[Federal Register Volume 63, Number 38 (Thursday, February 26, 1998)]
[Rules and Regulations]
[Pages 9721-9730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4949]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 38 / Thursday, February 26, 1998 / 
Rules and Regulations  

[[Page 9721]]


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DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Chapter II and Part 226

RIN 0584-AC20


Child Nutrition and WIC Reauthorization Act Amendments

AGENCY: Food and Consumer Service, USDA.

ACTION: Interim rule, with request for comments.

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SUMMARY: This rule incorporates changes to the Child and Adult Care 
Food Program (CACFP) required by the Child Nutrition and WIC 
Reauthorization Act of 1989 and the Healthy Meals for Healthy Americans 
Act of 1994 by: providing administrative funds to family day care home 
sponsors for expansion into low-income or rural areas; granting 
federally funded income-eligible Head Start participants automatic 
eligibility for free CACFP meals without further application or 
eligibility determination; and allowing the use of administrative funds 
to assist unlicensed day care homes in becoming licensed. These 
revisions are intended to encourage Program participation in low-income 
and rural areas and to reduce the level of administrative and paperwork 
burden for Federal, State and local Program administrators and for 
Program participants. In addition, this rule amends 7 CFR chapter II to 
reflect the renaming of the Food and Consumer Service as the Food and 
Nutrition Service.

DATES: This rule is effective April 27, 1998 with the exception of the 
amendments to the heading of 7 CFR chapter II and to the references in 
the chapter, which are effective November 25, 1997. To be assured of 
consideration, comments must be postmarked on or before August 25, 
1998.

ADDRESSES: Comments should be addressed to Robert M. Eadie, Chief, 
Policy and Program Development Branch, Child Nutrition Division, Food 
and Nutrition Service, United States Department of Agriculture, 3101 
Park Center Drive, Room 1006, Alexandria, Virginia 22302. All written 
submissions will be available for public inspection at this location, 
Monday through Friday, 8:30 a.m. to 5:00 p.m.

FOR FURTHER INFORMATION CONTACT: Mr. Eadie or Ed Morawetz at the above 
address or by telephone at (703) 305-2620.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Food and Nutrition Service generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
or tribal governments, in the aggregate, or in the private sector, of 
$100 million or more in any one year. When such a statement is needed 
for a rule, section 205 of the UMRA generally requires the Food and 
Nutrition Service to identify and consider a reasonable number of 
regulatory alternatives that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector of $100 million or more in any one 
year. Thus the rule is not subject to the requirements of sections 202 
and 205 of the UMRA.

Executive Order 12372

    The Child and Adult Care Food Program is listed in the Catalog of 
Federal Domestic Assistance under No. 10.558. For the reasons set forth 
in the final rule in 7 CFR 3015, Subpart V, and related notice 
(published at 48 FR 29115, June 24, 1983) CACFP is included in the 
scope of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Shirley R. Watkins, 
Under Secretary, Food, Nutrition, and Consumer Services, has certified 
that this rule will not have a significant economic impact on a 
substantial number of small entities. Even though Head Start agencies 
will benefit from the reduction of paperwork for those participants who 
qualify for automatic free meal eligibility, these benefits will not 
have a significant economic impact. The Department of Agriculture does 
not anticipate any adverse fiscal impact which would result from 
implementation of this rulemaking.

Executive Order 12988

    This interim rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless it is so specified in the ``Effective Date'' section of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions, all applicable 
administrative procedures must be exhausted. In the CACFP, the 
administrative procedures are set forth under the following 
regulations: (1) Institution appeal procedures in 7 CFR 226.6(k), and 
(2) Disputes involving procurement by State agencies and institutions 
must follow administrative appeal procedures to the extent required by 
7 CFR 226.22 and 7 CFR Part 3015.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507), this notice invites the general public and other public agencies 
to comment on the information collection.
    Written comments must be received on or before April 27, 1998.
    Comments concerning the information collection aspects of this 
interim rule should be sent to the Office

[[Page 9722]]

of Information and Regulatory Affairs, OMB, Room 3208, New Executive 
Building, Washington, D.C. 20503, Attention: Wendy Taylor, Desk Officer 
for the Food and Nutrition Service. A copy of these comments may also 
be sent to Mr. Eadie at the address listed in the ADDRESSES section of 
this preamble. Commenters are asked to separate their information 
collection requirements from their comments on the remainder of the 
interim rule.
    OMB is required to make a decision concerning the collection of 
information contained in this interim regulation between 30 to 60 days 
after the publication of this document in the Federal Register. 
Therefore, a comment to OMB 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 interim 
regulation.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information, including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    The title, description, and respondent description of the 
information collections are shown below with an estimate of the annual 
reporting and recordkeeping burdens. Included in the estimate is the 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.
    Title: 7 CFR Part 226, Child and Adult Care Food Program.
    OMB Number: 0584-0055.
    Expiration Date: July 31, 2000.
    Type of Request: Revision of existing collection.
    Abstract: The rule, Child Nutrition and WIC Reauthorization Act 
Amendments, implements the provision included in Pub. L. 103-448, the 
Healthy Meals for Healthy Americans Act of 1994, that allows a 
Federally funded income eligible Head Start participant to be eligible 
for free meals under CACFP without further application. In addition, 
the rule also implements the provision included in Pub. L. 101-147, the 
Child Nutrition and WIC Reauthorization Act of 1989, that makes 
additional administrative funds available to family day care home 
sponsors to reach children located in low-income or rural areas. In 
accordance with the Paperwork Reduction Act of 1995, the Department is 
providing the public with the opportunity to provide comments on the 
information collection requirements of the interim rule as noted below:

                               Estimated Annual Reporting and Recordkeeping Burden                              
----------------------------------------------------------------------------------------------------------------
                                                                  Annual                  Average       Annual  
                           Section                              number of     Annual    burden per      burden  
                                                               respondents  frequency    response       hours   
----------------------------------------------------------------------------------------------------------------
7 CFR 226.12(b), Day care home sponsors submit application                                                      
 and enter into agreement for expansion funds:                                                                  
    Existing.................................................            0          0         0                0
    Proposed.................................................          388          1         2.5            970
7 CFR 226.12(b), State agency approval of expansion funds                                                       
 requests:                                                                                                      
    Existing.................................................            0          0         0                0
    Proposed.................................................           54          7         1.5            567
7 CFR 226.23(e), All households except for those with income                                                    
 eligible Head Start participants:                                                                              
    Existing.................................................      687,562          1          .05        34,378
    Proposed.................................................      336,304          1          .075       25,223
----------------------------------------------------------------------------------------------------------------

