Federal Register, Volume 63 Issue 142 (Friday, July 24, 1998)

[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Rules and Regulations]
[Pages 39936-39998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19418]

[[Page 39935]]

_______________________________________________________________________

Part II

Department of Health and Human Services

_______________________________________________________________________

Administration For Children and Families

_______________________________________________________________________

45 CFR Parts 98 and 99

Child Care and Development Fund; Final Rule

Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Rules
and Regulations

[[Page 39936]]

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: Final rule.

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

SUMMARY: This final rule implements the child care provisions of the
Personal Responsibility and Work Opportunity Reconciliation Act
(PRWORA) of 1996 (Pub. L. 104-193) and incorporates technical
corrections to PRWORA made by the Balanced Budget Act of 1997 (Pub.L.
105-33). PRWORA appropriates new entitlement child care funds under
section 418 of the Social Security Act and requires that these new
Federal child care funds be subject to the Child Care and Development
Block Grant (CCDBG) Act. The CCDBG program which was created under the
original CCDBG Act is a discretionary fund program. PRWORA also
reauthorized the CCDBG Act. As PRWORA requires that these child care
funds be administered as a unified program, the Administration for
Children and Families has named the combined funds the Child Care and
Development Fund (CCDF). Parts 98 and 99 are the official regulations
for the Child Care and Development Fund.

EFFECTIVE DATE: August 24, 1998.

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
entitlement Federal child care funds and transferred 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.
The new statutory provisions, therefore, unified what was a
fragmented child care subsidy system. The combined and increased
funding becomes part of a holistic and streamlined system for child
care. The integrated entitlement and discretionary child care funding
has a single, unified purpose. The Department of Health and Human
Services has named the combined funds the Child Care and Development
Fund (CCDF), to reflect this integration of multiple funding sources.
The Department uses the CCDF terminology when corresponding with
grantees and the child care field.

Goals and Purpose of the Rule

The primary goals of this rule are 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.

The major regulatory decisions were made to assure States have
adequate information upon which to base their child care payments;
promote public involvement in the Plan process; strengthen health and
safety in child care by requiring children receiving CCDF subsidies to
be age-appropriately immunized; require coordination between child care
Lead Agencies and agencies administering TANF, health, education and
employment programs; streamline the CCDF application and Plan; and
provide clarifications based on experience operating both the CCDBG
program and the now-repealed title IV-A programs.
We received relatively few comments during the comment period--only
some 160 organizations and individuals made approximately 500 comments,
many of which were duplicative. The content of the comments lead us to
believe that we achieved our goal of reaching balance among viewpoints.
We made only a few changes as a result of comments to adjust the
balance among goals. Of the substantive changes made, we require the
Lead Agency to make available to the public, in advance of the public
hearing, the plan it proposes to submit to the Secretary. We require
the Lead Agency to provide consumer education information to parents
and the general public about health and safety requirements and about
the full range of providers available to families. We clarified that an
independent audit of a Lead Agency shall be conducted by a State agency
that meets the generally accepted government auditing standards or by a
public accountant who meets the independence standards contained
therein. We added provisions regarding tribal consortia in Sec. 98.83.
We also added or revised provisions regarding tribal construction at
Sec. 98.84 including a requirement regarding the amount a tribe new to
the CCDF may spend on construction and a provision regarding treatment
of construction planning costs.
We made other changes to conform to the technical amendments to
PRWORA by Pub. L. 105-33, The Balanced Budget Act of 1997, primarily in
Sec. 98.70 and 98.71. Based on comments, we also made other minor
changes to clarify proposed language or codify policy contained in the
preamble of the 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 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 regulations implement specific requirements
under PRWORA.
We are requiring that children be age-appropriately immunized in
order to receive services under the Child Care and Development Fund. As
most States already include immunizations in their child care standards
and provide religious and medical exemptions from immunizations, we do
not anticipate that this rule 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),

[[Page 39937]]

provides immunizations to eligible children, including those without
insurance coverage, those eligible for Medicaid, and American Indians
and Alaska 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 most recent 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 this regulation 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.
The rule contains a number of provisions that could result in some
decrease in the regulatory and economic burdens on providers that are
small businesses. 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.
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
is a substantial need for additional requirements (to protect the well-
being of children in care), we expect 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 rule 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 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.
For these reasons, we certify that this rule will not have a
significant economic effect on a substantial number of small entities,
and that a Regulatory Flexibility Analysis is not required.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that a covered agency prepare a budgetary impact statement before
promulgating a rule that includes any Federal mandate that may result
in the expenditure by State, local, and Tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year.
We have determined that this final rule will not impose a mandate
that will result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. Accordingly, we have not prepared a
budgetary impact statement, specifically addressed the regulatory
alternatives considered, or prepared a plan for informing and advising
any significantly or uniquely impacted small governments.

Congressional Review of Regulations

This final rule is not a ``major'' rule as defined in Chapter 8 of
5 U.S.C.

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 submitted these sections to the Office of Management and
Budget (OMB) for its review. The Pre-Prints, ACF-118 and ACF-118-A,
have been approved by OMB--OMB Number 0970-0114, expires 5/31/2000. The
OMB also approved both data collection forms, the ACF-800 (OMB Number
0970-0150, expires 3/31/2000) and the ACF-801 (OMB Number 0970-0167,
expires 11/30/2000).
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.

Annual Burden Estimates
----------------------------------------------------------------------------------------------------------------
Number of Average burden
Instrument Number of responses per hours per Total burden
respondents respondent response hours
----------------------------------------------------------------------------------------------------------------
ACF-118......................................... 56 .5 30 840
ACF-118a........................................ 243 .5 30 3,645
----------------------------------------------------------------------------------------------------------------

Estimated Total Annual Burden Hours: 4,485.

[[Page 39938]]

Title: Child Care Annual 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: States, the District of Columbia, American Samoa,
Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin
Islands.

Annual Burden Estimates
----------------------------------------------------------------------------------------------------------------
Number of Average burden
Instrument Number of responses per hours per Total burden
respondents respondent response hours
----------------------------------------------------------------------------------------------------------------
ACF-800......................................... 56 1 40 2,240
----------------------------------------------------------------------------------------------------------------

Estimated Total Annual Burden Hours: 2,240.
Title: Child Care Quarterly Case Level 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. States are allowed to submit the data
monthly if they choose to do so. 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 provided
respondents sampling specifications which specify a minimum sample size
of approximately 200 cases. States are allowed to submit their total
monthly population.
Respondents: States, the District of Columbia, American Samoa,
Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin
Islands.

Annual Burden Estimates
----------------------------------------------------------------------------------------------------------------
Number of Average burden
Instrument Number of responses per hours per Total burden
respondents respondent response hours
----------------------------------------------------------------------------------------------------------------
ACF-801......................................... 56 4 20 4,360
----------------------------------------------------------------------------------------------------------------

Estimated Total Annual Burden Hours: 4,360.
The Administration for Children and Families considered comments by
the public on evaluating whether the proposed collections are necessary
for the proper performance of the functions of ACF, including whether
the information will have practical utility. Comments regarding
specific items are discussed in the preamble. The quality, usefulness
and clarity of the information to be collected will be enhanced by the
technical assistance provided and the regional meetings that ACF has
convened.

Amended Regulations, 45 CFR Part 98

We have chosen to present 45 CFR Part 98 as an amended whole. 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. 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) and (nn).
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.

----------------------------------------------------------------------------------------------------------------
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).

[[Page 39939]]

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.................. Introductory.
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........... Introductory.
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.
98.32............................... Revised................ 98.32.
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).
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)............................ Redesignated, Revised.. 98.60(g).
98.60(i-j).......................... Redesignated........... 98.60(h-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, Revised.. 98.64(b).
Added.................. 98.63(a-c).
98.64(a-d).......................... Removed. .................................................
Added.................. 98.64(a), (c) and (d).
98.65(a)............................ Revised................ 98.65(a).
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.................. Revised................ 98.80.
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.................. Revised................ 98.82 Introductory.
98.83(c-f).......................... Revised................ 98.83(c-f).
98.83(g) and (h).................... Removed. .................................................

[[Page 39940]]

98.83(i)............................ Redesignated, Revised.. 98.83(g).
Added.................. 98.83(h).
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 includes at Sec. 98.1(a) the goals
for the Child Care and Development Fund (CCDF) contained in section
658A of the amended CCDBG Act.
Comment: Two commenters suggested the goals include a requirement
for parental choice rather than the reference to a promotion of
parental choice.
Response: The goal at Sec. 98.1(a)(2) uses the language of section
658A of the amended CCDBG Act which is ``to promote parental choice.''
This goal is operationalized by other requirements. Lead Agencies which
opt to provide care through grants and contracts in the state child
care program are also required to provide certificates to parents
seeking child care. Additionally, Lead Agencies are to 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.
Comment: Two commenters suggested goal one include a reference to
planning functions as well as program and policy functions.
Response: Goal one is stated in the statute as ``to allow each
State maximum flexibility in developing child care programs and
policies that best suit the needs of children and parents within such
State.'' Although we agree with the commenter on the importance of
planning, we believe the goal at Sec. 98.1(c)(4) of this regulation
already discusses planning for delivery of services. Furthermore, the
discussion at Sec. 98.14 reflects our belief in the importance of the
planning function in the administration of the CCDF within a State.
Comment: One commenter suggested goal five be altered to reflect
that health, safety, licensing and regulations standards are
established by state law and regulations.
Response: Goal five of the statute already states ``to assist
States in implementing the health, safety, licensing and registration
standards established in State regulations.''
Comment: One commenter cited one of the stated purposes of the CCDF
is to increase quality of child care services. This commenter believed
this term should be defined through reference to specific standards of
quality, such as the National Association for the Education of Young
Children (NAEYC) accreditation standards.
Response: We have chosen to not define quality child care in these
regulations beyond the language found in section 658G of the Act.
Definitions (Section 98.2)
We adopted the following changes for this section: an updated
definition of the Child Care and Development Block Grant Act; an
amended definition of a child care certificate reflecting its use as a
required deposit for child care services; and an amended definition of
relative child care provider which includes great grandparents and
siblings (if living in a separate residence) as relative providers.
We substituted the term ``Child Care and Development Fund (CCDF)''
for ``Block Grant'' and also defined the constituent parts of the CCDF:
Mandatory Funds, Matching Funds, Discretionary Funds, and Tribal
Mandatory Funds.
In light of the new section 6580(c)(6) of the Act which allows
Tribes to use CCDF funds for construction and renovation of child care
facilities, we also adopted these terms: construction, facility, major
renovation, modular unit, and real property.
As proposed, 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, with ``Lead Agency'' throughout these regulations,
although there remain some instances where the word ``grantee'' appears
in its common usage. In these final regulations, we also corrected the
definition of Lead Agency to include all parts of the definition of
grantee which were inadvertently omitted in the proposed rule.
Comment: Some commenters on this section questioned definitions for
which no changes had been proposed. For example, commenters questioned
the distinction between a ``child care provider that receives
assistance'' and an ``eligible child care provider'' as well as why the
definitions for various providers were based on the location of the
care provided (e.g., in-home care) rather than the nature of the care
(e.g., formal vs. informal), or was based on the number of providers
present (e.g., group home child care provider).
Response: Because no changes were proposed for the terms questioned
by the commenters, we refer them to the preamble discussion for those
terms in the final rule of August 4, 1992. We believe that explanation,
found at 57 FR 34359, adequately addresses their specific concerns. Our
position, like the definitions themselves, remains unchanged.
Comment: One commenter wanted us to clarify that minor remodeling,
within the limits set forth in the Act, does not fall under the
definition of major renovation.
Response: Section 98.54(b)(1) provides that States and others may
use CCDF funds for minor remodeling. But, rather than create a separate
definition for minor remodeling, State Lead Agencies may assume that an
improvement or upgrade to a facility which is not specified under the
definition of major renovation adopted in this rule may, by default, be
considered a minor renovation and,

[[Page 39941]]

therefore, is allowable under the Act. Lead Agencies are cautioned of
the distinctions at Sec. 98.54(b)(1) and Sec. 98.54(b)(2) between minor
renovations that are permissible for sectarian organizations and those
that are permissible for others.
Comment: Another commenter wanted us to define ``deposit'' as used
in the definition of child care certificate and suggested several
components of a definition.
Response: Our definition mirrors the language of the Act. We
believe that the phrase ``if * * * required of other children'' is
sufficiently limiting of the common usage of the word ``deposit'' as to
make the other definitions suggested by the commenter unnecessary.
Comment: One commenter asked that we expand the definition of
certificate to include electronic transfers using an ATM machine, for
example, suggesting that recordkeeping could be simplified and payments
to providers made more promptly.
Response: It is not necessary to change the definition as
suggested. The definition already recognizes that a certificate need
not be a check, but could be an unspecified ``other disbursement''.
Electronic transfers may be considered child care certificates if they
meet the requirements of Sec. 98.30(c), i.e., issued directly to the
parent, of a value commensurate with the subsidy value of other child
care services offered by the Lead Agency, etc.
Comment: A commenter asked that the definition of a certificate be
broadened to include a check issued in the name of both the parent and
the provider, regardless of whether it is sent directly to the parent
or provider.
Response: It is unclear why this change was suggested. A check (or
other disbursement) issued in the name of both the parent and the
provider would meet the existing definition. The critical element is
that parents can use such a disbursement with any child care provider
they choose. If the commenter is suggesting that the parent be limited
to only the named provider(s), which the parent may not have chosen,
then it is not a ``certificate'' within the meaning of the Act.
Comment: One commenter observed that we had not proposed a
definition of ``special needs child''.
Response: The Lead Agency has complete flexibility to define this
term. It should be noted that the Lead Agency may define the term
differently for purposes of prioritizing under Sec. 98.44(b) from the
definition it uses for purposes of payment rates as discussed at
Sec. 98.43. The use of the term is unchanged since the 1992 rule and we
are unaware of the need to regulate a definition for ``special needs
child'' now.
Comment: One commenter thought that our definitions somehow limited
``informal'' care to only that care provided in the child's own home
(i.e., in-home care) and that this reduced needed Lead Agency
flexibility as well as limited a family's options.
Response: We assume that the commenter understood the regulations
to allow unregulated care only if it is provided in the child's own
home. There is no such restriction in these regulations, nor has there
been such a restriction in the past. Any child care that is legal in a
jurisdiction, including care that the jurisdiction chooses not to
regulate, is an option available under the Act, provided the
requirements designed to protect the health and safety of the child are
also met.
Comment: One commenter observed that the definition of relative is
too narrow and that it would exclude some relatives as defined in some
Native American cultures, for example, the ``hanai'' system in Hawaii,
where family is informally ``adopted'' or related.
Response: Any relative who meets applicable state and local
requirements, if any, may provide care, not just those listed in our
definition. The definition is statutory and is provided solely for the
purpose of identifying those relatives who may be exempted--but, only
if the Lead Agency chooses to exempt them--from the health and safety
requirements at Sec. 98.41. The definition was not created to limit who
may provide care.
Comment: Finally, a commenter noted that a definition for ``tribal
organization'' was no longer included in this section.
Response: The PRWORA amendments broadened the definition of
``tribal organization'' to include the following ``other
organizations'': (1) A Native Hawaiian organization; and (2) a private
nonprofit organization established for the purpose of serving youth who
are Indian or Native Hawaiian. However, the ``other organizations'' may
only receive Discretionary Funds. Therefore, since not all tribal
``organizations'' are eligible to receive both parts of the CCDF
(Discretionary Funds and Tribal Mandatory Funds), we initially decided
to omit this definition entirely from this section and specifically
define the new terms for ``other tribal organizations'' in the Preamble
at Sec. 98.61(c). The definition for tribal organization has been
placed back in this section. This is the same definition used in the
prior final rule (57 FR 34415, August 4, 1992). Since the ``other
tribal organizations'' may only be funded with Discretionary Funds,
they are defined and discussed in the Preamble at Subpart G, Section
98.61(c).

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.
Comment: One Lead Agency asked whether the ability to administer
the program through other non-governmental agencies meant that the
State child care advisory council could have a stronger role in setting
standards.
Response: The regulations have never limited Lead Agencies from
including others in the creation of child care policy or the setting of
State standards for child care. However, Sec. 98.11(b)(2) and (8)
provide that the Lead Agency shall continue to promulgate rules and
regulations governing the overall administration of the program and
that all agencies and contractors that determine individual eligibility
shall do so according to the rules established by the Lead Agency.
The change in the regulation is to allow entities other than the
Lead Agency to administer the day-to-day operation of the program.
Comment: Another Lead Agency asked us to delete the requirement at
Sec. 98.10(c) which requires consultation with local governments.
Barring that, they asked for definitions of ``appropriate
representative'' and ``local government''.
Response: Congress created the requirement for the Lead Agency to
``consult with appropriate representatives of units of general purpose
local government'' at section 658D of the Act, and hence it can not

[[Page 39942]]

be deleted. As States and localities differ greatly in their
governmental structures, we believe it is inappropriate to attempt to
offer all-encompassing definitions for these terms. A Lead Agency may
wish to consult its legal counsel if it is unable to determine whom it
should consult with to meet this statutory requirement.
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.
Comment: One commenter wanted us to delete the requirement at
Sec. 98.11(b)(2) requiring the Lead Agency to ``Promulgate all rules
and regulations governing overall administration of the Plan''
contending that when the CCDF is administered through other entities it
should be up to the other agency to promulgate the rules for that part
which it is administering.
Response: We do not agree that this provision should be deleted.
The Lead Agency is ultimately responsible for the program irrespective
of who administers the day-to-day operations. And, it is the Lead
Agency against whom penalties will be assessed even if caused by
actions of a subgrantee. It is because we hold the Lead Agency
accountable that the provisions in Sec. 98.11 exist.
The requirement for the Lead Agency to promulgate rules does not
preclude subgrantees from suggesting, or even creating the policy and
procedures by which the program or a part of the program operates.
However, those policies and procedures must be issued under the
auspices (i.e., promulgated) of the Lead Agency to ensure that they
conform with the requirements of the Act and regulations, and the
program described by the Lead Agency in the Plan it submits to ACF.
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. The regulation
at Sec. 98.12(a) also requires 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. 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 guaranteed Transitional Child Care
assistance were eliminated when PRWORA repealed the title IV-A child
care programs.
Moreover, PRWORA provides new child care funding. It gives the CCDF
Lead Agency administrative oversight over both the new funds and 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 that receive assistance
under a State program under Part A of title IV of the Social Security
Act, families that attempt through work activities to transition from
such assistance, and families that are at risk of becoming eligible for
such assistance. Under the new law, Tribes also receive additional
child care funds 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 under the newly created Native Employment Works program
(NEWP). 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 are
linked to a system of continuous and accessible health care services.
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 the mutually beneficial roles, we 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 between child care and health services.
Employment is the goal for most TANF families and employment
services are critical to the low-income working families served by the
CCDF. Therefore, 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 undertake policies that
support and encourage public-private partnerships that promote high
quality child care.
Linkages with education agencies are crucial to leverage additional
services and enhance 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 budget for fiscal years
1997 and 1998 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 requiring Lead Agency coordination with specific
entities discussed above, we also 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

[[Page 39943]]

