[Federal Register Volume 63, Number 152 (Friday, August 7, 1998)]
[Rules and Regulations]
[Pages 42270-42275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21146]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families
Health Care Financing Administration

45 CFR Part 233

[HCFA-2106-FC]
RIN 0938-AH79


Medicaid and Title IV-E Programs; Revision to the Definition of 
an Unemployed Parent

AGENCY: Administration for Children and Families (ACF), and Health Care 
Financing Administration (HCFA), HHS.

ACTION: Final rule with comment period.

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SUMMARY: The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) transformed the nation's welfare 
system into one that requires work in exchange for time-limited 
assistance. The law eliminated the Aid to Families with Dependent 
Children (AFDC) program and replaced it with the Temporary Assistance 
for Needy Families (TANF) program. The law provides States flexibility 
to design their TANF programs in ways that

[[Page 42271]]

strengthen families and promote work, responsibility, and self-
sufficiency while holding them accountable for results. Many States are 
using this flexibility to provide welfare to work assistance to two 
parent families, which was more difficult to do under the old welfare 
rules. However, pre-existing regulations regarding the definition of 
``unemployed parent'' prevent some States from providing intact 
families with health insurance to help them stay employed. This rule 
will eliminate this vestige of the old welfare system in order to 
promote work, strengthen families, and simplify State program 
administration.
    In general under PRWORA, States must ensure that families who would 
have qualified for Medicaid health benefits under the prior welfare law 
are still eligible.
    While under the previous law receipt of AFDC qualified families for 
Medicaid, the new statute does not tie receipt of TANF to Medicaid. 
Instead, subject to some exceptions, Medicaid eligibility for families 
and children now depends upon whether a family would have qualified for 
AFDC under the rules in effect on July 16, 1996. Similarly, Federal 
foster care eligibility depends on whether the child would have 
qualified for AFDC under the rules in effect on July 16, 1996.
    In order for a family to qualify for assistance under the pre-
PRWORA AFDC rules, its child had to be deprived of parental support or 
care due to the death, absence, incapacity, or unemployment of a 
parent. Two parent families generally qualified only under the 
``unemployment'' criterion which was narrowly defined in the AFDC 
regulations. In this final rule with comment, we are amending these 
regulations to provide States with additional flexibility to provide 
Medicaid coverage to two parent families, facilitate coordination among 
the TANF, Medicaid and foster care programs, increase incentives for 
full-time work, and allow States to eliminate inequitable rules that 
are a disincentive to family unity.

DATES: Effective Date: These regulations are effective on August 7, 
1998.
    Comments: Written comments will be considered if we receive them at 
the appropriate address, as provided below, no later than 5:00 p.m. on 
October 6, 1998.

ADDRESSES: Mail written comments (one original and three copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-2106-FC, P.O. Box 7517, 
Baltimore, MD 21207-0517.
    If you prefer, you may deliver your written comments (one original 
and three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, 
Washington, D.C., or
Room C5-09-27, Central Building, 7500 Security Boulevard, Baltimore, 
Maryland.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-2106-FC. Comments received timely will be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW, Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(Phone: (202) 690-7890).
    If you wish to submit written comments on the information 
collection requirements contained in this final rule with comment 
period, you may submit written comments to the following:

Laura Oliven, HCFA Desk Officer, Office of Information and Regulatory 
Affairs, Room 3001, New Executive Office Building, Washington, D.C. 
20503; and
Health Care Financing Administration, Office of Information Services, 
Security and Standards Group, Division of HCFA Enterprise Standards, 
Room C2-26-17, 7500 Security Boulevard, Baltimore, MD 21244-1850.


FOR FURTHER INFORMATION CONTACT: Judith Rhoades, (410) 786-4462 
(Medicaid), Terry Lewis, (202) 205-8102 (title IV-E foster care).

SUPPLEMENTARY INFORMATION:

I. Background

    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996, Public Law 104-193 (commonly referred to as welfare reform), 
enacted on August 22, 1996, replaced the Federal/State program of Aid 
to Families With Dependent Children (AFDC) with a new program of block 
grants to States for Temporary Assistance for Needy Families (TANF). 
This change has substantial implications for Medicaid and title IV-E 
foster care eligibility. Prior to the enactment of Public Law 104-193, 
under section 1902(a)(10)(A)(i)(I) of the Social Security Act (the 
Act), individuals who received AFDC cash assistance or were deemed to 
have received AFDC were automatically eligible for Medicaid. Section 
114 of Public Law 104-193 amended the Act by redesignating section 1931 
as section 1932 and inserting a new section 1931 which establishes a 
new Medicaid eligibility group for low-income families that is related 
to eligibility requirements of the AFDC program in effect on July 16, 
1996. Section 108(d) of Public Law 104-193 amended title IV-E of the 
Act to provide for Federal foster care eligibility of children who 
would have been eligible for AFDC under the June 1, 1995 requirements. 
Section 5513(b) of the Balanced Budget Act of 1997 (Public Law 105-33) 
amended sections 472 and 473 of the Act to replace the reference to the 
June 1, 1995 AFDC requirements date (regarding title IV-E foster care 
eligibility), with a reference to July 16, 1996 AFDC requirements. This 
technical change makes the July 16, 1996 date consistent with the 
Medicaid AFDC eligibility provisions. In other words, the financial 
eligibility standards and deprivation requirements of the States' pre-
welfare reform AFDC programs will be used to determine Medicaid and 
title IV-E foster care eligibility. One requirement in both programs is 
that a child in a family must be deprived of parental support or care 
by reason of the death, absence, incapacity, or unemployment of a 
parent (the pre-welfare reform AFDC deprivation provision).
    Under the AFDC program, States were required to provide cash 
assistance to families in which the principal wage earner was 
unemployed. Unemployment of the principal wage earner constituted a 
type of dependency relationship under the AFDC program. Section 407(a) 
of the Act authorized the Secretary to prescribe standards for 
determining unemployment for purposes of this requirement. It did not 
specifically define unemployment. In accordance with this provision, 
the Secretary established an hour standard for determining 
unemployment, with an exception for certain intermittent work, under 
current regulations at 45 CFR 233.101(a)(1). Specifically, 
Sec. 233.101(a)(1) provides that the definition of unemployed must 
include any such parent who is employed less than 100 hours a month; or 
exceeds that standard for a particular month, if the work is 
intermittent and the excess is of a temporary nature as evidenced by 
the fact that the parent was under the 100-hour standard for the prior 
2 months and is expected to be under the standard during the next 
month. These pre-welfare reform regulations apply for purposes of 
determining whether a

[[Page 42272]]

family would have qualified for AFDC under the statute in effect on 
July 16, 1996, which is part of the test for Medicaid eligibility.
    Under TANF, States will no longer be mandated to provide cash 
assistance to intact families on the basis of unemployment but may 
choose to do so. Some States may establish more restrictive eligibility 
standards for cash assistance and some may provide more expansive ones, 
but all States must use the prior law AFDC standards in determining 
Medicaid eligibility. For administrative simplicity, a State may wish 
to align the eligibility requirements of the new Medicaid eligibility 
group with its requirements under TANF. In consultation with States, we 
have learned that many States believe the definition of unemployment 
established under Sec. 233.101(a)(1) for the AFDC program is 
inequitable and excessively restrictive. They do not intend to continue 
using the definition under their TANF programs. Some States believe 
that this definition is anti-family and disadvantages intact families. 
Under the AFDC program, employment in excess of 100 hours per month was 
immaterial for single-parent families. Some States believe if they were 
to import the 100-hour rule into their TANF programs, families in which 
a principal wage earner is employed over 100 hours per month, but whose 
income is below the cash assistance standard, may actually break up in 
order to be eligible for cash assistance.
    States have indicated they would like to align eligibility of TANF, 
foster care, and Medicaid programs for programmatic reasons (such as 
facilitating Medicaid eligibility) and administrative simplicity. 
However, the existing definition of unemployment in Sec. 233.101(a)(1) 
will stand in the way of this alignment if a State chooses to apply a 
more liberal definition of employment under its TANF program.
    We agree with States that the existing definition of unemployment 
is too restrictive. It imposes an impediment to administrative 
simplification particularly for those States that believe that the 
policy is inequitable and discourages family unity. For these reasons, 
we are revising the definition of unemployment to allow States the 
opportunity to adopt more flexible definitions of unemployment. This 
revision will allow States to align their TANF, foster care, and 
Medicaid programs and thereby allow administrative simplification. It 
will also allow States to eliminate policies they believe to be 
inequitable and a disincentive to family unity. We expect that some 
States will choose to consider the principal wage earner to be 
unemployed if the family income is below the applicable cash assistance 
standard. Under welfare reform demonstration projects, 32 States have 
statewide title IV-A waivers that allow them to treat single-parent and 
two-parent recipient families the same. In these States, eligibility 
for cash assistance is not terminated solely on the basis of hours 
worked. It is expected that these States will use section 1931(d) 
authority to continue this policy under their TANF programs for 
purposes of Medicaid eligibility. However, it is expected that 
additional States may wish to adopt a similar policy under their TANF 
programs for purposes of Medicaid eligibility. (Six States have related 
title IV-A waivers in limited areas of the State. The section 1931(d) 
authority cannot be used to continue these waivers on a statewide basis 
under TANF.)
    Section 1931(b) of the Act, as added by Public Law 104-193, 
provides that an individual must be treated as receiving aid or 
assistance under a State plan approved under title IV only if the 
individual meets the income and resources standards and methodologies 
and the eligibility requirements of the State's title IV-A plan under 
section 406(a) through (c) and section 407(a) of the Act as in effect 
as of July 16, 1996. Section 407(a) defined ``dependent child'' to 
include a needy child ``who has been deprived of parental support or 
care by reason of the unemployment (as determined in accordance with 
standards prescribed by the Secretary) of the parent who is the 
principal wage earner.'' The regulations promulgated under the section 
407(a) authority generally imposed a 100-hour test to determine 
unemployment of the principal wage earner (45 CFR 233.101(a)(1)). 
Nevertheless, we believe that the reference in section 1931(b) to the 
requirements of section 407(a) as in effect on July 16, 1996 does not 
freeze those regulations in place. Rather, it refers to the statutory 
test for unemployment, which is itself subject to regulation by the 
Secretary. In view of the new flexibility contained in the TANF statute 
and the desirability of coordinating Medicaid and foster care rules 
with expanded TANF criteria, we believe that section 1102 of the Act 
affords the Secretary with the authority to provide States with the 
discretion to liberalize their definitions of unemployment for purposes 
of Medicaid eligibility. Therefore, we are revising the regulations at 
45 CFR 233.101(a)(1) to permit States to include families with 
unemployed parents who would not have met the 100-hour rule contained 
in the existing regulation.

