional requirements established by program instruction. Title 
45 CFR Part 92 does not generally apply to the Child Care and 
Development Fund. However, we are proposing to make specified sections 
applicable for purposes of construction and renovation only.
    The ACF has an interest in property that is constructed or 
renovated with CCDF funds. This interest takes the form of restrictions 
on use and disposition of the property. The Federal interest also is 
manifested in the requirement that ACF receive a share of the proceeds 
from any sale of property. These requirements regarding Federal share 
and the use and disposition of property are found at 45 CFR 92.31 (b) 
and (c).
    Title requirements at 45 CFR 92.31(a) provide that title to a 
facility

[[Page 39640]]

constructed or renovated with CCDF funds vests with the grantee upon 
acquisition.
    Title 45 CFR 92.22 concerns cost principles and allowable cost 
requirements. Consistent with these cost principles, reasonable fees 
and costs associated with and necessary to the construction or 
renovation of a facility are payable with CCDF funds, but require 
prior, written approval from ACF.
    Title 45 CFR 92.25 governs program income. Program income derived 
from real property constructed or renovated with CCDF funds must be 
deducted from the total allowable costs of the budget period in which 
it was produced.
    All facility construction and renovation transactions must comply 
with the procurement procedures in 45 CFR 92.36, and must be conducted 
in a manner to provide, to the maximum extent practicable, open and 
free competition.
    Tribal Lead Agencies must also comply with any additional 
requirements established by program instruction. These requirements may 
include, but are not limited to, requirements concerning: The recording 
of a Notice of Federal Interest in property; rights and 
responsibilities in the event of a grantee's default on a mortgage; 
insurance and maintenance; submission of plans, specifications, 
inspection reports, and other legal documents; and modular units.
    The proposed definition of ``facility'' at Sec. 98.2 would allow 
tribal Lead Agencies to use CCDF funds for the construction or 
renovation of modular units as well as real property. Proposed 
regulations at Sec. 98.2 would define ``construction'' as the building 
of a facility that does not currently exist. The proposed rule would 
define ``major renovation'' as: (1) Structural changes to the 
foundation, roof, floor, exterior or load-bearing walls of a facility, 
or the extension of a facility to increase its floor area; or (2) 
extensive alteration of a facility such as to significantly change its 
function and purpose, even if such renovation does not include any 
structural change. The proposed definitions of ``facility,'' 
``construction,'' and ``major renovation'' are the same definitions 
used in Head Start construction and renovation procedures.
    Section 98.84(e) proposes that, in lieu of obligation and 
liquidation requirements at Sec. 98.60(e), tribal Lead Agencies must 
liquidate CCDF funds used for construction or major renovation by the 
end of the second fiscal year following the fiscal year for which the 
grant is awarded. This will give tribal Lead Agencies three years to 
liquidate funds approved by the Secretary for use on construction or 
major renovation with no separate obligation period. We are proposing 
these requirements to allow sufficient time for construction and 
renovation projects. We invite comments on this proposal.
    While a tribal Lead Agency must request approval from the Secretary 
before spending CCDF funds on construction or major renovation, 
approval is not necessary for minor renovation pursuant to section 
658F(b) of the Act and proposed regulations at Sec. 98.84(f). For 
tribal Lead Agencies, minor renovation includes all renovation other 
than major renovation or construction.
    Amounts used for construction and major renovation are not 
considered administrative costs for the purpose of the 15 percent 
administrative cost limit under proposed Sec. 98.83(g). We do not 
believe that Congress intended for us to unnecessarily limit a tribal 
Lead Agency's ability to use CCDF funds on construction and renovation 
projects which meet the requirements necessary for Secretarial 
approval.
    Finally, the new statutory provision allowing tribal construction 
with CCDF funds provides an opportunity for tribal grantees to leverage 
resources for quality facilities and services by coordinating with 
their Tribe's Head Start program.

Subpart J--Monitoring, Non-Compliance and Complaints

Penalties and Sanctions (Section 98.92)
    We have amended paragraphs (1) and (2) of Sec. 98.92(a), because 
the statutory amendments changed the penalty for a Lead Agency found to 
have failed to substantially comply with the statute, the regulations, 
or its own Plan. We also have deleted the former Sec. 98.92(b) as 
redundant due to the statutory amendments. In keeping with prior 
statutory language, the former regulations authorized the withholding 
of further payments to a grantee as a penalty for non-compliance. The 
amendments at section 658I(b)(2)(A)(ii) give the Secretary the option 
to disallow improperly expended funds or to deduct an amount equal to 
or less than an improperly expended amount from the administrative 
portion of the Lead Agency's allotment for the following fiscal year. 
The Secretary can also impose a penalty that is a combination of these 
two options.
    Paragraph (c), concerning other penalties has been revised and 
redesignated as paragraph (b) in light of the amended statute. We also 
propose a new regulation at paragraph (b)(2) to establish a penalty on 
the Lead Agency for: (1) a failure to implement any part of the CCDF 
program in accordance with the Act or regulations or its Plan; or (2) a 
violation of the Act or regulations. Such penalty would be invoked when 
a failure or violation by the Lead Agency does not result in an clearly 
identifiable amount of improperly expended funds. For example, the 
failure to provide the reports required under subpart H or the 
inappropriate limitation of access to a particular type of provider in 
violation of the parental choice provisions of Subpart D do not result 
in a clearly identifiable amount of improperly expended funds. Hence, 
the penalties at paragraph (a) could not be applied. However, our 
stewardship of the program since its creation indicates the need for a 
more effective means of ensuring conformity with the statute and 
regulations than is offered by the existing regulations. Section 
658I(b)(2)(B) of the CCDBG Act provides for an ``additional sanction'' 
if the Secretary finds there has been non-compliance with the plan or 
any requirement of the program.
    Because a failure or violation which would cause the penalty under 
(b)(2) to be imposed may not have an amount of improperly expended 
funds associated with it, we needed to determine what amount of penalty 
should be imposed. We considered the range of TANF penalties found at 
section 409 of the Social Security Act and decided to use the TANF 
penalty provisions for failure to report at section 409(a)(2) of the 
Social Security Act as guidance. Accordingly, our proposed 
Sec. 98.92(b)(2) provides that a penalty equal to four percent of the 
annual Discretionary allotment will be withheld no earlier than the 
second full quarter following the quarter in which the Lead Agency was 
notified of the proposed penalty.
    Since the TANF penalties provisions include provisions for good 
cause and corrective action, we have proposed to include similar 
provisions in Sec. 98.92(b)(2). The penalty will not be applied if the 
Lead Agency corrects the failure or violation before the penalty is to 
be applied or if it submits a plan for corrective action that is 
accepted by the Secretary. Waiting at least one full quarter before 
applying the penalty provides sufficient time to remedy the situations 
which we envision would cause the penalty to be invoked. The Lead 
Agency may, during that time, show cause to the Secretary why the 
amount of the penalty, if imposed, should be reduced. We are especially

[[Page 39641]]

seeking comments on the penalty option proposed at Sec. 98.92(b)(2).
    The paragraphs formerly located at Sec. 98.92 (d) and (e) are 
relocated at Sec. 98.92 (c) and (d), respectively. We have added a new 
Sec. 98.92(e) providing that it is at the Secretary's sole discretion 
to choose the penalty to be imposed.

List of Subjects

45 CFR Part 98

    Child care, Grant program--social programs, Parental choice, 
Reporting and record keeping requirements.

45 CFR Part 99

    Administrative practice and procedure, Child care, Grant program--
social programs.

(Catalog of Federal Domestic Assistance Programs: 93.037, Child Care 
and Development Block Grant; 93.596, Child Care Mandatory and 
Matching Funds)

    Dated: March 7, 1997.

Olivia A. Golden,
Principal Deputy Assistant Secretary for Children and Families.
    Approved: April 21, 1997.
Donna E. Shalala,
Secretary, Department of Health and Human Services.

    For the reasons set forth in the preamble, Parts 98 and 99 of 
Subtitle A of Title 45 of the Code of Federal Regulations are proposed 
to be amended as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

    1. Part 98 is proposed to be revised as follows:

Subpart A--Goals, Purposes and Definitions

Sec.
98.1  Goals and purposes.
98.2  Definitions.
98.3  Effect on State law.

Subpart B--General Application Procedures

98.10  Lead Agency responsibilities.
98.11  Administration under contracts and agreements.
98.12  Coordination and consultation.
98.13  Applying for funds.
98.14  Plan process.
98.15  Assurances and certifications.
98.16  Plan provisions.
98.17  Period covered by Plan.
98.18  Approval and disapproval of Plans and Plan amendments.

Subpart C--Eligibility for Services

98.20  A child's eligibility for child care services.
Subpart D--Program Operations (Child Care Services)--Parental Rights 
and Responsibilities
98.30  Parental choice.
98.31  Parental access.
98.32   Parental complaints.
98.33  Consumer education.
98.34  Parental rights and responsibilities.
Subpart E--Program Operations (Child Care Services)--Lead Agency and 
Provider Requirements
98.40  Compliance with applicable State and local regulatory 
requirements.
98.41  Health and safety requirements.
98.42  Sliding fee scales.
98.43  Equal access.
98.44  Priority for child care services.
98.45  List of providers.
98.46  Nondiscrimination in admissions on the basis of religion.
98.47  Nondiscrimination in employment on the basis of religion.

Subpart F--Use of Child Care and Development Funds

98.50  Child care services.
98.51  Activities to improve the quality of child care.
98.52  Administrative costs.
98.53  Matching Fund requirements.
98.54  Restrictions on the use of funds.
98.55  Cost allocation.

Subpart G--Financial Management

98.60  Availability of funds.
98.61  Allotments from the Discretionary Fund.
98.62  Allotments from the Mandatory Fund.
98.63  Allotments from the Matching Fund.
98.64  Reallotment and redistribution of funds.
98.65  Audits and financial reporting.
98.66  Disallowance procedures.
98.67  Fiscal requirements.

Subpart H--Program Reporting Requirements

98.70  Reporting requirements.
98.71  Content of reports.

Subpart I--Indian Tribes

98.80  General procedures and requirements.
98.81  Application and Plan procedures.
98.82  Coordination.
98.83  Requirements for tribal programs.
98.84  Construction and renovation of child care facilities.

Subpart J--Monitoring, Non-Compliance and Complaints

98.90  Monitoring.
98.91  Non-compliance.
98.92  Penalties and sanctions.
98.93  Complaints.

    Authority: 42 U.S.C. 618, 9858.

Subpart A--Goals, Purposes and Definitions


Sec. 98.1  Goals and purposes.

    (a) The goals of the CCDF are to:
    (1) Allow each State maximum flexibility in developing child care 
programs and policies that best suit the needs of children and parents 
within the State;
    (2) Promote parental choice to empower working parents to make 
their own decisions on the child care that best suits their family's 
needs;
    (3) Encourage States to provide consumer education information to 
help parents make informed choices about child care;
    (4) Assist States to provide child care to parents trying to 
achieve independence from public assistance; and
    (5) Assist States in implementing the health, safety, licensing, 
and registration standards established in State regulations.
    (b) The purpose of the CCDF is to increase the availability, 
affordability, and quality of child care services. The program offers 
Federal funding to States, Territories, Indian Tribes, and tribal 
organizations in order to:
    (1) Provide low-income families with the financial resources to 
find and afford quality child care for their children;
    (2) Enhance the quality and increase the supply of child care for 
all families, including those who receive no direct assistance under 
the CCDF;
    (3) Provide parents with a broad range of options in addressing 
their child care needs;
    (4) Strengthen the role of the family;
    (5) Improve the quality of, and coordination among, child care 
programs and early childhood development programs; and
    (6) Increase the availability of early childhood development and 
before- and after-school care services.
    (c) The purpose of these regulations is to provide the basis for 
administration of the Fund. These regulations provide that Lead 
Agencies:
    (1) Maximize parental choice through the use of certificates and 
through grants and contracts;
    (2) Include in their programs a broad range of child care 
providers, including center-based care, family child care, in-home 
care, care provided by relatives and sectarian child care providers;
    (3) Provide quality child care that meets applicable requirements;
    (4) Coordinate planning and delivery of services at all levels;
    (5) Design flexible programs that provide for the changing needs of 
recipient families;

[[Page 39642]]

    (6) Administer the CCDF responsibly to ensure that statutory 
requirements are met and that adequate information regarding the use of 
public funds is provided; and
    (7) Design programs that provide uninterrupted service to families 
and providers, to the extent statutorily possible.


Sec. 98.2  Definitions.