    Estimated Total Annual Burden on Respondents:

Total Existing Burden Hours  34,378
Total Proposed Burden Hours  26,760
Total Difference  -7,618

Public Participation

    In accordance with the requirements of 5 U.S.C. 553, the Under 
Secretary for Food, Nutrition, and Consumer Services has determined 
that good cause exists for not requiring notice and comment before 
making this rule effective. In Section 708(k)(3)(A) of Pub. L. 104-193, 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996, Congress directed the Secretary of Agriculture to issue as 
interim regulations by January 1, 1997 those provisions of this 
rulemaking applicable to expansion funds and the use of administrative 
funds to assist day care home licensing. Therefore, notice and public 
comment before the regulations in this rulemaking on those matters are 
implemented is impracticable. The Under Secretary for Food, Nutrition, 
and Consumer Services has also determined that the remaining provisions 
of this rulemaking may also be implemented without prior notice and 
comment. Those provisions related to Head Start participant eligibility 
for CACFP are nondiscretionary. Thus, prior notice and comment are 
unnecessary as it would serve no practical purpose. As specified above, 
the Department will consider comments on all regulations implemented by 
this rulemaking and will address those comments in future rulemakings.

Background

    On November 10, 1989, the Child Nutrition and WIC Reauthorization 
Act of 1989 (Pub. L. 101-147) made a number of changes to the Child 
Care Food Program by amending Section 17 of the National School Lunch 
Act (NSLA) (42 U.S.C. 1766). In addition to changing the name of the 
Program to the Child and Adult Care Food Program (CACFP) in Section 
105(a), Pub. L. 101-147 contained provisions which: (1) simplified the 
free and reduced price application process, (2) established a \1/3\ 
daily Recommended Dietary Allowance (RDA) nutritional requirement for 
lunches served in adult day care centers, (3) made additional 
administrative funds available to family day care home sponsors to 
reach children located in low-income or rural areas, (4) permitted 
State agencies to allow every-other-year applications by institutions, 
(5) allowed State governors to designate a separate State agency to 
administer the adult portion of the CACFP, (6) changed the basis for

[[Page 9723]]

making commodities available to State agencies, and (7) made two 
miscellaneous technical changes.
    In response to the above-referenced legislative provisions, the 
Department published a final rule on January 16, 1990 at 55 FR 1376 
which changed the name of the Program from the Child Care Food Program 
to the Child and Adult Care Food Program and a final rule on July 14, 
1993 at 58 FR 37847 on a meal pattern to be used in adult day care 
centers. The adult meal pattern rule contained the requirement found in 
section 105(b)(3)(A) of Pub. L. 101-147 that lunches served in adult 
day care centers provide approximately one-third of the Recommended 
Dietary Allowances established by the Food and Nutrition Board of the 
National Research Council of the National Academy of Sciences to 
participating individuals. Finally, the Department has issued a final 
rule which implemented those provisions of Pub. L. 101-147 related to 
the content and processing of free and reduced price applications (61 
FR 25550, May 22, 1996) and an interim Child Nutrition and WIC 
Reauthorization Act of 1989 and Other Amendments Rule concerning 
provisions 5, 6, and 7 above (62 FR 23613, May 1, 1997). The expansion 
funds provision contained in Pub. L. 101-147 is included in this 
interim regulation, while the provision regarding two-year applications 
is discussed below.
    On October 6, 1994, the Healthy Meals for Healthy Americans Act of 
1994 (Pub. L. 103-448) amended section 17 of the NSLA. Pub. L. 103-448 
included provisions which: (1) allow a Federally-funded income eligible 
Head Start child to be considered automatically eligible for free CACFP 
meals without further application or eligibility determination; (2) 
allow the use of administrative funds to assist unlicensed day care 
homes in becoming licensed; and (3) permit State agencies to allow 
three-year applications from institutions.
    The preamble to this interim rulemaking provides an in-depth 
discussion of the first two provisions. The third, which amended the 
provision from Pub. L. 101-147 permitting State agencies to take two-
year applications from institutions, will be proposed in a future 
regulation which is designed to streamline current Program 
requirements, where feasible, for State and local Program 
administrators.

1. Expansion Funds for Low-Income or Rural Areas

    Section 105(b)(1)(A) of Pub. L. 101-147 amended section 17(f)(3)(C) 
of the NSLA (42 U.S.C. 1766(f)(3)(C)) to provide for additional 
administrative payments to day care home sponsoring organizations 
wishing to expand into low-income or rural areas. This amendment was 
made to the NSLA because of evidence demonstrating that low-income and 
rural areas are generally underserved by family and group day care 
homes participating in the CACFP and that sponsoring organizations may 
encounter higher-than-normal costs when expanding into those areas. 
Current section 226.12(b) of the Program regulations contains a 
reference to the availability of start-up payments to develop or expand 
Program operations in day care homes. In the past, these funds have 
been employed to extend the Program without specific regard for income 
or geographic considerations. ``Expansion funds,'' as that term is used 
in section 105(b)(1)(A) of Pub. L. 101-147, are only to be available 
for extending the Program into low-income or rural areas presently 
unserved or underserved by the Program. Given the broad similarity 
between the intended use of expansion funds provided for by Pub. L. 
101-147 and start-up payments presently provided by the Department to 
stimulate Program growth, the Department has been guided extensively by 
its experience with start-up payments in developing the interim 
implementation of expansion payments discussed below.
    Accordingly, this interim rulemaking amends section 226.2 to add a 
new definition of ``expansion payments'' which limits the availability 
of these funds to expanding the Program to day care homes located in 
low-income or rural areas and amends the existing definitions of the 
terms ``administrative costs'' and ``start up payments'' for 
consistency.

Basic Eligibility

    Under section 226.12(b) of existing CACFP regulations, four types 
of organizations are eligible for start-up funds to develop or expand 
day care operations. They are: (1) prospective sponsoring organizations 
of day care homes; (2) participating sponsoring organizations of child 
care centers or outside-school-hours care centers which intend to 
sponsor day care homes; (3) independent centers which intend to sponsor 
day care homes; and (4) participating day care home sponsoring 
organizations with fewer than 50 homes. These four categories were 
established in regulations issued by the Department on January 22, 1980 
(45 FR 4960, 4966).
    The Department believes that expansion funds should be made 
available only to currently participating sponsoring organizations of 
family day care homes. Because of their experience with Program 
requirements these organizations will be best suited to efficiently and 
effectively expand the Program. Sponsors eligible for start-up funds 
would have access to expansion funds once they became active family day 
care home sponsoring organizations if they wish to expand into low-
income or rural areas.
    Accordingly, this interim rulemaking amends section 226.12(b) to 
limit the availability of expansion funds to participating sponsoring 
organizations of family day care homes.