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. 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 nodes 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 (NEWP)--if
the Tribe operated a JOBS program in 1994. 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.
Comment: A few commenters thought that our coordination requirement
was statutorily unfounded or unnecessary because it may fail to include
the most critical partnerships.
Response: It seems unlikely that a CCDF program could successfully
meet two of the goals of the Act--providing child care to parents
trying to achieve independence from public assistance, and assisting
States in implementing State health, safety and licensing standards--
without involving, at a minimum, the additional agencies added at
Sec. 98.14 in this rule. In fact, since the inception of the program,
we have been told by Lead Agencies and the public that coordination
with Federal, State, and local child care and early childhood
development programs, and the four additional agencies listed is
critical to the ongoing successful delivery of quality child care in a
State. This requirement recognizes that the coordinative process helps
maximize existing resources and avoid duplicative efforts which can
result in more positive outcomes for the families and children served
by all of the programs involved.
Comment: A number of commenters suggested other agencies with which
the Lead Agency should be required to coordinate, for example,
representatives of the American Academy of Pediatrics, the National
Association for the Education of Young Children, the State special
education preschool program administrator, the early intervention lead
agency, and the child welfare agency, among others.
Response: Many Lead Agencies already collaborate with some or all
of the agencies suggested and we encourage others to do so as well.
However, we do not believe it is prudent to expand the coordination
requirement at Sec. 98.14 to include those entities with whom many Lead
Agencies are already voluntarily collaborating. We kept our required
list to a critical core of agencies. This is not intended to diminish
the importance of other collaboration efforts. It would not be
reasonable to create an all-inclusive list of potential collaborative
agencies. We have confined the regulations to the core required
collaboration.
Comment: Several commenters asked if our intention was to limit
coordination only to governmental entities. In this regard, others
asked that the reference to the public education agency be expanded to
specifically include private and sectarian schools and early education
programs.
Response: Our requirement recognizes that the impact for the
greatest number of families is likely achieved by coordination at the
State level. The regulation attempts to maximize the coordination by
including those agencies whose activities impact most of the eligible
or potentially eligible families in a State. It is not our intention,
however, to limit coordination to only governmental entities. And, we
encourage Lead Agencies to coordinate with private and sectarian
schools and early education programs, especially since such
institutions and programs are already utilized by many families.
Comment: One commenter thought that use of the phrase ``at a
minimum'' in Sec. 98.14(a) weakens the intent of broader coordination
with additional entities.
Response: We agree and have reworded the regulation.
Applying for Funds (Section 98.13)
The requirements for Tribes applying for funds 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.
We simplified the application process for States and Territories in
order to reduce the administrative burdens of duplicative information
requests and to

[[Page 39944]]

provide budget information in the CCDF Plan, which is a public
document. Heretofore, the regulations required an annual
``application,'' separate from the Plan. This separate application
indicated 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. In the past, the Plan did 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. At Sec. 98.13(a) we have retained the requirement that the
Lead Agency apply for funds. The ACF-696 is the formal vehicle for
providing estimates to ACF for the purpose of awarding funds. We intend
to use the financial form ACF-696 to fulfill this requirement, so that
the need for a separate application is obviated.
The 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.
Comment: One commenter objected to the use of estimates thinking
that the form for formally requesting funds from DHHS, which replaces
the application process, was at least two years from being utilized.
Response: That form, the ACF-696, was under OMB review when the
proposed rule was published and has since been approved and is already
in use.
Comment: Although our proposal to restructure the application
process received almost universal support, some commenters wanted
assurances that States would not be held accountable if estimates are
incorrect as a result of future policy or budget changes. Another
commenter wanted us to require that future Plans include a comparison
between the amounts estimated in prior Plans with the actual
expenditures for those periods.
Response: As we said in the proposed rule, we recognize that these
are estimates and, as such, will not be subject to compliance actions.
Similarly, approval of a Plan will not 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.
We considered the suggested requirement to compare past estimates
with actual expenditures for the same period but rejected it for a
number of reasons. First, such a requirement would call into question
our assertion that the estimates supplied in the Plan are, in fact,
estimates and that ACF will not take compliance actions based on them.
Second, because expenditure periods for funds overlap Plan periods a
full statement of actual expenditures would not be forthcoming until
several years after the original estimate, when the persons responsible
for the estimates may no longer be in a position to be ``accountable''
to the public for those estimates. Lastly, interested parties can
always request that the Lead Agency make public its spending on various
activities. In any event, the Lead Agency is already required to
provide information on the actual use and distribution of funds to ACF,
pursuant to section 658K of the Act.
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 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).
Section 98.13 requires the Lead Agency, not the Chief Executive
Officer, to supply the requested information. Since 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 change gives grantees the flexibility to simplify the application
process further.
In summary, the 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 uses the ACF-696 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.
Comment: One commenter objected to discontinuing the separate
application because it contained information on the mix of certificates
and grants/contracts which could be used to monitor a Lead Agency's
compliance with Section 658(c)(2)(A) of the Act concerning the
availability of certificates.
Response: The regulations at Sec. 98.13 never required that the
Lead Agency's application provide information on the use of
certificates. In the past, policy Program Instructions requested such
information to ensure that Lead Agencies met the statutory requirement
to provide certificates. This was necessary because some Lead Agencies
had never provided certificates prior to the CCDBG Act and the Act
required all Lead Agencies to have a certificate program in place by
October 1, 1992. ACF looked to the information in the application as a
indication of the Lead Agency's compliance with this requirement.
In the years since that deadline, certificates have become an
integral part of every Lead Agency's program, in fact many State
programs are totally

[[Page 39945]]

certificate-based. We are satisfied that all Lead Agencies are in
conformity with this provision of the Act. It should be noted that Lead
Agencies are required to report to ACF the actual numbers of children
receiving certificates per Sec. 98.71(b)(2).
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. 98.14.
Comment: Some commenters preferred the previous requirement for
``adequate notice'' for public hearings and were unaware of problems or
inadequacies of that process. Others argued for a longer notice period
and a requirement for additional hearings in a State.
Response: Congress clearly envisioned something different from the
existing ``adequate notice'' process when it amended the Act to require
``sufficient time and statewide distribution'' of the public hearing
notice. We also have received reports that some Lead Agencies provide
such short notice of hearings as to effectively preclude broad public
participation.
In the interest of State flexibility, we have established only a
minimum amount of time--20 days--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. Because of technological changes which might allow for public
comment via the Internet or linking sites across a State via satellite,
we have not regulated an additional number of hearings that must be
held since Lead Agencies may find other approaches for public input
that are equally effective and less costly than additional hearings.
As stated in the proposed rule, 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,
require 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). We received no comments
on this proposal.
Similarly, we have not established a specific requirement
concerning written comments from the public as suggested by some
commenters. 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 require that the public 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 within our usual time frames for public
hearings and Plan submittal. Therefore, we wish to clarify our
intention in this area.
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 have created 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).
Comment: A few commenters suggested that the Lead Agency be
required to specifically respond to comments raised at the public
hearing or at least to those comments on the Plan that are submitted in
writing, others suggested that the Lead Agency be required to provide a
summary of all comments received on the Plan.
Response: We decline to require Lead Agencies to summarize or
respond to comments received during the public hearing process. The Act
does not suggest such a requirement and it is unclear what would result
from it. We also believe that this would be an especially resource-
intensive activity for the Lead Agency which would not necessarily
further the goals of the Act.
Comment: Some commenters objected to any regulation around public
input stating that they had ongoing mechanisms for coordination or
input, such as quarterly child care steering committee meetings, others
felt that a State legislative or budget hearing would fulfill the
requirement. Still others argued that the public hearings are poorly
attended or not helpful.
Response: At section 658D(b)(2) of the Act, Congress clearly ties
together the hearing and the State Plan with the expectation that the
public be afforded an opportunity to comment on the content of that
Plan. The Act requires a hearing ``to provide the public an opportunity
to comment on the provision of child care services under the State
plan.''
Ongoing mechanisms, such as those suggested by the commenters may,
in fact, meet the requirements of the Act when they allow for the
public to comment on the provision of services under the State Plan.
Some legislative

[[Page 39946]]

oversight or budget hearings, in contrast, may not meet this statutory
requirement if they do not allow for public comment (i.e., the public
is not afforded an opportunity to comment as when only the State
Administrator or legislators are allowed as witnesses). Similarly, a
single state budget hearing held for the purpose of discussing the
entire State budget may not afford any opportunity to specifically
address child care services in the State, especially in the detail set
forth in the Plan, as required by the Act. It is not the auspices under
which the hearing is held that is important, but whether the hearing
allows for the necessary public input required by the Act.
Regarding attendance or participation at public hearings in the
past, we believe that public hearings, designed for broad public
participation and held with sufficient notification can nevertheless
become meaningful forums for State child care policy discussions,
especially in future years.
Comment: A few commenters objected to the requirement that the
hearing be held no earlier than 9 months prior to submission of the
Plan to ACF as unnecessarily prescriptive.
Response: We maintain that the requirement that hearings be held no
earlier than 9 months before the Plan is submitted to ACF is a balanced
approach which allows the Lead Agency to conduct its hearing up to a
full year in advance of the effective date of the Plan. Allowing
complete latitude in setting the date for the public hearing might make
the hearing requirement less meaningful and creates a disconnect--the
further from the effective date of the Plan that the hearing is held.
Comment: A number of commenters argued that the child care Plan
must be made available before the public hearing is held for there to
be meaningful public input. They suggested various timeframes and
formats for making Plans available.
Response: We agree that meaningful public comment on the
``provision of child care services under the State plan'' as required
by the Act is hampered, if not impossible, without knowledge of the
contents of that Plan. For example, the Act now requires the Lead
Agency to provide ``detailed descriptions'' of various child care
policies such as parental access, parental complaints, and payment
rates among others. In order to meaningfully comment, the public must
know what those policies are. We believe this can only be accomplished
by providing the public with the Plan that the Lead Agency proposes to
submit to ACF. Therefore, at Sec. 98.14(c)(3) we are requiring that the
Lead Agency make the Plan available in advance of the required hearing.
We decline to regulate on the timeframes or formats for making the
Plan available to the public but remind Lead Agencies of their
obligations under the Americans with Disabilities Act for accessibility
of public information.
Comment: One commenter asked for flexibility in the format of the
Plan that is to be submitted to the public in advance of the hearing
suggesting that various topics such as parent fees, eligibility and
payments rates be presented, but not necessarily in the format of the
preprint that ACF requires.
Response: We agree that the Plan that is presented in advance of
the public hearing need not be in the format of the preprint. However,
as a practical matter, this may be the easiest format for the Lead
Agency to use. That is because the Act requires comments on child care
services under the ``State plan''--the requirements for which are
outlined at Sec. 98.16. As long as all of the elements of the Plan as
described at Sec. 98.16 are provided in advance of the hearing, then
the requirement is satisfied. We note that many of the Plan elements,
such as most of the newly statutorily-required ``detailed
descriptions'' probably will not change from Plan to Plan, hence the
preprint format may not be as burdensome as the commenter imagines.
Comment: A number of commenters opposed having amendments to the
Plan subject to the public hearing. They also objected to applying the
hearing requirement to those Plans which were to become effective on
October 1, 1997.
Response: The proposed rule neither required nor suggested that
Plan amendments are subject to a public hearing. As has been the policy
since the inception of the program, this final rule also does not
require a public hearing for amendments to approved CCDF Plans.
Although an amendment to the Plan is not subject to the Federal
regulatory hearing requirement, we recognize that State rules or Lead
Agency practice may, nevertheless, require a hearing or public comment
period or both.
The preamble to the proposed rule provided that the new CCDF Plans
due to ACF in 1997 were subject to the statutory requirements--not the
proposed regulatory requirements--for a hearing i.e., at least one
hearing with sufficient time and statewide distribution of the notice.
Although that issue is now moot we wish to reiterate that both the
public hearing and the coordination and consultation processes must be
undertaken each time the entire Plan is required to be submitted. The
regulations provide that the entire Plan is only required to be
submitted at the beginning of each Plan biennium.
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 requirement to coordinate with specific agencies includes a
provision that the Lead Agency describe the ``results'' of the
coordination. In the proposed rule, we did not elaborate on this
requirement as we thought it self-evident. Because we did not give
context to this requirement, some commenters ascribed purposes or
expectations that we did not intend. Therefore, we wish to elaborate on
this part of the coordination requirement.
Prior to this rule Lead Agencies were required to provide a
``description'' of the coordination and collaborative processes they
engaged in during the preparation of the State Plan. This description
in the Plans, however, was frequently merely a list of agencies with
which the Lead Agency had met. Often these descriptions did not change
over long periods, or the dates of the meetings listed remained
unchanged from Plan to Plan. The ``description'' gave the impression
that there was little progress resulting from the coordinative efforts
of the Lead Agencies--that little was happening. We knew this to be an
inaccurate picture.
The Plan is not just a public document describing the State's
approach to child care for the purpose of its hearing process. It also
serves as a guide for other Lead Agencies about promising practices,
different approaches to common problems and can be an indicator of
issues that others may face in the future. Because of the multiple uses
of the State Plan, we wanted the ``description'' of the coordinative
effort to more accurately reflect what we knew was the reality in the
States. No other purpose is contemplated or intended in asking that the
Plan reflect the ``results'' of the coordination activities.
We recognize that coordination may not have quantifiable results,
especially in the short term. Because coordination is an ongoing
process, an explanation of the intended outcomes of a Lead Agency's
current and planned coordination activities would be an appropriate
``results''. Similarly, a compilation of the useful lessons learned
from the coordination activities

[[Page 39947]]

would meet our intent in asking that the ``results'' be described in
the State Plan.
Additional comments relating to the coordination and consultation
requirement and processes are addressed in the discussion at Sec. 98.12
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, we 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 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 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 were deleted.
Finally, Sec. 98.15(a)(6) requires that States provide an assurance
that they have not reduced their level of effort in full-day/full-year
child care services if they use pre-Kindergarten (pre-K) expenditures
to meet the MOE requirement. Comments relating to this assurance, and
the use of pre-K in the CCDF in general, are discussed further at
Sec. 98.53.
Comment: One commenter suggested strengthening the certification at
Sec. 98.15(b)(3) by requiring that the consumer education be provided
through community-based organizations. The commenter also wanted us to
clarify that such consumer education be made available to the general
public throughout the State.
Response: We agree that community-based organizations may, in fact,
be the best way of providing consumer education as discussed at
Sec. 98.33. However, in the interests of State flexibility, we decline
to limit the Lead Agency's options so narrowly. We note that the
certification already requires dissemination of consumer education
materials ``to the general public'' and it is our expectation that such
materials are widely made available and not limited just to families
applying for or receiving CCDF subsidies.
Comment: Another commenter asked that the certification at
Sec. 98.15(b)(7) be clarified to define equal access as also meaning
timely payment of the provider by the State. The commenter wanted a
certification that payments to providers would be processed within a
state-established timeframe, claiming that lengthy delays in payment
made providers reluctant or unwilling to accept subsidized children,
thereby effecting equal access.
Response: We agree that the Lead Agency should establish timely
payment processing standards for the reasons stated by the commenter.
However, there is no statutory basis for requiring such standards and
we decline to change the regulation.
Comment: One commenter noted that Sec. 98.15(a)(5) contained an
incorrect citation.
Response: We have corrected the citation to read, ``pursuant to
Sec. 98.30(f).''
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 identify the entity
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. We received
many comments on these provisions. Those comments are more
appropriately 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 required at Sec. 98.16(p) that the Lead Agency 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, and the
many comments received about it, in the discussion of consumer
education at Sec. 98.33.
Finally, Sec. 98.16(q)(1) provides that the Lead Agency describe
State efforts to ensure that pre-K programs, for which

[[Page 39948]]

any Federal matching funds are claimed, meet the needs of working
parents. At Sec. 98.16(q)(2) we codified the provision found in the
preamble of the proposed rule at Sec. 95.53. This section provides
that, should the Lead Agency use public pre-K funds to meet more than
10% of either the MOE or the Matching requirements, the Plan will
reflect this. The Plan must also describe how the State will coordinate
its pre-K and child care services to expand the availability of child
care when the Lead Agency uses public pre-K funds to meet more than 10%
of either the MOE or the Matching requirements. These requirements are
discussed at Sec. 98.53.
The Administration on Children will issue appropriate amendments to
the State CCDF plan preprint (ACF-118) and the Tribal CCDF plan
preprint (ACF-118A) in Program Instructions, which will also provide
guidance on when Lead Agencies would be required to submit amendments.
The Program Instructions will take into consideration appropriate lead
times for implementation.
Comment: One commenter objected to including TANF definitions in
the State child care Plan because then the child care Plan would have
to be amended every time TANF changed its definitions.
Response: Including TANF definitions in the child care Plan is not
burdensome because those TANF definitions are unlikely to change
frequently over the two-year life of the Plan. In any event, changes to
the TANF definitions would not appear to be a ``substantial change'' in
the CCDF program. Hence, an amendment to the Plan would not be required
as discussed in the preamble to the 1992 rule at 57 FR 34367. We repeat
that the purpose of this provision is for public education about the
requirements upon, and options available to, low-income working parents
as discussed in the preamble at Sec. 98.33.
Comment: Another commenter felt that States should not have to
``justify'' limits on in-home care in the Plan. She suggested that a
listing of the limits on in-home care and the policy reasons for those
limits should be sufficient.
Response: We agree. It was not our intent to make States justify
the limits they place on in-home care. Rather, we want the Plan to
reflect their basis for doing so, in order for the public and ACF to
better understand the State's policy. We have accordingly changed the
wording of the regulation. The preamble discussion at Sec. 98.30
remains essentially the same as we did not use the word ``justify'' in
that discussion of in-home care, from which the Plan requirement is
derived.
Comment: A commenter observed that the statute does not require
that the Lead Agency itself maintain the records of substantiated
parental complaints, but rather requires the State to maintain such
records.
Response: We agree and have changed the wording of Sec. 98.16(m) to
reflect the requirement as discussed at Sec. 98.32.
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. The rule provides that all Lead
Agencies for States, Territories, and Tribes must submit new Plans
every two years beginning with the Plans for Federal Fiscal Years 1998
and 1999.
Comment: One commenter observed that two years is too short a
period for meaningful comprehensive planning and that such a period may
not coincide with State legislative sessions. The commenter asked for
the ability to prepare longer range plans, such as 3 to 5 year plans,
with provision for annual updates.
Response: We agree that a longer plan period might better suit some
Lead Agencies' planning cycles. However, this requirement is statutory.

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. Therefore, Sec. 98.20(a)(2) reflects that change.
We retained the State flexibility 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. 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 their CCDF Plan.
Foster care and protective services. Grantees have the flexibility
to include foster care in their definition of protective services in
their CCDF Plan, pursuant to Sec. 98.16(f)(7), 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.
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. Likewise, child
care services may also be necessary when a child is placed in foster
care. Therefore, 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.
Comment: One commenter suggested that the option to include foster
care within the definition of protective services should be included in
the regulatory section.
Response: We agree. Therefore, we amended Sec. 98.20(a)(3)(ii) and
Sec. 98.16(f)(7) to ensure that States carefully consider inclusion of
this option when developing and implementing their CCDF Plan.
Comment: Most commenters were pleased that children in foster care
could be eligible for child care services since many States do not
differentiate between foster care and child protective services.
However, some commenters felt that we should include foster care in the
regulatory definition of eligible child so that all children in foster
care would be eligible.
Response: The statute did not specifically provide for foster care
as an eligibility criteria. As states have varying policies regarding
services for children in foster care and protective services, we have
not included foster care in the regulatory definition. Rather we will
allow States flexibility in determining if, and how, they will serve
children in foster care and protective services. Therefore, a State
must indicate its intention of providing child care services to
children in foster care--on the same basis as children in protective
services--by including foster care in their definition of protective
services in the CCDF Plan.
Comment: Several commenters believed that the child's eligibility
for child care services should not be based on the income of the foster
parents.
Response: States continue to have the flexibility to consider a
child in foster care as a family of one, for purposes of determining
income eligibility under Sec. 98.20, on a case-by-case basis.
Respite care. We further clarified that respite child care is
allowable for only brief, occasional periods in excess of the normal
``less than 24 hour period'' in instances where parent(s) of children
in protective services--including foster parents where the Lead Agency
has defined families in protective services to

[[Page 39949]]

include foster care families--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) of children in protective services 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 care 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.
Comment: Several commenters felt that States should be required to
provide respite care for children with disabilities.
Response: Since respite care is provided to give parents time off
from parenting, rather than care to allow the parent to participate in
work or in education or training, the CCDF cannot be used for respite
care for children with disabilities unless the child also needs or is
receiving protective services.