    For the purpose of this part and part 99:
    The Act refers to the Child Care and Development Block Grant Act of 
1990, section 5082 of the Omnibus Budget Reconciliation Act of 1990, 
Pub. L. 101-508, as amended and codified at 42 U.S.C. 9858 et seq.
    ACF means the Administration for Children and Families;
    Application is a request for funding that includes the information 
required at Sec. 98.13;
    Assistant Secretary means the Assistant Secretary for Children and 
Families, Department of Health and Human Services;
    Caregiver means an individual who provides child care services 
directly to an eligible child on a person-to-person basis;
    Categories of care means center-based child care, group home child 
care, family child care and in-home care;
    Center-based child care provider means a provider licensed or 
otherwise authorized to provide child care services for fewer than 24 
hours per day per child in a non-residential setting, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Child care certificate means a certificate (that may be a check, or 
other disbursement) that is issued by a grantee directly to a parent 
who may use such certificate only as payment for child care services or 
as a deposit for child care services if such a deposit is required of 
other children being cared for by the provider, pursuant to Sec. 98.30. 
Nothing in this part shall preclude the use of such certificate for 
sectarian child care services if freely chosen by the parent. For the 
purposes of this part, a child care certificate is assistance to the 
parent, not assistance to the provider;
    Child Care and Development Fund (CCDF) means the child care 
programs conducted under the provisions of the Child Care and 
Development Block Grant Act, as amended. The Fund consists of 
Discretionary Funds authorized under section 658B of the amended Act, 
and Mandatory and Matching Funds appropriated under section 418 of the 
Social Security Act;
    Child care provider that receives assistance means a child care 
provider that receives Federal funds under the CCDF pursuant to grants, 
contracts, or loans, but does not include a child care provider to whom 
Federal funds under the CCDF are directed only through the operation of 
a certificate program;
    Child care services, for the purposes of Sec. 98.50, means the care 
given to an eligible child by an eligible child care provider;
    Construction means the erection of a facility that does not 
currently exist;
    The Department means the Department of Health and Human Services;
    Discretionary funds means the funds authorized under section 658B 
of the Child Care and Development Block Grant Act. The Discretionary 
funds were formerly referred to as the Child Care and Development Block 
Grant;
    Eligible child means an individual who meets the requirements of 
Sec. 98.20;
    Eligible child care provider means:
    (1) A center-based child care provider, a group home child care 
provider, a family child care provider, an in-home child care provider, 
or other provider of child care services for compensation that--
    (i) Is licensed, regulated, or registered under applicable State or 
local law as described in Sec. 98.40; and
    (ii) Satisfies State and local requirements, including those 
referred to in Sec. 98.41 applicable to the child care services it 
provides; or
    (2) A child care provider who is 18 years of age or older who 
provides child care services only to eligible children who are, by 
marriage, blood relationship, or court decree, the grandchild, great 
grandchild, sibling (if such provider lives in separate residence), 
niece, or nephew of such provider, and complies with any applicable 
requirements that govern child care provided by the relative involved;
    Facility means real property or modular unit appropriate for use by 
a grantee to carry out a child care program;
    Family child care provider means one individual who provides child 
care services for fewer than 24 hours per day per child, as the sole 
caregiver, in a private residence other than the child's residence, 
unless care in excess of 24 hours is due to the nature of the 
parent(s)' work;
    Group home child care provider means two or more individuals who 
provide child care services for fewer than 24 hours per day per child, 
in a private residence other than the child's residence, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Indian Tribe means any Indian Tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq) that 
is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians;
    In-home child care provider means an individual who provides child 
care services in the child's own home;
    Lead agency means the State, territorial or tribal entity 
designated under Secs. 98.10 and 98.16(a) to which a grant is awarded 
and that is accountable for the use of the funds provided;
    Licensing or regulatory requirements means requirements necessary 
for a provider to legally provide child care services in a State or 
locality, including registration requirements established under State, 
local or tribal law;
    Liquidation period means the applicable time period during which a 
fiscal year's grant shall be liquidated pursuant to the requirements at 
Sec. 98.60.;
    Major renovation means: (1) Structural changes to the foundation, 
roof, floor, exterior or load-bearing walls of a facility, or the 
extension of a facility to increase its floor area; or
    (2) Extensive alteration of a facility such as to significantly 
change its function and purpose, even if such renovation does not 
include any structural change;
    Mandatory funds means the general entitlement child care funds 
described at section 418(a)(1) of the Social Security Act;
    Matching funds means the remainder of the general entitlement child 
care funds that are described at section 418(a)(2) of the Social 
Security Act;
    Modular unit means a portable structure made at another location 
and moved to a site for use by a grantee to carry out a child care 
program;
    Obligation period means the time period during which a fiscal 
year's grant shall be obligated pursuant to Sec. 98.60;
    Parent means a parent by blood, marriage or adoption and also means 
a legal guardian, or other person standing in loco parentis;
    The Plan means the Plan for the implementation of programs under 
the CCDF;
    Program period means the time period for using a fiscal year's 
grant and does not extend beyond the last day to liquidate funds;
    Programs refers generically to all activities under the CCDF, 
including child care services and other activities pursuant to 
Sec. 98.50 as well as quality

[[Page 39643]]

and availability activities pursuant to Sec. 98.51;
    Provider means the entity providing child care services;
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment;
    The regulation refers to the actual regulatory text contained in 
parts 98 and 99 of this chapter;
    Secretary means the Secretary of the Department of Health and Human 
Services;
    Sectarian organization or sectarian child care provider means 
religious organizations or religious providers generally. The terms 
embrace any organization or provider that engages in religious conduct 
or activity or that seeks to maintain a religious identity in some or 
all of its functions. There is no requirement that a sectarian 
organization or provider be managed by clergy or have any particular 
degree of religious management, control, or content;
    Sectarian purposes and activities means any religious purpose or 
activity, including but not limited to religious worship or 
instruction;
    Services for which assistance is provided means all child care 
services funded under the CCDF, either as assistance directly to child 
care providers through grants, contracts, or loans, or indirectly as 
assistance to parents through child care certificates;
    Sliding fee scale means a system of cost sharing by a family based 
on income and size of the family, in accordance with Sec. 98.42;
    State means any of the States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
and includes Tribes unless otherwise specified;
    Tribal Mandatory funds means the child care funds set aside at 
section 418(a)(4) of the Social Security Act. The funds consist of 
between one and two percent of the aggregate Mandatory and Matching 
child care funds reserved by the Secretary in each fiscal year for 
payments to Indian Tribes and tribal organizations; and
    Types of providers means the different classes of providers under 
each category of care. For the purposes of the CCDF, types of providers 
include non-profit providers, for-profit providers, sectarian providers 
and relatives who provide care.


Sec. 98.3  Effect on State law.

    (a) Nothing in the Act or this part shall be construed to supersede 
or modify any provision of a State constitution or State law that 
prohibits the expenditure of public funds in or by sectarian 
organizations, except that no provision of a State constitution or 
State law shall be construed to prohibit the expenditure in or by 
sectarian institutions of any Federal funds provided under this part.
    (b) If a State law or constitution would prevent CCDF funds from 
being expended for the purposes provided in the Act, without 
limitation, then States shall segregate State and Federal funds.

Subpart B--General Application Procedures


Sec. 98.10  Lead Agency responsibilities.

    The Lead Agency, as designated by the chief executive officer of 
the State (or by the appropriate Tribal leader or applicant), shall:
    (a) Administer the CCDF program, directly or through other 
governmental or non-governmental agencies, in accordance with 
Sec. 98.11;
    (b) Apply for funding under this part, pursuant to Sec. 98.13;
    (c) Consult with appropriate representatives of local government in 
developing a Plan to be submitted to the Secretary pursuant to 
Sec. 98.14(b);
    (d) Hold at least one public hearing in accordance with 
Sec. 98.14(c); and
    (e) Coordinate CCDF services pursuant to Sec. 98.12.


Sec. 98.11  Administration under contracts and agreements.

    (a) The Lead Agency has broad authority to administer the program 
through other governmental or non-governmental agencies. In addition, 
the Lead Agency can use other public or private local agencies to 
implement the program; however:
    (1) The Lead Agency shall retain overall responsibility for the 
administration of the program, as defined in paragraph (b) of this 
section;
    (2) The Lead Agency shall serve as the single point of contact for 
issues involving the administration of the grantee's CCDF program; and
    (3) Administrative and implementation responsibilities undertaken 
by agencies other than the Lead Agency shall be governed by written 
agreements that specify the mutual roles and responsibilities of the 
Lead Agency and the other agencies in meeting the requirements of this 
part.
    (b) In retaining overall responsibility for the administration of 
the program, the Lead Agency shall:
    (1) Determine the basic usage and priorities for the expenditure of 
CCDF funds;
    (2) Promulgate all rules and regulations governing overall 
administration of the Plan;
    (3) Submit all reports required by the Secretary;
    (4) Ensure that the program complies with the approved Plan and all 
Federal requirements;
    (5) Oversee the expenditure of funds by subgrantees and 
contractors;
    (6) Monitor programs and services;
    (7) Fulfill the responsibilities of any sub-grantee in any: 
disallowance under subpart G; complaint or compliance action under 
subpart J; or hearing or appeal action under part 99 of this chapter; 
and
    (8) Ensure that all State and local or non-governmental agencies 
through which State administers the program, including agencies and 
contractors that determine individual eligibility, operate according to 
the rules established for the program.


Sec. 98.12  Coordination and consultation.

    The Lead Agency shall:
    (a) Coordinate the provision of services for which assistance is 
provided under this part with the agencies listed in Sec. 98.14(a).
    (b) Consult, in accordance with Sec. 98.14(b), with representatives 
of general purpose local government during the development of the Plan; 
and
    (c) Coordinate, to the maximum extent feasible, with any Indian 
Tribes in the State receiving CCDF funds in accordance with subpart I 
of this part.


Sec. 98.13  Applying for funds.

    The Lead Agency of a State or Territory shall apply for Child Care 
and Development funds by providing the following:
    (a) The amount of funds requested at such time and in such manner 
as prescribed by the Secretary.
    (b) The following assurances or certifications:
    (1) An assurance that the Lead Agency will comply with the 
requirements of the Act and this part;
    (2) A lobbying certification that assures that the funds will not 
be used for the purpose of influencing pursuant to 45 CFR part 93, and, 
if necessary, a Standard Form LLL (SF-LLL) that discloses lobbying 
payments;
    (3) An assurance that the Lead Agency provides a drug-free 
workplace pursuant to 45 CFR 76.600, or a statement that such an 
assurance has already been submitted for all HHS grants;
    (4) A certification that no principals have been debarred pursuant 
to 45 CFR 76.500;

[[Page 39644]]

    (5) Assurances that the Lead Agency will comply with the applicable 
provisions regarding nondiscrimination at 45 CFR part 80 (implementing 
title VI of the Civil Rights Act of 1964, as amended), 45 CFR part 84 
(implementing section 504 of the Rehabilitation Act of 1973, as 
amended), 45 CFR part 86 (implementing title IX of the Education 
Amendments of 1972, as amended) and 45 CFR part 91 (implementing the 
Age Discrimination Act of 1975, as amended), and;
    (6) Assurances that the Lead Agency will comply with the applicable 
provisions of Public Law 103-277, Part C--Environmental Tobacco Smoke, 
also known as the Pro-Children Act of 1994, regarding prohibitions on 
smoking.
    (c) The Child Care and Development Fund Plan, at times and in such 
manner as required in Sec. 98.17; and
    (d) Such other information as specified by the Secretary.


Sec. 98.14  Plan process.

    In the development of each Plan, as required pursuant to 
Sec. 98.17, the Lead Agency shall:
    (a) Coordinate the provision of services funded under this Part 
with other Federal, State, and local child care and early childhood 
development programs, including such programs for the benefit of Indian 
children. At a minimum, the Lead Agency shall coordinate with the 
State, and if applicable, tribal agencies responsible for:
    (1) Public health, including the agency responsible for 
immunizations;
    (2) Employment services/workforce development;
    (3) Public education; and
    (4) Providing Temporary Assistance for Needy Families, and provide 
a description of the results of the coordination with each of these 
agencies in the CCDF Plan.
    (b) Consult with appropriate representatives of local governments;
    (c)(1) Hold at least one hearing in the State, after at least 20 
days of statewide public notice, to provide to the public an 
opportunity to comment on the provision of child care services under 
the Plan.
    (2) The hearing required by paragraph (c)(1) shall be held before 
the Plan is submitted to ACF, but no earlier than nine months before 
the Plan becomes effective.


Sec. 98.15  Assurances and certifications.

