[Federal Register Volume 64, Number 171 (Friday, September 3, 1999)]
[Rules and Regulations]
[Pages 48246-48258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23017]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 273

[Amt. No. 379]
RIN Number: 0584-AC63


Food Stamp Program: Food Stamp Provisions of the Balanced Budget 
Act of 1997

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim rule.

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SUMMARY: This rule will implement two food stamp provisions of the 
Balanced Budget Act of 1997. The first provision provides State 
agencies the authority to exempt from the food stamp time-limit at 
section 6(o)(2) of the Food Stamp Act of 1977 up to 15 percent of the 
State's caseload that is subject to the requirement. The second 
provision provides additional funding for administration of Food Stamp 
Employment and Training programs. These two provisions enhance State 
flexibility in exempting portions of a State agency's caseload from the 
food stamp time limit and increase significantly the funding available 
to create work opportunities for recipients that are subject to the 
time limit.

DATES: This rule is effective November 2, 1999. Comments must be 
received by November 2, 1999, in order to be assured of consideration.

ADDRESSES: Comments concerning this interim rule should be submitted to 
John Knaus, Branch Chief, Program Development Division, Food Stamp 
Program, Food and Nutrition Service, USDA, 3101 Park Center Drive, 
Alexandria, Virginia 22302; telephone: (703) 305-2519. Comments may 
also be datafaxed to the attention of Mr. Knaus at (703) 305-2486 or 
sent electronically through the internet to: [email protected]. 
All written comments will be open for public inspection at the office 
of the Food and Nutrition Service during regular business hours (8:30 
a.m. to 5 p.m., Monday through Friday) at 3101 Park Center Drive, 
Alexandria, Virginia, 22302, Room 720.


[[Page 48247]]


FOR FURTHER INFORMATION CONTACT: Questions regarding this interim 
rulemaking should be addressed to John Knaus, Branch Chief, at the 
above address or by telephone at (703) 305-2519.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This interim rule has been determined to be economically 
significant under Executive Order 12866 and Major under Public Law 104-
121, and was reviewed by the Office of Management and Budget.

Executive Order 12372

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

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley 
Watkins, Under Secretary for Food, Nutrition and Consumer Services has 
certified that this action will not have a significant economic impact 
on a substantial number of small entities. State welfare agencies and 
political subdivisions will be affected to the extent they must 
implement the provisions described in this action.

Executive Order 12988

    This interim rulemaking has been reviewed under Executive Order 
12988, Civil Justice Reform. This rule is intended to have preemptive 
effect with respect to any State or local laws, regulations or policies 
which conflict with its provisions or which would otherwise impede its 
full implementation. This rule is not intended to have retroactive 
effect unless so specified in the ``Effective Date'' paragraph of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions all applicable administrative 
procedures must be exhausted.

Unfunded Mandate Analysis

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

Paperwork Reduction Act

    This interim rule contains information collections which are 
subject to review by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995 (Pub. L. 104-13) (44 U.S.C. 3507).
    The reporting and recordkeeping burdens associated with the 15 
percent exemption and the increased funding for State food stamp 
employment and training programs authorized by the Balanced Budget Act 
of 1997 (Balanced Budget Act) and addressed in this rule necessitated a 
revision to a previously approved information collection activity, the 
Employment and Training Program Report (FNS-583), approved under OMB 
No. 0584-0339. Because the Balanced Budget Act mandated implementation 
of the food stamp provisions addressed in this rule effective October 
1, 1997, without regard as to whether regulations were promulgated to 
implement them, FNS submitted an emergency request to OMB on February 
17, 1998, to revise the information collection for the FNS-583 form to 
reflect the requirements of the statute. FNS estimated the total annual 
burden hours associated with the revised FNS-583 to be 195,363 hours--
182,643 hours for the work registration process, 2,762 hours for the 15 
percent ABAWD exemption, and 9,958 hours for the E&T funding 
requirements. OMB approved the burden estimate for the revised form for 
six months, with an expiration date of August 31, 1998.
    On April 27, 1998, FNS issued a notice in the Federal Register (63 
FR 20567) describing in detail the revised collection of information 
and requesting comments. FNS received no comments from the general 
public or other public agencies about the information collection.
    On September 23, 1998, FNS received an extension of OMB's approval 
of the revised burden estimate for the FNS-583 through September 30, 
2001.