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.
Comment: One commenter was concerned that we ``strongly
discourage'' the use of cash. She felt that this stifled State
innovation in piloting new service delivery systems and ran counter to
the purposes of PRWORA in instilling personal responsibility. In
recognizing that providing cash can only be successful with intense
parent and provider education, the commenter argued for State
flexibility to experiment without sanctions from ACF.
Response: We appreciate the commenter's thoughtful approach to the
question of providing cash. Like the commenter, we believe that without
appropriate safeguards, such as intense consumer education and the
provisions discussed above, the provision of cash may not fulfill the
goals of either PRWORA or the CCDBG Act. While we continue to
discourage the use of cash, we recognize that the Lead Agency retains
the flexibility to use it.
Availability of certificates. We received an unexpectedly large
number of comments on our proposed clarification concerning the
availability of certificates; many with strongly argued positions. Some
comments favored the clarification, but most opposed it.
Even though we proposed no changes to the regulatory language at
this Part, the comments revealed a fundamental belief that we were
proposing to lessen the emphasis on parental choice. That is not the
case. However, because of the depth of reaction around this topic, we
have decided to withdraw the proposed clarification rather than try to
explain it again in different words. Therefore, concerning the
availability of certificates, the preamble to the 1992 Final Rule
continues to apply and the regulatory language remains unchanged.
In-home care. 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
give Lead Agencies complete 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 reasons for those limitations.
The Lead Agency must continue to allow parents to choose in-home
child care. However, since this care is provided in the child's own
home it has unique characteristics that deserve special attention. 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 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.
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,

[[Page 39950]]

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, CCDF Plans
must specify any limitations placed on in-home care and the reasons for
those limitations.
ACF recognizes that giving Lead Agencies complete 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.
Comment: Several commenters thought we were interpreting the FLSA
and, therefore, wanted the discussion about it deleted. Others wanted
us to say that in-home child care providers were independent business
contractors and not domestic employees.
Response: We have not interpreted the FLSA: we have simply restated
the FLSA's characterization of in-home child care providers as domestic
service workers. ACF cannot determine that in-home child care providers
are to be considered independent business contractors.
Interpreting the FLSA, and other wage and tax laws, is the
responsibility of other Federal agencies, such as the Department of
Labor, the Department of the Treasury and the Social Security
Administration, as noted by several of the commenters. While we have
not regulated that the minimum wage must be paid to in-home providers,
as some commenters thought, we would be extremely remiss in not
alerting Lead Agencies to the existence and possible applicability of
other laws. Nor can we ignore violations of those laws simply because
their enforcement is the purview of another Federal agency.
We continue to work with the responsible Federal agencies to help
clarify issues around the use of in-home child care providers and will
work with the other appropriate Federal agencies to provide guidance to
Lead Agencies. We also recognize that there have been instances where
the Federal or State agency responsible for determining the
applicability of the FLSA and the minimum wage requirements have
reached very different conclusions in seemingly similar cases.
Therefore, we encourage Lead Agencies to work with the appropriate
local representatives of the other Federal agencies to resolve or
clarify the State-specific questions they may have regarding the
applicability of other laws and regulations.
Comment: One tribe wanted us to exempt tribes from paying the
minimum wage to in-home providers.
Response: As discussed above, ACF does not determine the
applicability of the FLSA and cannot make exceptions to it.
Comment: One commenter wanted us to define in-home child care
providers as any legally-exempt provider who is otherwise not regulated
but who is specially authorized to provide care in the child's home or
in the provider's home.
Response: It is unclear why it would be useful to define in-home
care in this way. As discussed above, the unique characteristic of in-
home is its location, not the regulatory status of the care.
Comment: One commenter wanted us to require that in-home providers
meet health and safety requirements. Another commenter wanted us to
state that Federal law does not require that CCDF subsidies be given to
parents or providers known to be operating inconsistently with
applicable laws and regulations. In this vein, the commenter suggested
that we encourage Lead Agencies to require provider documentation of
compliance with applicable laws, such as worker compensation,
unemployment compensation, income tax withholding for employees.
Response: In-home care must meet the requirements established by
the Lead Agency for protecting the health and safety of children
pursuant to Sec. 98.41. In-home care, as a category of care, is not
exempt from health and safety standards. And, relatives who provide in-
home care are not exempt from health and safety requirements unless the
Lead Agency specifically chooses to exempt them, as provided for at
Sec. 98.41(a)(1)(ii)(A).
The regulations at Sec. 98.54(a)(2) require that CCDF funds ``shall
be expended in accordance with applicable State and local laws.''
Payments made to parents or providers who are not in compliance with
applicable laws are subject to disallowance in accordance with
Sec. 98.66.
Comment: Several commenters stated that the Lead Agency should have
the ability to define limits and regulate the use of in-home care as
they see fit and that no further requirements, beyond the description
of the limits, should be imposed.
Response: This comment mirrors our policy. The Lead Agency has
complete flexibility to define the limits and regulate the use of in-
home care. As a point of clarification, while the Lead Agency may
impose limits on the use of in-home care, it cannot flatly prohibit the
use of in-home care. In-home care remains an option that must be
offered to parents, pursuant to Sec. 98.30(e), subject to the limits
established by the Lead Agency.

[[Page 39951]]

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 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.
Comment: One commenter asked that we clarify this requirement as it
relates to parents who have limited contact or custody rights as a
result of a court order. The commenter suggested that Lead Agency
procedures may restrict access to only those persons identified in the
provider's records as authorized to remove the child(ren) from the
facility.
Response: We agree that the Lead Agency should address these
situations and should establish their procedures in light of court
ordered restricted parental contact or custody. However, we do not
believe that it is necessary to revise the wording of the regulation
nor do we believe that Congress intended that we create such a detailed
Federal requirement on the Lead Agency.
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 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.
Comment: Some commenters questioned whether the Lead Agency had to
maintain the record of substantiated complaints, since this function
may occur at another part of State government.
Response: We corrected the language of this section to reflect that
it is the State, but not necessarily the Lead Agency, that must
maintain the record of substantiated complaints and make information
regarding such parental complaints available to the public on request.
However, in the Plan, the Lead Agency must, nevertheless, provide the
detailed description of how such a record is maintained and made
available.
Comment: One commenter, in supporting the requirement, recommended
that any substantiated complaint, whether submitted by a parent or by
someone else, be included.
Response: We agree that informed parental decisions would be
enhanced by making all complaints, irrespective of their source,
available to the public. And, we encourage the Lead Agency to make all
substantiated complaints available to the public on request. However,
the Act requires only that a record of substantiated parental
complaints must be maintained. Parental complaints may include
substantiated complaints which originate with persons acting in loco
parentis, for example a foster parent or other guardian, not just a
biological or adoptive parent.
Comment: Another commenter was concerned about the release of
confidential, libelous and/or inappropriate material in the fulfillment
of this requirement. The commenter voiced the expectation that we would
ensure that the State created very structured procedures for
maintaining and guaranteeing that only substantiated complaints are
released to the public.
Response: The requirement clearly states that only substantiated
complaints are to be released. As we stated above, we do not believe
that Congress intended for us to create detailed Federal requirements
here. States have the flexibility to create their own procedures in
this area, provided the required statutory outcome is achieved.
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 CCDBG
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 annually on the
manner in which consumer education information was provided to parents
and the number of parents that received such information.
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.
In the comments to the proposed rule, however, we received numerous
comments advising us to strengthen the consumer education requirement.
Two themes arose from the comments. One frequently voiced comment was
that parents need to be informed that the full range of providers is
available to them, especially when they receive certificates. Included
in the full range of providers are sectarian and religious providers,
and we take this opportunity to remind Lead Agencies that such
providers must be available to parents. The second theme we heard was
that parents need to be aware of the importance of health and safety
standards, and the extent to which various categories of care or types
of providers provide health and safety protections for children.
Additionally, in a report issued in February 1998 by the Office of
Inspector General of the Department of Health and Human Services, it
was noted, ``Good consumer education is critical to making the child
care market function properly. If parents are not able to make informed
choices, their access to the market is limited. Further, if parents
demand safe and quality care, providers are more likely to supply it.''
The study report, ``States' Child Care Certificate Programs: an Early
Assessment of Vulnerabilities and Barriers'' (OEI-05-97-00320), which
makes note of Congress' strengthening of the consumer education
requirements in the CCDBG Act, has recommended that ACF take steps to
help States improve their consumer education efforts.
We weighed these comments and the new Inspector General report
against comments we received which generally opposed any regulations at
all on any of the provisions we proposed and those

[[Page 39952]]

that wanted consumer education provisions in addition to the two
addressed above. We believe that informed parental choice--which is the
reason for the consumer education provisions--is supported by the
information suggested by these two comments. We have, therefore,
reworded the regulation at Sec. 98.33(a). That section now specifies
that Lead Agencies must certify that consumer education information
given to parents so they can exercise their right to choose the type of
care that best meets their needs must, at a minimum, include
information about the full range of providers available and on health
and safety requirements. States have discretion in developing the
content of the consumer information materials in these two areas; the
regulations only require that they be addressed.
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 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 licensing regulations that some
providers must meet; the State's policy regarding 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 skills.
Comment: Several commenters wanted us to require that consumer
education specifically include information about the availability of
sectarian providers and that parents may use certificates with
religious providers.
Response: It was partly in response to these comments that we
expanded the requirement for consumer education to now include
information about the full range of providers available to parents. As
the ``full range of providers'' includes sectarian and religious
providers, we do not believe it is necessary to specify them--or other
types of providers--in regulation. Since certificates, by definition,
may be used with any provider, including sectarian providers, it seems
unnecessary to be more prescriptive.
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 critical role in
providing the child care necessary to support the strong work
provisions found in TANF. It is therefore critical that CCDF Lead
Agencies help disseminate information about the TANF exception.
Knowledge of this exception, at least on the part of parents who
receive TANF, will be very important in promoting informed child care
choices.
Therefore, we require that Lead Agencies include information about
it in the consumer education information they provide to TANF
recipients. 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) assistance received during the time an eligible parent
receives the exception will count toward the time limit on Federal
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 rule provides flexibility and
strikes an appropriate balance between the roles of the CCDF and TANF
agencies. We recognize the authority and 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.
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 TANF families with young children will be informed
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 serves the best interests both of the recipients of TANF
benefits and the service agencies themselves. ACF

[[Page 39953]]

issued proposed rules on the TANF penalty provisions on November 20,
1997.
Comment: We received few comments in support of our proposal to
require Lead Agencies to provide information regarding the TANF penalty
provisions. Most commenters observed that this was a TANF, not a child
care issue, and that the notice was an administrative notice, not
consumer education. Others suggested that, in singling out TANF
families, this provision merely continues the stigma associated with
welfare.
Response: We respect the commenters' views. And, we have changed
the requirement so that the information on the penalty provision need
only be given to TANF families--not all families. We have also amended
the regulation to recognize that other agencies, not necessarily the
Lead Agency, may provide the information.
In light of the pressures of work participation requirements on the
TANF agency, and ultimately on TANF families, we believe that TANF
families need strong reinforcement of their right to safe, affordable
and appropriate care. Informed consumer education means that parents
must not feel that they must accept any child care, especially care
that they believe threatens the well-being of their child.
Comment: Some commenters suggested that Lead Agencies should be
required to provide consumer education only through child care resource
and referral (CCR&R) agencies.
Response: While CCR&Rs may be the best providers of consumer
education information, there is no statutory basis for limiting State
flexibility in this way.
Comment: Several commenters objected to including the TANF penalty
definitions or criteria in the CCDF Plan, arguing that these belonged
more appropriately in the TANF Plan.
Response: A State's definition of ``appropriate child care,''
``reasonable distance,'' etc., is germane to the provision of child
care in a State. And, it is the overall provision of child care in a
State that the CCDF Plan is intended to present to the public. Because
there is no fixed format for a TANF plan, the definitions may not be
included there and thus may not be part of the TANF 45 day notice
process. Therefore, these definitions and criteria may not become
publicly known. We do not believe that the requirement is either
burdensome or excessive since the TANF agency must develop the criteria
and definitions in order to implement that program.

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 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) of the Act requires a Lead Agency to certify
that there are in effect within the State, under State and local law,
requirements, designed to protect the health and safety of children,
that are applicable to providers serving children receiving CCDF
assistance. The applicable requirements set forth in the Act include
``the prevention and control of infectious diseases (including
immunizations).''
Section 658E(c)(2)(F) further provides, however, that nothing in
the health and safety requirements shall be construed to require the
establishment of additional health and safety requirements for child
care providers that are subject on the date of enactment of the Act,
under State and local law, to health and safety requirements in the
categories described in the Act. The regulations at Sec. 98.41(a)
reflect the prohibition against establishing additional requirements if
existing requirements comply with the Act.
As proposed originally on May 11, 1994 (59 FR 24510) and again in
1997 on July 23, 1997 (62 FR 39647), we amended the regulation at
Sec. 98.41(a)(1) to require that States and Territories include as part
of their health and safety provisions for the control and prevention of
infectious diseases (by reference or otherwise) the latest
recommendations for childhood immunizations of their respective State
or territorial public health agency.
Based on comments received on the most recent proposed rule,
however, we modified the final rule at Sec. 98.41(a) to delete language
that, unintentionally, could have caused some commenters to believe
that ACF was exceeding the Act. Specifically, we deleted language that
related to establishing immunization requirements. Based on another
comment, we also revised the rule to clarify that immunizations are not
the only focus of the statutory requirement on the prevention and
control of infectious diseases.
The immunization regulation at Sec. 98.41(a)(1) applies only to
States and Territories. Consistent with the amended Act, which requires
the Secretary to consult with Tribes and tribal organizations to
develop minimum child care standards that are applicable to Tribes and
tribal organizations that receive CCDF funds, we have not extended the
immunization requirement to Tribes and tribal organizations due to the
anticipated development of tribal health and safety standards.
Until tribal health and safety standards are issued, however, Lead
Agencies for Tribes and tribal organization must meet the three basic
health and safety requirements specified in the Act and these amended
regulations, including the basic regulation on the prevention and
control of infectious diseases (including immunizations). They do not,
however, have to meet the specific immunization requirement that
applies to States and Territories under these final rules. We
anticipate that tribal immunization requirements will be considered in
the consultation on the development of the minimum child care standards
with Indian Tribes and tribal organizations.
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 amendment to the regulations does not impose
Federal standards for immunization. Rather, it allows the individual
State or Territory to apply its own immunization recommendations or
standards to children receiving CCDF services. All States and
Territories have recommendations or standards

[[Page 39954]]

regarding immunization of individual children.
The immunization provision at Sec. 98.41(a)(1) is intended to
ensure that States address the statutory provision on immunization as
part of the statutorily-mandated CCDF health and safety standards.
Currently 22 percent of children in the U.S. under the age of two
are not age-appropriately immunized. 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. 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.
Vaccines are the most cost-effective way to prevent childhood
diseases. Nationally, approximately $13.00 is saved in direct medical
costs for every dollar spent on the measles/mumps/rubella (MMR)
vaccine, $29.00 is saved for every dollar spent on the diphtheria/
tetanus/pertussis (DTP) vaccine, and $6.00 is saved for every dollar
spent on the oral polio vaccine (OPV).
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.
Lead Agencies for the CCDF have the flexibility to determine the
method they will use to implement the immunization component of these
regulations. 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.
Lead Agencies 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 shall establish a grace period
during which children can continue to receive child care services--
unless, in keeping with the statutory provisions applicable to the
CCDF, existing State or local law regarding immunizations required for
the particular child care setting would not allow for such a period.
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.
Pursuant to section 658P(5)(B) of the amended Act, 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.
We received many comments on the revised health and safety
provisions from all types of commenters who made a wide variety of
observations. Several commenters, including three Lead Agencies,
expressed their unqualified support for the immunization provision. A
number of States who wrote to comment on other provisions in the
proposed rule were silent regarding the proposal, as were a couple of
State organizations. Other States expressed support of the principle of
assuring that very young children are age-appropriately immunized.
They, however, had various concerns about the proposed amendments to
the rule concerning health and safety provisions as noted in the
comments below. Some States and State organizations supported an
alternate approach as noted below. A number of children's organizations
supported the provision, but asked for it to be strengthened as noted
below.
Comment: Some commenters said that the proposed rule exceeded the
authority granted to the Secretary under PRWORA and did not respect
congressional intent regarding the Act. The commenters did not identify
which statutory provisions they believed were exceeded. Additionally,
however, they pointed to the proposed State options for exempting
children receiving CCDF

[[Page 39955]]

services as evidence that ACF, not the State, was establishing a health
and safety standard.
Response: The statutory language regarding the establishment of
health and safety requirements for children served by the CCDF
essentially was unchanged by PRWORA. The statute clearly requires the
State to establish health and safety standards in three areas. One of
those areas, the control and prevention of infectious diseases,
specifically includes immunizations in health and safety requirements
for child care. We think that the commenters may have focused on the
provision at 658E(c)(2)(F) that states, ``Nothing in this [provision]
shall be construed to require the establishment of additional health
and safety requirements for child care providers that are subject to
health and safety requirements in the categories described [in the Act]
on the date of enactment of this subchapter under State or local law.''
The rule we adopted does not violate this caveat to the health and
safety requirements of the Act. ACF is not requiring States to
establish additional standards regarding immunization for children
receiving CCDF services where those standards exist for all children
(CCDF-subsidized or not) in a category of care. Rather, we are ensuring
that States follow the statutorily-mandated requirement, which
specifically includes immunizations. The statute requires immunizations
in the case of all care available to children receiving CCDF services--
not just to those caregivers who are subject to existing State
requirements regarding immunization of children in child care settings.
The regulation clarifies that immunizations must be part of the health
and safety standards for all providers.
We revised the final rule to delete the phrase that might
inadvertently have led some to conclude that the regulation exceeded
the statute by seeming to require new State immunization standards. The
provision now indicates that Lead Agencies shall assure that the
State's existing immunization standards apply to all children receiving
services under the CCDF.
Further, the exemption options should not be considered as evidence
that ACF is requiring specific health and safety standards. Rather, the
options reflect recognition of the State's authority to determine the
content of health and safety standards and to exempt statutorily
specified relatives from the health and safety requirement generally.
Comment: Several commenters suggested that ACF adopt an alternate
approach to the immunization requirement. Specifically, they suggested
that instead ACF adopt a provision requiring a State to describe in its
CCDF Plan its efforts to increase immunization rates in relationship to
their child care programs and with respect to outreach to children in
informal care.
Response: The alternative proposed does not serve the objective of
assuring that the statutory provision is met.
Comment: Several States opposed the CCDF rule regarding
immunizations on the grounds that they already have requirements
regarding immunizations in child care settings.
Response: As explained in the response to the first comment in this
section, where a State has rules for immunization of children in child
care settings, these rules do not impose additional or different
requirements. These rules apply in instances where a State has not
established the statutorily required health and safety immunization
requirements for a particular child care setting.
Comment: Two commenters noted that the requirement for a grace
period for families to have their children receiving CCDF services age-
appropriately immunized could conflict with existing State rules
regarding children entering child care. They asked for the rule to take
into account instances where States have existing immunization
standards for child care settings that do not allow for a grace period.
Response: In the 1994 proposed rule, when we only encouraged States
to have a grace period and recommended that Head Start guidelines for
an immunization grace period of 90 days be considered, we received a
significant number of comments asking that we incorporate a grace
period into the CCDF rule on immunization. In 1994, an overwhelming
majority of comments opposed tying the immunization requirement to
initial eligibility. The view was that requiring immunizations to be up
to date before the child care could start would be a barrier to
working. Commenters at that time voiced concern that many low-income
parents might not immediately be able to acquire the necessary
immunizations and could therefore lose access to crucial child care
services.
A significant number of commenters in 1994 recommended that we
strengthen the language to require Grantees to establish a grace period
as part of the immunization requirement. With welfare reform's stronger
emphasis on work, we believe that the grace period is even more
critical than we envisioned in 1994. We, therefore, retained the
provision on the grace period. States should understand, however, that
the provision at Section 658E(c)(3)(F), which is reflected at
Sec. 98.41(a) of these regulations, would apply. That provision
prohibits the establishment of new or additional standards if they
exist for a particular child care setting. We believe that the complete
regulation at Sec. 98.41(a) adequately conveys the principle, so that
no special modification of the rule regarding the grace period is
needed.
Comment: Some States commented that the issue of immunizations is a
much larger issue than just for children receiving CCDF subsidies. Some
of these commenters observed that in care settings that States do not
regulate there could be children who are not required to be immunized
because they are not receiving CCDF services and not subject to other
rules regarding immunization. One commenter specifically noted that the
CCDF provision fragments efforts of States that are seeking to develop
a comprehensive immunization plan.
Response: The fact that the immunization issue is a bigger issue
than just within the CCDF should not argue against using the CCDBG
statutory requirements in order to assist with the need for very young
children to be age-appropriately immunized. We do not believe that this
rule will conflict with any other State initiative to immunize young
children. We encourage all States to coordinate all child care and
public health services in order to foster an importance linkage to
fulfilling immunization needs.
Comment: Some States commented that they saw difficulties in
administering, tracking, or monitoring the immunization requirement.
There were comments indicating that assumptions were being made that a
cumbersome verification process would be required of Lead Agencies.
Response: As we indicated in the preamble to the proposed rule and
in the preamble above, we have not imposed implementation requirements
for this provision. States have the flexibility to implement the
provision in a manner that is not burdensome. Lead Agencies are not
required to provide immunizations directly to children receiving child
care services. Nor are Lead Agencies required to cover the cost of the
vaccines.
We anticipate that Lead Agencies would incur most of the
administrative burden during the initial child care application process
when follow-up is needed on children whose immunizations are not
current. However, this burden should be greatly