    (a) The Lead Agency shall include the following assurances in its 
CCDF Plan:
    (1) Upon approval, it will have in effect a program that complies 
with the provisions of the CCDF Plan, and that is administered in 
accordance with the Child Care and Development Block Grant Act of 1990, 
as amended, section 418 of the Social Security Act, and all other 
applicable Federal laws and regulations;
    (2) The parent(s) of each eligible child within the area served by 
the Lead Agency who receives or is offered child care services for 
which financial assistance is provided is given the option either:
    (i) To enroll such child with a child care provider that has a 
grant or contract for the provision of the service; or
    (ii) To receive a child care certificate as defined in Sec. 98.2;
    (3) In cases in which the parent(s), pursuant to Sec. 98.30, elects 
to enroll their child with a provider that has a grant or contract with 
the Lead Agency, the child will be enrolled with the eligible provider 
selected by the parent to the maximum extent practicable;
    (4) In accordance with Sec. 98.30, the child care certificate 
offered to parents shall be of a value commensurate with the subsidy 
value of child care services provided under a grant or contract;
    (5) With respect to State and local regulatory requirements (or 
tribal regulatory requirements), health and safety requirements, 
payment rates, and registration requirements, State or local (or 
tribal) rules, procedures or other requirements promulgated for the 
purpose of the CCDF will not significantly restrict parental choice 
from among categories of care or types of providers, pursuant to 
Sec. 98.30(g).
    (6) That if expenditures for pre-Kindergarten services are used to 
meet the maintenance-of-effort requirement, the State has not reduced 
its level of effort in full-day/full-year services, pursuant to 
Sec. 98.53(h)(1).
    (b) The Lead Agency shall include the following certifications in 
its CCDF Plan:
    (1) In accordance with Sec. 98.31, it has procedures in place to 
ensure that providers of child care services for which assistance is 
provided under the CCDF, afford parents unlimited access to their 
children and to the providers caring for their children, during the 
normal hours of operations and whenever such children are in the care 
of such providers;
    (2) As required by Sec. 98.32, it maintains a record of 
substantiated parental complaints and makes information regarding such 
complaints available to the public on request;
    (3) It will collect and disseminate to parents of eligible children 
and the general public, consumer education information that will 
promote informed child care choices, as required by Sec. 98.33;
    (4) There are in effect licensing requirements applicable to child 
care services provided within the State (or area served by tribal Lead 
Agency), pursuant to Sec. 98.40;
    (5) There are in effect within the State (or other area served by 
the Lead Agency), under State or local (or tribal) law, requirements 
designed to protect the health and safety of children that are 
applicable to child care providers that provide services for which 
assistance is made available under the CCDF, pursuant to Sec. 98.41;
    (6) In accordance with Sec. 98.41, procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under the CCDF comply with all applicable State or local (or 
tribal) health and safety requirements; and
    (7) Payment rates for the provision of child care services, in 
accordance with Sec. 98.43, are sufficient to ensure equal access for 
eligible children to comparable child care services in the State or 
sub-State area that are provided to children whose parents are not 
eligible to receive assistance under this program or under any other 
Federal or State child care assistance programs.


Sec. 98.16  Plan provisions.

    A CCDF Plan shall contain the following:
    (a) Specification of the Lead Agency whose duties and 
responsibilities are delineated in Sec. 98.10;
    (b) The assurances and certifications listed under Sec. 98.15;
    (c)(1) A description of how the CCDF program will be administered 
and implemented, if the Lead Agency does not directly administer and 
implement the program;
    (2) Identification of the entities designated to receive private 
donated funds and the purposes for which such funds will be expended, 
pursuant to Sec. 98.53(f);
    (d) A description of the coordination and consultation processes 
involved in the development of the Plan, including a description of 
public-private partnership activities that promote business involvement 
in meeting child care needs pursuant to Sec. 98.14 (a) and (b);
    (e) A description of the public hearing process, pursuant to 
Sec. 98.14(c);
    (f) Definitions of the following terms for purposes of determining 
eligibility, pursuant to Secs. 98.20(a) and 98.44:
    (1) Special needs child;
    (2) Physical or mental incapacity (if applicable);
    (3) Attending (a job training or educational program);

[[Page 39645]]

    (4) Job training and educational program;
    (5) Residing with;
    (6) Working;
    (7) Protective services (if applicable);
    (8) Very low income; and
    (9) in loco parentis.
    (g) For child care services pursuant to Sec. 98.50:
    (1) A description of such services and activities;
    (2) Any limits established for the provision of in-home care and 
the justification of such limits pursuant to Sec. 98.30(e)(1)(iv);
    (3) A list of political subdivisions in which such services and 
activities are offered, if such services and activities are not 
available throughout the entire service area;
    (4) A description of how the Lead Agency will meet the needs of 
certain families specified at Sec. 98.50(e).
    (5) Any additional eligibility criteria, priority rules and 
definitions established pursuant to Sec. 98.20(b);
    (h) A description of the activities to improve the quality and 
availability of child care, to provide comprehensive consumer 
education, and to increase parental choice, pursuant to Sec. 98.51;
    (i) A description of the sliding fee scale(s) (including any 
factors other than income and family size used in establishing the fee 
scale(s)) that provide(s) for cost sharing by the families that receive 
child care services for which assistance is provided under the CCDF, 
pursuant to Sec. 98.42;
    (j) A description of the health and safety requirements, applicable 
to all providers of child care services for which assistance is 
provided under the CCDF, in effect pursuant to Sec. 98.41;
    (k) A description of the child care certificate payment system(s), 
including the form or forms of the child care certificate, pursuant to 
Sec. 98.30(c);
    (l) Payment rates and a summary of the facts, including a biennial 
local market rate survey, relied upon to determine that the rates 
provided are sufficient to ensure equal access pursuant to Sec. 98.43;
    (m) A detailed description of how the Lead Agency maintains a 
record of substantiated parental complaints and how it makes 
information regarding those complaints available to the public on 
request, pursuant to Sec. 98.32;
    (n) A detailed description of the procedures in effect for 
affording parents unlimited access to their children whenever their 
children are in the care of the provider, pursuant to Sec. 98.31;
    (o) A detailed description of the licensing requirements applicable 
to child care services provided, and a description of how such 
licensing requirements are effectively enforced, pursuant to 
Sec. 98.40;
    (p) Pursuant to Sec. 98.33(b), the definitions or criteria used to 
implement the exception, provided in section 407(e)(2) of the Social 
Security Act, to individual penalties in the TANF work requirement 
applicable to a single custodial parent caring for a child under age 
six;
    (q) A description of the efforts to ensure that pre-Kindergarten 
programs, for which funds under Sec. 98.53(b) are claimed, meet the 
needs of working parents; and
    (r) Such other information as specified by the Secretary.


Sec. 98.17  Period covered by Plan.

    (a) For States, Territories, and Indian Tribes the Plan shall cover 
a period of two years.
    (b) The Lead Agency shall submit a new Plan prior to the expiration 
of the time period specified in paragraph (a) of this section, at such 
time as required by the Secretary in written instructions.


Sec. 98.18  Approval and disapproval of Plans and Plan amendments.

    (a) Plan approval. The Assistant Secretary will approve a Plan that 
satisfies the requirements of the Act and this part. Plans will be 
approved not later than the 90th day following the date on which the 
Plan submittal is received, unless a written agreement to extend that 
period has been secured.
    (b) Plan amendments. Approved Plans shall be amended whenever a 
substantial change in the program occurs. A Plan amendment shall be 
submitted within 60 days of the effective date of the change. Plan 
amendments will be approved not later than the 90th day following the 
date on which the amendment is received, unless a written agreement to 
extend that period has been secured.
    (c) Appeal of disapproval of a Plan or Plan amendment.
    (1) An applicant or Lead Agency dissatisfied with a determination 
of the Assistant Secretary pursuant to paragraphs (a) or (b) of this 
section with respect to any Plan or amendment may, within 60 days after 
the date of receipt of notification of such determination, file a 
petition with the Assistant Secretary asking for reconsideration of the 
issue of whether such Plan or amendment conforms to the requirements 
for approval under the Act and pertinent Federal regulations.
    (2) Within 30 days after receipt of such petition, the Assistant 
Secretary shall notify the applicant or Lead Agency of the time and 
place at which the hearing for the purpose of reconsidering such issue 
will be held.
    (3) Such hearing shall be held not less than 30 days, nor more than 
90 days, after the notification is furnished to the applicant or Lead 
Agency, unless the Assistant Secretary and the applicant or Lead Agency 
agree in writing on another time.
    (4) Action pursuant to an initial determination by the Assistant 
Secretary described in paragraphs (a) and (b) of this section that a 
Plan or amendment is not approvable shall not be stayed pending the 
reconsideration, but in the event that the Assistant Secretary 
subsequently determines that the original decision was incorrect, the 
Assistant Secretary shall certify restitution forthwith in a lump sum 
of any funds incorrectly withheld or otherwise denied. The hearing 
procedures are described in part 99 of this chapter.

Subpart C--Eligibility for Services


Sec. 98.20  A child's eligibility for child care services.

    (a) In order to be eligible for services under Sec. 98.50, a child 
shall:
    (1)(i) Be under 13 years of age; or,
    (ii) At the option of the Lead Agency, be under age 19 and 
physically or mentally incapable of caring for himself or herself, or 
under court supervision;
    (2) Reside with a family whose income does not exceed 85 percent of 
the State's median income for a family of the same size; and
    (3)(i) Reside with a parent or parents (as defined in Sec. 98.2) 
who are working or attending a job training or educational program; or
    (ii) Receive, or need to receive, protective services and reside 
with a parent or parents (as defined in Sec. 98.2) other than the 
parent(s) described in paragraph (a)(3)(i) of this section. At grantee 
option, the requirements in paragraph (a)(2) of this section and in 
Sec. 98.42(c) may be waived for families eligible for child care 
pursuant to this paragraph, if determined to be necessary on a case-by-
case basis by, or in consultation with, an appropriate protective 
services worker.
    (b) Pursuant to Sec. 98.16(g)(5), a grantee or other administering 
agency may establish eligibility conditions or priority rules in 
addition to those specified in this section and Sec. 98.44 so long as 
they do not:
    (1) Discriminate against children on the basis of race, national 
origin, ethnic background, sex, religious affiliation, or disability;
    (2) Limit parental rights provided under Subpart D; or

[[Page 39646]]

    (3) Violate the provisions of this section, Sec. 98.44, or the 
Plan. In particular, such conditions or priority rules may not be based 
on a parent's preference for a category of care or type of provider. In 
addition, such additional conditions or rules may not be based on a 
parent's choice of a child care certificate.

Subpart D--Program Operations (Child Care Services)--Parental 
Rights and Responsibilities


Sec. 98.30  Parental choice.

    (a)(1) The parent or parents of an eligible child who receives or 
is offered child care services shall be offered a choice:
    (i) To enroll the child with an eligible child care provider that 
has a grant or contract for the provision of such services, if such 
services are available; or
    (ii) To receive a child care certificate as defined in Sec. 98.2.
    (2) Such choice shall be offered any time that child care services 
are made available to a parent.
    (b) When a parent elects to enroll the child with a provider that 
has a grant or contract for the provision of child care services, the 
child will be enrolled with the provider selected by the parent to the 
maximum extent practicable.
    (c) In cases in which a parent elects to use a child care 
certificate, such certificate:
    (1) Will be issued directly to the parent;
    (2) Shall be of a value commensurate with the subsidy value of the 
child care services provided under paragraph (a)(1) of this section;
    (3) May be used as a deposit for child care services if such a 
deposit is required of other children being cared for by the provider;
    (4) May be used for child care services provided by a sectarian 
organization or agency, including those that engage in religious 
activities, if those services are chosen by the parent;
    (5) May be expended by providers for any sectarian purpose or 
activity that is part of the child care services, including sectarian 
worship or instruction;
    (6) Shall not be considered a grant or contract to a provider but 
shall be considered assistance to the parent.
    (d) Child care certificates shall be made available to any parents 
offered child care services.
    (e)(1) For child care services, certificates under paragraph 
(a)(1)(ii) of this section shall permit parents to choose from a 
variety of child care categories, including:
    (i) Center-based child care;
    (ii) Group home child care;
    (iii) Family child care; and
    (iv) In-home child care, with limitations, if any, imposed by the 
Lead Agency and described in its plan at Sec. 98.16(g)(2).
    (2) Under each of the categories in paragraph (e)(1) of this 
section, care by a sectarian provider may not be limited or excluded.
    (3) Lead Agencies shall provide information regarding the range of 
provider options under paragraph (e)(1) of this section, including care 
by sectarian providers and relatives, to families offered child care 
services.
    (f) With respect to State and local regulatory requirements under 
Sec. 98.40, health and safety requirements under Sec. 98.41, and 
payment rates under Sec. 98.43, CCDF funds will not be available to a 
Lead Agency if State or local rules, procedures or other requirements 
promulgated for purposes of the CCDF significantly restrict parental 
choice by:
    (1) Expressly or effectively excluding:
    (i) Any category of care or type of provider, as defined in 
Sec. 98.2; or
    (ii) Any type of provider within a category of care; or
    (2) Having the effect of limiting parental access to or choice from 
among such categories of care or types of providers, as defined in 
Sec. 98.2; or
    (3) Excluding a significant number of providers in any category of 
care or of any type as defined in Sec. 98.2.