Public Participation and Effective Date

    The amendments to sections 6(o) and 16(h) of the Food Stamp Act of 
1977 (Food Stamp Act) which are reflected in this rule were enacted on 
August 5, 1997, as sections 1001 and 1002, respectively, of the 
Balanced Budget Act, Title I, Pub. L. 105-33. The amendments were 
effective October 1, 1997. Section 1005 of the Balanced Budget Act 
required that regulations implementing sections 1001 and 1002 of the 
Act be promulgated no later than one year after the date of enactment 
of the amendments to the Food Stamp Act. In order to meet the 
requirement of section 1005 of the Balanced Budget Act, Shirley 
Watkins, Under Secretary for Food, Nutrition and Consumer Services, has 
determined, pursuant to 5 U.S.C. 533(b)(3)(B), that public comment on 
this rule prior to implementation is impracticable and that good cause 
exists for making this rule effective less than 30 days after its 
publication. However, because we believe that administration of the 
rule may be improved by public comment, comments are solicited on this 
rule for 60 days after publication. All comments received within the 
comment period will be analyzed, and any appropriate changes will be 
incorporated in the subsequent publication of a final rule.

Regulatory Impact Analysis

Need for Action

    This action is needed to implement section 1005 of the Balanced 
Budget Act. That section requires the Secretary of Agriculture to 
promulgate regulations implementing the amendments made to the Act by 
Title I of the Balanced Budget Act.

Benefits

    The provisions of this rule will provide State agencies the ability 
to exempt from the time limits at section 6(o)(2) of the Food Stamp Act 
(7 U.S.C. 2015(o)(2)) an additional 15 percent of the State's caseload 
subject to the requirement. It will also increase significantly the 
funding available to State agencies to create work opportunities for 
recipients subject to the time limit. Together the provisions, to the 
extent that they are fully

[[Page 48248]]

implemented by the States, will permit an estimated 84,000 recipients a 
month who are subject to the time limit at section 6(o)(2) of the Food 
Stamp Act to continue to receive Food Stamp Program benefits. Of these 
recipients, 64,000 will be exempted under the 15 percent waiver 
authority, with an additional 20,000 able to meet the work requirement 
and thus retain eligibility due to the expanded E&T funding.

Costs

    The amendments made by this rule will increase Food Stamp Program 
expenditures by $1.4 billion over the next five years.

Background

    On August 5, 1997, the President signed Public Law 105-33, the 
Balanced Budget Act of 1997. The Balanced Budget Act includes several 
provisions that affect the Food Stamp Program. This rule implements two 
provisions of the Balanced Budget Act. The first provision provides 
State agencies the authority to exempt from the time limit at section 
6(o)(2) of the Food Stamp Act up to 15 percent of the State's caseload 
subject to the requirement. The second provision provides additional 
funding for administration of Food Stamp Program Employment and 
Training (E&T) programs.