Time Restrictions

    Section 105(b)(1)(F) of Pub. L. 101-147 amended section 17(f)(3)(C) 
of the NSLA (42 U.S.C. 1766 (f)(3)(C)) to provide that ``[i]nstitutions 
that have received start-up funds may also apply at a later date for 
expansion funds.'' In order to implement this provision in an orderly 
manner, the Department believes that it is appropriate to require some 
minimum amount of time to elapse between the receipt and expenditure of 
start-up funds and the receipt of expansion funds. While sponsors may 
add homes on a regular basis without start-up funds, the relatively 
large number of homes brought into a sponsorship as a result of 
receiving start-up funds will make significant demands on a sponsor's 
resources. Sponsoring organizations which have just begun Program 
operations or have expanded their operations with start-up funds need 
adequate time to adjust to their new responsibilities. We believe that 
a full year's experience with its new homes should be adequate to 
accomplish this.
    Accordingly, this interim rulemaking amends section 226.12(b) by 
prohibiting a sponsoring organization which has received start-up funds 
from applying for expansion funds until 12 months after it has 
satisfied all its obligations under its start-up agreement with the 
State agency.

Payment Limitations

    Section 226.12(d) of current regulations limits the number of homes 
on which the start-up funds calculation is based to 50 homes or, for 
existing sponsors of homes, 50 minus the number of homes already 
operated by the sponsor. Consistent with this start-up limitation, we 
are limiting to 50 the number of homes on which expansion funds 
calculations are based. Unlike the start-up funds limitation, this 50-
home limit does not include homes already operated by the sponsoring 
organization

[[Page 9724]]

requesting the funds. We are extending the 50-home limitation to 
expansion funds because we believe that payments in that amount give 
sponsoring organizations a significant level of funding with which to 
expand into low-income or rural areas, as well as an amount which 
provides support for a manageable level of expansion.
    Section 17(f)(3)(C) of the NSLA (42 U.S.C. 1766(f)(3)(C)), as 
amended by section 105(b)(1) of Pub. L. 101-147, limits the amount of 
expansion funds that may be paid to a sponsoring organization to ``not 
less than the institution's anticipated reimbursement for 
administrative expenses under the program for one month and not more 
than the institution's anticipated reimbursement for administrative 
expenses under the program for two months.''
    The current maximum per-home administrative reimbursement rate for 
the first 50 homes is $75 (62 FR 37702, July 14, 1997). Therefore, 
using these rates, sponsoring organizations applying for expansion 
funds are eligible for an amount not less than: one month times the 
number of expansion homes (up to 50) times $75 per home; and not more 
than two months times 50 homes times $75 per home (i.e., $7,500). As 
with start-up funds, the amount of expansion funds ultimately received 
by a sponsoring organization may not exceed the amount actually 
expended by it. Also, the State agency must consider the anticipated 
amount of expansion funding to be paid and alternate sources of funds 
available to the sponsoring organization for such purposes when 
evaluating the sponsor's plans for expansion. Finally, the Department 
wishes to emphasize that State agencies should carefully review a 
sponsoring organization's expansion plans to ensure that the activities 
described in the plan support the amount requested.
    Accordingly, this interim rulemaking amends section 226.12(b) by 
establishing limits on expansion funds to not less than one and not 
more than two months of administrative payments for up to 50 homes at 
the maximum current per home/per month payment.
    The Department anticipates that most sponsoring organizations will 
be approved for expansion payments only once. However, if a sponsoring 
organization has satisfactorily expanded into the area(s) for which 
expansion fund applications were originally made, it may apply for a 
second round of expansion payments for expansion into other low-income 
and rural areas. This application must justify the need for further 
expansion and must be approved by the State agency. A sponsoring 
organization is not eligible to apply for a second round of expansion 
funds until at least 12 months after the sponsoring organization has 
satisfied all obligations under its initial or prior agreement.
    Accordingly, this interim rulemaking amends section 226.12(b) to 
allow sponsoring organizations to receive expansion payments once, 
unless 12 months have elapsed and the sponsor reapplies and can justify 
the receipt of further funds for expansion into other areas.

Definitions of Low-Income or Rural Area

    As discussed above, section 105(b)(1)(A) of Pub. L. 101-147 
requires that expansion funds be used to help reach homes in low-income 
or rural areas. The statute is silent, however, with regard to how 
``low-income'' and ``rural'' are to be defined. In the absence of any 
specific statutory direction, the Department has been guided in this 
interim rulemaking by the corresponding definitions established in 7 
CFR part 225 for the Summer Food Service Program (SFSP) and, more 
recently, in the definition of tier I homes promulgated in section 
17(f)(3)(A)(ii) of the NSLA as amended by section 708(e)(1) of Pub. L. 
104-193, the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, and section 226.2 of the CACFP regulations.
    The SFSP regulations (7 CFR 225.2) define rural as: ``(a) any area 
in a county which is not a part of a Metropolitan Statistical Area or 
(b) any `pocket' within a Metropolitan Statistical Area which, at the 
option of the State agency and with FCSRO concurrence, is determined to 
be geographically isolated from urban areas.'' This definition was 
promulgated in part 225 in response to a provision in section 13(b)(4) 
of the NSLA (42 U.S.C. 1761(b)(4)) which directed the Department to 
study the administrative costs associated with operating the SFSP and, 
thereafter, to establish administrative reimbursement rates which 
reflect the variable costs incurred by different types of sponsors. 
This study indicated that sponsors which prepare their own meals and 
those which operate in rural areas incur costs higher than those of 
other sponsors (44 FR 36365, January 2, 1979). Therefore, a higher 
reimbursement rate was established for sponsors meeting the 
aforementioned definition of ``rural''. Given the fact that expansion 
funds were provided under Pub. L. 101-147 in order to help defray the 
costs associated with moving into rural areas, and the fact that the 
definition of ``rural'' in part 225 has been successfully used to 
distinguish between urban and rural sponsors in the SFSP for more than 
15 years, the Department believes it appropriate to incorporate the 
same definition of ``rural'' for the CACFP. The Department periodically 
updates the list of Metropolitan Statistical Areas, as defined by the 
Census Bureau, and State administrators of the CACFP will be notified 
when future updates are made.
    Accordingly, this interim rulemaking amends section 226.2 by adding 
a definition of ``rural area'' as described above to be used by State 
agencies when determining the eligibility of sponsoring organizations 
for expansion funds.
    With regard to ``low-income'' areas, SFSP regulations reflect the 
definition found in section 13(a)(1)(C) of the NSLA (42 U.S.C. 
1761(a)(1)(C)) for ``areas in which poor economic conditions exist.'' 
The statute defines such areas as those ``in which at least 50 percent 
of the children are eligible for free or reduced price school meals, as 
determined by information provided from departments of welfare, zoning 
commissions, census tracts, by the numbers of free and reduced price 
lunches or breakfasts served to children attending public and nonprofit 
private schools located in the area of program food service sites, or 
from other appropriate sources * * *.'' Similarly, section 
17(f)(3)(A)(ii) of the NSLA as amended by section 708(e)(1) of Pub. L. 
104-193 defines low-income areas in which tier I homes are located as 
areas in which at least 50 percent of the children are eligible for 
free or reduced priced meals, as defined by elementary school or census 
data.
    The Department sees considerable similarity between the intended 
application of these statutory definitions and their potential 
application for determining eligibility for expansion funds in the 
CACFP. Because the SFSP is intended to provide free meals to children 
in low-income areas, the statute defines ways in which local sponsors 
can document the socioeconomic status of areas, not households or 
individuals. Similarly, the statute governing CACFP intends to target 
Program benefits to low-income areas through an eligibility definition 
based primarily on geographic areas. The Department also believes that 
sponsoring organizations wishing to obtain expansion funds to move into 
low-income areas should only be expected to demonstrate the need of the 
area in broad terms. Using the precedent already set in SFSP and CACFP, 
the Department believes it appropriate and reasonable to apply similar 
criteria to the CACFP expansion funds provisions. Specifically, the 
Department will utilize