Sec. 98.31  Parental access.

    Lead Agencies shall have in effect procedures to ensure that 
providers of child care services for which assistance is provided 
afford parents unlimited access to their children, and to the providers 
caring for their children, during normal hours of provider operation 
and whenever the children are in the care of the provider. Lead 
Agencies shall provide a detailed description of such procedures.


Sec. 98.32  Parental complaints.

    Lead Agencies shall:
    (a) Maintain a record of substantiated parental complaints;
    (b) Make information regarding such parental complaints available 
to the public on request; and
    (c) Provide a detailed description of how such record is maintained 
and is made available.


Sec. 98.33  Consumer education.

    Lead Agencies shall:
    (a) Certify that they will collect and disseminate to parents and 
the general public consumer education information that will promote 
informed child care choices;
    (b) Inform parents about the requirement at section 407(e)(2) of 
the Social Security Act that the TANF agency make an exception to the 
individual penalties associated with the work requirement for any 
single custodial parent who has a demonstrated inability to obtain 
needed child care for a child under six years of age. The information 
provided shall include:
    (1) The procedures the TANF agency uses to determine if the parent 
has a demonstrated inability to obtain needed child care;
    (2) The criteria or definitions applied by the TANF agency to 
determine the whether the parent has a demonstrated inability to obtain 
needed child care, including:
    (i) ``Appropriate child care'';
    (ii) ``Reasonable distance'';
    (iii) ``Unsuitability of informal child care'';
    (iv) ``Affordable child care arrangements'';
    (3) The clarification that the time during which an eligible parent 
receives the exception referred to in paragraph (b) will count toward 
the time limit on benefits required at section 408(a)(7) of the Social 
Security Act.
    (c) Include in the biennial plan the definitions or criteria the 
TANF agency uses in implementing the exception to the work requirement 
specified in paragraph (b).


Sec. 98.34  Parental rights and responsibilities.

    Nothing under this part shall be construed or applied in any manner 
to infringe on or usurp the moral and legal rights and responsibilities 
of parents or legal guardians.

Subpart E--Program Operations (Child Care Services)--Lead Agency 
and Provider Requirements


Sec. 98.40  Compliance with applicable State and local regulatory 
requirements.

    (a) Lead Agencies shall:
    (1) Certify that they have in effect licensing requirements 
applicable to child care services provided within the area served by 
the Lead Agency;
    (2) Provide a detailed description of the requirements under 
paragraph (a) (1) of this section and of how they are effectively 
enforced.
    (b)(1) This section does not prohibit a Lead Agency from imposing 
more stringent standards and licensing or regulatory requirements on 
child care providers of services for which assistance is provided under 
the CCDF than the standards or requirements imposed on other child care 
providers.

[[Page 39647]]

    (2) Any such additional requirements shall be consistent with the 
safeguards for parental choice in Sec. 98.30(f).


Sec. 98.41  Health and safety requirements.

    (a) Although the Act specifically states it does not require the 
establishment of any new or additional requirements if existing 
requirements comply with the requirements of the statute, each Lead 
Agency shall certify that there are in effect, within the State (or 
other area served by the Lead Agency), under State, local or tribal 
law, requirements designed to protect the health and safety of children 
that are applicable to child care providers of services for which 
assistance is provided under this part. Such requirements shall 
include:
    (1) The prevention and control of infectious diseases (including 
immunizations) as follows:
    (i) States and Territories shall establish immunization 
requirements as part of their health and safety provisions that assure 
that children receiving services under the CCDF are age-appropriately 
immunized. Health and safety provisions shall incorporate (by reference 
or otherwise) the latest recommendation for childhood immunizations of 
the respective State or territorial public health agency.
    (ii) Notwithstanding paragraph (a)(1)(i) of this section, Lead 
Agencies may exempt:
    (A) Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings [if living in a separate 
residence], aunts, and uncles);
    (B) Children who receive care in their own homes;
    (C) Children whose parents object to immunization on religious 
grounds; and
    (D) Children whose medical condition contraindicates immunization;
    (iii) Lead Agencies shall establish a grace period in which 
children can receive services while families are taking the necessary 
actions to comply with the immunization requirements;
    (2) Building and physical premises safety; and
    (3) Minimum health and safety training appropriate to the provider 
setting.
    (b) Lead Agencies may not set health and safety standards and 
requirements under paragraph (a) of this section that are inconsistent 
with the parental choice safeguards in Sec. 98.30(f).
    (c) The requirements in paragraph (a) of this section shall apply 
to all providers of child care services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
except the relatives specified in paragraph (e) of this section.
    (d) Each Lead Agency shall certify that procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
comply with all applicable State, local, or tribal health and safety 
requirements described in paragraph (a) of this section.
    (e) For the purposes of this section, the term ``child care 
providers'' does not include grandparents, great grandparents, siblings 
(if such providers live in a separate residence), aunts, or uncles, 
pursuant to Sec. 98.2.


Sec. 98.42  Sliding fee scales.

    (a) Lead Agencies shall establish, and periodically revise, by 
rule, a sliding fee scale(s) that provides for cost sharing by families 
that receive CCDF child care services.
    (b) A sliding fee scale(s) shall be based on income and the size of 
the family and may be based on other factors as appropriate.
    (c) Lead Agencies may waive contributions from families whose 
incomes are at or below the poverty level for a family of the same 
size.


Sec. 98.43  Equal access.

    (a) The Lead Agency shall certify that the payment rates for the 
provision of child care services under this part are sufficient to 
ensure equal access, for eligible families in the area served by the 
Lead Agency, to child care services comparable to those provided to 
families not eligible to receive CCDF assistance or child care 
assistance under any other Federal, State, or tribal programs.
    (b) The Lead Agency shall provide a summary of the facts relied on 
to determine that its payment rates ensure equal access. At a minimum, 
the summary shall include those facts that show:
    (1) How a choice of the full range of providers, e.g., center, 
group, family, and in-home care, is made available;
    (2) How payment rates are adequate based on a local market rate 
survey conducted no earlier than two years prior to the effective date 
of the currently approved Plan;
    (3) How copayments based on a sliding fee scale are affordable, as 
stipulated at Sec. 98.42.
    (c) A Lead Agency may not establish different payment rates based 
on a family's eligibility status or circumstances.
    (d) Payment rates under paragraph (a) of this section shall be 
consistent with the parental choice requirements in Sec. 98.30.
    (e) Nothing in this section shall be construed to create a private 
right of action.


Sec. 98.44  Priority for child care services.

    Lead Agencies shall give priority for services provided under 
Sec. 98.50(a) to:
    (a) Children of families with very low family income (considering 
family size); and
    (b) Children with special needs.


Sec. 98.45  List of providers.

    If a Lead Agency does not have a registration process for child 
care providers who are unlicensed or unregulated under State, local, or 
tribal law, it is required to maintain a list of the names and 
addresses of unlicensed or unregulated providers of child care services 
for which assistance is provided under this part.


Sec. 98.46  Nondiscrimination in admissions on the basis of religion.

    (a) Child care providers (other than family child care providers, 
as defined in Sec. 98.2) that receive assistance through grants and 
contracts under the CCDF shall not discriminate in admissions against 
any child on the basis of religion.
    (b) Paragraph (a) of this section does not prohibit a child care 
provider from selecting children for child care slots that are not 
funded directly (i.e., through grants or contracts to providers) with 
assistance provided under the CCDF because such children or their 
family members participate on a regular basis in other activities of 
the organization that owns or operates such provider.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from 
Federal or State funds, including direct or indirect assistance under 
the CCDF, the Lead Agency shall assure that before any further CCDF 
assistance is given to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The admission policies of the provider specifically provide 
that no person with responsibilities in the operation of the child care 
program, project, or activity will discriminate, on the basis of 
religion, in the admission of any child.


Sec. 98.47  Nondiscrimination in employment on the basis of religion.

    (a) In general, except as provided in paragraph (b) of this 
section, nothing in this part modifies or affects the provision of any 
other applicable Federal law and regulation relating to

[[Page 39648]]

discrimination in employment on the basis of religion.
    (1) Child care providers that receive assistance through grants or 
contracts under the CCDF shall not discriminate, on the basis of 
religion, in the employment of caregivers as defined in Sec. 98.2.
    (2) If two or more prospective employees are qualified for any 
position with a child care provider, this section shall not prohibit 
the provider from employing a prospective employee who is already 
participating on a regular basis in other activities of the 
organization that owns or operates the provider.
    (3) Paragraphs (a) (1) and (2) of this section shall not apply to 
employees of child care providers if such employees were employed with 
the provider on November 5, 1990.
    (b) Notwithstanding paragraph (a) of this section, a sectarian 
organization may require that employees adhere to the religious tenets 
and teachings of such organization and to rules forbidding the use of 
drugs or alcohol.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from 
Federal and State funds, including direct and indirect assistance under 
the CCDF, the Lead Agency shall assure that, before any further CCDF 
assistance is given to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The employment policies of the provider specifically provide 
that no person with responsibilities in the operation of the child care 
program will discriminate, on the basis of religion, in the employment 
of any individual as a caregiver, as defined in Sec. 98.2.

Subpart F--Use of Child Care and Development Funds


Sec. 98.50  Child care services.

    (a) Of the funds remaining after applying the provisions of 
Sec. 98.50 (c), (d) and (e) the Lead Agency shall spend a substantial 
portion to provide child care services to low-income working families.
    (b) Child care services shall be provided:
    (1) To eligible children, as described in Sec. 98.20;
    (2) Using a sliding fee scale, as described in Sec. 98.42;
    (3) Using funding methods provided for in Sec. 98.30; and
    (4) Based on the priorities in Sec. 98.44.
    (c) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no less than 
four percent shall be used for activities to improve the quality of 
child care as described at Sec. 98.51.
    (d) Of the aggregate amount of funds awarded (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no more than 
five percent may be used for administrative activities as described at 
Sec. 98.52.
    (e) Not less than 70 percent of the Mandatory and Matching Funds 
shall be used to meet the child care needs of families who:
    (1) Are receiving assistance under a State program under Part A of 
title IV of the Social Security Act,
    (2) Are attempting through work activities to transition off such 
assistance program, and
    (3) Are at risk of becoming dependent on such assistance program.
    (f) Pursuant to Sec. 98.16(g)(4), the Plan shall specify how the 
State will meet the child care needs of families described in paragraph 
(e) of this section.


Sec. 98.51  Activities to improve the quality of child care.

    (a) No less than four percent of the aggregate funds expended by 
the Lead Agency for a fiscal year, and including the amounts expended 
in the State pursuant to Sec. 98.53(b), shall be expended for quality 
activities.
    (1) These activities may include but are not limited to:
    (i) Activities designed to provide comprehensive consumer education 
to parents and the public;
    (ii) Activities that increase parental choice; and
    (iii) Activities designed to improve the quality and availability 
of child care, including, but not limited to those described in 
paragraph (a)(2) of this section.
    (2) Activities to improve the quality of child care services may 
include, but are not limited to:
    (i) Operating directly or providing financial assistance to 
organizations (including private non-profit organizations, public 
organizations, and units of general purpose local government) for the 
development, establishment, expansion, operation, and coordination of 
resource and referral programs specifically related to child care;
    (ii) Making grants or providing loans to child care providers to 
assist such providers in meeting applicable State, local, and tribal 
child care standards, including applicable health and safety 
requirements, pursuant to Secs. 98.40 and 98.41;
    (iii) Improving the monitoring of compliance with, and enforcement 
of, applicable State, local, and tribal requirements pursuant to 
Secs. 98.40 and 98.41;
    (iv) Providing training and technical assistance in areas 
appropriate to the provision of child care services, such as training 
in health and safety, nutrition, first aid, the recognition of 
communicable diseases, child abuse detection and prevention, and care 
of children with special needs;
    (v) Improving salaries and other compensation (such as fringe 
benefits) for full- and part-time staff who provide child care services 
for which assistance is provided under this part; and
    (vi) Any other activities that are consistent with the intent of 
this section.
    (b) Pursuant to Sec. 98.16(h), the Lead Agency shall describe in 
its Plan the activities it will fund under this section.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the requirement at 
paragraph (a) of this section.


Sec. 98.52  Administrative costs.