15 Percent Exemption

Background

    On August 22, 1996 the President signed the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (PRWORA) (Pub. L. 104-
193). Section 824 of the PRWORA amended section 6(o) of the Food Stamp 
Act to provide that able-bodied adults without dependents (ABAWDs) can 
only receive food stamps for 3 months in 3 years unless they are 
working, participating in a work program 20 hours per week, or 
participating in a workfare program. It exempts individuals from the 
time limit if they are under 18 or over 50, medically certified as 
physically or mentally unfit for employment, a parent or other 
household member with responsibility for a dependent child, exempt from 
work registration under 6(d)(2) of the Act, or pregnant. It provides 
that individuals can regain eligibility if they work 80 hours in a 30 
day period. Individuals maintain eligibility as long as they are 
satisfying the work requirement. If the individual later loses the job, 
he/she can receive an additional 3 months of food stamps while not 
working. The additional 3 months must be consecutive and begins on the 
date the individual notifies the State that he/she is no longer 
working. It should be emphasized that PRWORA provides an individual the 
opportunity to receive a maximum of 6 months of food stamps in a 3-year 
period without meeting the work requirement, if the two 3-month periods 
are interrupted by a period of work.
    The Food Stamp Act, as amended by PRWORA, allows waivers of the 
time limit for groups of individuals living in areas with an 
unemployment rate of more than 10 percent or where there are not a 
``sufficient number of jobs to provide employment for the 
individuals.'' 7 U.S.C. 2015(o)(4)(A)(ii). Subsequent to the enactment 
of PRWORA, the President signed the Balanced Budget Act. Section 1001 
of the Balanced Budget Act amended section 6(o) of the Food Stamp Act 
to allow State agencies to provide an exemption from the PRWORA-imposed 
time limits of section 6(o) of the Food Stamp Act for up to 15 percent 
of covered individuals. ``Covered individuals,'' as defined in section 
6(o)(6)(ii), are those ABAWDs who are not: excepted under paragraph 
6(o)(3) of the Food Stamp Act, covered by a waiver, complying with the 
work requirement, or in their first or second three months of 
eligibility. Section 1001 of the Balanced Budget Act gives the 
Secretary the authority to estimate for Fiscal Year (FY) 1998 the 
number of covered individuals in the State based on FY 1996 Quality 
Control data and other factors the Secretary considers appropriate due 
to the timing and the limitations of the data. It provides that 
beginning in FY 1999, the number of exemptions will be adjusted to 
reflect changes in (1) the State's entire caseload and (2) changes in 
the proportion of the State's food stamp caseload covered by the ABAWD-
related waivers. Section 1001 of the Balanced Budget Act also amended 
the Food Stamp Act to require that the Food and Nutrition Service (FNS) 
adjust the number of exemptions assigned for a current fiscal year 
based on the actual number of exemptions granted by the State agency in 
the preceding year. Finally, it gives FNS the authority to require 
whatever State reports it deems necessary to ensure compliance with the 
15 percent exemption provisions. FNS has no discretion in implementing 
this provision.
    Because there are many requirements of the PRWORA and the Balanced 
Budget Act which apply only to ABAWDs and the time limit, FNS is 
creating a new regulatory section, Sec. 273.24 in this interim rule. 
This interim rule will incorporate the Balanced Budget Act provisions 
regarding the 15 percent exemptions into Sec. 273.24. All the PRWORA 
provisions regarding ABAWDs and the time limit will be incorporated 
into Sec. 273.24 once the proposed rule implementing those provisions 
is finalized.

Determining How To Use the Exemptions

    The Balanced Budget Act provides that State agencies may allow an 
exemption from the time limits of section 6(o) of the Food Stamp Act of 
up to 15 percent of covered individuals. The law does not prescribe how 
the State agencies shall use the exemption authority. FNS recognizes 
that there are many ways a State agency may want to use the exemption 
authority. A State agency can, for example, exempt individuals pursuing 
their General Equivalency Diploma (GED), individuals residing in the 
balance of a county when only a partial county received a waiver under 
section 6(o)(4) of the Food Stamp Act, or individuals in an area that 
is geographically remote from the State's workfare sites. States could 
also use the exemptions to extend for a certain time the eligibility of 
individuals who have exhausted the time limit. Therefore, FNS will not 
be prescribing categories or geographic areas for which these 
exemptions must be used. Instead FNS will allow State agencies maximum 
flexibility regarding the 15 percent exemption authority. State 
agencies may apply the exemptions as they deem appropriate. At the same 
time FNS would like to remind State agencies that along with the 
flexibility they are afforded in terms of determining the exemption 
criteria comes the responsibility for developing exemption policies 
that comport with their number of exemptions. A State agency should 
maximize the number of exemptions without exceeding the number of 
exemptions allocated for the year.