[[Page 9725]]

the area-based definition of low-income eligibility established in 
paragraphs (b) and (c) of the definition of ``tier I day care home'' in 
section 226.2, as promulgated in the recently published rule concerning 
the two-tier reimbursement system for family day care homes (62 FR 889, 
January 7, 1997).
    The Department does not believe that it would be appropriate to 
permit sponsoring organizations to target individual day care home 
providers outside of low-income areas with expansion funding. The 
statutory language which makes expansion funds available speaks of 
using these funds to target providers in low-income or rural areas, not 
low-income providers located outside of such areas. Although the two-
tiered reimbursement system for day care homes does permit low-income 
providers outside of low-income areas to receive tier I rates, use of 
expansion funds to reach these providers will not necessarily promote 
the targeting of Program benefits to low-income children. For these 
reasons, this interim rule prohibits sponsors from using expansion 
funds to target individual day care homes that are not located in low-
income areas; only homes in rural areas or in low-income areas, as 
defined in paragraphs (b) and (c) of the definition of tier I day care 
home in section 226.2, may be targeted for use of expansion funds.
    Over time in the SFSP, it has been found that there are two primary 
sources of data that may be used to determine whether an area is one in 
which poor economic conditions exist-school data and census data. Of 
these, school data should always be consulted first since it is 
collected annually and is, therefore, generally more current and 
accurate than census data. Census data should be used when school data 
is unavailable or does not accurately represent the economic status of 
the area in question.
    To establish an area's eligibility for expansion funding using 
school data, 50 percent or more of the children in the local area into 
which the sponsor wishes to expand must be eligible for free or reduced 
price school meals under the National School Lunch and School Breakfast 
Programs. In accordance with procedures established in the interim rule 
concerning the two-tier reimbursement system, sponsors will annually 
receive from their State agency a list of all elementary schools in the 
State in which at least 50 percent of the enrolled children are 
eligible for free or reduced price meals. As required by section 
226.6(f)(9), the first such list will be available to sponsors no later 
than April 1, 1997, while subsequent lists will be provided by February 
15 of each year. In many cases, this information alone will enable 
sponsors to target their expansion efforts to the neighborhoods served 
by these elementary schools. The State agency would then determine 
whether the areas targeted for expansion by the sponsor were areas 
served by a school with 50 percent or greater free or reduced price 
enrollment.
    As discussed above, experience with the SFSP has shown school data 
to be the best indicator of low-income areas. However, sponsors may 
also choose to document the area's eligibility for expansion by using 
census data. The Department expects that census data should be used 
only when school data is unavailable or does not accurately represent 
an area's economic status. Circumstances which might warrant the use of 
census data instead of school data include: (1) the area targeted for 
expansion is part of a rural area, where geographically large 
elementary school attendance areas may obscure localized pockets of 
poverty which can be identified through the use of census data; (2) 
school data show a target area to be close to the 50 percent threshold, 
and census data may reveal specific portions of the school's attendance 
area which meet the 50 percent criterion; or (3) mandatory bussing has 
affected the percentage of free or reduced price eligibles in 
neighborhood schools, and the school is unable to ``factor out'' the 
pupils bussed in from other areas and provide the sponsor with data on 
the percentage of free and reduced price eligibles in the area targeted 
for expansion. In any of these circumstances, use of census data may 
help a sponsor or State agency to more precisely ascertain a 
neighborhood's true current income poverty status.
    State CACFP administering agencies which also administer the SFSP 
are aware that the Department recently contracted with the Bureau of 
the Census for a ``special tabulation'' (or computerized list) of the 
number and percentage of children eligible for free or reduced price 
meals in every census ``block group'' in America. Census block groups 
are sub-units of census tracts. Census tracts vary in size from 2,500 
to 8,000 persons, with an average of approximately 4,000 persons per 
tract. Census block groups, on the other hand, are defined by housing 
units, numbering between 250 and 550 units, with an average of 400 
units (or roughly 900 persons) per block group.
    Because block groups generally include a relatively limited number 
of children, we believe that the information contained in the special 
tabulation will be an excellent tool for determining whether a target 
area is eligible for expansion funding. This may be especially true in 
rural areas, where pockets of poverty may be harder to identify in 
school attendance areas and census tracts which are geographically much 
larger than in urban areas. In order to facilitate implementation of 
the two-tier reimbursement system, State agencies are already required 
at section 226.6(f)(9) to provide sponsors with relevant census data.
    Accordingly, this interim rulemaking amends section 226.2 by adding 
a definition of ``low-income area'' which is based on paragraphs (b) 
and (c), definition of tier I day care home, in section 226.2.