    (a) Not more than five percent of the aggregate funds expended by 
the Lead Agency for a fiscal year, and including the amounts expended 
in the State pursuant to Sec. 98.53(b), shall be expended for 
administrative activities. These activities may include but are not 
limited to:
    (1) Salaries and related costs of the staff of the Lead Agency or 
other agencies engaged in the administration and implementation of the 
program pursuant to Sec. 98.11. Program administration and 
implementation include the following types of activities:
    (i) Planning, developing, and designing the Child Care and 
Development Fund program;
    (ii) Providing local officials and the public with information 
about the program, including the conduct of public hearings;
    (iii) Preparing the application and Plan;
    (iv) Developing agreements with administering agencies in order to 
carry out program activities;
    (v) Monitoring program activities for compliance with program 
requirements;
    (vi) Preparing reports and other documents related to the program 
for submission to the Secretary;
    (vii) Maintaining substantiated complaint files in accordance with 
the requirements of Sec. 98.32;
    (viii) Coordinating the provision of Child Care and Development 
Fund services with other Federal, State, and local child care, early 
childhood development programs, and before- and after-school care 
programs;

[[Page 39649]]

    (ix) Coordinating the resolution of audit and monitoring findings;
    (x) Evaluating program results; and
    (xi) Managing or supervising persons with responsibilities 
described in paragraphs (a)(1)(i) through (x) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services, including such services as accounting 
services, performed by grantees or subgrantees or under agreements with 
third parties;
    (4) Audit services as required at Sec. 98.65;
    (5) Other costs for goods and services required for the 
administration of the program, including rental or purchase of 
equipment, utilities, and office supplies; and
    (6) Indirect costs as determined by an indirect cost agreement or 
cost allocation plan pursuant to Sec. 98.55.
    (b) The five percent limitation at paragraph (a) of this section 
applies only to the States and Territories. The amount of the 
limitation at paragraph (a) of this section does not apply to Tribes or 
tribal organizations.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the five percent 
limitation at paragraph (a) of this section.


Sec. 98.53  Matching Fund requirements

    (a) Federal matching funds are available for expenditures in a 
State based upon the formula specified at Sec. 98.63(a).
    (b) Expenditures in a State under paragraph (a) of this section 
will be matched:
    (1) At the Federal medical assistance rate for the fiscal year 1995 
irrespective of the fiscal year in which the funds are available; and
    (2) If they are for allowable activities, as described in the 
approved State Plan, that meet the goals and purposes of the Act.
    (c) In order to receive Federal matching funds for a fiscal year 
under paragraph (a) of this section:
    (1) States shall also expend an amount of non-Federal funds for 
child care activities in the State that is at least equal to the 
State's share of expenditures for fiscal year 1994 or 1995 (whichever 
is greater) under sections 402 (g) and (i) of the Social Security Act 
as these sections were in effect before October 1, 1995; and
    (2) The expenditures shall be for allowable services or activities, 
as described in the approved State Plan if appropriate, that meet the 
goals and purposes of the Act.
    (3) All Mandatory Funds are obligated in accordance with 
Sec. 98.60(d)(2)(i).
    (d) The same expenditure may not be used to meet the requirements 
under both paragraphs (b) and (c) of this section in a fiscal year.
    (e) An expenditure in the State for purposes of this subpart may 
be:
    (1) Public funds when the funds are:
    (i) Appropriated directly to the Lead Agency specified at 
Sec. 98.10, or transferred from another public agency to that Lead 
Agency and under its administrative control, or certified by the 
contributing public agency as representing expenditures eligible for 
Federal match;
    (ii) Not used to match other Federal funds; and
    (iii) Not Federal funds, or are Federal funds authorized by Federal 
law to be used to match other Federal funds; or
    (2) Donated from private sources when the donated funds:
    (i) Are donated without any restriction that would require their 
use for a specific individual, organization, facility or institution;
    (ii) Do not revert to the donor's facility or use; and
    (iii) Are not used to match other Federal funds;
    (iv) Shall be certified both by the donor and by the Lead Agency as 
available and representing expenditures eligible for Federal match; and
    (v) Shall be subject to the audit requirements in Sec. 98.65 of 
these regulations.
    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to qualify as an 
expenditure eligible to receive Federal match under this section. They 
may be given to an entity designated by the State to receive donated 
funds pursuant to Sec. 98.16(c)(2).
    (g) The following are not counted as an eligible State expenditure 
under this Part:
    (1) In-kind contributions; and
    (2) Family contributions to the cost of care as required by 
Sec. 98.42.
    (h) Public pre-kindergarten (pre-K) expenditures:
    (1) May be used to meet the maintenance-of-effort requirement only 
if the State has not reduced its expenditures for full-day/full-year 
child care services; and
    (2) May be eligible for Federal match if the State includes in its 
Plan, as provided in Sec. 98.16(q), a description of the efforts it 
will undertake to ensure that pre-K programs meet the needs of working 
parents.
    (3) In any fiscal year, a State may use public pre-K funds for up 
to 20% of the funds serving as maintenance-of-effort under this 
subsection. In any fiscal year, a State may use other public pre-K 
funds for up to 20% of the expenditures serving as the State's matching 
funds under this subsection.
    (4) If applicable, the CCDF plan shall reflect the State's intent 
to use public pre-K funds in excess of 10%, but not for more than 20%, 
of either its maintenance-of-effort or State matching funds in a fiscal 
year. Also, the plan shall describe how the State will coordinate its 
pre-K and child care services to expand the availability of child care.
    (i) Matching funds are subject to the obligation and liquidation 
requirements at Sec. 98.60(d)(3).


Sec. 98.54  Restrictions on the use of funds.

    (a) General. (1) Funds authorized under section 418 of the Social 
Security Act and section 658B of the Child Care and Development Block 
Grant Act, and all funds transferred to the Lead Agency pursuant to 
section 404(d) of the Social Security Act, shall be expended consistent 
with these regulations. Funds transferred pursuant to section 404(d) of 
the Social Security Act shall be treated as Discretionary Funds;
    (2) Funds shall be expended in accordance with applicable State and 
local laws, except as superseded by Sec. 98.3.
    (b) Construction. (1) For State and local agencies and nonsectarian 
agencies or organizations, no funds shall be expended for the purchase 
or improvement of land, or for the purchase, construction, or permanent 
improvement of any building or facility. However, funds may be expended 
for minor remodeling, and for upgrading child care facilities to assure 
that providers meet State and local child care standards, including 
applicable health and safety requirements.
    (2) For sectarian agencies or organizations, the prohibitions in 
paragraph (b)(1) of this section apply; however, funds may be expended 
for minor remodeling only if necessary to bring the facility into 
compliance with the health and safety requirements established pursuant 
to Sec. 98.41.
    (3) Tribes and tribal organizations are subject to the requirements 
at Sec. 98.84 regarding construction.
    (c) Tuition. Funds may not be expended for students enrolled in 
grades 1 through 12 for:
    (1) Any service provided to such students during the regular school 
day;
    (2) Any service for which such students receive academic credit 
toward graduation; or
    (3) Any instructional services that supplant or duplicate the 
academic program of any public or private school.

[[Page 39650]]

    (d) Sectarian Purposes and Activities. Funds provided under grants 
or contracts to providers may not be expended for any sectarian purpose 
or activity, including sectarian worship or instruction. Pursuant to 
Sec. 98.2, assistance provided to parents through certificates is not a 
grant or contract. Funds provided through child care certificates may 
be expended for sectarian purposes or activities, including sectarian 
worship or instruction when provided as part of the child care 
services.
    (e) The CCDF may not be used as the non-Federal share for other 
Federal grant programs.


Sec. 98.55  Cost allocation.

    (a) The Lead Agency and subgrantees shall keep on file cost 
allocation plans or indirect cost agreements, as appropriate, that have 
been amended to include costs allocated to the CCDF.
    (b) Subgrantees that do not already have a negotiated indirect rate 
with the Federal government should prepare and keep on file cost 
allocation plans or indirect cost agreements, as appropriate.
    (c) Approval of the cost allocation plans or indirect cost 
agreements is not specifically required by these regulations, but these 
plans and agreements are subject to review.

Subpart G--Financial Management


Sec. 98.60  Availability of funds.

    (a) The CCDF is available, subject to the availability of 
appropriations, in accordance with the apportionment of funds from the 
Office of Management and Budget as follows:
    (1) Discretionary Funds are available to States, Territories, and 
Tribes,
    (2) Mandatory and Matching Funds are available to States;
    (3) Tribal Mandatory Funds are available to Tribes.
    (b) Subject to the availability of appropriations, in accordance 
with the apportionment of funds from the Office of Management and 
Budget, the Secretary:
    (1) May withhold no more than one-quarter of one percent of the 
CCDF funds made available for a fiscal year for the provision of 
technical assistance; and
    (2) Will award the remaining CCDF funds to grantees that have an 
approved application and Plan.
    (c) The Secretary may make payments in installments, and in advance 
or by way of reimbursement, with necessary adjustments due to 
overpayments or underpayments.
    (d) The following obligation and liquidation provisions apply to 
States and Territories:
    (1) Discretionary Fund allotments shall be obligated the fiscal 
year in which funds are awarded or in the succeeding fiscal year. 
Unliquidated obligations as of the end of the succeeding fiscal year 
shall be liquidated within one year.
    (2)(i) Mandatory Funds for States requesting Matching Funds per 
Sec. 98.53 shall be obligated in the fiscal year in which the funds are 
granted and are available until expended.
    (ii) Mandatory Funds for States that do not request Matching Funds 
are available until expended.
    (3) Both the Federal and non-Federal share of the Matching Fund 
shall be obligated in the fiscal year in which the funds are granted 
and liquidated no later than the end of the succeeding fiscal year.
    (4) Except for paragraph (d)(5) of this section, determination of 
whether funds have been obligated and liquidated will be based on:
    (i) State or local law; or,
    (ii) If there is no applicable State or local law, the regulation 
at 45 CFR 92.3, Obligations and Outlays (expenditures).
    (5) Obligations may include subgrants or contracts that require the 
payment of funds to a third party (e.g., subgrantee or contractor). 
However, the following are not considered third party subgrantees or 
contractors:
    (i) A local office of the Lead Agency;
    (ii) Another entity at the same level of government as the Lead 
Agency; or
    (iii) A local office of another entity at the same level of 
government as the Lead Agency.
    (6) For purposes of the CCDF, funds for child care services 
provided through a child care certificate will be considered obligated 
when a child care certificate is issued to a family in writing that 
indicates:
    (i) The amount of funds that will be paid to a child care provider 
or family, and
    (ii) The specific length of time covered by the certificate, which 
is limited to the date established for redetermination of the family's 
eligibility, but shall be no later than the end of the liquidation 
period.
    (7) Any funds not obligated during the obligation period specified 
in paragraph (d) of this section will revert to the Federal government. 
Any funds not liquidated by the end of the applicable liquidation 
period specified in paragraph (d) of this section will also revert to 
the Federal government.
    (e) The following obligation and liquidation provisions apply to 
Tribal Discretionary and Tribal Mandatory Funds:
    (1) Tribal grantees shall obligate all funds by the end of the 
fiscal year following the fiscal year for which the grant is awarded. 
Any funds not obligated during this period will revert to the Federal 
government.
    (2) Obligations that remain unliquidated at the end of the 
succeeding fiscal year shall be liquidated within the next fiscal year. 
Any tribal funds that remain unliquidated by the end of this period 
will also revert to the Federal government.
    (f) Cash advances shall be limited to the minimum amounts needed 
and shall be timed to be in accord with the actual, immediate cash 
requirements of the State Lead Agency, its subgrantee or contractor in 
carrying out the purpose of the program in accordance with 31 CFR part 
205.
    (g) Funds that are returned (e.g., loan repayments, funds 
deobligated by cancellation of a child care certificate, unused 
subgrantee funds) as well as program income (e.g., contributions made 
by families directly to the Lead Agency or subgrantee for the cost of 
care where the Lead Agency or subgrantee has made a full payment to the 
child care provider) shall, if received after the end of the applicable 
obligation period described at paragraphs (d) and (e), be returned to 
the Federal government.
    (h) Repayment of loans, pursuant to Sec. 98.51(a)(2)(ii), may be 
made in cash or in services provided in-kind. Payment provided in-kind 
shall be based on fair market value. All loans shall be fully repaid.
    (i) Lead Agencies shall recover child care payments that are the 
result of fraud. These payments shall be recovered from the party 
responsible for committing the fraud.


Sec. 98.61  Allotments from the Discretionary Fund.