Covered Individuals

    Section 1001 of the Balanced Budget Act amended section 6(o)(6)(ii) 
of the Food Stamp Act to provide that a State agency may provide an 
exemption from the time limits of section 6(o) for covered individuals. 
The Balanced Budget Act defined ``covered individuals'' as those ABAWDs 
who are not: excepted under paragraph 6(o)(3) of the Food Stamp Act, 
covered by a waiver under 6(o)(4) of the Food Stamp Act, complying with 
the work requirement of 6(o)(2) of the Food Stamp Act, or in their 
first or second three months of eligibility. FNS would like to clarify 
that it is up to the State

[[Page 48249]]

agency to decide whether or not an individual has to exhaust his/her 
first and second three months in order to qualify for an exemption 
under this provision. For example, a State agency may exempt every 
ABAWD who resides in the part of a county that was not already waived 
under 6(o)(4) regardless of whether or not they have exhausted their 
first and second three months. However, a State agency may determine 
that the best way to manage their finite number of 15 percent 
exemptions is to require individuals to exhaust their first and second 
three months before receiving an exemption under this provision.

Arriving at the By-State Numbers of Exemptions for FY 1998

    The Balanced Budget Act also amended section 6(o) of the Food Stamp 
Act to provide in paragraph (6)(C) that for FY 1998, a State agency may 
provide a number of exemptions such that the average monthly number of 
exemptions in effect during the fiscal year does not exceed 15 percent 
of the number of covered individuals in the State in FY 1998, as 
estimated by the Secretary, based on the FY 1996 Quality Control (QC) 
data and other factors the Secretary considers appropriate due to the 
timing and limitations of the survey.
    In a memorandum dated September 4, 1997, FNS advised the State 
agencies what their average number of monthly exemptions were for FY 
1998. To arrive at the number of covered individuals for each State, 
FNS began with the entire FY 96 QC data file, and then made adjustments 
by:
     Excluding recipients exempted from the ABAWD provisions
     Excluding to the extent possible those non-citizens made 
ineligible for food stamps after August 22, 1997
     Excluding the number of recipients who were complying with 
the work requirements
     Excluding to the extent possible those people who were at 
the time in their initial first three months of eligibility
     Adjusting this data to reflect the actual change in each 
State's caseload between FY 96 and FY 97 and the expected national 
caseload change between FY 97 and FY 98, and
     Excluding those individuals living in waived areas.
    To arrive at 15 percent of the covered individuals, FNS multiplied 
the number of covered individuals for each State by 15 percent.
    Based on this methodology, FNS authorized for FY 1998 approximately 
64,000 average monthly exemptions for ABAWDs nationwide and made 
allocations from this total to the States. It is important to note that 
the average number of exemptions allocated to each State for FY 1998 
was based on the number of covered individuals in FY 1996 (before the 
ABAWD time limits took effect) and, therefore, was likely greater than 
15 percent of the number of covered individuals in areas that have 
implemented the time limits.

Subsequent Fiscal Years

Determining the Number of Exemptions
    The Balanced Budget Act amended section 6(o) of the Food Stamp Act 
by adding paragraph (6)(D) (7 U.S.C. 2015(o)(6)(D)) to provide that for 
FY 1999 and subsequent fiscal years, a State agency may exempt up to 15 
percent of their unwaived, unemployed, childless able-bodied population 
from the three-month time limit. The number of exemptions allotted each 
State will reflect changes in the State's caseload and the proportion 
of food stamp recipients covered by waivers granted under paragraph 
6(o)(4) of the Food Stamp Act. FNS would like to clarify that the 
amendment to section 6(o) of the Food Stamp Act made by section 1001 of 
the Balanced Budget Act requires that the adjustments be based on 
changes in States' entire caseloads and not just ABAWD caseloads as 
stipulated in the Balanced Budget Act definition of caseload.
Adjusting the Exemptions Based on the Previous Year's Use
    The Balanced Budget Act also amended section 6(o) of the Food Stamp 
Act, again in paragraph (6)(D), to provide that for FY 1999 and each 
subsequent fiscal year, the Secretary shall increase or decrease the 
number of individuals who may be granted an exemption by a State agency 
to the extent that the average monthly number of exemptions in effect 
in the State for the preceding fiscal year is different than the 
average monthly number of exemptions estimated for the State agency for 
the preceding fiscal year. Therefore, if this level of exemptions is 
not used by the end of the fiscal year, the State may carry over the 
balance. If more exemptions are used than authorized in a fiscal year, 
the State's allocation for the next year will be reduced. Final 
information to make these adjustments will not be available until after 
the start of each fiscal year. Therefore, based on preliminary 
information, FNS will provide the State agencies with their average 
monthly number of exemptions prior to the start of each fiscal year, 
and will make adjustments based on final information if necessary.