II. Provisions of the Final Rule With Comment Period

    We are revising Sec. 233.101(a)(1) to specify that a State's 
definition of unemployed, for purposes of Medicaid and title IV-E 
eligibility, must have a reasonable standard and, at a minimum, include 
any such parent who is employed less than 100 hours a month, or meets 
the exception for certain intermittent work specified in existing 
regulations.
    Under the revised definition, States will not be allowed to define 
unemployment in any way that is more restrictive than the existing 
definition. This is because the intent of the welfare reform 
legislation was to protect Medicaid and title IV-E eligibility for any 
individuals who would have been eligible under the AFDC rules 
previously in effect. Furthermore, the revised regulation does not 
require States to adopt a broader definition of unemployment, since 
there in no indication that the Congress intended to mandate expanded 
eligibility beyond the statutory baseline.
    In addition, States will be required to develop a reasonable 
standard as part of the definition of unemployment. That standard may 
be based on hours of work and/or dollar amounts and may include family 
size and/or time elements.

III. Regulatory Impact Statement

    HCFA has examined the impact of this final rule with comment period 
as required by Executive Order 12866 and the Regulatory Flexibility Act 
(RFA) (Public Law 96-354). Executive Order 12866 directs agencies to 
assess all costs and benefits of available regulatory alternatives and, 
when regulations are necessary, to select regulatory approaches that 
maximize net benefits (including potential economic environments, 
public health and safety, other advantages, distributive impacts, and 
equity). We believe that this final rule with comment period is 
consistent with the regulatory philosophy and principles identified in 
the Executive Order. The RFA requires agencies to analyze options for 
regulatory relief for small businesses. For purposes of a RFA, 
individuals and States are not considered to be small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. With the

[[Page 42273]]