2. Automatic Eligibility of Federally Funded Income Eligible Head Start 
Participants

    Section 109(b) of Pub. L. 103-448 amended section 17(c)(5) of the 
NSLA (42 U.S.C. 1766 (c)(5)) to make children who are enrolled in the 
Head Start Program automatically eligible for free meal benefits in the 
CACFP without further application or eligibility determination on the 
basis of Head Start's low-income criteria. Specifically, amended 
section 17(c)(5) of the NSLA states that a child shall be considered 
automatically eligible for benefits under the CACFP without further 
application or eligibility determination, if the child is ``enrolled as 
a participant in a Head Start program authorized under the Head Start 
Act (42 U.S.C. 9831 et seq.), on the basis of a determination that the 
child is a member of a family that meets the low-income criteria 
prescribed under section 645(a)(1)(A) of the Head Start Act (42 U.S.C. 
9840(a)(1)(A)).''
    The Head Start Program, administered by the U.S. Department of 
Health and Human Services, is a national grant program providing 
comprehensive child development services to low-income children and 
their families. The number of children (slots) which the Head Start 
grantee is to serve, as indicated on the grant award, is termed the 
``funded enrollment.'' Although many States fund additional Head Start 
slots in order to expand program access, these slots are not part of 
the Head Start Program authorized under the Head Start Act. Therefore, 
children in such State-funded slots are not covered by the above-
mentioned provision of Pub. L. 103-448 and are not automatically 
eligible for free meals in the CACFP.
    Head Start Program regulations (45 CFR 1305.4) require that at 
least 90 percent of the children who are enrolled in each Head Start 
Program must be from low-income families. That means

[[Page 9726]]

up to 10 percent of the children enrolled may be from families that 
exceed the low-income guidelines. A low-income family is defined in 45 
CFR 1305.2 as ``a family whose total annual income before taxes is 
equal to, or less than, the income guidelines. For the purposes of 
eligibility, a child from a family that is receiving public assistance 
or a child in foster care is eligible even if the family income exceeds 
the income guidelines.'' The term ``income guidelines,'' also defined 
in 45 CFR 1305.2, means 100 percent of the Federal poverty guidelines, 
which are adjusted for family size and to reflect annual changes in the 
Consumer Price Index.
    During the initial enrollment, applicant families must submit an 
application which provides income information. For income-eligible 
applicants, a Head Start employee signs a statement identifying the 
documents examined and stating that the child is income eligible to 
participate in the Program. If a child has been found income eligible 
and is participating in a Head Start Program, he or she remains income 
eligible through that enrollment year and the immediately succeeding 
enrollment year. Generally, each child enrolled in a Head Start program 
must be allowed to remain in Head Start until the child has entered 
kindergarten or first grade. However, 45 CFR 1305.7 does allow a Head 
Start Program to choose not to enroll a child where there are 
compelling reasons for the child not to remain in Head Start, such as 
when there is a change in the child's family income and there is a 
child with a greater need for Head Start services.
    The statutory language implementing this provision in the CACFP 
sets forth two conditions regarding automatic eligibility for free 
meals for Head Start participants. First, the child must be enrolled as 
a participant in the Head Start Program under the Head Start Act (i.e., 
the children must be in a Federally-funded slot as part of Head Start's 
``funded enrollment''). Under Head Start Program regulations (45 CFR 
1305.2), ``enrollment'' means the official acceptance of a family by a 
Head Start Program and the completion of all procedures necessary for a 
child and family to begin receiving services.
    Second, the child must be determined to be a member of a family 
that meets the low-income criteria prescribed under the Head Start Act. 
Such a determination is made by the Head Start grantee based on the 
low-income criteria specified in 45 CFR 1305.2 of the Head Start 
Program regulations (i.e., the household must be at or below 100 
percent of the Federal poverty guidelines or must be eligible due to 
receipt of public assistance or foster care). Children who participate 
in Head Start but who are not determined to be income eligible, or 
children who participate in a State-funded Head Start program, must 
submit a free and reduced price application and be determined eligible 
in order to receive free or reduced price CACFP meals.
    In order to minimize the paperwork burden associated with the 
automatic eligibility process, the Department has decided that the Head 
Start statement of income eligibility completed upon initial enrollment 
in the Head Start Program constitutes sufficient documentation of 
automatic eligibility for free CACFP meals for the period of time the 
child is enrolled as an income-eligible Head Start participant. If this 
documentation is readily available to the official(s) designated by the 
institution to determine eligibility for free CACFP meals, no further 
action is necessary.
    In those cases where the statement is not readily available, (e.g., 
``wrap around'' programs where the food service and the Head Start 
Program are administered by separate entities), the CACFP determining 
official must obtain documentation of the Head Start participants' 
income eligibility in order to confer automatic eligibility for free 
meals. Such documentation may simply consist of a list of the 
children's names and a statement certifying that those children are 
currently enrolled as participants in the Head Start Program based on a 
determination that they are from families that meet the low-income 
criteria prescribed under the Head Start Act. The documentation must 
also include the date and the signature of a Head Start employee 
authorized to provide the certification on behalf of the Head Start 
office. At the beginning of each year, the CACFP determining official 
must establish whether each child meets or continues to meet the 
conditions for automatic eligibility. Finally, the Head Start statement 
of income eligibility or, if applicable, the list of eligibles, are 
subject to the same record retention requirements as other CACFP 
records.
    Accordingly, this interim rulemaking amends section 226.2 by adding 
a new definition of ``Head Start participant'' and revising the 
definitions of ``documentation,'' ``free meal,'' and ``verification'' 
to grant Federally-funded income eligible Head Start participants 
automatic eligibility for free CACFP meals without further application 
or eligibility determination. To reflect the addition of these new 
definitions, this rulemaking also amends relevant parts of sections 
226.23(d) and 226.23(e)(1).

3. Administrative Funds for Licensing

    As previously discussed in this preamble, section 105(b)(1) of Pub. 
L. 101-147 amended section 17(f)(3)(C) of the NSLA (42 U.S.C. 
1766(f)(3)(C)) by providing expansion funds to family or group day care 
home sponsoring organizations to reimburse such institutions for 
administrative expenses related to expansion into low-income or rural 
areas. Section 116(c) of Pub. L. 103-448 further amended section 
17(f)(3)(C) of the NSLA by allowing funds for administrative expenses 
to be used by family or group day care home sponsoring organizations 
``to conduct outreach and recruitment to unlicensed family or group day 
care homes so that the day care homes may become licensed.'' (Note: 
Pub. L. 104-193 clarified the intent of this provision by deleting the 
words ``outreach and recruitment'', but left intact the authority for 
sponsors to use administrative funds to assist family day care homes in 
becoming licensed.) This amendment to the NSLA was designed to ensure 
that family and group day care homes desiring to participate in the 
CACFP are not denied access to the Program strictly because they lack 
the funds to comply with licensing standards.
    In the past, the Department has always viewed outreach and 
recruitment expenses as allowable administrative costs for the 
sponsoring organization; however, the costs of meeting licensing 
standards or of obtaining a license were viewed as an expense to the 
day care home. Section 17(f)(3)(C) now allows sponsoring organizations 
to use administrative, start-up, or expansion funds to assist family 
and group day care providers who cannot get licensed simply because 
they lack the funding to comply with licensing standards. For example, 
a sponsoring organization may wish to assist family day care homes 
which cannot be licensed or approved because they lack the funds to 
purchase smoke detectors. As with all proposed administrative costs, 
under this new provision, the sponsoring organization may request, in 
its administrative budget, line item approval for the cost of the smoke 
detectors or other items necessary for licensing, thereby assisting day 
care homes in becoming licensed and eligible to participate in the 
CACFP. Further guidance on this subject will be provided in an upcoming 
revision to FNS Instruction 796-2, ``Financial Management--Child and 
Adult Care Food Program.''
    Because Pub. L. 103-448 does not mandate that administrative funds 
be