    (a) To the 50 States, the District of Columbia, and the 
Commonwealth of Puerto Rico an amount equal to the funds appropriated 
for the Child Care and Development Block Grant, less amounts reserved 
for technical assistance and amounts reserved for the Territories and 
Tribes, pursuant to Secs. 98.60(b) and 98.61 (b) and (c), shall be 
allotted based upon the formula specified in section 658O(b) of the 
Act.
    (b) For the U.S. Territories of Guam, American Samoa, the Virgin 
Islands of the United States, and the Commonwealth of the Northern 
Mariana Islands an amount up to one-half of one percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Funds shall be allotted to these Territories based upon the 
following factors:

[[Page 39651]]

    (i) A Young Child factor--the ratio of the number of children in 
the Territory under five years of age to the number of such children in 
all Territories; and
    (ii) An Allotment Proportion factor--determined by dividing the per 
capita income of all individuals in all the Territories by the per 
capita income of all individuals in the Territory.
    (A) Per capita income shall be:
    (1) Equal to the average of the annual per capita incomes for the 
most recent period of three consecutive years for which satisfactory 
data are available at the time such determination is made; and
    (2) Determined every two years.
    (B) Per capita income determined, pursuant to paragraph 
(b)(1)(ii)(A) of this section, will be applied in establishing the 
allotment for the fiscal year for which it is determined and for the 
following fiscal year.
    (C) If the Allotment Proportion factor determined at paragraph 
(b)(1)(ii) of this section:
    (1) Exceeds 1.2, then the Allotment Proportion factor of the 
Territory shall be considered to be 1.2; or
    (2) Is less than 0.8, then the Allotment Proportion factor of the 
Territory shall be considered to be 0.8.
    (2) The formula used in calculating a Territory's allotment is as 
follows:
[GRAPHIC] [TIFF OMITTED] TP23JY97.001

    (ii) For purposes of the formula specified at paragraph (b)(2)(i) 
of this section, the term ``YCFt'' means the Territory's 
Young Child factor as defined at paragraph (b)(1)(i) of this section.
    (iii) For purposes of the formula specified at paragraph (b)(2)(i) 
of this section, the term ``APFt'' means the Territory's 
Allotment Proportion factor as defined at paragraph (b)(1)(ii) of this 
section.
    (c) For Indian Tribes and tribal organizations, including any 
Alaskan Native Village or regional or village corporation as defined in 
or established pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq) an amount up to two percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Except as specified in paragraph (c)(2) of this section, grants 
to individual tribal grantees will be equal to the sum of:
    (i) A base amount as set by the Secretary; and
    (ii) An additional amount per Indian child under age 13 (or such 
similar age as determined by the Secretary from the best available 
data), which is determined by dividing the amount of funds available, 
less amounts set aside for eligible Tribes, pursuant to paragraph 
(c)(1)(i) of this section, by the number of all Indian children living 
on or near tribal reservations or other appropriate area served by the 
tribal grantee, pursuant to Sec. 98.80(e).
    (2) Grants to Tribes with fewer than 50 Indian children that apply 
as part of a consortium, pursuant to Sec. 98.80(b)(1), are equal to the 
sum of:
    (i) A portion of the base amount, pursuant to paragraph (c)(1)(i) 
of this section, that bears the same ratio as the number of Indian 
children in the Tribe living on or near the reservation, or other 
appropriate area served by the tribal grantee, pursuant to 
Sec. 98.80(e), does to 50; and
    (ii) An additional amount per Indian child, pursuant to paragraph 
(c)(1)(ii) of this section.
    (3) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.
    (d) All funds reserved for Territories at paragraph (b) of this 
section will be allotted to Territories, and all funds reserved for 
Tribes at paragraph (c) of this section will be allotted to tribal 
grantees. Any funds that are returned by the Territories after they 
have been allotted will revert to the Federal government.
    (e) For other organizations, up to $2,000,000 may be reserved from 
the tribal funds reserved at Sec. 98.61(c). From this amount the 
Secretary may award a grant to a Native Hawaiian Organization, as 
defined in section 4009(4) of the Augustus F. Hawkins-Robert T. 
Stafford Elementary and Secondary School Improvement Amendments of 1988 
(20 U.S.C. 4909(4)) and to a private non-profit organization 
established for the purpose of serving youth who are Indians or Native 
Hawaiians. The Secretary will establish selection criteria and 
procedures for the award of grants under this subsection by notice in 
the Federal Register.


Sec. 98.62  Allotments from the Mandatory Fund.

    (a) Each of the 50 States and the District of Columbia will be 
allocated from the funds appropriated under section 418(a)(3) of the 
Social Security Act, less the amounts reserved for technical assistance 
pursuant to Sec. 98.60(b)(1) and the amount reserved for Tribes 
pursuant to paragraph (b), an amount of funds equal to the greater of:
    (1) the Federal share of its child care expenditures under sections 
402 (g) and (i) for fiscal year 1994 or 1995 (whichever is greater); or
    (2) the average of the Federal share of its child care expenditures 
under sections 402 (g) and (i) for fiscal years 1992 through 1994.
    (b) For Indian Tribes and tribal organizations up to 2 percent of 
the amount appropriated under section 418(a)(3) of the Social Security 
Act, less the amounts reserved for technical assistance pursuant to 
Sec. 98.60(b)(1), shall be allocated according to the formula at 
paragraph (c). In Alaska, only the following 13 entities shall receive 
allocations under this subpart, in accordance with the formula at 
paragraph (c):
    (1) The Metlakatla Indian Community of the Annette Islands Reserve:
    (2) Arctic Slope Native Association;
    (3) Kawerak, Inc.;
    (4) Maniilaq Association;
    (5) Association of Village Council Presidents;
    (6) Tanana Chiefs Conference;
    (7) Cook Inlet Tribal Council;
    (8) Bristol Bay Native Association;
    (9) Aleutian and Pribilof Islands Association;
    (10) Chugachmuit;
    (11) Tlingit and Haida Central Council;
    (12) Kodiak Area Native Association; and
    (13) Copper River Native Association.
    (c)(1) Grants to individual Tribes with 50 or more Indian children, 
and to Tribes with fewer than 50 Indian children that apply as part of 
a consortium pursuant to Sec. 98.80(b)(1), will be equal to an amount 
per Indian child under age 13 (or such similar age as determined by the 
Secretary from the best available data), which is determined by 
dividing the amount of funds available, by the number of all Indian 
children living on or near tribal reservations or other appropriate 
area served by the tribal grantee, pursuant to Sec. 98.80(e).
    (2) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.


Sec. 98.63  Allotments from the Matching Fund.

    (a) To each of the 50 States and the District of Columbia there is 
allocated an amount equal to its share of the total available under 
section 418(a)(3) of the Social Security Act. That amount is based on 
the same ratio as the number of children under age 13 residing in the 
State bears to the national total of children under age 13. The number 
of children under 13 is derived from the best data available to the 
Secretary for the second preceding fiscal year.

[[Page 39652]]

    (b) For purposes of this subsection, the amounts available under 
section 418(a)(3) of the Social Security Act excludes the amounts 
reserved and allocated under Sec. 98.60(b)(1) for technical assistance 
and under Sec. 98.62 (a) and (b) for the Mandatory Fund.
    (c) Amounts under this subsection are available pursuant to the 
requirements at Sec. 98.53(c).


Sec. 98.64  Reallotment and redistribution of funds.

    (a) According to the provisions of this section State and Tribal 
Discretionary Funds are subject to reallotment, and State Matching 
Funds are subject to redistribution. State funds are reallotted or 
redistributed only to States as defined for the original allocation. 
Tribal funds are reallotted only to Tribes. Funds granted to the 
Territories are not subject to reallotment. Any funds granted to the 
Territories that are returned after they have been allotted will revert 
to the Federal government.
    (b) Any portion of a State's Discretionary Fund allotment that is 
not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other States in 
proportion to the original allotments. For purposes of this paragraph 
the term ``State'' means the 50 States, the District of Columbia, and 
the Commonwealth of Puerto Rico. The other Territories and the Tribes 
may not receive reallotted State Discretionary Funds.
    (1) Each year, the State shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by April 
1st.
    (2) Based upon the reallotment reports submitted by States, the 
Secretary will reallot funds.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to States in proportion to each State's 
allotment for the applicable fiscal year's funds, pursuant to 
Sec. 98.61(a).
    (ii) If the amount available for reallotment is less than $25,000, 
the Secretary will not reallot any funds, and such funds will revert to 
the Federal government.
    (iii) If an individual reallotment amount to a State is less than 
$500, the Secretary will not issue the award, and such funds will 
revert to the Federal government.
    (iv) If a State does not accept its share of the reallotted funds, 
those funds will be returned to the Federal government.
    (3) If a State does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that the State does not have any 
funds available for reallotment; or
    (ii) In the case of a report postmarked after April 1st, any funds 
reported to be available for reallotment shall revert to the Federal 
government.
    (4) States receiving reallotted funds shall obligate and expend 
these funds in accordance with Sec. 98.60. The reallotment of funds 
does not extend the obligation period or the program period for 
expenditure of such funds.
    (c)(1) Any portion of the Matching Fund granted to a State that is 
not obligated in the period for which the grant is made shall be 
redistributed. Funds, if any, will be redistributed on the request of, 
and only to, those other States that have met the requirements of 
Sec. 98.53(c) in the period for which the grant was first made. For 
purposes of this paragraph the term ``State'' means the 50 States and 
the District of Columbia. Territorial and tribal grantees may not 
receive redistributed Matching Funds.
    (2) Matching Funds allotted to a State under Sec. 98.63(a), but not 
granted, revert to the Federal government.
    (3) The amount of Matching Funds granted to a State that will be 
made available for redistribution will be based on the State's 
financial report to ACF for the Child Care and Development Fund (ACF-
696) and is subject to the monetary limits at paragraph (b)(2).
    (4) A State eligible to receive redistributed Matching Funds will 
also use the ACF-696 to request its share of the redistributed funds, 
if any.
    (5) A State's share of redistributed Matching Funds is based on the 
same ratio as the number of children under 13 residing in the State to 
the number of children residing in all States eligible to receive and 
that request the redistributed Matching Funds.
    (6) Redistributed funds are considered part of the grant for the 
fiscal year in which the redistribution occurs.
    (d) Any portion of a Tribe's allotment of Discretionary Funds that 
is not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other tribal 
grantees in proportion to their original allotments. States and 
Territories may not receive reallotted tribal funds.
    (1) Each year, the Tribe shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by April 
1st.
    (2) Based upon the reallotment reports submitted by Tribes, the 
Secretary will reallot Tribal Discretionary Funds among the other 
Tribes.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to other tribal grantees in proportion 
to each Tribe's original allotment for the applicable fiscal year 
pursuant to Sec. 98.62(c).
    (ii) If the total amount available for reallotment is less than 
$25,000, the Secretary will not reallot any funds, and such funds will 
revert to the Federal government.
    (iii) If an individual reallotment amount to an applicant Tribe is 
less than $500, the Secretary will not issue the award, and such funds 
will revert to the Federal government.
    (3) If a Tribe does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that Tribe does not have any funds 
available for reallotment; or
    (ii) In the case of a report received after April 1st, any funds 
reported to be available for reallotment shall revert to the Federal 
government.
    (4) Tribes receiving reallotted funds shall obligate and expend 
these funds in accordance with Sec. 98.60. The reallotment of funds 
does not extend the obligation period or the program period for 
expenditure of such funds.


Sec. 98.65  Audits and financial reporting.

    (a) Each Lead Agency shall have an audit conducted after the close 
of each program period in accordance with OMB Circular A-128 and the 
Single Audit Act.
    (b) Lead Agencies are responsible for ensuring that subgrantees are 
audited in accordance with appropriate audit requirements.
    (c) Not later than 30 days after the completion of the audit, Lead 
Agencies shall submit a copy of their audit report to the legislature 
of the State or, if applicable, to the Tribal Council(s). Lead Agencies 
shall also submit a copy of their audit report to the HHS Inspector 
General for Audit Services, as well as to their cognizant agency, if 
applicable.
    (d) Any amounts determined through an audit not to have been 
expended in accordance with these statutory or regulatory provisions, 
or with the Plan, and that are subsequently disallowed by the 
Department shall be repaid to the Federal Government, or the Secretary 
will offset such amounts against any other CCDF funds to which the Lead 
Agency is or may be entitled.

[[Page 39653]]

    (e) Lead Agencies shall provide access to appropriate books, 
documents, papers and records to allow the Secretary to verify that 
CCDF funds have been expended in accordance with the statutory and 
regulatory requirements of the program, and with the Plan.
    (f) The audit required in paragraph (a) shall be conducted by an 
agency that is independent of the State, Territory or Tribe.
    (g) The Secretary shall require financial reports as necessary.


Sec. 98.66  Disallowance procedures.