exception of hospitals located in certain rural counties adjacent to 
urban areas, for purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 50 beds.
    This final rule with comment period makes a change necessary to 
facilitate the coordination of Medicaid with TANF in cases where a 
State has expanded coverage under its TANF plan beyond the definition 
of unemployed parent that was contained in existing AFDC regulations. 
The rule revises the definition of unemployment of a principal wage 
earner for purpose of unifying families.
    We estimate that this rule meets the threshold under Executive 
Order 12866 of an effect on the economy of $100 million or more and 
thus requires a regulatory impact analysis as an economically 
significant rule. Therefore, we have developed the following analysis 
in combination with the remainder of this preamble.
    Although this rule is considered an economically significant rule, 
we believe that the legislative intent of the Congress in passing the 
PRWORA was to encourage needy families to withdraw from welfare 
dependency over time, and at the same time provide them with temporary 
assistance. Therefore, we believe it is necessary to revise the 
definition of an unemployed parent to achieve these goals.
    The table below shows estimates of Federal and State shares of 
Medicaid program costs that may be incurred as a result of this 
regulation. These estimates are based on an initial simulation study 
conducted in 1996 by the Urban Institute to determine the impact of 
repealing the 100-hour rule in those States that did not have IV-A 
waivers at that time. This simulation produced an estimated increase of 
1.275 million individuals who would meet AFDC eligibility requirements 
as a result of repeal of the 100-hour rule. Of these 1.275 million 
individuals, the Urban Institute estimated that .546 million--mostly 
adults--would gain Medicaid eligibility specifically because of the 
change; the balance would have been eligible for Medicaid already, 
under other Medicaid eligibility provisions. Of all the adults gaining 
AFDC eligibility as a result of the change, the Urban Institute 
estimated that 83 percent would also gain Medicaid eligibility as a 
result (that is, would not otherwise have been eligible for Medicaid).
    Our estimate starts from the Urban Institute numbers of potential 
new Medicaid eligibles, and updates them using a corrected list of 
States that currently have statewide or substate IV-A waivers. (Over 30 
States have approved IV-A waivers, either Statewide or substate.) We 
assumed no Medicaid effect in those States in which the 100-hour rule 
is already waived, and we assumed further that these waivers would 
remain in effect throughout the estimate period.
    Then, for the remaining States, we projected population growth, 
Participation rates, and Medicaid per capita costs over the 5-year 
estimate period. We also assumed that only adults would be affected by 
any broadening of the definition of unemployment, since children would 
most likely be covered already through other eligibility mechanisms. 
This methodology produced an estimate of Medicaid costs for 
implementation of this expansion of coverage.
    Because this regulation provides States with an option, it is 
difficult to predict State behavior. On the one hand, it could be 
assumed that if a State had wanted to use an unemployment standard 
different from the 100-hour rule, it would have done so already, 
through the waiver mechanism; by that logic, the additional cost of 
this regulation would be minimal. On the other hand, the new TANF 
program, with its new eligibility requirements and its disconnection 
from Medicaid eligibility, provides new incentives that may not have 
been present before, and, conceivably all States may wish to 
immediately avail themselves of the option to change the 100-hour rule. 
This latter scenario would produce maximum costs. A poll of the States 
indicated that many had already dropped the 100 hour rule from their 
TANF program, and conceivably these States would be interested in doing 
the same for their Medicaid program. For the purposes of this estimate 
we assumed that expenditures in States that do not currently have 
waivers would increase so that the cost of this change would ultimately 
reach three-fourths of the estimated maximum possible amount. 
Accordingly, we expect this final rule to result in the following 
costs:

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                                       1999            2000            2001            2002            2003     
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Federal.........................             $35             $85            $140            $160            $175
State...........................              25              60             105             125             135
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($ in millions, rounded to the nearest $5 million).                                                             

    A separate but similar analysis was conducted for the title IV-E 
foster care and adoption assistance programs. Because more than 90 
percent of children who are eligible for foster care and adoption 
assistance would qualify for these programs according to other rules 
unaffected by this revision, we determined that this revision would 
have no cost impact on foster care or adoption assistance.
    These final regulations affect only States and individuals, which 
are not defined as small entities. We have determined and certify that 
this final rule with comment period will not have a significant 
economic impact on small entities under the threshold criteria of the 
RFA. However, we have provided an analysis of the impact on States and 
individuals under E.O. 12866. Further, we certify that this final rule 
with comment period does not have a significant impact on the 
operations of a substantial number of small rural hospitals.
    The only alternative to implementing this provision is not to 
publish this regulation. However, not publishing this provision would 
impose additional barriers to family unity and administrative 
simplification of State Medicaid programs.
    There will be an offset for the cost of these final regulations.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved, section 3506(c)(2)(A) of the Paperwork

[[Page 42274]]

Reduction Act of 1995 requires that we solicit comment on the following 
issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Section 233.101 of this final rule with comment period contains 
requirements that are subject to review by the Office of Management and 
Budget under the Paperwork Reduction Act of 1995. The rule requires 
States to amend their State plans to specify a reasonable standard for 
measuring unemployment. Public reporting burden for this collection of 
information is estimated to be 1 hour per State. A notice will be 
published in the Federal Register when approval is obtained. 
Organizations and individuals desiring to submit comments on the 
information collection and recordkeeping requirements should direct 
them to the OMB official and HCFA/OFHR whose names appear in the 
ADDRESSES section of this preamble.