[[Page 39956]]

reduced as a result of the Childhood Immunization Initiative. Under
this initiative, States will receive funds that can be used to develop
statewide information systems which remind parents when immunizations
are due. Lead Agencies for the CCDF should work with their State
immunization program to develop comprehensive immunization registries
that will assist in the implementation of the child care immunization
requirement.
To help ease the burden during the initial application process,
Lead Agencies could consider: incorporating tracking and follow-up into
existing redetermination procedures; flagging the files of children who
are not yet immunized and allowing parents to submit documentation by
mail; or including proof-of-immunization information in the periodic
report that providers are already required to submit to the Lead
Agency. These processes could be considered for both regulated and
unregulated providers.
States may also find that providing parents with educational
materials on the importance of immunization can play a key role in
reducing administrative burdens. While many parents are aware that
immunizations are needed by school age, they may not realize that
children should receive most vaccines before their second birthday.
Comment: One commenter stated that adding more specificity to only
the immunization part of the CCDF health and safety standard on
prevention and control of infectious diseases could send an unintended
message that having immunization provisions alone would fulfill that
statutory provision. The commenter suggested that to ensure a balance
there should be more rules regarding the scope and structure of the
statutory standard. Another commenter suggested that ACF require or
encourage criminal background checks of providers of CCDF services.
Response: We agree with the commenter that the statutory provision
encompasses more than immunizations. The law says that the State's
standards in this area shall include immunizations. The law would not
be understood to consist only of the aspect of immunization in the
prevention and control of infectious diseases. Not all diseases can be
prevented by immunizations. However, there is a specific mention of
immunization in that provision in the Act that in our experience has
not been addressed by all States in implementing the provision, while
other ``prevention and control'' issues were addressed in at least some
minimal way in State Plans. Based on the comment, we reviewed the
regulatory language and revised the regulation to make it less likely
to be interpreted as the commenter did but did not further regulate the
statutory language.
With respect to criminal background checks, ACF considers such
checks to fall under the building and physical premises safety standard
in the statute. Unlike the statutory requirement on prevention and
control of infectious diseases, which specifically mentions
immunizations, the statute does not specify any particular component
that would be part of the provision on building and physical premises
safety. Therefore, we do not propose to further regulate that health
and safety provision. We would agree with the commenter that it is
appropriate to encourage States to adopt criminal background checks as
part of their effort to meet CCDF health and safety standards.
Comment: Some commenters stated that there should be no exemption
option to requiring immunizations for children receiving relative and
in-home care. Several recommended that the requirement be implemented
without any possible exemptions.
Response: The Act and regulations allow Lead Agencies the option to
exempt grandparents, great grandparents, siblings (if the sibling lives
in a residence other than the child's home), aunts and uncles from
health and safety requirements. Although this exemption is allowable by
statute, the statute does not require States to make the exemption;
States may choose to require relative caregivers to meet the same
immunization requirements as established for other providers.
In allowing an exemption for in-home care, we considered that these
children are not cared for in a communicable group setting but in the
privacy of their own home, and therefore would be at a more limited
risk of contracting diseases or spreading diseases than they would be
if in a group care setting with children from different families. We
therefore think the in-home exemption option is an appropriate
reflection of the statutory scope of the health and safety requirement.
Finally, the regulation reflects the basic exemption provisions
(religious and medical reasons) that States apply to child care
settings and school settings where States have set immunization
standards. The regulation allows the State similar flexibility in
implementing the statutorily-mandated CCDF health and safety
requirements where it does not have existing immunization requirements
for all children in a care setting. States have the flexibility to
determine which of the optional exemptions to allow. However, they may
not expand the exemptions beyond the categories outlined in the
preamble and regulation.
Comment: One commenter from an Indian Tribe said that when a child
is in foster care, the foster care home should be considered the
child's home for the purpose of the exemption option regarding in-home
care.
Response: We agree with the commenter. A foster care home would be
considered the foster child's home for the purpose of the CCDF
immunization exemption option regarding in-home care. The State may
choose to include in-home care in a foster home in the exemption for
in-home care, or it may choose to not include it. Tribes and tribal
organizations are reminded that the rule on immunizations does not
apply to tribal child care, however, since ACF is collaborating with
Tribes to develop tribal-specific health and safety standards.
Comment: One commenter said that ACF should require States to
follow the immunization recommendations of the CDC, not the
requirements of their own State health agency, with respect to these
regulations.
Response: As we stated in this section, while many State and
territorial public health agencies adopt the recommendations of the
Advisory Committee on Immunization Practices (ACIP) of the CDC, we wish
to emphasize that this regulation does not impose Federal standards for
immunization. Rather, it allows the individual State or Territory to
apply its own immunization recommendations or standards to children
receiving CCDF services.
Comment: A few commenters said they thought that the immunization
regulation does not reach children in ``informal care arrangements.''
One of them observed that black children would be disproportionately
under-served by the requirement, because black families tend to use a
disproportionate amount of informal care. One of the commenters said
that the rule would not reach children where the provider does not
receive direct payment.
Response: With the exception of the four optional exceptions that
the regulation gives States the flexibility to adopt independently of
each other, the immunization component of the CCDF health and safety
requirements must be followed. To the extent relative or in-home care
is considered to be

[[Page 39957]]

``informal'' and a State exercises its option to exempt those settings
from the immunization regulation, a child in those settings would not
be required to be age-appropriately immunized under the CCDF. ACF
strongly encourages States to take full advantage of the requirement to
see to it that the immunization needs of very young children are met.
Unless a State chooses to exempt care in one of the specified settings
from CCDF immunization provisions, however, it must have a mechanism
for carrying out the provision, no matter how its payment system is
organized.
Comment: A number of commenters stated with varying emphases their
perception that the immunization rule places burdens on parents or
providers and could be a deterrent to parents or providers using or
participating in CCDF services.
Response: As explained above, there is an array of resources and
approaches available to States to ensure access to immunizations by
parents as well as State flexibility to design a process for
implementation of the rule that is not burdensome on providers. To meet
the needs of individual States to design the most appropriate method of
meeting the rule, ACF intentionally left flexibility in the regulation.
We encourage States to ensure that the requirement is met in a manner
that both fulfills the statute and the rule as well as places minimum
burdens on families or the supply of all categories and types of care.
Comment: Two commenters raised issues relating to the possible
adverse side effects of immunizations. They requested that States
exempt children receiving CCDF services from immunization after parents
have received information about the risks and choose not to immunize
their children.
Response: All immunization providers are required to inform parents
of potential side effects. Only a very minute fraction of children
receiving immunizations experience harmful side effects attributable to
immunizations, and the National Vaccine Injury Compensation Program
(NVICP) is available to assist families whose children have been
harmed. Information on the NVICP is available on 1-800-338-2382. On
balance, families that do not appropriately immunize their children
place them in greater harm than the immunizations do. Therefore, we do
not agree with the recommendation to allow another exemption to the
immunization regulation for children receiving CCDF services.
Comment: A few commenters noted that for effective implementation
of the rule, States should be required to provide information--to
parents of CCDF-eligible children and to unregulated providers of
services to children receiving CCDF subsidies--about both the necessity
for immunizations and how to access free immunizations. One commenter
offered the idea of mandating linkages between the child care subsidy
system and public health clinics and other health professionals. One
commenter asked that States be required to coordinate with their State
public health agency.
Response: We concur that effective implementation would require
States to ensure parents and unregulated providers have access to the
kind of information described by the commenter. In keeping with the
overall objective of these revised rules to achieve a balance between
flexibility and accountability, ACF believes that regulation on this
point is not necessary. It is inherent for meeting the rule. Moreover,
nearly all States participate in the Secretary's successful Healthy
Child Care America campaign. This campaign has a goal of linking child
care providers with the health community and is one of the many venues
for coordination between the child care community and the health
community.
Additionally, this final rule includes two requirements that will
enhance coordination and informational activities concerning
immunization under the CCDF. First, with respect to State-level
coordination, the final rule at Sec. 98.14(a) requires that CCDF Lead
Agencies shall coordinate with the State agency responsible for public
health, including the agency responsible for immunizations. Second,
based on a large number of comments on consumer education, we adopted
at Sec. 98.33 a specific requirement that the Lead Agency will collect
and disseminate consumer education information that will promote
informed child care choices, including information about health and
safety. We consider immunization information to be an important part of
such health and safety information.
Further, developing partnerships between the child care and health
community will help facilitate the immunization process and ensure that
the health needs of children and families are being met. We encourage
States to utilize existing service delivery systems and networks to
assist parents in meeting immunization requirements.
The President's Childhood Immunization Initiative recognizes the
important role of States and local organizations in identifying their
particular needs. In 1992, the Federal government began helping States
design individually tailored Immunization Action Plans. Outreach
consultants in each region assist States, local organizations, and
health professionals in enhancing and expanding partnerships with
public and private organizations. For more information on partnerships
with State and local immunization programs, contact the State Health
Department or the CDC's National Immunization Program, Program
Operations Branch at 404-639-8215.
Comment: One commenter said States should be required to certify
that effective procedures are in place to ensure that child care
providers comply with immunization requirements.
Response: We believe that the regulation at Sec. 98.41(d) suffices.
It requires Lead Agencies to certify that procedures are in effect to
ensure that child care providers of services for which assistance is
provided under the CCDF comply with all applicable health and safety
standards described in Sec. 98.41(a). We think that the provision does
not require modification to cover immunizations, to the extent that a
Lead Agency, in implementing the immunization requirement at
Sec. 98.41(a) places requirements on providers. We remind commenters
that the immunization rule gives Lead Agencies implementation
flexibility.
Comment: One commenter stated that the categories of relatives who
are exempt from CCDF health and safety standards should be left up to
the Lead Agency.
Response: Our response remains as stated in the Final Rule of
August 4, 1992, that the intent of the statute was to give grantees the
option to exempt certain relatives from the health and safety
requirements that all other CCDF child care providers must meet. The
amended statute extends this exemption to great grandparents and
siblings (if living in a separate residence) and we have amended the
regulations accordingly. There is no statutory authority to extend this
exemption to other types or categories of providers.
Sliding Fee Scales (Section 98.42)
For a further discussion of copayments, see Section 98.43.
Equal Access (Section 98.43)
The Act requires Lead Agencies to certify that payment rates are
sufficient to provide access to child care services for eligible
families that are comparable to those provided to families that do not
receive subsidies. Section 658E(c)(4)(A) requires the Lead Agency to
provide a

[[Page 39958]]

summary of the facts relied on to determine that its payment rates are
sufficient to ensure equal access.
The 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).
Comment: Some commenters felt that Lead Agencies should simply be
required to summarize the facts they relied on in setting payment
rates, without addressing the three key elements mentioned above.
Response: Lead Agencies are free to include additional facts they
used in determining rates that ensure equal access. As discussed below,
we are convinced that a Lead Agency cannot establish rates that ensure
equal access without reference to the three required elements.
1. Full range of providers. All working parents, regardless of
income, need the full range of categories of care and types of
providers from which they may choose their child care services. This is
because 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. This
element helps secure the parental choice requirements at Sec. 98.30
which already require that parents who receive certificates be afforded
such variety.
2. Adequate payment rates. PRWORA 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.
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 indicates 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 requirement for specified rate categories 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 and all children
irrespective of age.
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. Child care is often the major factor which determines 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 major variable in the charges for child care is the age of the
child, especially the added expense of caring for infants and very
young children. And, payments that do not realistically reflect the
charges of caring for very young children will frustrate the ability of
families to work. 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. In providing the exception to the
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 affordable care for
young children.
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 realities
of the market makes it economically infeasible for many providers to
serve low-income children--undermining 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 limited 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.
Section 98.43(c) prohibits 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 child care for the working poor, or for
families in education or training, for example. We believe that use of
different payment rates, based on an eligibility status, precludes the
statutorily-required equal access to child care for families receiving
CCDF subsidies. Additionally, different payment rates would frustrate
one of the main intents in amending the Act in 1996--to have a unified
child care system with a single set of rules. This purpose would be
undercut if different payment rates based on eligibility criterion were
permitted.
If payments for child care are to be sufficient to provide equal
access to child care services in the open market, then the payments
must be established in the context of market conditions. We are
convinced that a survey of market rates is essentially the only
methodologically sound way for Lead Agencies to ascertain whether the
payment rates they establish provide equal access.
A market survey must be conducted in the context of reasonably
current market conditions to ensure that the payment rates continue to
provide equal access. Therefore, the regulations at Secs. 98.43(b)(2)
and 98.16(l) require a biennial market rate survey conducted no earlier
than two years prior to the effective date of the currently approved
Plan.
Surveys should not be a burden to States, which were required to
conduct market surveys in the past. States have had a number of years'
experience with the survey process. States have complete flexibility to
design such surveys; we have not proposed a survey methodology. We
note, however, that surveys may not be appropriate for establishing
payments for children with special needs due to their need for services
on a highly individualized basis and the effect of the Americans with
Disabilities Act on providers' charges.

[[Page 39959]]

In establishing payment rates we suggest a benchmark for States to
consider. Payments established at least at the 75th percentile of the
market would be regarded as providing equal access. States have already
recognized that rates set at the 75th percentile--the payment level
formerly required in the title IV-A child care programs--provide equal
access. Comparisons of past State CCDBG and IV-A child care plans
revealed that the majority of States used the same payment rate--the
75th percentile IV-A rate--for both program even though there was not a
requirement to pay at the 75th percentile for CCDBG-funded care, only
the requirement that CCDBG rates provide equal access. This same
requirement continues unchanged in these regulations for the CCDF.
Comment: We received many comments about the requirement for a
market survey; more comments favored the requirement than opposed it.
Most of those favoring it wanted an annual survey or additional
requirements around the timing of the survey or implementation of the
survey results.
Response: While we concur with the commenters that it would be
ideal to conduct surveys more frequently, we believe that a biennial
survey balances several considerations: that the rates reasonably
reflect the state of the market, that Lead Agencies have flexibility in
designing and implementing the survey to establish rates, and that the
administrative burden and expense of conducting the survey should be
minimized. The Lead Agency may conduct a complete survey more
frequently; it may also conduct targeted subsamples in specific areas
as frequently as it deems necessary. However, we choose not to require
more than a biennial survey.
Comment: Those commenters who opposed the requirement maintained
that ACF had no authority to require a survey; that the statute's only
requirement is for ``the facts relied on by the State to determine''
that rates are sufficient to ensure equal access.
Response: An executive branch agency charged with administering a
statutory program has general authority to interpret the statutory
provisions as needed in its administration of the program. As discussed
above, we are convinced that a survey of market rates is the only
methodologically sound way for Lead Agencies to ascertain whether the
rates established are realistic, thus providing the statutorily
required access.
Comment: A number of those opposing the survey requirement said it
stifled State initiative in setting rates. For example, one commenter
said that relying on frequent reports from resource and referral
agencies or the State licensing bureau of provider shortages and making
quick adjustments to rates to develop more capacity in effected areas
would be a better, more responsive alternative to biennial surveys.
Another commenter suggested using computer modeling in lieu of a
survey.
Response: A survey, in that it reflects market realities, is an
essential and critical factor--but not the only factor--that must be
considered when the Lead Agency establishes rates. It is because survey
findings are so central to understanding and gauging what level of
payment might provide equal access that we have made the requirement.
However, we are concerned that commenters may have assumed
restrictions we did not intend, and have not created, in requiring a
survey. And, we caution Lead Agencies, providers, and others against
narrowly interpreting our survey requirement. For example, as
suggested, up-to-the-minute vacancy data from CCR&Rs or licensing
bureaus could be used in conjunction with market rate survey
information to make quick and frequent adjustments to the payments to
providers. In setting or adjusting rates, we remind Lead Agencies of
the general principle that Federal subsidy funds can not pay more for
services than is charged to the general public for the same service.
Computer modeling or simulation still needs to be based on some
parameters reflective of market realities if it is to produce rates
that provide equal access. Although many commenters who opposed the
survey requirement seemed to imply that the realities of the market
could be ignored in setting rates that provide equal access, no
plausible alternatives to the survey were offered.
Nevertheless, we will remain open to alternative methodologies to
surveys and revisit this regulation in light of advancing technologies.
At this time, however, we believe that a survey is an essential part of
the ``facts'' upon which payment rates are established.
Comment: A few commenters observed that surveys may not produce
rates where there are few, if any, providers of certain care, such as
in non-traditional hours.
Response: As discussed above, the survey is not the only
determinant of rates, it is just one of the many ``facts'' to be
considered. Clearly, States have the flexibility to establish rates for
care that is needed.
Comment: One commenter suggested that a standard index, such as the
rate of inflation, be used to adjust rates gathered two, three, or four
years in the past in lieu of a biennial survey.
Response: Use of a standard index alone, such as the Consumer Price
Index (CPI) or other measures of inflation, is not an accurate
indicator of actual provider charges in the child care market. The use
of broad indices, such as the CPI could vastly underestimate changes in
the child care market. For example, in a large urban area the demand
for child care may drive up child care charges faster than the broad
inflation indices would suggest. While States are free to use such
adjustments in conjunction with surveys, especially in years when a
survey is not conducted, they should be used with an understanding of
their limitations.
Comment: One commenter observed that the 75th percentile is a term
held over from days of IV-A child care (and as such was repealed by
PRWORA). Another called the 75th percentile an arbitrary limit with no
basis in fact or statute.
Response: We have used the 75th percentile as a reference point
against which the Lead Agency can judge if its payment rates afford
equal access. It must be presumed that a rate that provides access to
at least three-quarters of all care does, in fact, provide equal
access. We have not, however, required that payments be set at the 75th
percentile, hence, it cannot be characterized as an arbitrary limit.
It should be noted, for example, that Lead Agencies have greater
flexibility under these regulations to recognize and compensate higher
quality child care facilities and providers, including those that have
obtained nationally or locally recognized accreditation or special
credentials, than they had under the title IV-A regulations that
limited payments to the 75th percentile.
Comment: A number of commenters wanted it clarified in the preamble
that Lead Agencies can pay rates higher than the 75th percentile.
Response: Lead Agencies may pay rates higher than the 75th
percentile as we have not established the 75th percentile as the
payment standard or limit. Rather, rates established at the 75th
percentile would be considered to ensure equal access, although such
rates may be too low to purchase some child care services, for example,
where there are acute shortages during non-traditional hours.
Comment: Several commenters urged ACF to require that payment rates
reflect variations for different categories of care.
Response: When establishing rates, we expect that the Lead Agency
will take into account survey results