[[Page 9727]]

limited to use by sponsoring organizations of family and group day care 
homes that are physically located in low-income or rural areas, regular 
administrative or start-up funds may be used for licensing-related 
expenses, regardless of where the home is located. However, section 
17(f)(3)(C)(i) of the NSLA specifically limits the use of expansion 
funds to administrative expenses in support of homes located in low-
income or rural areas. This would include the use of expansion funds 
for licensing-related expenses. The Department wants to stress that 
this amendment to the NSLA does not increase the sponsor's potential 
maximum total reimbursement levels; rather it authorizes a new 
allowable expense category for the use of administrative funds (i.e., 
regular administrative, start-up, and expansion funds).
    Although the law does not specifically mandate that administrative 
fund requests for licensing-related expenses be limited to use by 
family and group day care homes that are physically located in low-
income or rural areas, the Department believes that the law intended 
for these funds to be made available only to those providers who are 
financially in need. Therefore, we are requiring that providers 
applying to participate in the CACFP also complete a free and reduced 
price meal application when requesting administrative funds to cover 
license-related expenses in order to verify their eligibility for free 
or reduced price meals.
    Requiring that providers meet the income eligibility requirements 
for free and reduced price meals will ensure that public funds are 
targeted to providers most in need of financial assistance in meeting 
licensing standards and are not provided to individuals who have the 
financial means to comply with licensing requirements on their own. In 
addition, it will add very little burden for providers or sponsors, 
since providers must already demonstrate free or reduced price 
eligibility in order to receive reimbursement for meals served to their 
own children.
    The law itself places no dollar limit on the amount of 
administrative funds which may be spent on license-related expenses. 
However, the Department believes that it would be prudent to set a cap, 
or ceiling, on such expenses. Given the lack of assurance that a home-
based provider will remain in the child care business for a given 
length of time, the Department is establishing a $300 total limit per 
home on license-related expenses so that payments can be controlled.
    Examples of administrative expenses that the Department feels are 
reasonable under this provision and which could readily be purchased 
for less than $300, might include: (1) small items/equipment such as 
smoke detectors, fire extinguishers, etc.; (2) licensing fees and 
related expenses such as fingerprinting costs, the cost of health and 
fire inspections, etc.; or (3) minor repairs such as the installation 
of railings on a staircase to a basement where the day care operation 
is being conducted. The Department is particularly interested in 
receiving comments on whether this dollar limit (which is based on the 
Low-Income Family Day Care Home Demonstration Project Final Report, 
USDA, FNS, March 1993, which was designed to test various strategies 
intended to increase low-income day care home participation in the 
Program) will adequately protect against potential misuse of Federal 
funds. The sponsor must have documented receipts to support these 
administrative claims. Reimbursement may only be claimed for the actual 
cost incurred. In addition, consistent with normal Program practice, 
all claims under this provision must be submitted to the State agency 
for the fiscal year in which the expense is incurred.
    This new provision does not require day care home providers 
receiving administrative funds from a sponsoring organization to stay 
with the CACFP for any given period of time after receiving the funds. 
However, CACFP sponsoring organizations will have some assurance that 
day care home providers requesting these funds will join CACFP and 
their sponsorship since providers will be required to complete both a 
Program application through their sponsorship, and a free or reduced 
price application before receiving any funding support. In addition, in 
order to deter unnecessary requests, day care home providers must 
provide to the sponsoring organization evidence of their application 
for licensing and official documentation of the defects that are 
impeding their licensing approval. These documents will be kept on file 
in the sponsors office for later review by State Program staff and need 
not accompany the sponsor's administrative budget or request for budget 
adjustment. Finally, the Department wishes to emphasize that these 
funds may only be used to assist a provider to comply with licensing 
requirements. They may not be used for general remodeling or 
renovation.
    Accordingly, this interim rulemaking amends section 226.2 by 
revising the definitions of ``Administrative costs'' and ``Start-up 
payments'', and by adding a second sentence to the new definition of 
``Expansion payments'', to allow sponsoring organizations of family or 
group day care homes to use these funds for outreach and recruitment of 
unlicensed day care homes as specified above. This interim rulemaking 
also amends section 226.18(a) and adds a new section 226.16(k) to 
establish requirements for day care homes requesting administrative 
funds to cover license-related expenses.

List of Subjects in 7 CFR Part 226

    Day care, Food assistance programs, Grant programs--health, infants 
and children, Reporting and recordkeeping requirements, Surplus 
agricultural commodities.
    Accordingly, 7 CFR chapter II and part 226 are amended as follows:

Chapter II-Food and Nutrition Service, Department of Agriculture

    1. The heading of 7 CFR chapter II is revised to read as set forth 
above.

Chapter II--[Amended]

    2. In 7 CFR chapter II (consisting of parts 210 through 299) all 
references to ``Food and Consumer Service'' are revised to read ``Food 
and Nutrition Service'' and all references to ``FCS'' are revised to 
read ``FNS''.

PART 226--CHILD AND ADULT CARE FOOD PROGRAM

    3. The authority citation for Part 226 continues to read as 
follows:

    Authority: Secs. 9, 11, 14, 16, and 17, National School Lunch 
Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 1765 and 1766).