V. Other Required Information

A. Waiver of Proposed Rule and 30-Day Delay in the Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register for a substantive rule to provide a period of public 
comment. However, pursuant to 5 U.S.C. (United States Code) 553(b)(B) 
we may waive that procedure if we find good cause that notice and 
comment are impractical, unnecessary, or contrary to the public 
interest. In addition, we also normally provide a delay of 30 days in 
the effective date. However, if adherence to this procedure would be 
impractical, unnecessary, or contrary to public interest, we may waive 
the delay in the effective date.
    We are adopting this regulation as a final rule with comment period 
without publication of a notice of proposed rulemaking because we 
believe it would be impractical and contrary to public interest to 
delay allowing States flexibility in implementing the welfare reform 
legislation. The effective date for the TANF program depends on the 
date the State submits a State TANF plan to the Secretary. However, the 
limit on State funding under title IV-A is effective on October 1, 
1996. We believe that it is imperative to allow States as much 
flexibility as possible, and as soon as possible, to align the 
eligibility requirements of the Medicaid program with the TANF program 
to aid administrative simplification and eliminate any disincentive to 
family unity on the part of recipients. The sooner States have the 
flexibility to align these programs, the more likely it is that 
additional individuals will receive needed health coverage. Also, 
providing States with flexibility at the earliest possible time will 
minimize unnecessary systems changes they would otherwise incur in 
making the transition to the post-AFDC environment. Therefore, we find 
good cause to waive proposed rulemaking and issue these regulations as 
final.
    For reasons discussed above, we also find good cause to waive the 
usual 30-day delay in the effective date so that the revisions to the 
definition may take effect upon publication of this final rule with 
comment period.
    Although we are publishing this as a final rule, we are providing a 
60-day period for public comment.

B. Effect of the Contract With America Advancement Act, Pub. L. 104-121

    Normally, under 5 U.S.C. 801, as added by section 251 of Pub. L. 
104-121, the effective date of a major rule is delayed 60 days for 
Congressional review. This has been determined to be a major rule under 
5 U.S.C. 804(2). However, as discussed above, for good cause, we find 
that prior notice and comment procedures are impracticable and contrary 
to the public interest. Pursuant to 5 U.S.C. 808(2), a major rule shall 
take effect at such time as the Federal agency promulgating the rule 
determines if for good cause it finds that notice and public procedure 
is impracticable or contrary to the public interest. Accordingly, under 
the exemption provided under 5 U.S.C. 808(2), these regulations are 
effective August 7, 1998.

VI. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

List of Subjects in 45 CFR Part 233

    Aliens, Grant Programs-Social Programs, Public Assistance Programs, 
Reporting and recordkeeping requirements.

    45 CFR Part 233 is amended as follows:

PART 233--COVERAGE AND CONDITIONS OF ELIGIBILITY IN FINANCIAL 
ASSISTANCE PROGRAMS

    1. The authority citation for part 233 continues to read as 
follows:

    Authority: 42 U.S.C. 301, 602, 602 (note), 606, 607, 1202, 1302, 
1352, and 1382 (note).

    2. In Sec. 233.101, the introductory text of paragraph (a) is 
republished and paragraph (a)(1) is revised to read as follows:


Sec. 233.101  Dependent children of unemployed parents.

    (a) Requirements for State plans. Effective October 1, 1990 (for 
Puerto Rico, American Samoa, Guam, and the Virgin Islands, October 1, 
1992), a State plan must provide for payment of AFDC for children of 
unemployed parents. A State plan under title IV-A for payment of such 
aid must:
    (1) Include a definition of an unemployed parent who is the 
principal earner which shall apply only to families determined to be 
needy in accordance with the provisions in Sec. 233.20 of this part. 
Such definition must have a reasonable standard for measuring 
unemployment and, at a minimum, include any such parent who:
    (i) Is employed less than 100 hours a month; or
    (ii) Exceeds that standard for a particular month, if the work is 
intermittent and the excess is of a temporary nature as evidenced by 
the fact that he or she was under the 100-hour standard for the prior 2 
months and is expected to be under the standard during the next month; 
except that at the option of the State, such definition need not 
include a principal earner who is unemployed because of participation 
in a labor dispute (other than a strike) or by reason of conduct or 
circumstances which result or would result in disqualification for 
unemployment compensation under the State's unemployment compensation 
law.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)


[[Page 42275]]


    Dated: October 14, 1997.
Nancy-Ann Min DeParle,
Deputy Administrator, Health Care Financing Administration.

    Dated: October 23, 1997.
Olivia A. Golden,
Principal Deputy Assistant Secretary, Administration for Children and 
Families.

    Dated: January 28, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-21146 Filed 8-4-98; 1:23 pm]
BILLING CODE 4120-01-P