[[Page 39960]]

showing variations in charges for different categories of care. But,
because there may be other facts that the Lead Agency considers, we
believe such a prescriptive requirement would contradict the intent of
the statute.
Comment: A number of commenters wanted us to clarify whether
providers can charge amounts above the payment rates established by the
Lead Agency; and if so, how this might deny equal access.
Similarly, a few commenters wanted a clarification of how a
combination of low payment rates and high copayments can limit or deny
equal access.
Response: A payment rate which provides for equal access does not
necessarily provide access to every provider, irrespective of the
provider's charge. There is no statutory basis for preventing a family
from choosing a particular provider whose charges exceed the Lead
Agency's payment rate. Nor is there an obligation on the part of the
Lead Agency to pay an amount that is higher than the rate it determined
is sufficient to provide equal access. In cases such as these, some
States have created a contractual requirement that the provider will
not charge the family the difference between its usual charge and the
Lead Agency's rate. By offering the provider speedy, assured payments,
the Lead Agency has been able to convince the providers to accept this
stipulation.
The statute requires that the payment rate alone must ``be
sufficient to provide equal access.'' We separately discuss the
question of copayments below.
Comment: One commenter said that market rates should reflect
current market conditions on a sub-state basis, rather than on a
statewide basis.
Response: We believe that surveys will reflect appreciable sub-
state variations in rates, if any, which the State must then consider
in establishing its rates.
Comment: One commenter wanted it clarified that children with
disabilities would not be adversely affected by a Lead Agency's payment
rates.
Response: Payments for child care services for children with
disabilities must also provide for equal access.
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.
Recent studies have shown that some child care providers are
unwilling to accept children from families that receive subsidies for
child care because the rates are too low. Faced with such a situation,
a parent must seek care from a relative or other provider who perhaps
accepts the child unwillingly and is unable to provide quality child
care. Fifty-five percent of low-income parents use informal care
arrangements, whereas only 21% of non-poor families do. The options to
low-income families in selecting child care are limited to a higher
degree by financial constraints than are the options for families with
higher income. If, in addition to low rates, the family must pay a high
fee from an already limited income, the family can hardly be said to be
on the way to total self-support. And in such a situation, a family
cannot be said to have equal access to child care. The limited access
to providers for these low-income families also tends to promote
unevenness of care, and this is an additional hazard to the child's
development.
There is a relatively low supply of child care for infants, for
children with disabilities and for children of parents who work during
non-traditional hours. For families in these categories, a combination
of low payments and high fees can limit the choice to an even greater
extent, because they encourage parents to choose less expensive and
lower quality child care, or even not to accept the subsidy at all.
Sliding fee scales must continue to be based on family size and
income, as Sec. 98.42(b) has not changed. We note that this regulation
provides Lead Agencies with the flexibility to take additional elements
into consideration when designing their fee scales, such as the number
of children in care. However, as was stated in the preamble to the
regulations published on August 4, 1992, basing fees on the cost or
category of care is not allowed (57 FR 34380). Similarly, multiple fee
scales based on factors such as a family's eligibility status would be
precluded.
Comment: A number of States indicated that there is no statutory
basis for limiting the fee to ten percent of a family's income, or that
such a limit is unnecessarily prescriptive.
Response: We would agree with the comments if the regulations, in
fact, established a limit on copayments. They do not.
Lead agencies have the flexibility to set the copayment. We have
suggested, not required, that a family's fee be no more than ten
percent of its income. This benchmark is offered as a reference point
for Lead Agencies to consider when designing fee structures for
affordable care.
Comment: A few commenters felt that ten percent should be the upper
limit charged as a fee or observed that any fee, however low, can be a
deterrent to self-sufficiency to families below the poverty level.
Others thought that the reference to a ten percent copay seemed to
conflict with the Lead Agency's right to waive the fee.
Response: As indicated above, the ten percent of family income is
offered as a benchmark, not a limit on the Lead Agency.
A family is required by the statute at section 658E(c)(5) to share
in the cost of subsidized child care, unless the Lead Agency waives the
fee pursuant to Sec. 98.42(c) and Sec. 98.20(a)(3)(ii). Those sections
allow copayments to be waived for those whose income is at or below the
poverty level and for children in protective services on a case-by-case
basis. The State has flexibility in deciding the amount of the fee
charged and whether to waive the fee.
Comment: One State commented that a State should be allowed to
categorically waive the fee if a family receives TANF.
Response: The fee can be waived, at a State's option, only if a
TANF family's income is at or below the poverty level. If TANF
families' incomes are always at or below poverty, then the State can
categorically waive the fee. In contrast, fees may be waived for child
care in protective services cases only on a case-by-case basis.

[[Page 39961]]

Comment: One commenter thought the preamble should define
``affordable.''
Response: As in 1992, we decline to establish a regulatory standard
for ``affordability.'' However, as discussed above, we feel that a fee
that is no more than 10 percent of a family's income would generally be
considered to be an affordable copayment.
We decided, again, not to prescribe a definition for ``affordable''
because we felt that any definition would unnecessarily undermine a
Lead Agency's ability to establish service priorities, be
administratively difficult to monitor and enforce, and preclude the
variation that is inherent in the nature of block grants.
Comment: Several commenters asked that the Lead Agency have the
authority to categorically waive the fee for protective services and
foster care, and not just on a case-by-case basis.
Response: We do not believe that it is consistent with the intent
of the statute to categorically waive the fee for protective services
or foster care cases. However, we recognize that the nature of
protective service cases can be different, and that in an individual
case it might further the purpose of the statute to increase the
availability of child care. Therefore, Sec. 98.20(a)(3)(ii) gives Lead
Agencies the authority to waive income eligibility and fees for
children in protective custody on a case-by-case basis, or after
consultation with an appropriate protective services worker.
As discussed in the preamble to the regulations published on August
4, 1992, there is a basic distinction between protective services cases
and foster care cases. However, as discussed in the preamble to
Sec. 98.20 in the 1992 regulations, Lead Agencies have the flexibility
to treat foster care cases as a family of one and thus effectively
reduce or eliminate the fee in most foster care cases (57 FR 34369),
but not categorically.
Comment: Several commenters believed there is a contradiction
between the ten percent benchmark and the regulation that gives Lead
Agencies the flexibility to waive copayments on a case-by-case basis
for families at or below the poverty level or for children in
protective services.
Response: These policies are not contradictory, nor are we implying
that a fee of ten percent of a family's income is appropriate for every
very low-income family, since such a fee might effectively prevent many
low-income families from taking advantage of the child care subsidy. We
view ten percent as the appropriate upper limit for co-payments; and as
stipulated in the regulations, a Lead Agency can waive the co-payment
for families at or below the poverty level (Sec. 98.42(c)), or for
children in protective services (Sec. 98.20(a)(3)(ii)).
Priority for Child Care Services (Section 98.44)
Although we proposed no changes to this section, we received a
number of comments regarding serving children with disabilities which
indicated a need to provide some clarification about priority for
children with ``special needs.''
As we stated in the 1992 preamble, for the purpose of prioritizing
services, States have the flexibility to define children with ``special
needs'' in the CCDF Plan. ``Special needs'' can mean groups other than
children with physical or mental disabilities. States can and do
prioritize services for children of teen parents, homeless children and
other groups by providing definitions in the CCDF Plan. Refer to 57 FR
34382 for a detailed discussion of the three contexts in which the term
``special needs'' is used in these regulations.
List of Providers (Section 98.45)
Any Lead Agency not having a registration process must 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 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.
Comment: A number of commenters opposed requiring States to
maintain a list of providers and felt States should be given options.
Response: We know that States have developed various processes for
registering unregulated providers and that maintaining a list of these
providers is essential to effectively managing their child care
program. We do not expect States to set up a separate list if their
current system provides the means to identify and communicate with
unregulated providers.
Comment: Other commenters wanted the regulation strengthened to
require the State to make the list of providers available to all
parents as a means of providing them with more possibilities for care.
Response: Many unregulated providers are providing care for friends
or relatives, and may not be providing child care services to the
public. Some unregulated providers who are in the child care business,
but exempt from State licensing, may want their names included on a
list given to families. However, others may not. These are State and
local government decisions. We will not regulate further regarding the
list of providers.

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 under this section of the statute
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. By statute, 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. These statutory
provisions are found in these regulations at Sec. 98.50(e) and (f).
Comment: Several commenters noted that in the Plan provisions we
ask the Lead Agency to ``describe'' how it will meet the child care
needs of the families specified at Sec. 98.50(e), whereas at
Sec. 98.50(f) we require the Lead Agency to ``specify'' how they will
meet those needs.
Response: We do not believe the terms are inconsistent. The statute
asks that States ``demonstrate the manner in which the State will meet
the specific child care needs'' of those families. We believe that a
description would provide States the opportunity to present specific
information which would demonstrate how they are serving this
population.
Serving other low-income working families. Section 658E(c)(3)(D)
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-

[[Page 39962]]

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. The
amounts in question include the remaining Mandatory and Matching Funds
(provided under Section 418) as well as the Discretionary Funds.
Since the income level for eligible families 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) provides the statutory description
of the families who are to be served under the 70 percent provision. In
addition Sec. 98.50(f) requires the State, pursuant to the statute, to
describe 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 generally no different than the
families specifically mentioned in these regulations and thus would
expect that they would be treated similarly. If a 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.
Comment: Some commenters related the ``substantial portion''
requirement to the 70% requirement and are concerned that there is very
little funding for low-income working families.
Response: As noted above, the 70% requirement applies only to the
Mandatory and Matching Funds. States must then use a ``substantial
portion'' of any remaining Mandatory and Matching funds as well as a
``substantial portion'' of Discretionary funds to serve families whose
incomes are below 85% of SMI.
Comment: Several commenters noted that Sec. 98.50(d) was
inconsistent with Sec. 98.52(a) in that it addressed funds that were
awarded rather than expended.
Response: We have corrected Sec. 98.50(d) to be consistent with our
intent that the administrative costs be based on amounts expended.
Refer to Administrative Costs (Sec. 98.52) for a more detailed
discussion of this issue.
Activities to Improve the Quality of Child Care (Section 98.51)
Not less than four percent. Section 658G of the CCDBG Act directs
that a State that receives CCDF funds shall use not less than four
percent of the amount of such funds for activities that are designed to
provide comprehensive consumer education to parents and the public,
activities to increase parental choice, and activities designed to
improve the quality of child care and availability of child care (such
as resource and referral services). We refer to this requirement
collectively as ``Activities to Improve the Quality of Child Care.''
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 not 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 regulations at Sec. 98.51(a)(1) are based on the broad
statutory language, while Sec. 98.51(a)(2) keeps, as examples, the
options for specific activities formerly contained in the Act. Resource
and referral programs, grants or loans to assist in meeting state and
local standards, monitoring of compliance with licensing and regulatory
requirements, training, and compensation are allowable quality
activities under this minimum four percent requirement. 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 we will
disseminate promising practices.
Comment: Some commenters wanted us to remove from
Sec. 98.51(a)(2)(i) the words ``operating directly'' as they felt that
resource and referral can be done most effectively at the community
level rather than by state government.
Response: We agree that local resource and referral activities are
important to child care services. However, by removing the words
``operating directly,'' we would be reducing the options available to
the State. Therefore we have retained the wording in the regulation in
order to ensure State flexibility in delivering those services.
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 not 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 prior 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.
The regulation's list of administrative activities at Sec. 98.52(a)
omits the following three activities that were listed as administrative
costs in the 1992 CCDBG rule: determining eligibility, establishing and
operating a certificate program, and developing

[[Page 39963]]

systems. ``Establishing and operating a certificate program'' was not
specifically listed by Congress as a non-administrative cost. However,
we omitted this activity because the components of a certificate
program would not be considered to be administrative costs under the
Conference Agreement exclusions. 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.--all items
which the Conference Agreement lists as not administrative costs. All
costs, then, of these three activities: determining eligibility,
establishing and operating a certificate program, and developing
systems, are now considered non-administrative costs.
While these 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, the required CCDF financial reporting
form, the ACF-696, separately collects the amounts that are expended on
determining eligibility, establishing and operating a certificate
program, and developing systems. If we determine that there are
problems, we reserve the right to re-visit the policy and regulate in
the future.
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.
Comment: Many commenters objected to applying the five percent
administrative limitation to the amounts expended, rather than to the
amounts allocated to the State, saying that administrative costs might
be incurred in one year for expenditures that occur in another.
Response: We have clarified Sec. 98.52(a) to reflect that the limit
applies to the amounts expended from the total allocated, not to the
amounts expended in a single fiscal year. We understand that it might
be necessary to use more funds for administration during the initial
start-up of an activity, or that the period when administrative costs
are incurred may not coincide with when the funds are actually
liquidated. And, the provision was not intended to limit Lead Agency
flexibility in the short term.
The choice of the word ``expend'' in the regulation, rather than
``available'' as in the statute or ``allocated'' as in the comment, is
meant to address only one situation. Section 98.52(a) is meant to
ensure that when a State that does not expend--within the applicable
timeframes provided for at Sec. 98.60--the full amounts allocated to
it, the State does not receive a windfall in administrative cost
allowances. For example, two States are each allocated a total of $100
million in the CCDF. At the end of the expenditure periods, State A has
spent $50 million while State B has expended all $100 million. It would
be unfair to allow both States to receive $5 million in administrative
allowances since State B's program (in terms of dollars expended) is
twice the size of State A's.
Comment: Some felt that the tone of this section was threatening.
They objected to the suggestion of further regulations in this area if
Lead Agency reports indicate disproportionate expenditures on the
activities that had been redesignated as non-administrative costs,
i.e., determining eligibility, establishing and operating a certificate
program, and developing systems.
Response: We did not intend to threaten Lead Agencies. The preamble
discussion is intended to reflect our obligations to taxpayers for
prudent management of the resources Congress has allotted for the
purpose of providing child care services.
Comment: One commenter observed that there was no definition of
``implementation'' in Sec. 98.52(a)(1) and was concerned that some
might make judgments about when implementation began or ended.
Response: Implementation in this context refers to the ongoing
conduct or execution of the program and does not imply a fixed period
or a process with a beginning and/or ending date. It would be
incorrect, for example, for an auditor to determine that implementation
of an activity had ended.
Comment: One commenter, noting that the regulations clearly provide
that the 5% administrative cap did not apply to State MOE, stated that
the preamble then clouded the issue by suggesting that ACF would
monitor MOE reports in relation to administrative expenditures.
Response: In the preamble to the proposed rule, we did not propose
specifically to monitor MOE expenditures. Rather, we did express the
expectation that audits of the CCDF program should indicate that
administrative expenditures contained in MOE amounts would be
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 the five percent cap on administrative costs does
not apply to Tribes, and tribal organizations; it applies only to the
entities defined as ``States.'' Tribes, however, are subject to the
requirements at Sec. 98.83(g) regarding limits on administrative
expenditures.
Matching Fund Requirements (Section 98.53)
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
are expended for allowable child care purposes. And, the language of
Sec. 98.53(e) reflects this.
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.
Changes to PRWORA contained in P.L. 105-33 provide that for fiscal
years 1998 and after, a State's expenditures in excess of its MOE
threshold, up to a maximum determined by the statute, are matched at
the applicable year's Federal medical assistance percentage (FMAP)
rate. (For FY 1997, state expenditures were matched at the 1995 FMAP
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

[[Page 39964]]

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 to the national total of children under age 13, based on
the best data available to the Secretary for the second preceding year.
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.
Comment: Some commenters thought that there was a point beyond
which Matching funds would no longer be available to them and wanted us
to clarify that as long as the State meets the statutory requirements
that the Matching funds would be available throughout the fiscal year.
Response: Matching funds are available throughout the fiscal year,
and disbursements to the State are based on the ACF-696s submitted by
the Lead Agency. Those non-Federal expenditures (exceeding the MOE
threshold) for which the State wishes to claim monies from the Matching
Fund must be obligated before the end of the fiscal year.
State expenditures allowable for MOE and Federal Matching funds.
State expenditures on any activity or service that meets the goals of
the CCDBG Act and that is described in the approved CCDF Plan, if
appropriate, may be used to meet the MOE requirement or may be claimed
for Federal Matching funds (Sec. 98.53(b) and (c)(2)). For MOE, these
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 these regulations, 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, Sec. 98.53(e)(1)(i) allows a public agency, other than the
Lead Agency, to certify its expenditures as eligible for Federal match.
This provision allows States, for example, to use 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, 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.
Regarding the MOE requirements, the same State expenditure may be
used to meet both the CCDF and TANF MOE requirements provided the
expenditure meets the requirements of both programs. However, the
amount of State CCDF MOE expenditures that may count for TANF MOE
purposes is limited to the amount of the State's share of expenditures
for the programs described at section 418(a)(1)(A) of the Social
Security Act (i.e., the now repealed title IV-A child care programs)
for FY 1994 or FY 1995, whichever is greater.) Section
409(a)(7)(B)(iv)(IV) specifically provides that State expenditures used
to meet the CCDF MOE requirement--and/or for which CCDF Matching funds
were received--may be included in meeting the TANF MOE requirement up
to the amount set at section 418(a). Any additional State expenditures
for child care in excess of the amount of the CCDF MOE requirement, and
for which CCDF Matching funds are not claimed, may also be counted in
meeting the TANF MOE requirement when the expenditures meet the
requirements of TANF.
In addition, pursuant to section 409(a)(7)(B)(iv)(I) of PRWORA,
State expenditures for child care may not be included as part of the
State MOE for TANF if the funds originated with the Federal government.
Hence, Federal funds transferred from TANF to the CCDF would not count
towards the TANF MOE. Further, those funds could not be used to receive
CCDF Matching funds under the general rule Federal funds may not be
used as a match without statutory authority.
Comment: Several commenters objected to the prohibition on using
in-kind expenditures for State match, contending that this runs counter
to the regulations for the pre-TANF title IV-A programs on which much
of the CCDF funding is now based.
Response: The pre-TANF title IV-A programs did not allow for the
unlimited use of in-kind match as the comments suggest. Only a small
part of the total JOBS funding (that part equal to the State's WIN or
WIN Demonstration allotment for fiscal year 1987) could be matched with
in-kind contributions. The match rate for these funds was 90%; meaning
the State's share was only 10%. The Social Security Act, at section
403(l)(1)(B), specifically provided for in-kind contributions in this
limited instance only.
There is no indication that Congress contemplated the use of in-
kind match, either in the CCDBG Act or the child care provisions in
PRWORA. In fact, in specifying that the Secretary shall reimburse
expenditures, the provision precludes the claiming of in-kind match.
Comment: One commenter asked whether State expenditures for
Kindergarten services could be counted in meeting the MOE requirement
or claimed for match.
Response: Compulsory State education services cannot be used to
meet the MOE requirement or to claim matching funds. Non-compulsory
services are subject to the limits at Sec. 98.53(h).
Comment: One commenter asked for clarification of the relationship
between child care expenditures used to meet the TANF MOE requirement
and used to claim CCDF matching funds. The commenter observed that
Section 409(a)(7)(B)(iv) of the Act precluded using the same State
expenditure for claiming CCDF Matching funds and for meeting the TANF
MOE requirement.
Response: That section in the Act was amended by the Balanced
Budget Act of 1997 to allow certain State expenditures to be used to
claim CCDF Matching funds and be used to meet the TANF MOE requirement.
We updated the above discussion to reflect those changes. Use of the
same expenditure for both purposes is subject to certain qualifications
discussed above.
Use of a private agency to receive donated funds. Historically,
private

[[Page 39965]]

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 have reexamined 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 including in the
definition of State expenditures donated funds that meet the
qualifications at Sec. 98.53(e)(2), even though such funds are not
under direct State control. The regulations at Sec. 98.53(f) provide
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 the entity designated by the
State to receive donated funds. Both the Lead Agency and the entity
designated by the State to receive donated funds 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, the fiscal reporting form, the ACF 696, requires
that the Lead Agency separately report the amount of private donated
funds it uses as match. And finally, Lead Agencies should be aware that
private donated funds used as match are also subject to the audit
requirements at Sec. 98.65.
This 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 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 the entity that is
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).
Comment: Several commenters wanted us to limit the use of pre-K and
or donated funds to only those States that had used such funding prior
to FY 1997.
Response: It is not clear why the commenters proposed such a
limitation. The regulation is designed to give Lead Agencies additional
flexibility in maximizing child care funding while ensuring ongoing
commitments to existing programs. We see no benefit to limiting the use
of pre-K or donated funds as suggested.
Comment: The same commenters wanted us to require that States
submit quarterly reports listing the entities receiving donated funds
and the uses of those funds.
Response: We have required that the Lead Agency identify in its
Plan the single entity designated to receive donated funds and the
allowable child care services for which the funds will be used. We
believe that additional requirements, such as those proposed would be
burdensome for the Lead Agency and serve no useful purpose in light of
the policy that provides for a single entity to receive donated funds.
Comment: Several commenters suggested that individual programs or
providers would be accepting donated funds.
Response: We want to clarify that the regulation provides for the
designation of a single entity in each State to receive donated funds.
We settled on this for a number of reasons. First, it would be
burdensome for the Lead Agency to have to deal with hundreds of
individual providers or programs all claiming to have receive donated
funds which are allowable. Since the Lead Agency is ultimately
responsible for the allowability of the donated funds we did not want
to create such a burden on them. More importantly, we did not want to
create a mechanism wherein individual programs, providers or
jurisdictions might be forced to compete with each other for donated
funds. Nor did we want to create a situation wherein the Lead Agency
might tie the availability of certificates, grants or contracts to a
jurisdiction, provider or program's ability to attract donated funds.
We believe that allowing for the designation of only a single entity to
receive donated funds, at least initially, is a reasonable policy
choice.
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, pre-K expenditures claimed may be only for those
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

[[Page 39966]]

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 establishing 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 fulfill more than 10% of either its MOE or matching
requirements with pre-K expenditures, its CCDF Plan must reflect that
intent. Additionally, if a State intends to fulfill more than 10% of
either the MOE or matching requirement 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
established 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.). The Lead Agency is required to separately report on
the ACF-696 the amount of pre-K expenditures it claims as match or uses
to meet the MOE requirement.
In addition, for MOE purposes, Sec. 98.53(h)(1) provides 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 are required to provide an assurance of this,
pursuant to Sec. 98.15(a)(6). This requirement 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, there is not a similar requirement if pre-K
expenditures are claimed for match. Since the Matching Fund is ``new
money'' it is not subject to the same requirements that expenditures
used to meet a non-supplantation (MOE) requirement must meet. However,
Secs. 98.16(q) and 98.53(h)(2) require 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 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 have adopted 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 child specific
information, however, they must develop a sound methodology for
estimating the percentage of children served in the pre-K program who
are also 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.
Comment: Some commenters argued against any restriction on the
amount of pre-K that could be used to satisfy the MOE requirement
saying that States may lower or end investments in pre-K because of the
limit. Others agreed with the 20% cap, while still others wanted a
lower cap or the exclusion of pre-K from meeting the MOE requirement.
Response: We anticipated these reactions and specifically requested
comments on the pre-K limit in the proposed rule. However, none of the
commenters who argued for unrestricted use of pre-K addressed our
concerns about ``buying-out'' existing child care services with pre-K
programs. The argument that a State may limit pre-K is not convincing
since States usually fund pre-K for a variety of programmatic reasons--
not because it may be an allowable match for another program.
This regulation still gives States more flexibility than in the
past and opens new sources of match not heretofore available.
Accordingly, as a matter of balance, we have retained a reasonable
limit on using State pre-K expenditures to meet the MOE requirement.
Comment: Some commenters objected to linking the use of pre-K to
meet the MOE requirement with maintaining expenditures on full-day/
full-year child care services. They felt that the increase in TANF
recipients accepting part-time employment will affect the need for full
day/full year care.