    4. In section 226.2:
    a. New definitions of Expansion payments, Head Start participant, 
Low-income area, and Rural area are added in alphabetical order.
    b. The definitions of Administrative costs and Start-up payments 
are amended by adding a new sentence to the end of each paragraph.
    c. The definition of Documentation is amended by removing the 
period at the end of paragraph (d)(2), adding the word ``;or'', and 
adding new paragraph (e).
    d. The definition of Free meal is amended by revising the first 
sentence.
    e. The definition of Program payments is amended by adding the 
words ``expansion payments,'' between the words ``payments,'' and 
``advance''.
    f. The definition of Verification is amended by revising all text 
after the third sentence.
    The additions and revisions specified above read as follows:

[[Page 9728]]

Sec. 226.2  Definitions.

* * * * *
    Administrative costs * * * These administrative costs may include 
administrative expenses associated with outreach and recruitment of 
unlicensed family or group day care homes and the allowable licensing-
related expenses of such homes.
* * * * *
    Documentation * * *
    (e) For a child who is a Head Start participant, the Head Start 
statement of income eligibility issued upon initial enrollment in the 
Head Start Program or, if such statement is unavailable, other 
documentation from Head Start officials that the child's family meets 
the Head Start Program's low-income criteria.
* * * * *
    Expansion payments means financial assistance made available to a 
sponsoring organization for its administrative expenses associated with 
expanding a food service program to day care homes located in low-
income or rural areas. These expansion payments may include 
administrative expenses associated with outreach and recruitment of 
unlicensed family or group day care homes and the allowable licensing-
related expenses of such homes.
* * * * *
    Free meal means a meal served under the Program to a participant 
from a family which meets the income standards for free school meals; 
or to a child who is automatically eligible for free meals by virtue of 
food stamp, FDPIR, or AFDC recipiency; or to a child who is a Head 
Start participant; or to an adult participant who is automatically 
eligible for free meals by virtue of food stamp or FDPIR recipiency or 
is a SSI or Medicaid participant. * * *
* * * * *
    Head Start participant means a child currently receiving assistance 
under a Federally-funded Head Start Program who is categorically 
eligible for free meals in the CACFP by virtue of meeting Head Start's 
low-income criteria.
* * * * *
    Low-income area means a geographical area in which at least 50 
percent of the children are eligible for free or reduced price school 
meals under the National School Lunch Program and the School Breakfast 
Program, as determined in accordance with paragraphs (b) and (c), 
definition of tier I day care home.
* * * * *
    Rural area means any geographical area in a county which is not a 
part of a Metropolitan Statistical Area or any ``pocket'' within a 
Metropolitan Statistical Area which, at the option of the State agency 
and with FNSRO concurrence, is determined to be geographically isolated 
from urban areas.
* * * * *
    Start-up payments * * * These start-up payments may include 
administrative expenses associated with outreach and recruitment of 
unlicensed family or group day care homes and the allowable licensing-
related expenses of such homes.
* * * * *
    Verification * * * However, if a food stamp, FDPIR or AFDC case 
number is provided for a child, verification for such child shall 
include only confirmation that the child is included in a currently 
certified food stamp or FDPIR household or AFDC assistance unit. If a 
Head Start statement of income eligibility is provided for a child, 
verification for such child shall include only confirmation that the 
child is a Head Start participant. For an adult participant, if a food 
stamp or FDPIR case number or SSI or Medicaid assistance identification 
number is provided, verification for such participant shall include 
only confirmation that the participant is included in a currently 
certified food stamp or FDPIR household or is a current SSI or Medicaid 
participant.
* * * * *
    5. In section 226.4:
    a. Paragraph (e) is amended by adding the words ``and expansion'' 
after the word ``start-up'' in the paragraph heading and each time it 
appears in the text.
    b. Paragraph (f) is amended by adding the word ``, expansion'' 
between the words ``start-up'' and ``and''.
    6. In section 226.6:
    a. Paragraph (c)(3) is amended by adding the words ``or expansion'' 
between the words ``start-up'' and ``payments''.
    b. Introductory text of (k) is amended by adding the words ``or 
expansion'' between the words ``start-up'' and ``payments'' in the 
first sentence.
    7. In section 226.7:
    a. Paragraph (h) is amended by adding the words ``and expansion'' 
after the word ``start-up'' in the paragraph heading and text.
    b. Paragraph (j) is amended by adding the word ``, expansion'' 
between the words ``start-up'' and ``and''.
    8. In section 226.12:
    a. Paragraph (a) is amended by adding the heading ``General.'' 
before the first sentence.
    b. Paragraphs (b) through (e) are removed and a new paragraph (b) 
is added to read as follows:


Sec. 226.12  Administrative payments to sponsoring organizations for 
day care homes.

* * * * *
    (b) Start-up and expansion payments. (1) Prospective sponsoring 
organizations of day care homes, participating sponsoring organizations 
of child care centers or outside-school-hours care centers, independent 
centers, and participating sponsoring organizations of less than 50 
homes which meet the criteria in paragraph (b)(2) of this section shall 
be entitled to receive start-up payments to develop or expand 
successful Program operations in day care homes. Participating 
sponsoring organizations of day care homes which meet the criteria in 
paragraph (b)(2) of this section shall be entitled to receive expansion 
payments to initiate or expand Program operations in day care homes in 
low-income or rural areas. The State agency shall approve start-up 
payments only once for any eligible sponsoring organization, but may 
approve expansion payments for any eligible sponsoring organization 
more than once, provided that: the request must be for expansion into 
an area(s) other than that specified in their initial or prior request; 
and 12 months has elapsed since the sponsoring organization has 
satisfied all obligations under its initial or prior expansion 
agreement. Eligible sponsoring organizations which have received start-
up payments shall be eligible to apply for expansion payments at a date 
no earlier than 12 months after it has satisfied all its obligations 
under its start-up agreement with the State agency.
    (2) Sponsoring organizations which apply for start-up or expansion 
payments shall evidence:
    (i) Public or tax-exempt status, or moving toward compliance with 
the requirements for IRS tax-exempt status, in accordance with 
Sec. 226.15(a);
    (ii) An organizational history of managing funds and ongoing 
activities (i.e., administering public or private programs);
    (iii) An acceptable and realistic plan for recruiting day care 
homes to participate in the Program (such as the method of contacting 
providers), which may be based on estimates of the number of day care 
homes to be recruited and information supporting their existence, and 
in the case of