    (a) Any expenditures not made in accordance with the Act, the 
implementing regulations, or the approved Plan, will be subject to 
disallowance.
    (b) If the Department, as the result of an audit or a review, finds 
that expenditures should be disallowed, the Department will notify the 
Lead Agency of this decision in writing.
    (c)(1) If the Lead Agency agrees with the finding that amounts were 
not expended in accordance with the Act, these regulations, or the 
Plan, the Lead Agency shall fulfill the provisions of the disallowance 
notice and repay any amounts improperly expended; or
    (2) The Lead Agency may appeal the finding:
    (i) By requesting reconsideration from the Assistant Secretary, 
pursuant to paragraph (f) of this section; or
    (ii) By following the procedure in paragraph (d) of this section.
    (d) A Lead Agency may appeal the disallowance decision to the 
Departmental Appeals Board in accordance with 45 CFR part 16.
    (e) The Lead Agency may appeal a disallowance of costs that the 
Department has determined to be unallowable under an award. A grantee 
may not appeal the determination of award amounts or disposition of 
unobligated balances.
    (f) The Lead Agency's request for reconsideration in (c)(2)(i) of 
this section shall be postmarked no later than 30 days after the 
receipt of the disallowance notice. A Lead Agency may request an 
extension within the 30-day time frame. The request for 
reconsideration, pursuant to (c)(2)(i) of this section, need not follow 
any prescribed form, but it shall contain:
    (1) The amount of the disallowance;
    (2) The Lead Agency's reasons for believing that the disallowance 
was improper; and
    (3) A copy of the disallowance decision issued pursuant to 
paragraph (b) of this section.
    (g)(1) Upon receipt of a request for reconsideration, pursuant to 
(c)(2)(i) of this section, the Assistant Secretary or the Assistant 
Secretary's designee will inform the Lead Agency that the request is 
under review.
    (2) The Assistant Secretary or the designee will review any 
material submitted by the Lead Agency and any other necessary 
materials.
    (3) If the reconsideration decision is adverse to the Lead Agency's 
position, the response will include a notification of the Lead Agency's 
right to appeal to the Departmental Appeals Board, pursuant to 
paragraph (d) of this section.
    (h) If a Lead Agency refuses to repay amounts after a final 
decision has been made, the amounts will be offset against future 
payments to the Lead Agency.
    (i) The appeals process in this section is not applicable if the 
disallowance is part of a compliance review, pursuant to Sec. 98.90, 
the findings of which have been appealed by the Lead Agency.
    (j) Disallowances under the CCDF program are subject to interest 
regulations at 45 CFR part 30. Interest will begin to accrue from the 
date of notification.


Sec. 98.67  Fiscal requirements.

    (a) Lead Agencies shall expend and account for CCDF funds in 
accordance with their own laws and procedures for expending and 
accounting for their own funds.
    (b) Unless otherwise specified in this part, contracts that entail 
the expenditure of CCDF funds shall comply with the laws and procedures 
generally applicable to expenditures by the contracting agency of its 
own funds.
    (c) Fiscal control and accounting procedures shall be sufficient to 
permit:
    (1) Preparation of reports required by the Secretary under this 
subpart and under subpart H; and
    (2) The tracing of funds to a level of expenditure adequate to 
establish that such funds have not been used in violation of the 
provisions of this part.

Subpart H--Program Reporting Requirements


Sec. 98.70  Reporting requirements.

    (a) Quarterly Disaggregate Report--
    (1) State and territorial Lead Agencies that receive assistance 
under the CCDF shall prepare and submit to the Department, in a manner 
specified by the Secretary, a quarterly disaggregate report of monthly 
family unit data. Data shall be collected monthly and submitted 
quarterly.
    (2) The information shall be reported for the three-month federal 
fiscal period preceding the required report. The first report shall be 
submitted no later than February 15, 1998, and quarterly thereafter. 
The first report shall include data from the first quarter of FFY 1998 
(October 1997 through December 1997).
    (3) State and territorial Lead Agencies choosing to submit data 
based on a sample shall submit a sampling plan to ACF for approval 60 
days prior to the submission of the first quarterly report. States are 
not prohibited from submitting disaggregate data for the entire 
population receiving CCDF services.
    (4) Quarterly disaggregate family unit reports to the Secretary 
shall include the information listed in Sec. 98.71(a).
    (b) Biannual Report--
    (1) State and territorial Lead Agencies that receive assistance 
under CCDF shall prepare and submit to the Secretary a biannual report. 
The report shall be submitted, in a manner specified by the Secretary, 
by June 30 and December 31 of each year and shall cover the most recent 
six-month federal fiscal period (October through March or April through 
September, as appropriate).
    (2) The first biannual aggregate report shall be submitted no later 
than December 31, 1997, and every six months thereafter.
    (3) Biannual reports to the Secretary shall include the information 
listed in Sec. 98.71(b).
    (c) Tribal Annual Report
    (1) Tribal Lead Agencies that receive assistance under CCDF shall 
prepare and submit to the Secretary an annual report.
    (2) The report shall be submitted in the manner specified by the 
Secretary by December 31 of each year and shall cover services for 
children and families served with CCDF funds during the preceding 
Federal Fiscal Year.
    (3) Annual reports to the Secretary shall include the information 
listed in Sec. 98.71(c).


Sec. 98.71  Content of reports.

    (a) At a minimum, a State or territorial Lead Agency's quarterly 
disaggregate report to the Secretary, as required in Sec. 98.70, shall 
include the following information on services provided under CCDF grant 
funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and Maintenance-of-Effort (MOE) Funds:
    (1) family income;
    (2) county of residence;
    (3) gender and month/year of birth of children;
    (4) race of children;
    (5) whether the family includes only one parent;
    (6) the sources of family income, including the amount obtained 
from

[[Page 39654]]

employment (including self-employment), cash or other assistance under 
Part A of title IV of the Social Security Act, housing assistance, 
assistance under the Food Stamp Act of 1977; child support payments, 
and other assistance programs;
    (7) the number of months the family has received benefits;
    (8) the type(s) of child care in which the child was enrolled (such 
as family child care, in-home care, or center-based child care);
    (9) whether the child care provider involved was a relative;
    (10) the cost of child care for such families;
    (11) the total expected dollar amount per month to be received by 
the provider for each child;
    (12) the total hours per month of such care;
    (13) Social Security Number of the head of the family unit 
receiving child care assistance;
    (14) reasons for receiving care; and
    (15) any additional information that the Secretary shall require.
    (b) At a minimum, a State or territorial Lead Agency's biannual 
aggregate report to the Secretary, as required in Sec. 98.70(b), shall 
include the following information on services provided through all CCDF 
grant funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and MOE Funds:
    (1) the number of child care providers that received funding under 
CCDF as separately identified based on the types of providers listed in 
section 658P(5) of the amended Child Care and Development Block Grant 
Act;
    (2) the number of children served by payments through certificates 
or vouchers, contracts or grants, and cash under public benefit 
programs, listed by the primary type of child care services provided 
during the last month of the report period (or the last month of 
service for those children leaving the program before the end of the 
report period);
    (3) the manner in which consumer education information was provided 
to parents and the number of parents to whom such information was 
provided;
    (4) the total number (without duplication) of children and families 
served under CCDF; and
    (5) any additional information that the Secretary shall require.
    (c) At a minimum, a tribal Lead Agency's annual report to the 
Secretary, as required in Sec. 98.70(c), shall include the following 
information on services provided through all CCDF tribal grant awards:
    (1) unduplicated number of families and children receiving 
services;
    (2) children served by age;
    (3) children served by reason for care;
    (4) children served by payment method (certificate/voucher or 
contract/grants);
    (5) average number of hours of care provided per week;
    (6) average hourly amount paid for care;
    (7) children served by level of family income; and
    (8) children served by type of child care providers.

Subpart I--Indian Tribes


Sec. 98.80  General procedures and requirements.

    An Indian Tribe or tribal organization (as described in Subpart G 
of these regulations) may be awarded grants to plan and carry out 
programs for the purpose of increasing the availability, affordability, 
and quality of child care and childhood development programs subject to 
the following conditions:
    (a) An Indian Tribe applying for or receiving CCDF funds shall be 
subject to all the requirements under this part, unless otherwise 
indicated.
    (b) An Indian Tribe applying for or receiving CCDF funds shall:
    (1) Have at least 50 children under 13 years of age (or such 
similar age, as determined by the Secretary from the best available 
data) in order to be eligible to operate a CCDF program. This 
limitation does not preclude an Indian Tribe with fewer than 50 
children under 13 years of age from participating in a consortium that 
receives CCDF funds; and
    (2) Demonstrate its current service delivery capability, including 
skills, personnel, resources, community support, and other necessary 
components to satisfactorily carry out the proposed program.
    (c) A consortium representing more than one Indian Tribe may be 
eligible to receive CCDF funds on behalf of a particular Tribe if:
    (1) The consortium adequately demonstrates that each participating 
Tribe authorizes the consortium to receive CCDF funds on behalf of each 
Tribe or tribal organization in the consortium; and
    (2) The consortium consists of Tribes that each meet the 
eligibility requirements for the CCDF program as defined in this part, 
or that would otherwise meet the eligibility requirements if the Tribe 
or tribal organization had at least 50 children under 13 years of age; 
and
    (3) All the participating consortium members are in geographic 
proximity to one another (including operation in a multi-State area) or 
have an existing consortium arrangement; and
    (4) The consortium demonstrates that it has the managerial, 
technical and administrative staff with the ability to administer 
government funds, manage a CCDF program and comply with the provisions 
of the Act and of this part.
    (d) The awarding of a grant under this section shall not affect the 
eligibility of any Indian child to receive CCDF services provided by 
the State or States in which the Indian Tribe is located.
    (e) For purposes of the CCDF, the determination of the number of 
children in the Tribe, pursuant to paragraph (b)(1) of this section, 
shall include Indian children living on or near reservations, with the 
exception of Tribes in Alaska, California and Oklahoma.
    (f) In determining eligibility for services pursuant to 
Sec. 98.20(a)(2), a tribal program may use either:
    (1) 85 percent of the State median income for a family of the same 
size; or
    (2) 85 percent of the median income for a family of the same size 
residing in the area served by the tribal Lead Agency.


Sec. 98.81  Application and Plan procedures.

    (a) In order to receive CCDF funds, a tribal Lead Agency shall 
apply for funds pursuant to Sec. 98.13, except that the requirement at 
Sec. 98.13(b)(2) does not apply.
    (b) A tribal Lead Agency shall submit a CCDF Plan, as described at 
Sec. 98.16, with the following additions and exceptions:
    (1) The Plan shall be accompanied by a tribal resolution 
identifying the Lead Agency, pursuant to Sec. 98.83(a).
    (2) The Plan shall include the basis for determining family 
eligibility pursuant to Sec. 98.80(f).
    (3) For purposes of determining eligibility, the following terms 
shall also be defined:
    (i) Indian child; and
    (ii) Indian reservation or tribal service area.
    (4) The tribal Lead Agency shall also assure that:
    (i) The applicant shall coordinate, to the maximum extent feasible, 
with the Lead Agency in the State in which the applicant shall carry 
out CCDF programs or activities, pursuant to Sec. 98.82; and
    (ii) In the case of an applicant located in a State other than 
Alaska, California, or Oklahoma, CCDF programs and activities shall be 
carried out on an Indian reservation for the benefit of Indian 
children, pursuant to Sec. 98.83(b).
    (5) The Plan shall include any information, as prescribed by the

[[Page 39655]]

Secretary, necessary for determining the number of children in 
accordance with Secs. 98.61(c), 98.62(c), and 98.80(b)(1).
    (6) Plans for those Tribes specified at Sec. 98.83(f) (i.e., Tribes 
with small grants) are not subject to the requirements in 
Sec. 98.16(g)(2) or Sec. 98.16(k) unless the Tribe chooses to include 
such services, and, therefore, the associated requirements, in its 
program.
    (7) The Plan is not subject to requirements in Sec. 98.16(f)(8) or 
Sec. 98.16(g)(4).
    (8) In its initial Plan, an Indian Tribe shall describe its current 
service delivery capability pursuant to Sec. 98.80(b)(2).
    (9) A consortium shall also provide the following:
    (i) A list of participating or constituent members, including 
demonstrations from these members pursuant to Sec. 98.80(c)(1);
    (ii) A description of how the consortium is coordinating services 
on behalf of its members, pursuant to Sec. 98.83(c)(1); and
    (iii) As part of its initial Plan, the additional information 
required at Sec. 98.80(c)(4).
    (c) When initially applying under paragraph (a) of this section, a 
tribal Lead Agency shall include a Plan that meets the provisions of 
this part and shall be for a two-year period, pursuant to 
Sec. 98.17(a).


Sec. 98.82  Coordination.

    Tribal applicants shall coordinate as required by Secs. 98.12 and 
98.14 and:
    (a) To the maximum extent feasible, with the Lead Agency in the 
State or States in which the applicant will carry out the CCDF program; 
and
    (b) With other Federal, State, local, and tribal child care and 
childhood development programs.