[[Page 39967]]

Response: We do not believe that true economic self-sufficiency is
readily achievable through part-time employment. While part-time
employment of families may have increased at the outset of TANF, the
operation of time limits on those same families will require increased
hours of employment just to maintain income levels when their TANF
benefits cease. We believe, then, that it is prudent to retain this
requirement at this time.
Comment: A commenter asked if we intended to limit pre-K programs
to families at or below 85% of the State's median income (SMI).
Response: We did not intend to limit State's ability to provide
pre-K to all families, regardless of their income. However, only
expenditures for those services provided to families at or below 85% of
the SMI (i.e., whatever limit the Lead Agency establishes as the
eligibility criteria for CCDF-funded child care) may be counted in
meeting the CCDF MOE requirement or to receive Matching funds. We have
revised the discussion above to make this point more clearly.
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.
Comment: One commenter felt that allowing expenditures for minor
remodeling for non-sectarian providers, while limiting such
expenditures for sectarian providers to only those instances where
remodeling was needed to meet health and safety requirements, would
increase the workload of the Lead Agency, in that it will be necessary
to track the nature of an organization requesting funds for minor
remodeling.
Response: We did not propose any change in this regulation which
has been in effect since 1992. The regulation implements section
658F(b) which does require that Lead Agencies distinguish between
sectarian and non-sectarian providers in providing CCDF funds for minor
remodeling. Nevertheless, we are unaware that this provision has been
burdensome on Lead Agencies.

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.

------------------------------------------------------------------------
AND, must be
These funds Must be OBLIGATED LIQUIDATED by the
by the end of the end of the
------------------------------------------------------------------------
Discretionary................... 2nd FY............ 3rd FY.
Mandatory (State)............... 1st FY--only if NA, no limit.
Matching is
requested.
Mandatory (Tribes).............. 2nd FY............ 3rd FY.

[[Page 39968]]

Matching........................ 1st FY............ 2nd FY.
MOE............................. 1st FY, and NA, must be
expended in that liquidated in 1st
FY. 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, 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.
The same obligation and liquidation periods that apply to the State
Discretionary Funds apply to the tribal 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
regulations, Tribes will receive an additional year to liquidate these
Funds. Retaining the previous 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. 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, Sec. 98.60(g) requires that funds
returned to the Lead Agency after the end of the applicable obligation
period must be returned to the Federal government. Under this
provision, 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. This provision was inadvertently deleted
in the proposed rule but has been added back in the final rule at
section 98.61(g)(1). The re-obligation of funds will not result in any
extension of the obligation period.
The 1992 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 now-superseded provision
regarding returned funds 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. Law 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 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

[[Page 39969]]

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, and were changed.
Comment: Although not addressed in the proposed regulations, many
commenters objected to our policy of allocating Discretionary and
Mandatory Funds on a quarterly basis, rather than as a single grant at
the beginning of the fiscal year. They felt that such a policy should
be applicable to matching grant programs only, not to entitlements to
the States, such as the Discretionary and Mandatory Funds.
Response: The Office of Management and Budget has determined that
each of the individual CCDF funds are to be apportioned to the States
quarterly. We note that other non-matching grant programs, such as
title XX, are also subject to such quarterly apportionments.
Comment: Some commenters suggested that we allow unlimited
obligation and expenditure periods for Tribal Mandatory funds, citing
the unlimited periods for State Mandatory funds (if the State does not
use Matching funds).
Response: We have kept the proposed obligation and liquidation time
frames for Tribal Mandatory funds. Although there is a statutory
exception for State Mandatory funds to the normal one-year obligation
period (unless the State uses Matching funds), Tribal Mandatory funds
are not analogous to State Mandatory funds and have no such statutory
exception. Furthermore, in the past, a significant number of Tribes
have returned funds to the Federal Treasury. Therefore, we believe that
the required obligation/liquidation time frames are reasonable and
necessary to ensure that funds are used in a timely manner.
Comment: Several commenters wanted us to revise
Sec. 98.60(d)(5)(ii) to allow Interagency agreements and or contracts
between government entities at the same level to constitute
obligations.
Response: We had not proposed any change to this regulation which
has been in effect since 1992. This issue is addressed in the preamble
to the 1992 regulations at 57 FR 34395 and that discussion reflects our
continued position.
As a practical matter, funds that are transferred to another part
of State government, either at the same level, or at a lower level,
simply do not reflect the same real fiscal commitment of funds to the
CCDF program as occurs when funds are transferred to a third party.
Comment: One commenter observed that Sec. 98.60(d)(6)--regarding
obligating funds using a certificate--is problematic because the amount
of funds that may be actually used by the family cannot be known with
certainty as the family may use fewer hours of care than was indicated
on the certificate. The commenter wanted to eliminate the requirement
to include the amount of funds on the certificate.
Response: This provision is unchanged from the 1992 final rule and
this situation was addressed in the preamble at 57 FR 34395. Without an
amount it is unclear how the commenter would determine how much was
obligated.
Stating an amount on the certificate fulfills the obligation
requirement, yet, as explained in the 1992 preamble, the Lead Agency
can nevertheless make adjustments to reflect the actual use of funds,
reobligating if within the obligation period, to ensure the liquidation
of funds within the prescribed period.
Comment: One commenter, understanding the necessity to recover
fraudulently received payments, suggested that Sec. 98.60(i) reflect a
minimum threshold under which recovery would not be necessary. For
example, if the administrative expense of recovery exceeded the amount
fraudulently received.
Response: As we stated in the 1992 preamble at 57 FR 34397, any
payments not made in accordance with the Act, regulation or approved
State Plan may not be charged to the program and will be disallowed
pursuant to Sec. 98.66. Should a State choose not to pursue fraudulent
payments because to do so may not be cost-effective, the amount of that
fraudulent payment may not be charged to the CCDF.
Allotments From the Discretionary Fund (Section 98.61)
The allotment formulas for the Discretionary Fund are unchanged
from the original formulas for the CCDBG and are discussed in the 1992
preamble at 57 FR 34397.
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.
Data sources for tribal allotments. The CCDBG Act 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.
In past years, ACF used two separate data sources to calculate
tribal child counts: the Bureau of Indian Affairs' (BIA) Indian Service
Population and Labor Force Estimates Report, published biennially, and
the 1990 Census (for Alaska-specific data). These data sources are
addressed in the CCDBG Final Rule (45 CFR 98 and 99, published August
1992).
In the proposed rule, ACF discussed a new self-certification
process for tribal child counts used to calculate tribal allotments
under the Child Care and Development Fund. This approach affords Tribes
the opportunity to select a data source, or utilize a method for
counting tribal children, which most accurately reflects its child
population.
In addition, the child count data will be available with minimal
lag time and will more accurately reflect the natural fluctuations in
child population. With data sources used and discussed in the 1992
CCDBG Final Rule, it can take 2 to 3 years for changes in population
(such as reaching a child population of 50) to be reflected.
Finally, 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.
Beginning with funding available in FY 1998, ACF implemented a new
self-certification method for tribal child counts. In the proposed
rule, we stated that self-certified counts for FY 1998 would continue
to include children under age 16, consistent with the age category in
the BIA Report. Furthermore, we proposed that for funds available in FY
1999, tribal child count declarations would include only children under
age 13, in accordance with the CCDBG statute, thereby allowing a one-
year transitional period for Tribal Lead Agencies to plan for a self-
certified child count of children under age 13.

[[Page 39970]]

We have slightly modified this approach in this regulation to
continue to permit self-certification of tribal child counts to include
children under age 16 for funds which become available in FY 1999.
While we fully embrace self-certification of tribal child counts, based
on the practical experience in implementing this approach for FY 1998
tribal grant awards we believe that more time is necessary for some
tribal grantees to plan for counting children under age 13.
This additional time is particularly important since Tribes will no
longer be able to use the data in the BIA Report, and there is no
frequently published national data source which provides counts of
children under age 13 for all current or potential CCDF tribal
grantees. However, despite the extension of the transition period, we
still plan to require self-certification of children under age 13
beginning in FY 2000.
Each year 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
child count declaration signed by the governing body of the Tribe or an
individual authorized to act on behalf of the applicant Tribe or
organization.
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 provide 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 an NHO and a PNO to be 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) are 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 is reserved from the total
amount reserved for Tribes under the Discretionary Fund for two grants
each fiscal year. 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.
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 Indian
children in each Tribe's service area. That is, unlike the
Discretionary Fund, there is no base amount provided to Tribes under
the Mandatory Fund.
We chose 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)
The provisions for reallotment and redistribution of Discretionary
funds remain essentially unchanged from the 1992 regulations. The
reallotment/redistribution process is described at 57 FR 34401, August
4, 1992. However, the

[[Page 39971]]

OMB-approved form ACF-696 now asks the State to indicate if it wants
any Discretionary Funds that might be reallotted. Discretionary Funds
will be reallotted only to those States that request them. Therefore,
the provision formerly at Sec. 98.64(b)(2)(iv) that returned to the
Federal government any reallotted funds that a State ``does not
accept'' is deleted as unnecessary.
Section 418(a)(2)(D) of the Social Security Act, which was amended
after the proposed rule was published in July 1997, now provides for
the redistribution of Federal Matching Funds which are allotted to a
State, but not used. This new provision is now added to the regulations
at Sec. 98.64(c)(2). 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''
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 to States 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.
Section 98.64(c)(1) provides that Matching Funds allotted 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.
Sections 98.64(c)(3) and (4) provide that States use the regular
financial reporting form, ACF-696, instead of a separate notification
from the State. These provisions allow for a simplified process by
which States can both notify us of any unobligated Matching Funds
available for redistribution and request redistributed Matching Funds.
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, Sec. 98.64(d) provides for a
reallotment process that 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. The reports must be submitted each year by a deadline
established by the Secretary. Unless notified otherwise, this deadline
will be April 1, and the reports 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. While the proposed rule included the
April 1 deadline in the regulatory language itself, we decided in the
final regulation to leave flexibility to accommodate any changes that
might be necessary as we implement the reallotment procedures.
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.
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 the deadline established by the Secretary (April 1,
unless notified otherwise), 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 within a month of the deadline for
receipt of reallotment reports. 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.
Comment: A number of commenters questioned why the regulation did
not specifically reflect the statute regarding the timing of the
determination and redistribution of returned Matching funds.
Response: Section 418(a)(2)(D) of the Social Security Act provides
that the Secretary shall make a determination ``not later than the end
of the first quarter of the subsequent fiscal year'' whether Matching
funds are available for redistribution. And, that any redistribution
``shall be made as close as practicable to the date'' on which that
determination is made.
Because this is a requirement on the Secretary, we did not believe
it is necessary to include it in the regulation. We will follow the
timeframes provided for in the Act.
Comment: One commenter suggested that the obligation and
liquidation periods for reallotted Matching Funds should start from the
time the funds are

[[Page 39972]]

reallotted, not at the beginning of the fiscal year in which the
reallotment takes place.
Response: The requirement is statutory and the statute does not
provide for extending the program period of reallotted Matching Funds.
Comment: Another commenter asked how States will know that Matching
funds are available for redistribution, and noted that the regulation
fails to state when a request for redistributed Matching funds is to be
made by the State.
Response: We did not want to create a cumbersome, time-consuming
process for redistributing Matching funds. Therefore, we did not
propose the separate step of notifying States of the availability of
redistributed funds. Rather, the required quarterly ACF-696 referred to
in the regulation asks if the State wishes to request redistributed
Matching funds, should any become available. This request is to be
completed in the quarter preceding the final quarter in a fiscal year,
as described in the instructions to the ACF-696 published as Program
Instruction ACYF-CC-PI-05, dated September 26, 1997. We believe that
this process will best expedite the redistribution of Matching Funds,
should any become available. This process should also allow us to meet
the time requirements in the Act on redistribution, thereby maximizing
the amount of time that remains in the fiscal year for the State to
obligate the redistributed Matching funds.
Comment: One commenter suggested that instead of redistributing
returned State Discretionary funds to other States, those funds should
be reallotted to the Tribes in the State that returns them.
Response: As discussed in the preamble to the 1992 rule at 57 FR
34401, Tribes are not eligible to receive State funds made available
for reallotment.
Comment: Several commenters objected to the proposed dollar
thresholds required for reallotment to Tribes. In the proposed rule, we
used the same thresholds for Tribes as for States--$25,000 for the
total amount available for reallotment and $500 for an individual grant
award. Commenters argued that the thresholds for Tribes should be
lower, given the smaller size of tribal grant awards.
Response: Based on these comments, we considered lowering the
dollar threshold for Tribes in the final regulation. However, after
discussing the administrative burden of small grants with ACF fiscal
staff we decided to keep the $25,000 and $500 thresholds because it is
administratively impractical for the Department to issue and track
grant awards for smaller amounts.
Audits and Financial Reporting (Section 98.65)
Commenters were almost universally opposed to our proposed
regulatory interpretation of the amended section 658K of the Act. They
pointed out that our interpretation of ``an entity that is independent
of the State'' was inconsistent with section 7501(a)(8) of the Single
Audit Act Amendments of 1996. That section defines an independent
auditor as an ``external State or local government auditor who meets
the independence standards included in generally accepted government
auditing standards.'' We have, therefore, amended the regulation to
reflect that State auditors who meet the generally accepted auditing
standards issued by the Comptroller General, including public
accountants who meet such independence standards, may perform the
required audits. We also corrected certain references, such as
replacing the reference to OMB Circular A-128 with a reference to OMB
Circular A-133, which was issued to replace A-128 after our proposed
rule was published.

Subpart H--Program Reporting Requirements

Reporting Requirements (Section 98.70)
Section 658K(a) of the amended Act requires each State receiving
Child Care and Development Fund funding to submit two reports: monthly
case-level data for families (reported quarterly) and annual aggregate
data. Territories are considered States for reporting purposes. The
first annual aggregate report was required to be submitted by December
31, 1997, and annually thereafter.
Comment: Several commenters requested a delay in the submission of
the first case record report (ACF-801) due to the changes made by the
technical amendments to the law. They also requested that States be
allowed to submit data monthly rather than quarterly.
Response: ACF recognizes these requests as justifiable. Therefore,
as indicated at Sec. 98.70, we extended the due date for the first
quarterly submission (ACF-801) from February 15, 1998 to August 30,
1998. We also allow States to submit data monthly rather than
quarterly. If they choose to submit data monthly, the first reported
month, April 1998, is due 90 days later by July 30, 1998, with
following reports every 30 days thereafter.
Section 658L of the Act requires the Secretary to prepare a report
to Congress every two years summarizing 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;
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 case-level family data which are reported to ACF quarterly,
or monthly if the State chooses to do so. To provide for adequate time
for the approval process for sampling plans, we require at
Sec. 98.70(a)(3) that States submit their sampling plan to ACF for
approval 60 days prior to the submission of the first report. States
are not precluded from submitting case-level data for the entire
population of families served under the

[[Page 39973]]

CCDF. Specific aggregate information is required in the annual report.
Cost of Care. Although the statute requires that cost of care
information be provided in both the case-level and aggregate reports
(658K(a)(1)(B)(ix) and 658K(a)(2)(B)), we will collect this information
through the case-level report only and we will compile the information
into the aggregate. This will eliminate duplicative reporting for the
annual aggregate report.
Section 658K(a)(2)(C) requires that the number of payments made
through various methods by types of providers be reported annually.
Most States pay providers monthly; a few pay more frequently. If the
statutory language is narrowly 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 regulating 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.
Comment: Several commenters requested that ACF include information
about child care provider auspice or sponsorship in the reporting
requirements, noting that the definitions section of these regulations
(Sec. 98.2) refers to the type of provider as non-profit, sectarian,
and relative providers and that the statute uses the word ``types''.
Response: Section 658K of the CCDBG Act as amended by the PRWORA
specifically designates the child care data items which Congress
mandated. In Section 658K(a)(1)(B)(vii), the statute states that
quarterly case-level data should be collected on the ``type of child
care in which the child was enrolled (such as family child care, home
care, or center-based care).'' Additionally, Section 658K(a)(2)(A) of
the amended statute requires Lead Agencies to report aggregate
information about the number of child care providers that received
funding ``as separately identified based on the types of providers
listed in section 658P(5).'' Section 658P(5) specifically mentions
center-based, group home, family child care, and relative care.
Although these statutory references seem to conflict with the term
``types of providers'' listed in Sec. 98.2 of the rule, ACF has decided
that it is not inherently inconsistent to use a different statutory
definition for reporting purposes. Congress entertained much discussion
around reporting requirements. Their strong need for specific child
care data can be inferred from their resolve to include specific
reporting elements in the statute. Additionally, even though recent
technical amendments slightly revised the reporting requirements, no
specific direction was given in the technical amendments to collect
information based on sponsorship.
During the time reporting procedures have been under development,
ACF has consulted with program administrators and system/information
management specialists at the State level, as well as the American
Public Welfare Association and the National Association of Child Care
Resource and Referral Agencies. We have learned that most State
information systems are built on payment systems, rather than provider
identification systems, such as licensing programs might maintain.
Requiring the collection of auspice or sponsorship information would
represent a significant information collection burden for States which
is not specifically authorized by the statute.
Program sponsorship is a difficult element to collect. However, we
do recognize the interest of some organizations to learn about
different sponsoring agents and toward that end we will include
sponsorship as an optional data reporting element when these are
developed in the future.
Comment: Several commenters requested that ACF not collect Social
Security Number (SSN) as a case identifier. One commenter in particular
argued that the collection of Social Security numbers may have a
chilling effect on immigrant families wishing to apply for child care
services.
Response: ACF is requiring the collection of SSN as a case
identifier because it is necessary for gathering the aggregate data
needed for research tied to TANF, employment and other child-related
programs. Legal immigrants who work are entitled to receive child care
subsidies. Therefore, requesting them to provide SSN is not a
deterrent. Illegal immigrants are prevented from working by law and
would not need subsidized child care.
Comment: A commenter objected to the collection of average hours of
care per month and suggested that we allow States that collect the data
weekly to be able to report weekly averages.
Response: The technical amendments to the law require the change in
reporting the hours of care from weekly to monthly. Uniform reporting
requirements dictate that data be reported by all States in the same
manner to avoid confusion in data analysis. Therefore, all States
should report monthly hours. States that collect the data weekly should
transform the data into monthly data. We will provide technical
assistance in how to perform this calculation.
Comment: Several commenters objected to the collection of ``reasons
for care'' item because it is not in the law and puts an additional
burden on the States.
Response: The ``Reason for Care'' data element has previously been
collected in the old CCDBG and JOBS/AFDC child care programs and the
collection of this data does not represent a new burden for the States.
ACF will continue to collect ``reasons for care,'' i.e. working,
training/education, or protective services because it best informs
State and Federal planning and policy efforts. In addition, since the
State has the option of not requiring income data for children in
protective services, these cases need to be identified to determine if
the missing data is appropriate. We will provide technical assistance
to States experiencing difficulties with this data element.
Comment: One commenter recommended using the Census Bureau
standards for reporting race.
Response: We have changed our race definitions to comply with the
new OMB guidelines (Federal Register of 10/30/97) for Census Bureau
reporting of race. Under these new guidelines, we will divide the child
race element into two questions:

Child Ethnicity
1. Hispanic or Latino
2. Not Hispanic or Latino

and

Child Race
1. American Indian or Alaska Native
2. Asian
3. Black or African American
4. Native Hawaiian or Other Pacific Islander
5. White

On the second question, respondents will be allowed to report more than
one category.
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.
Comment: One commenter was concerned that child care disregard
information would not be collected by

[[Page 39974]]

TANF since it is not required by statute. They also were concerned that
some States may elect to spend a lot of TANF funds on child care
without transferring the funds to CCDF.
Response: We have coordinated data collection efforts with the TANF
program. The proposed TANF regulations require information about the
child care disregard, as well as child care information for families
that receive child care through TANF funding.
Comment: Several commenters requested that ACF collect some
additional items that are not required by the statute but are important
for understanding the program and improvement of program management.
The suggested elements included items such as disability status and
number of weeks of care each month.
Response: Requiring the collection of such items is important, but
represents a significant increase in the reporting burden on the
States. ACF has decided against adding these items as required elements
to avoid requiring an additional burden on the States. However, because
we recognize the importance of such items, we will consider these and
other important items, as we develop optional data reporting elements,
with input from the States, in the future.
To have a complete picture of child care services in the States,
quarterly case-level data and annual aggregate information will be
collected on all funds of the Child Care and Development Fund,
including Discretionary Funds (which include any funds transferred from
the TANF Block Grant), Mandatory Funds, and Federal and State Matching
Funds, as well as funds used for Maintenance-of-Effort (MOE). 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 or Match) 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 with pooled 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 have provided additional information to Lead Agencies concerning
specific reporting requirements, approved data definitions, reporting
formats, sampling specifications for the quarterly case-level report,
and the submission process in ACYF-PI-CC-97-08, dated November 25, 1997
and in ACYF-PI-CC-98-01, dated January 25, 1998. In this final rule,
for ease of reference, we conformed the regulatory language at
Secs. 98.71(a)(1), (6), (7), and (10) to mirror the data collection
elements of the ACF-801, Child Care Quarterly Case Record (OMB Number
0970-0167).
For Tribes. Tribes are neither required to submit the aggregate
annual report nor the new case-level quarterly report as States are.
Instead, Tribes will continue annually to 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 for CCDBG funds). Fiscal
information for Tribes will be collected on a separate tribal financial
reporting form.

Subpart I--Indian Tribes

This Part 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.
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)),
therefore ACF is not promulgating any additional regulations for the
Indian Employment, Training and Related Services application and plan
process. ACF does publish annual program instructions providing
directions for Tribes wishing to consolidate CCDF funds under an Indian
Employment, Training and Related Services plan. The Department of the
Interior has lead responsibility for administration of P.L. 102-477
programs.
General Procedures and Requirements (Section 98.80)
Demonstrations from Consortia. The regulation at Sec. 98.80(c)(1)
provides that a consortium must adequately demonstrate that each
participating Tribe authorizes the consortium to receive CCDF funds on
its behalf. This demonstration is required once every two years through
the two-year tribal CCDF Plan. It is the responsibility of each
consortium to inform ACF, through an amendment to its Plan, of any
changes in membership during the Plan period.
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 a consortium agreement.
Comment: Several commenters recommended a one-time or ``standing''
resolution from each consortium member which will remain in effect
until rescinded.
Response: The purpose of the demonstration is to show that the
member has authorized the consortium to act on its behalf. We have not
changed this requirement because it is a measure designed to provide
accountability to the individual members. We recognize the challenges
of obtaining demonstrations, particularly in rural areas in Alaska due
to seasonal work activities, but as a standing requirement Tribes
should now be aware in advance that it will be needed and we will
remind grantees about the demonstration requirement well before the
Plan due date.
Special requirements for Alaska Native grantees. By statute
(section 419 of the Social Security Act), only specified Alaska Native
entities may

[[Page 39975]]

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, will need to demonstrate agreement from each
constituent village.
In the absence of such demonstration of agreement from a
constituent village, the Corporation will 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
is 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 6580(c)(5) of the Act mandates 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 meet the child care needs of
eligible Indian families.
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. 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).
Section 98.81(b)(2) requires definitions of ``Indian child'' and
``Indian reservation or tribal service area'' for purposes of
determining eligibility.
Section 98.81(b)(4) 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.
Comment: In the proposed rule we had included a new requirement
that Tribes include a tribal resolution or similar demonstration which
identifies the Tribal Lead Agency. A tribal leader responded to the
proposed new requirement by stating that since he signs the Plan
materials, a resolution identifying the Tribal Lead Agency should not
be required.
Response: We understand that some tribal grantees may be required
to include a resolution accompanying their Plan in order to comply with
their own tribal regulations and/or procedures. However, as the
commenter pointed out, since a grantee must identify the Tribal Lead
Agency in its Plan, a resolution is not necessary. We agree with this
comment and have eliminated this proposed requirement in the final
rule.
Comment: Commenters asked if the financial reporting form could
serve as the CCDF application for Tribes.
Response: Although the financial form ACF-696 and the CCDF Plan
will serve as the application for States and territories, at this time
Tribes are required to report financial information on the SF-269 form
and do not use the ACF-696. ACF is developing a CCDF financial form
specifically for Tribes. When this form is finalized it, along with the
CCDF plan, will serve as the application for Tribes. However, since
this form has not yet been developed, for years when the CCDF biennial
Plan is due, the Plan itself will serve as the application. However, in
non-Plan years, ACF will issue a Program Instruction which describes
basic information that must be provided on an annual basis, including
the self-certified child count, to apply for funds.
Coordination (Section 98.82)
Tribal Lead Agencies must meet the coordination requirements at
Secs. 98.12 and 98.14 and the planning requirements at Sec. 98.14--
including the

[[Page 39976]]

public hearing requirement at Sec. 98.14(c). A Tribe must distribute
notice of the hearing throughout its service area (rather than
statewide).
Prior to the publication of new regulations, Tribal Lead Agencies
were not required to coordinate with agencies responsible for health
education, employment services or workforce development, and the State
or tribal TANF agency, specified at Sec. 98.14(a)(1). Although it was
not a specific requirement in the Plan, during the pre-regulatory
period ACF encouraged Tribal Lead Agencies to coordinate with these
agencies.
We recognize that the agencies with which each Tribal Lead Agency
coordinates may differ according to its own unique circumstances. We
also recognize that child care is an essential part of a Tribe's self-
sufficiency and workforce development efforts. In addition, the quality
of child care benefits greatly from close coordination with the public
health and education communities.
Therefore, in recognition of these important program linkages, in
the final regulation Tribal Lead Agencies are required to meet the
requirements at Sec. 98.14(a)(1) to coordinate CCDF activities with
tribal agencies responsible for health education, employment services
or workforce development, and a Tribe's TANF agency, if the Tribe is
administering its own TANF program.
Comment: A few commenters indicated that they were not operating
their own TANF programs and inquired whether there was a specific
mandate for coordination with State TANF agencies.
Response: Tribal Lead Agencies which are not administering their
own TANF programs are not required, but are strongly encouraged to
coordinate their program activities with the State TANF agency.
Requirements for Tribal Programs (Section 98.83)
In recognition of the unique social and economic circumstances of
many tribal communities, Tribal Lead Agencies are exempt 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, and as proposed, we are
providing greater flexibility for Tribal Lead Agencies by exempting
them from the five percent administrative cost cap at Sec. 98.52(a).
Therefore, instead of enforcing the statutory five percent State
administrative cost limit, a 15 percent administrative limit for Tribal
Lead Agencies was recommended by several tribal organizations during
the course of our pre-drafting consultations to account for the varying
infrastructural capabilities of many Indian Tribes. Tribal Lead
Agencies may not expend more than 15 percent of the aggregate CCDF
funds for administrative activities (including amounts used for
construction and renovation in accordance with section Sec. 98.84, but
not including the base amount provided under section Sec. 98.83(e)).
Section 98.52(a) provides a list of administrative activities which
are subject to the 15 percent cost limitation. The preamble discussion
of Sec. 98.52(a) provides an additional discussion of related
activities which are not considered administrative activities for
purposes of the 15 percent cost cap.
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, we believe Tribal Lead Agencies will have sufficient flexibility
in determining their administrative and/or indirect costs to run
effective CCDF programs.
We recognize that many Federal programs permit Indian Tribes and
tribal organizations to include an indirect costs rate in their grant
awards. Indirect costs are administrative costs that cannot be easily
charged to a specific program. Among other things, these generally
include: the cost of accounting services, personnel services, and
general administration of the organization. Since the cost of these
items cannot be easily assigned to a program that a grantee is
operating, the indirect cost rate is applied to the grantee's direct
costs to determine the amount the grantee will be able to recover from
the program for the grantee's total indirect costs.
An indirect cost rate is arrived at through negotiation between an
Indian Tribe or tribal organization and the appropriate Federal agency.
Agreements vary from Tribe to Tribe. For example, some agreements may
apply the indirect cost rate to salaries and wages only; others may
apply the indirect cost rate to salaries, wages, and fringe benefits
only.
Indirect costs, as determined by an indirect cost agreement or cost
allocation plan pursuant to Sec. 98.55, are identified at
Sec. 98.52(a)(6) as an allowable administrative expense for tribal
grantees. Tribal Lead Agencies are reminded that regardless of their
negotiated indirect cost rates, administrative costs may not exceed the
15 percent cost limitation at Sec. 98.83(g).
Comment: A few commenters stated that a 15 percent administrative
cost limit was too restrictive.
Response: The 15 percent limit is designed to provide Tribes
greater flexibility than States which must meet a five percent
administrative cost limit which was mandated by statute. The preamble
discussion of Sec. 98.52(a) provides an additional discussion of
related activities which are not considered administrative activities
for purposes of the 15 percent cost cap. Through these additional
activities, the exemption from the five percent State administrative
cost cap, and the base amount under the Discretionary Fund, we believe
Tribal Lead Agencies will have sufficient flexibility in determining
their administrative and/or indirect costs to run effective CCDF
programs.
Comment: Several commenters requested that we adopt the following
percentages: 63.75 for direct child care services; and 36.25 for child
care services, activities to improve the availability and quality of
child care, and/or administrative costs.
Response: Prior to the passage of PRWORA, the 63.75/36.25
percentages applied to exempt Tribal Lead Agencies. While this policy
previously applied only to exempt Tribes, following the passage of
PRWORA we extended it to apply to all Tribes during an interim period
since the law was silent on administrative costs for Tribes. In a
September 19, 1996 letter inviting Tribes to apply for Tribal Mandatory
Funds and in ACF Program Instructions ACYF-PI-CC-97-03 and ACYF-PI-CC-
97-04 we clearly indicated that this was an interim policy and that we
intended to regulate on this issue. For the reasons given in this
preamble, we have not retained the policy.
Comment: We received a comment asking why the administrative cost
limit for Tribes at proposed Sec. 98.83(g) applied to CCDF funds that
were ``provided'' while the administrative cost limit for States at
Sec. 98.52 applied to CCDF funds that were ``expended''.
Response: We revised the administrative cost limit for Tribes at
Sec. 98.83(g) from the language in the proposed rule to more closely
parallel the administrative cost limit for States at Sec. 98.52. The
revised Sec. 98.83(g) requires that not more than 15 percent of the
aggregate CCDF funds expended by the Tribal Lead Agency from each
fiscal year's allotment (including amounts used for construction and
renovation in accordance with Sec. 98.84, but not including the base
amount provided under Sec. 98.83(e)) shall be expended for

[[Page 39977]]

administrative costs. We are using ``expended'' rather than
``provided'' to prevent a Tribal Lead Agency that does not expend its
full allocation from receiving a windfall in administrative cost
allowances. The revised language also clarifies that the administrative
cost limit applies to the amounts expended from the total allocated,
not to the amounts expended in a single fiscal year.
Exempt Tribes. We 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 is
established by the Secretary. Until Tribes are notified otherwise, the
threshold is set at $500,000. In other words, Tribal Lead Agencies with
total CCDF allocations less than $500,000 in a fiscal year will be
considered exempt (any unobligated or unliquidated funds from prior
fiscal years are not included in determining exempt/non-exempt status).
Tribal Lead Agencies with allocations equal to or greater than $500,000
are non-exempt.
In the proposed rule, we proposed that the threshold would be set
to include as non-exempt all Tribes which were non-exempt prior to
PRWORA. However, due to increased appropriations, this approach would
have greatly increased the number of non-exempt Tribes. As an
alternative, we have chosen a reasonable dollar threshold ($500,000)
that, while more than the dollar amount that was mentioned in the
proposed rule ($460,000), would still move some Tribes to a non-exempt
category.
The increased number of non-exempt Tribes reflects the increased
child care funding provided directly to Tribes under PRWORA. Since the
exemption was originally intended to recognize the difficulty of
meeting all requirements with a small grant amount, we believe it is
reasonable for a Tribe with a grant of $500,000 or higher to meet the
four percent quality and certificate program requirements.
Comment: We received comments requesting the elimination of the
exempt/non-exempt distinction. These commenters encouraged us to
provide Tribal Lead Agencies with increased flexibility by making all
Tribes exempt.
Response: We are keeping the exempt/non-exempt distinction since we
believe grantees with large grant allocations should be subject to the
four percent minimum quality and certificate program requirements.
While we appreciate the need for Lead Agency flexibility, the need for
quality child care and parental choice for Indian children is
paramount.
Particularly given the increased allocation of funds for child care
programs under the CCDF, we believe it is vitally important that the
tribal grantees with larger grants establish or maintain certificate
programs so that the families they serve may select from a range of
providers: center-based; group home; family child care; in-home or
other providers. Many of the larger tribal grantees already operate
certificate programs. Likewise, the four percent minimum quality
provision will help to ensure that Tribal Lead Agencies make the
necessary investments for quality. We believe the Tribal Lead Agencies
with larger grants can play a leadership role in providing parental
choice and providing quality care.
Furthermore, in FY 1998, a few States received CCDF grant awards
which were smaller than the largest tribal grant award. These State
Lead Agencies, regardless of size, must comply with all the CCDF
requirements including the four percent minimum quality provision and
the requirement to run a certificate program. As a result, we believe
it is appropriate to require Tribes with larger grants to meet these
requirements.
Comment: One commenter requested clarification on funding amounts
required for quality activities.
Response: While we strongly encourage exempt Tribal Lead Agencies
to expend CCDF funds on quality activities, they are not required to
meet this provision. For non-exempt Tribal Lead Agencies subject to the
quality expenditure requirement at Sec. 98.51(a), not less than four
percent of the ``aggregate funds expended'' by the Lead Agency shall be
expended for quality activities. For purposes of this requirement, the
``aggregate funds expended'' by the Tribal Lead Agency includes amounts
used for construction and renovation in accordance with Sec. 98.84 but
does not include the base amount provided under Sec. 98.83(e).
Comment: Several commenters recommended that Tribes should not be
subject to Sec. 98.43(b)(2) which requires a market rate survey as one
of the three elements in determining equal access. The commenters
stated that more flexible methodologies should be permitted for tribal
grantees. For example, one commenter's Tribe currently establishes
payment rates based on their State's market rate survey because their
tribal service area is included in this market rate survey.
Response: In the final regulation, we have not exempted Tribal Lead
Agencies from the requirement at Sec. 98.43(b)(2) that their payment
rates be based on a market rate survey. However, a Tribal Lead Agency
may base its payment rates on the State's market rate survey rather
than conducting its own survey if their service area is included in the
State's survey. As noted at Sec. 98.16(l), Tribal Lead Agencies must
adequately describe the method used to ensure equal access.
While we are providing more flexibility for Tribal Lead Agencies
regarding market rate surveys, we strongly encourage tribal CCDF
grantees to survey their local providers in order to establish a
payment rate which is an accurate reflection of the child care market
on their reservation or tribal service area.
70 percent requirement. 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 on 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.
Since Tribes may apply for both Tribal Mandatory Funds and
Discretionary Funds, they are receiving increased CCDF grant awards--
compared to amounts received prior to PRWORA--to provide direct child
care services. 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 chooses to administer, child care services should be
designed to ensure that all eligible families receive a fair

[[Page 39978]]

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).
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 order to receive CCDF program services,
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.
Section 98.83(c)(1) requires 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
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.
Comment: One commenter was interested in how ACF would treat an
individual consortium member that decided to drop out of its authorized
CCDF consortium arrangement prior to the end of the fiscal year.
Response: We strongly encourage Tribes to closely evaluate their
child care needs and eligibility for CCDF services before choosing to
enter into a consortium arrangement. If a situation arises where a
Tribe decides it must relinquish its membership in a consortium prior
to the end of the fiscal year, the CCDF funds which were awarded to the
consortium on behalf of the departing member Tribe will remain with the
tribal consortium. The consortium may use these funds to provide direct
child care services to other consortium members for the duration of the
fiscal year. The final regulations codify this policy at
Sec. 98.83(c)(4).
Child care standards. Section 658E(c)(2)(E)(ii) of the Act 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.
Comment: We received comments about the process for developing the
minimum child care standards, and about the need for flexibility under
the standards in light of unique tribal needs and resources.
Response: The Child Care Bureau invited tribal leaders to consult
with ACF officials on this issue in special focus groups at the Tribal
Child Care Conference in April 1997. In addition, on March 26, 1997, a
``Request for Comments on the Development of Minimum Tribal Child Care
Standards'' was published in the Federal Register. We are continuing to
consult with tribal officials regarding the development of these
standards. Regarding the need for flexibility, we recognize unique
tribal circumstances and the fact that many Tribes have already
developed their own standards. We are committed to an approach that
considers both the need for flexibility as well as the statutory
mandate to develop minimum standards.
Planning costs for initial plan. Section 98.83(h) 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.
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 section 6580(c)(6) of the Act and
regulations at Sec. 98.84(a)).
Under the final rule, these payments could cover costs of
amortizing the principal and paying interest on loans for construction
and major renovation. As was also recognized in the 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.
The regulation at 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
were provided to Tribal Lead Agencies via program instructions ACYF-CC-
PI-05, issued August 18, 1997, and ACYF-PI-CC-97-06 issued November 4,
1997. The Administration for Children and Families' Regional Offices
have responsibility for approval of construction/renovation
applications.
By statute (and 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.
Section 98.84(c) allows Tribal Lead Agencies to use CCDF funds for
reasonable and necessary planning costs

[[Page 39979]]

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. This section of the rule also addresses the use of
CCDF funds to pay for the costs of an architect, engineer, or other
consultant.
The regulation at 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 made specified sections which
deal with the special circumstances of construction and renovation
applicable for those purposes.
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 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 definition of ``facility'' at Sec. 98.2 allows Tribal Lead
Agencies to use CCDF funds for the construction or renovation of
modular units as well as real property.
The definitions of ``facility,'' ``construction,'' and ``major
renovation'' are the same definitions used in Head Start construction
and renovation procedures. 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 regulations at
Sec. 98.84(f). For Tribal Lead Agencies, minor renovation includes all
renovation other than major renovation or construction.
Section 98.84(e) requires 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 gives Tribal Lead Agencies three years to
liquidate funds approved by the Secretary for use on construction or
major renovation with no separate obligation period. This separate
obligation/liquidation requirement should allow sufficient time for
construction and renovation projects.
Amounts used for construction and major renovation are not
considered administrative costs for the purpose of the 15 percent
administrative cost limit under 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.
The ACF will transfer funds to be used for construction and major
renovation to a separate grant award to be used specifically for
construction or renovation activities. This approach is necessary to
track the exact amount of funds spent on construction or renovation.
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.
Comment: We received comments objecting to the proposal at
Sec. 98.84(c) that would have prohibited a Tribal Lead Agency from
using CCDF funds to pay for the costs of an architect, engineer, or
other consultant until after the Lead Agency's construction/renovation
application was approved by the Secretary. The commenters argued that
the application procedures require construction/renovation plans and
specifications as part of an application, and, unless Tribes are
allowed to use CCDF funds, many Tribes would be unable to pay for the
costs of architects, engineers, or consultants necessary to develop
these plans and specifications.
Response: We eliminated the prohibition against the use of CCDF
funds to pay for consultants prior to application approval. As revised,
Sec. 98.84(c) allows a Tribal Lead Agency to use CCDF funds to pay for
the costs of an architect, engineer, or other consultant for a project
that is subsequently approved by the Secretary. If the project later
fails to gain Secretarial approval, the Tribal Lead Agency must pay for
the architectural, engineering or consultant costs using non-CCDF
funds. This approach allows Tribes access to the expertise necessary to
prepare an application and launch a construction/renovation project. At
the same time, it protects the Federal government from paying for
consultant costs on a project that is not approvable. This revised
policy is consistent with program instruction ACYF-CC-PI-05, issued
August 18, 1997. We strongly encourage Tribes to involve ACF Regional
Office staff early in the development of their construction/renovation
applications.
Comment: We received questions regarding how the requirement at
Sec. 98.84(b)(3) would apply to new grantees. Under this provision (as
well as the Act), use of funds for construction and renovation cannot
result in a decrease in the Tribe's level of child care services
compared to the preceding fiscal year. However, a new tribal grantee
has no existing level of services to maintain.
Response: Since Sec. 98.84(b)(3) does not apply to a new grantee
(i.e., one that did not receive CCDF funds the preceding fiscal year),
we added Sec. 98.84(g) to address the amount of CCDF funds that a new
grantee can use for construction or renovation. This section allows a
new tribal grantee to spend no more than an amount equivalent to its
Tribal Mandatory allocation on construction/renovation. A new tribal
grantee must spend an amount equivalent to its Discretionary allocation
on activities other than construction or renovation (i.e., direct
services, quality activities, or administrative costs).