[[Page 9729]]

sponsoring organizations applying for expansion payments, documentation 
that the day care homes to be recruited are located in low-income or 
rural areas; and
    (iv) An acceptable preliminary sponsoring organization management 
plan including, but not limited to, plans for preoperational visits and 
training.
    (3) The State agency shall deny start-up and expansion payments to 
applicant sponsoring organizations which fail to meet the criteria of 
paragraph (b)(2) of this section or which have not been financially 
responsible in the operation of other programs funded by Federal, 
State, or local governments. The State agency shall notify the 
sponsoring organization of the reasons for denial and allow the 
sponsoring organization full opportunity to submit evidence on appeal 
as provided for in Sec. 226.6(k). Any sponsoring organization applying 
for start-up or expansion funds shall be notified of approval or 
disapproval by the State agency in writing within 30 calendar days of 
filing a complete and correct application. If a sponsoring organization 
submits an incomplete application, the State agency shall notify the 
sponsoring organization within 15 calendar days of receipt of the 
application and shall provide technical assistance, if necessary, to 
the sponsoring organization for the purpose of completing its 
application.
    (4) Sponsoring organizations which apply for and meet the criteria 
for start-up or expansion payments shall enter into an agreement with 
the State agency. The agreement shall specify:
    (i) Activities which the sponsoring organization will undertake to 
initiate or expand Program operations in day care homes;
    (ii) The amount of start-up or expansion payments to be issued to 
the sponsoring organization, together with an administrative budget 
detailing the costs which the sponsoring organization shall incur, 
document, and claim;
    (iii) The time allotted to the sponsoring organization for the 
initiation or expansion of Program operations in family day care homes;
    (iv) The responsibility of the applicant sponsoring organization to 
repay, upon demand by the State agency, start-up or expansion payments 
not expended in accordance with the agreement.
    (5) Upon execution of the agreement, the State agency shall issue a 
start-up or expansion payment to the sponsoring organization in an 
amount equal to not less than one, but not more than two month's 
anticipated administrative reimbursement to the sponsoring organization 
as determined by the State agency. However, no sponsoring organization 
may receive start-up or expansion payments for more than 50 day care 
homes. Eligible sponsoring organizations with fewer than 50 homes under 
their jurisdiction at the time of application for start-up payments may 
receive such payments for up to 50 homes, less the number of homes 
under their jurisdiction. Eligible sponsoring organizations applying 
for expansion funds may receive at a maximum such payments for up to 50 
homes at the currently assigned administrative payment for the first 50 
homes. In determining the amount of start-up or expansion payments to 
be made to a sponsoring organization, the State agency shall consider 
the anticipated level of start-up or expansion costs to be incurred by 
the sponsoring organization and alternate sources of funds available to 
the sponsoring organization.
    (6) Upon expiration of the time allotted to the sponsoring 
organization for initiating or expanding Program operations in day care 
homes, the State agency shall obtain and review documentation of 
activities performed and costs incurred by the sponsoring organization 
under the terms of the start-up or expansion agreement. If the 
sponsoring organization has not made every reasonable effort to carry 
out the activities specified in the agreement, the State agency shall 
demand repayment of all or part of the payment. The sponsoring 
organization may retain start-up or expansion payments for all day care 
homes which initiate Program operations. However, no sponsoring 
organization may retain any start-up or expansion payments in excess of 
its actual costs for the expenditures specified in the agreement.
    9. In section 226.16, a new paragraph (k) is added to read as 
follows:


Sec. 226.16  Sponsoring organization provisions.

* * * * *
    (k) Before sponsoring organizations expend administrative funds to 
assist family day care homes in becoming licensed, they shall obtain 
the following information from each such home: a completed free and 
reduced price application which documents that the provider meets the 
Program's income standards; evidence of its application for licensing 
and official documentation of the defects that are impeding its 
licensing approval; and a completed CACFP application. These funding 
requests are limited to $300 per home and are only available to each 
home once.
    10. In section 226.17, paragraph (b)(7) is amended by adding a new 
sentence at the end of the paragraph to read as follows:


Sec. 226.17  Child care center provisions.

* * * * *
    (b) * * *
    (7) * * * In addition, Head Start participants need only have a 
Head Start statement of income eligibility, or a statement of Head 
Start enrollment from an authorized Head Start representative, to be 
eligible for free meal benefits under the CACFP.
* * * * *
    11. In section 226.18, the introductory text of paragraph (a) is 
revised to read as follows:


Sec. 226.18  Day care home provisions.

    (a) Day care homes shall have current Federal, State or local 
licensing or approval to provide day care services to children. Day 
care homes which cannot obtain their license because they lack the 
funding to comply with licensing standards may request a total limit 
per home of $300 in administrative funds from a sponsoring organization 
to assist them in obtaining their license. Day care homes that, at the 
option of their sponsoring organization, receive administrative funds 
for licensing-related expenses must complete documentation requested by 
their sponsor as described in Sec. 226.16(k) prior to receiving any 
funds. Day care homes which are complying with applicable procedures to 
renew licensing or approval may participate in the Program during the 
renewal process, unless the State agency has information which 
indicates that renewal will be denied. If licensing or approval is not 
available, a day care home may participate in the Program if:
* * * * *
    12. In Section 226.23:
    a. Paragraph (d) is amended by revising the fifth sentence.
    b. Paragraph (e)(1)(i) is amended by adding a new sentence to the 
end of the paragraph.
    c. Paragraph (e)(1)(ii)(F) is amended by revising the first and 
fifth sentences.
    The addition and revisions specified above read as follows:


Sec. 226.23  Free and reduced price meals.

* * * * *
    (d) * * * The release issued by child care institutions shall also 
announce that children who are members of AFDC assistance units, food 
stamp or FDPIR households, or are Head Start participants are 
automatically eligible to receive free meal benefits. * * *
    (e)(1) * * *
    (i) * * * Furthermore, such forms and materials distributed by 
child care

[[Page 9730]]

institutions shall state that if a child is a Head Start participant, 
the child is automatically eligible to receive free Program meal 
benefits, subject to submission by Head Start officials of a Head Start 
statement of income eligibility or income eligibility documentation.
    (ii) * * *
    (F) A statement which includes substantially the following 
information: ``Section 9 of the National School Lunch Act requires 
that, unless you provide a food stamp, FDPIR or AFDC case number for 
your child, or unless a Head Start statement of income eligibility or 
income eligibility verification is provided for your child, you must 
provide the social security numbers of all adult members of your 
household in order for your child to be eligible for free or reduced 
price meals.'' * * * These verification efforts may be carried out 
through program reviews, audits, and investigations and may include 
contacting employers to determine income, contacting a food stamp, 
Indian tribal organization, welfare, or Head Start office to determine 
current certification for receipt of food stamps, FDPIR or AFDC 
benefits, or participation in Head Start, contacting the State 
employment security office to determine the amount of benefits 
received, and checking the documentation produced by household members 
to prove the amount of income received. * * *
* * * * *
    Dated: February 13, 1998.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 98-4949 Filed 2-25-98; 8:45 am]
BILLING CODE 3410-30-P