Sec. 98.83  Requirements for tribal programs.

    (a) The grantee shall designate an agency, department, or unit to 
act as the tribal Lead Agency to administer the CCDF program.
    (b) With the exception of Alaska, California, and Oklahoma, 
programs and activities shall be carried out on an Indian reservation 
for the benefit of Indian children.
    (c) In the case of a tribal grantee that is a consortium:
    (1) A brief description of the direct child care services funded by 
CCDF for each of their participating Tribes shall be provided by the 
consortium in their two-year CCDF Plan; and
    (2) Variations in CCDF programs or requirements and in child care 
licensing, regulatory and health and safety requirements shall be 
specified in written agreements between the consortium and the Tribe.
    (d) Tribal Lead Agencies shall not be subject to the requirements 
at Secs. 98.41(a)(1)(i), 98.44(a), 98.50(e) 98.52(a), 98.53 and 98.63.
    (e) The base amount of any tribal grant is not subject to the 
administrative cost limitation at paragraph (g) of this section or the 
quality expenditure requirement Sec. 98.51(a). The base amount may be 
expended for any costs consistent with the purposes and requirements of 
the CCDF.
    (f) Tribal Lead Agencies whose total CCDF allotment pursuant to 
Secs. 98.61(c) and 98.62(b) is less than an amount established by the 
Secretary shall not be subject to the following requirements:
    (1) The assurance at Sec. 98.15(a)(2);
    (2) The requirement for certificates at Sec. 98.30(a) and 
Sec. 98.30(d); and
    (3) The requirements for quality expenditures Sec. 98.51(a).
    (g) A tribal Lead Agency may use up to 15 percent of its total CCDF 
per child amount provided under Secs. 98.61(c) and 98.62(b) (including 
funds used for construction or major renovation in accordance with 
Sec. 98.84) for administrative costs. Amounts used for construction and 
major renovation in accordance with Sec. 98.84 are not considered 
administrative costs.
    (h)(1) CCDF funds are available for costs incurred by the tribal 
Lead Agency only after the funds are made available by Congress for 
Federal obligation unless costs are incurred for planning activities 
related to the submission of an initial CCDF Plan.
    (2) Federal obligation of funds for planning costs, pursuant to 
paragraph (h)(1) of this section is subject to the actual availability 
of the appropriation.


Sec. 98.84  Construction and renovation of child care facilities.

    (a) Upon requesting and receiving approval from the Secretary, 
tribal Lead Agencies may use amounts provided under Secs. 98.61(c) and 
98.62(b) to make payments for construction or major renovation of child 
care facilities (including paying the cost of amortizing the principal 
and paying interest on loans).
    (b) To be approved by the Secretary, a request shall be made in 
accordance with uniform procedures established by program instruction 
and, in addition, shall demonstrate that:
    (1) Adequate facilities are not otherwise available to enable the 
tribal Lead Agency to carry out child care programs;
    (2) The lack of such facilities will inhibit the operation of child 
care programs in the future; and
    (3) The use of funds for construction or major renovation will not 
result in a decrease in the level of child care services provided by 
the tribal Lead Agency as compared to the level of services provided by 
the tribal Lead Agency in the preceding fiscal year.
    (c)(1) Tribal Lead Agencies may use CCDF funds for reasonable and 
necessary planning costs associated with assessing the need for 
construction or renovation or for preparing a request, in accordance 
with the uniform procedures established by program instruction, to 
spend CCDF funds on construction or major renovation.
    (2) A tribal Lead Agency may not use CCDF funds to pay for the 
costs of an architect, engineer, or other consultant before its request 
is approved by the Secretary.
    (d) Tribal Lead Agencies that receive approval from the Secretary 
to use CCDF funds for construction or major renovation shall comply 
with the following:
    (1) Federal share requirements and use of property requirements at 
45 CFR 92.31;
    (2) Transfer and disposition of property requirements at 45 CFR 
92.31(c);
    (3) Title requirements at 45 CFR 92.31(a);
    (4) Cost principles and allowable cost requirements at 45 CFR 
92.22;
    (5) Program income requirements at 45 CFR 92.25;
    (6) Procurement procedures at 45 CFR 92.36; and;
    (7) Any additional requirements established by program instruction, 
including requirements concerning:
    (i) The recording of a Notice of Federal Interest in the property;
    (ii) Rights and responsibilities in the event of a grantee's 
default on a mortgage;
    (iii) Insurance and maintenance;
    (iv) Submission of plans, specifications, inspection reports, and 
other legal documents; and
    (v) Modular units.
    (e) In lieu of obligation and liquidation requirements at 
Sec. 98.60(e), tribal Lead Agencies shall liquidate CCDF funds used for 
construction or major renovation by the end of the second fiscal year 
following the fiscal year for which the grant is awarded.
    (f) Tribal Lead Agencies may expend funds, without requesting 
approval pursuant to paragraph (a), for minor renovation.

[[Page 39656]]

Subpart J--Monitoring, Non-Compliance and Complaints


Sec. 98.90  Monitoring.

    (a) The Secretary will monitor programs funded under the CCDF for 
compliance with:
    (1) The Act;
    (2) The provisions of this part; and
    (3) The provisions and requirements set forth in the CCDF Plan 
approved under Sec. 98.18;
    (b) If a review or investigation reveals evidence that the Lead 
Agency, or an entity providing services under contract or agreement 
with the Lead Agency, has failed to substantially comply with the Plan 
or with one or more provisions of the Act or implementing regulations, 
the Secretary will issue a preliminary notice to the Lead Agency of 
possible non-compliance. The Secretary shall consider comments received 
from the Lead Agency within 60 days (or such longer period as may be 
agreed upon between the Lead Agency and the Secretary).
    (c) Pursuant to an investigation conducted under paragraph (a) of 
this section, a Lead Agency shall make appropriate books, documents, 
papers, manuals, instructions, and records available to the Secretary, 
or any duly authorized representatives, for examination or copying on 
or off the premises of the appropriate entity, including subgrantees 
and contractors, upon reasonable request.
    (d)(1) Lead Agencies and subgrantees shall retain all CCDF records, 
as specified in paragraph (c) of this section, and any other records of 
Lead Agencies and subgrantees that are needed to substantiate 
compliance with CCDF requirements, for the period of time specified in 
paragraph (e) of this section.
    (2) Lead Agencies and subgrantees shall provide through an 
appropriate provision in their contracts that their contractors will 
retain and permit access to any books, documents, papers, and records 
of the contractor that are directly pertinent to that specific 
contract.
    (e) Length of retention period. (1) Except as provided in paragraph 
(e)(2) of this section, records specified in paragraph (c) of this 
section shall be retained for three years from the day the Lead Agency 
or subgrantee submits the Financial Reports required by the Secretary, 
pursuant to Sec. 98.65(g), for the program period.
    (2) If any litigation, claim, negotiation, audit, disallowance 
action, or other action involving the records has been started before 
the expiration of the three-year retention period, the records shall be 
retained until completion of the action and resolution of all issues 
that arise from it, or until the end of the regular three-year period, 
whichever is later.


Sec. 98.91  Non-compliance.

    (a) If after reasonable notice to a Lead Agency, pursuant to 
Secs. 98.90 or 98.93, a final determination is made that:
    (1) There has been a failure by the Lead Agency, or by an entity 
providing services under contract or agreement with the Lead Agency, to 
comply substantially with any provision or requirement set forth in the 
Plan approved under Sec. 98.16; or
    (2) If in the operation of any program for which funding is 
provided under the CCDF, there is a failure by the Lead Agency, or by 
an entity providing services under contract or agreement with the Lead 
Agency, to comply substantially with any provision of the Act or this 
part, the Secretary will provide to the Lead Agency a written notice of 
a finding of non-compliance. This notice will be issued within 60 days 
of the preliminary notification in Sec. 98.90(b), or within 60 days of 
the receipt of additional comments from the Lead Agency, whichever is 
later, and will provide the opportunity for a hearing, pursuant to part 
99.
    (b) The notice in paragraph (a) of this section will include all 
relevant findings, as well as any penalties or sanctions to be applied, 
pursuant to Sec. 98.92.
    (c) Issues subject to review at the hearing include the finding of 
non-compliance, as well as any penalties or sanctions to be imposed 
pursuant to Sec. 98.92.


Sec. 98.92  Penalties and sanctions.

    (a) Upon a final determination that the Lead Agency has failed to 
substantially comply with the Act, the implementing regulations, or the 
Plan, one of the following penalties will be applied:
    (1) The Secretary will disallow the improperly expended funds;
    (2) An amount equal to or less than the improperly expended funds 
will be deducted from the administrative portion of the State allotment 
for the following fiscal year; or
    (3) A combination of the above options will be applied.
    (b) In addition to imposing the penalties described in paragraph 
(a) of this section, the Secretary may impose other appropriate 
sanctions, including:
    (1) Disqualification of the Lead Agency from the receipt of further 
funding under the CCDF; or
    (2)(i) A penalty of not more than four percent of the funds 
allotted under Sec. 98.61 (i.e., the Discretionary Funds) for a Fiscal 
Year shall be withheld if the Secretary determines that the Lead Agency 
has failed to properly implement a provision of the Act, these 
regulations, or the Plan required under Sec. 98.16;
    (ii) This penalty will be withheld no earlier than the second full 
quarter following the quarter in which the Lead Agency was notified of 
the proposed penalty;
    (iii) This penalty will not be applied if the Lead Agency corrects 
the failure or violation before the penalty is to be applied or if it 
submits a plan for corrective action that is acceptable to the 
Secretary; and
    (iv) The Lead Agency may show cause to the Secretary why the amount 
of the penalty, if applied, should be reduced.
    (c) If a Lead Agency is subject to additional sanctions as provided 
under paragraph (b) of this section, specific identification of any 
additional sanctions being imposed will be provided in the notice 
provided pursuant to Sec. 98.91.
    (d) Nothing in this section, or in Secs. 98.90 or 98.91, will 
preclude the Lead Agency and the Department from informally resolving a 
possible compliance issue without following all of the steps described 
in Secs. 98.90, 98.91 and 98.92. Penalties and/or sanctions, as 
described in paragraphs (a) and (b) of this section, may nevertheless 
be applied, even though the issue is resolved informally.
    (e) It is at the Secretary's sole discretion to choose the penalty 
to be imposed under paragraphs (a) and (b).


Sec. 98.93  Complaints.

    (a) This section applies to any complaint (other than a complaint 
alleging violation of the nondiscrimination provisions) that a Lead 
Agency has failed to use its allotment in accordance with the terms of 
the Act, the implementing regulations, or the Plan. The Secretary is 
not required to consider a complaint unless it is submitted as required 
by this section. Complaints with respect to discrimination should be 
referred to the Office of Civil Rights of the Department.
    (b) Complaints with respect to the CCDF shall be submitted in 
writing to the Assistant Secretary for Children and Families, 370 
L'Enfant Promenade, S.W., Washington, D.C. 20447. The complaint shall 
identify the provision of the Plan, the Act, or this part that was 
allegedly violated, specify the basis for alleging the violation(s), 
and include all relevant information known to the person submitting it.

[[Page 39657]]

    (c) The Department shall promptly furnish a copy of any complaint 
to the affected Lead Agency. Any comments received from the Lead Agency 
within 60 days (or such longer period as may be agreed upon between the 
Lead Agency and Department) shall be considered by the Department in 
responding to the complaint. The Department will conduct an 
investigation of complaints, where appropriate.
    (d) The Department will provide a written response to complaints 
within 180 days after receipt. If a final resolution cannot be provided 
at that time, the response will state the reasons why additional time 
is necessary.
    (e) Complaints that are not satisfactorily resolved through 
communication with the Lead Agency will be pursued through the process 
described in Sec. 98.90.

PART 99--PROCEDURE FOR HEARINGS FOR THE CHILD CARE AND DEVELOPMENT 
FUND

    2. The heading of part 99 is revised to read as set forth above.
    3. The authority citation for part 99 is revised to read as 
follows:

    Authority: 42 U.S.C. 618, 9858

PART 99--[AMENDED]

    4. In part 99 make the following changes:
     a. Remove the words ``Child Care and Development Block Grant'' and 
add in their place, wherever they appear, the words ``Child Care and 
Development Fund.''
    b. Remove the word ``Grantees'' and add in its place, wherever it 
appears, the words ``Lead Agencies.''
    c. Remove the word ``Grantee'' and add in its place, wherever it 
appears, the words ``Lead Agency.''
    d. Remove the words ``Block Grant Plan'' and add in their place, 
wherever they appear, the words ``CCDF Plan.''

[FR Doc. 97-19062 Filed 7-22-97; 8:45 am]
BILLING CODE 4184-01-P