[[Page 39980]]

The CCDF program is primarily designed to provide direct child care
services. Authority for construction and renovation was added as an
amendment under the PRWORA. The statutory provision that prohibits a
decrease in the level of child care services clearly indicates that
Congress intended for construction and renovation activities only to be
in addition to direct services. Limiting the amount of CCDF funds that
a new tribal grantee may spend on construction or renovation to the
amount of the Tribal Mandatory allocation is consistent with
Congressional intent.
Comment: One commenter objected to the definition for major
renovation. Section 98.2 defines ``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 commenter objected to the
second part of this definition, arguing that some projects may change
the function and purpose of a facility (e.g., from a community center
to a child care center) but only involve small, non-structural
renovations that should not require an application seeking Secretarial
approval.
Response: We did not revise the definition--which has also been
used by the Head Start program. Projects that involve extensive
alteration that change the function and purpose of the facility are
potentially large and expensive and should therefore be subject to
Secretarial approval. However, in order for a project that does not
involve structural change to be considered major renovation under the
definition at Sec. 98.2, it must involve both: (1) Extensive
alteration, and (2) a change in the function and purpose of the
facility. Therefore, if a renovation project is not extensive (and does
not involve structural change), the project would not be considered
major renovation even if it changes the function and purpose of the
facility.
Comment: We received a question as to whether non-exempt Tribal
Lead Agencies could count construction and renovation costs as quality
expenditures for purposes of meeting the four percent minimum quality
requirement at Sec. 98.51(a).
Response: Construction and renovation costs cannot be counted as
quality expenditures for purposes of the four percent minimum quality
requirement. Quality activities such as those described at
Sec. 98.51(a)(2) (resource and referral, provider loans, monitoring,
training and technical assistance) are essential to the well-being of
children in child care. The size of grant awards received by non-exempt
Tribal Lead Agencies is sufficient to allow these Tribes to meet the
four percent minimum quality requirement through activities other than
construction or renovation.
Comment: We received a question regarding whether the costs of
items such as parking lots, playground equipment, furniture, and
kitchen equipment are considered to be construction/renovation costs?
Response: The regulations at Sec. 98.2 define ``construction'' and
``major renovation'' for purposes of determining what activities are
allowable under the CCDF and when prior approval from the Secretary is
necessary.
However, these definitions do not directly address the question of
what costs should be considered as part of the construction and
renovation project. This question is relevant in at least three
circumstances: (1) When ensuring that construction and renovation costs
will not result in a decrease in the level of child care services in
accordance with Sec. 98.84(b)(3); (2) when providing an estimate of
construction and renovation costs as required by the uniform procedures
established by program instruction; and (3) when determining which
costs should come from the separate grant award for construction and
renovation.
For these three purposes, Sec. 98.84(h) provides that a
construction and renovation project that requires and receives the
approval of the Secretary must include as construction and renovation
costs the following: (1) Planning costs as allowed at Sec. 98.84(c);
(2) labor, materials and services necessary for the functioning of the
facility; and (3) initial equipment, as discussed below, for the
facility. All such costs must be identified in the Tribal Lead Agency's
construction or renovation application to the Secretary and, to the
extent that CCDF funds are used, must be paid for using the separate
grant award for construction and renovation.
Under this framework, the cost of the construction or renovation
project includes items which are not part of the actual facility
itself, but which are necessary for the functioning of the facility
(such as a parking lot or fence) when the item is part of a larger
construction or renovation project that requires and receives approval
by the Secretary.
Equipment, as used above, means items which are tangible,
nonexpendable personal property having a useful life of more than five
years. The intent of the five-year threshold is to include as
construction and renovation costs only equipment that remains useful
for an extended period of time, such as playground equipment,
furniture, and kitchen equipment. Current operating expenses or items
that are consumed in use (such as food, paper, books, toys or
disposable housekeeping items) are not considered construction or
renovation costs.
This relatively broad definition of construction and renovation
costs emphasizes the importance of considering all costs when planning
construction and renovation projects. The alternative approach, to
exclude items such as playgrounds, parking lots and equipment from
construction and renovation costs, would have underestimated the true
costs of constructing or renovating a child care facility. A new or
newly renovated facility requires the proper equipment to be
operational. Furthermore, a facility must be constructed or renovated
in a manner that ensures the health and safety of children in care,
consistent with Sec. 98.41(a)(2) of the regulations.
Equipment and other costs are only considered part of the
construction or renovation costs, however, if they are included as part
of a larger construction or renovation project that requires and
receives approval by the Secretary. Costs of allowable activities
(e.g., purchase of equipment necessary to bring a facility into
compliance with health and safety standards) that are not part of a
larger construction or renovation project as defined at Sec. 98.2
should be considered quality improvement costs--not construction or
renovation costs.

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. Section 658I(b)(2)(A)(ii) of
the Act gives 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.

[[Page 39981]]

As proposed, we also added 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 a 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
Sec. 98.92(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) as
that was most analogous to the potential CCDF non-compliance.
Accordingly, 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 potential penalty.
The TANF penalties include provisions for good cause and corrective
action, and we have included similar provisions in Sec. 98.92(b)(2). We
believe that both provisions are good policy as the goal of the new
provision is to achieve compliance with CCDF requirements, not
punishment. If there is sufficient reason for not complying, or if the
Lead Agency will comply without a penalty, the purpose is met without
the imposition of a penalty. 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.
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.
Comment: While a few comments supported the need for the new
penalty at Sec. 98.92(b)(2), most opposed it stating that there is no
basis for it in the PRWORA statute.
Response: As we stated in the preamble, the statutory basis for the
penalty at Sec. 98.92(b)(2) is section 658I(b)(2)(B) of the original
CCDBG Act which provides for an ``additional sanction'' if the
Secretary finds there has been non-compliance with the Plan or any
requirement of the program. Our experience since the beginning of the
program indicated the need for such an additional sanction.
Comment: Many of the same commenters objected to the use of the
phrase ``failed to properly implement'' in the regulation, saying that
it made the entire process subjective with only the Secretary deciding
what was ``proper''.
Response: We agree that the use of the word ``proper'' gave the
appearance of a subjective process, and we have eliminated it. It is
not the intent of the regulation to second-guess how Lead Agencies
implement the program, especially in light of the enormous flexibility
they have. Rather, this regulation is specifically designed for those
clear-cut instances wherein the Act, regulations, or Plan have not been
followed, but for which there is not an amount of funds that are
``misspent'' as a result.
Comment: One commenter objected to the provision which allows the
Secretary not to apply the penalty if the Lead Agency corrects the
failure or violation or submits an acceptable plan for corrective
action. The commenter wanted the penalty to be applied in all cases.
Response: As our goal is compliance with the requirements and not
punishment, we believe it is good policy to forgive a penalty if the
Lead Agency corrects the non-compliance without a penalty through
corrective action. We also believe that Lead Agencies should be able to
demonstrate that special circumstances, such as natural disasters or
other circumstances beyond their control, prevent compliance and thus
the penalty should be reduced. We believe that such instances will be
rare.

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: 93.575, Child Care
and Development Block Grant; 93.596, Child Care Mandatory and
Matching Funds)

Dated: March 16, 1998.
Olivia A. Golden,
Assistant Secretary for Children and Families.

Approved: June 10, 1998.
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 amended
as follows:
1. Part 98 is revised as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

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.

[[Page 39982]]

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;
(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;

[[Page 39983]]

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. Sec. 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. The Lead
Agency is the entire legal entity even if only a particular component
of the entity is designated in the grant award document.
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 applicable 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 and availability activities pursuant to
Sec. 98.51;
Provider means the entity providing child care services;
The regulation refers to the actual regulatory text contained in
parts 98 and 99 of this chapter;
Real property means land, including land improvements, structures
and appurtenances thereto, excluding movable machinery and equipment;
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;
Tribal organization means the recognized governing body of any
Indian Tribe, or any legally established organization of Indians,
including a consortium, which is controlled, sanctioned, or chartered
by such governing body or which is democratically elected by the adult
members of the Indian community to be served by such organization and
which includes the maximum participation of Indians in all phases of
its activities: Provided, that in any case where a contract is let or
grant is made to an organization to perform services benefiting more
than one Indian Tribe, the approval of each such Indian Tribe shall be
a prerequisite to the letting or making of such contract or grant; and

[[Page 39984]]

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 subgrantee 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 the 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;
(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)(1) 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. The Lead Agency shall also coordinate with the State, and if
applicable, tribal agencies responsible for:
(A) Public health, including the agency responsible for
immunizations;
(B) Employment services/workforce development;
(C) Public education; and
(D) Providing Temporary Assistance for Needy Families.
(2) 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.

[[Page 39985]]

(3) In advance of the hearing required by this section, the Lead
Agency shall make available to the public the content of the Plan as
described in Sec. 98.16 that it proposes to submit to the Secretary.

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(f).
(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 child care 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, the State 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 entity 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);
(4) Job training and educational program;
(5) Residing with;
(6) Working;
(7) Protective services (if applicable), including whether children
in foster care are considered in protective services for purposes of
child care eligibility; and whether respite care is provided to
custodial parents of children in protective services.
(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 reasons for 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 provide comprehensive
consumer education, to increase parental choice, and to improve the
quality and availability of child care, 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

[[Page 39986]]

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 State 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)(1) When any Matching funds under Sec. 98.53(b) are claimed, a
description of the efforts to ensure that pre-Kindergarten programs
meet the needs of working parents;
(2) When State pre-Kindergarten expenditures are used to meet more
than 10% of the amount required at Sec. 98.53(c)(1), or for more than
10% of the funds available at Sec. 98.53(b), or both, a description of
how the State will coordinate its pre-Kindergarten and child care
services to expand the availability of child care; 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.
(A) At grantee option, the requirements in paragraph (a)(2) of this
section and in Sec. 98.42 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) At grantee option, the provisions in (A) apply to children in
foster care when defined in the Plan, pursuant to Sec. 98.16(f)(7).
(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
(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) The parent or parents of an eligible child who receives or is
offered child care services shall be offered a choice:
(1) 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
(2) To receive a child care certificate as defined in Sec. 98.2.
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:

[[Page 39987]]

(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)(2)
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).
Under each of the above categories, care by a sectarian provider
may not be limited or excluded.
(2) 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.

The Lead Agency 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. The Lead
Agency shall provide a detailed description of such procedures.

Sec. 98.32 Parental complaints.

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

Sec. 98.33 Consumer education.

The Lead Agency shall:
(a) Certify that it will collect and disseminate to parents and the
general public consumer education information that will promote
informed child care choices including, at a minimum, information about
(1) the full range of providers available, and
(2) health and safety requirements;
(b) Inform parents who receive TANF benefits 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 may be provided directly by the Lead Agency, or,
pursuant to Sec. 98.11, other entities, and 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 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 assistance received during the time an
eligible parent receives the exception referred to in paragraph (b) of
this section will count toward the time limit on Federal 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) of this section.

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.
(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). With respect to immunizations, the following provisions
apply:
(i) As part of their health and safety provisions in this area,
States and Territories shall assure that children receiving services
under the CCDF are age-appropriately immunized. Those health and safety
provisions shall incorporate (by reference or otherwise) the latest
recommendation for

[[Page 39988]]

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 facts showing:
(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 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

[[Page 39989]]

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
paragraphs (c), (d) and (e) of this section 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 expended (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 (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 from each fiscal year's allotment, 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;
(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.

[[Page 39990]]

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 at the Federal medical assistance rate for the
applicable fiscal year 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 subsection.
They may be given to the 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 and renovation.
(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.
(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.

[[Page 39991]]

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 in 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,
(1) if received by the Lead Agency during the applicable obligation
period, described in paragraphs (d) and (e) of this section, be used
for activities specified in the Lead Agency's approved plan and must be
obligated by the end of the obligation period; or
(2) if received after the end of the applicable obligation period
described at paragraphs (d) and (e) of this section, 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 Sec. 98.60(b) and paragraphs (b) and (c) of this
section, 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:
(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:

[[Page 39992]]

(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] TR24JY98.000

(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 paragraph (c) of this section. 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) of this section, an amount of funds equal to
the greater of:
(1) the Federal share of its child care expenditures under
subsections (g) and (i) of section 402 of the Social Security Act (as
in effect before October 1, 1995) for fiscal year 1994 or 1995
(whichever is greater); or
(2) the average of the Federal share of its child care expenditures
under the subsections referred to in subparagraph (a)(1) of this
section 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 shall be allocated according to the formula at paragraph (c) of
this section. In Alaska, only the following 13 entities shall receive
allocations under this subpart, in accordance with the formula at
paragraph (c) of this section:
(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 Indian
children in each Tribe's service area 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.
(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

[[Page 39993]]

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.
(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, shall also be redistributed in the manner described in
paragraph (1) of this section.
(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) of this
section.
(4) A State eligible to receive redistributed Matching Funds shall
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 a
deadline established by the Secretary.
(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 the deadline
established by the Secretary, 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-133 and the
Single Audit Act Amendments of 1996.
(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.
(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) of this section shall be
conducted by an agency that is independent of the State, Territory or
Tribe as defined by generally accepted government auditing standards
issued by the Comptroller General, or a public accountant who meets
such independent standards.
(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.

[[Page 39994]]

(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 Case-level 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 case-level report of monthly
family case-level data. Data shall be collected monthly and submitted
quarterly. States may submit the data monthly if they choose to do so.
(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 August 31, 1998, and quarterly thereafter. The
first report shall include data from the third quarter of FFY 1998
(April 1998 through June 1998). States and Territorial Lead Agencies
which choose to submit case-level data monthly must submit their report
for April 1998 no later than July 30, 1998. Following reports must be
submitted every thirty days thereafter.
(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 case-level data for the entire
population receiving CCDF services.
(4) Quarterly family case-level reports to the Secretary shall
include the information listed in Sec. 98.71(a).
(b) Annual Report--
(1) State and territorial Lead Agencies that receive assistance
under CCDF shall prepare and submit to the Secretary an annual report.
The report shall be submitted, in a manner specified by the Secretary,
by December 31 of each year and shall cover the most recent federal
fiscal year (October through September).
(2) The first annual aggregate report shall be submitted no later
than December 31, 1997, and every twelve months thereafter.
(3) Biennial reports to Congress by 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 aggregate 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) Biennial reports to Congress by 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
case-level 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) The total monthly family income for determining eligibility;
(2) County of residence;
(3) Gender and month/year of birth of children;
(4) Ethnicity and race of children;
(5) Whether the head of the family is a single parent;
(6) The sources of family income, from employment (including self-
employment), cash or other assistance under the Temporary Assistance
for Needy Families program under Part A of title IV of the Social
Security Act, cash or other assistance under a State program for which
State spending is counted toward the maintenance of effort requirement
under section 409(a)(7) of the Social Security Act, housing assistance,
assistance under the Food Stamp Act of 1977; and other assistance
programs;
(7) The month/year child care assistance to the family started;

[[Page 39995]]

(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 total monthly child care copayment by the family;
(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 annual
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 include the basis for determining family
eligibility pursuant to Sec. 98.80(f).
(2) For purposes of determining eligibility, the following terms
shall also be defined:
(i) Indian child; and
(ii) Indian reservation or tribal service area.
(3) 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).
(4) The Plan shall include any information, as prescribed by the
Secretary, necessary for determining the number of children in
accordance with Secs. 98.61(c), 98.62(c), and 98.80(b)(1).
(5) 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.

[[Page 39996]]

(6) The Plan is not subject to requirements in Sec. 98.16(f)(8) or
Sec. 98.16(g)(4).
(7) In its initial Plan, an Indian Tribe shall describe its current
service delivery capability pursuant to Sec. 98.80(b)(2).
(8) 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.
(3) If a Tribe elects to participate in a consortium arrangement to
receive one part of the CCDF (e.g., Discretionary Funds), it may not
join another consortium or apply as a direct grantee to receive the
other part of the CCDF (e.g. Tribal Mandatory Funds).
(4) If a Tribe relinquishes its membership in a consortium at any
time during the fiscal year, CCDF funds awarded on behalf of the member
Tribe will remain with the tribal consortium to provide direct child
care services to other consortium members for that fiscal year.
(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 at 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 (d); and
(3) The requirements for quality expenditures at Sec. 98.51(a).
(g) Not more than 15 percent of the aggregate CCDF funds expended
by the Tribal Lead Agency from each fiscal year's (including amounts
used for construction and renovation in accordance with Sec. 98.84, but
not including the base amount provided under Sec. 98.83(e)) shall be
expended for administrative activities. 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 Agency 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 only use CCDF funds to pay for the
costs of an architect, engineer, or other consultant for a project that
is subsequently approved by the Secretary. If the project later fails
to gain the Secretary's approval, the Tribal Lead Agency must pay for
the architectural, engineering or consultant costs using non-CCDF
funds.
(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.

[[Page 39997]]

(f) Tribal Lead Agencies may expend funds, without requesting
approval pursuant to paragraph (a) of this section, for minor
renovation.
(g) A new tribal grantee (i.e., one that did not receive CCDF funds
the preceding fiscal year) may spend no more than an amount equivalent
to its Tribal Mandatory allocation on construction and renovation. A
new tribal grantee must spend an amount equivalent to its Discretionary
allocation on activities other than construction or renovation (i.e.,
direct services, quality activities, or administrative costs).
(h) A construction or renovation project that requires and receives
approval by the Secretary must include as part of the construction and
renovation costs:
(1) planning costs as allowed at Sec. 98.84(c);
(2) labor, materials and services necessary for the functioning of
the facility; and
(3) initial equipment for the facility. Equipment means items which
are tangible, nonexpendable personal property having a useful life of
more than five years.

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
Sec. 98.90 or Sec. 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 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; or
(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 Sec. 98.90 or Sec. 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

[[Page 39998]]

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) of this section.

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.
(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.

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. 98-19418 Filed 7-23-98; 8:45 am]
BILLING CODE 4184-01-P