Caseload Adjustments

    Section 1001 of the Balanced Budget Act also amended section 6(o) 
of the Food Stamp Act to provide that the Secretary shall adjust the 
estimated number of covered individuals allocated for a State during a 
fiscal year if the number of actual food stamp recipients in the State 
varies by more than 10 percent, as determined by the Secretary, from 
the State's average caseload for the 12-month period preceding June 30 
(7 U.S.C. 2015(o)(6)(E)). FNS would like to clarify that the adjustment 
will be based on the entire caseload and not just the ABAWD caseload. 
FNS will make only one adjustment a year. If an adjustment is 
necessary, FNS shall advise the State agencies during the third quarter 
of each fiscal year.

Reporting

    Finally, the Balanced Budget Act amended section 6(o) of the Food 
Stamp Act by adding paragraph (6)(G) to provide that the State agency 
shall submit such reports to the Secretary as the Secretary determines 
are necessary to ensure compliance with this provision. In order to 
monitor State's use of the exemptions and to provide assistance if 
necessary, FNS has determined that the State agency shall track and 
report the number of cases exempt under the 15 percent criteria. State 
agencies shall track the exemptions any way they deem appropriate. 
State agencies shall report the numbers to the FNS regional offices on 
a quarterly basis on the employment and training report (Form FNS-583), 
as provided for in Sec. 273.7(c)(6).

Quality Control Issues

    Since State agencies have complete discretion in determining which 
recipients will receive exemptions, FNS will not be proscribing 
categories or geographic areas. Therefore, QC will not evaluate States' 
actual exemption decisions against the exemption criteria they have 
adopted under the 15 percent criteria. However, in order to distinguish 
cases that are exempt under the 15 percent criteria from cases that are 
exempt under section 6(o) of the Food Stamp Act, covered by a waiver, 
or fulfilling the work requirement (which will be evaluated by QC), 
State agencies need to clearly identify those cases that are exempt 
under the 15 percent criteria. For example, a State agency decides to 
exempt everyone over the age of 45. QC pulls a case where the State 
agency exempted someone who is 43. Even though the State agency

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exempted someone under 45, the case would not be in error because the 
State agency can use the 15 percent exemption anyway it chooses. To 
avoid an error, however, the State agency must have documented in the 
casefile that the person was exempted under the 15 percent criteria.

Additional Funding for Food Stamp Employment and Training Programs

Background

    Current Food Stamp Program regulations at section 273.7(d) contain 
rules governing State agency use of Federal E&T grants. Current 
regulations require FNS to allocate an annual Federal E&T grant to 
State agencies based on the number of work registrants in each State 
compared to the number of work registrants nationwide. The grant is 100 
percent Federally funded and requires no State match. Under current 
regulations, each State agency must receive at least $50,000 in 100 
percent Federal funds. State agencies are required to use their E&T 
grants to fund the administrative costs of planning, implementing and 
operating E&T programs. FNS pays 50 percent of all other administrative 
costs above those covered by the 100 percent Federal grant that State 
agencies incur in operating their E&T programs.
    Section 1002 of the Balanced Budget Act provided an additional $599 
million over five years in 100 percent Federal funding for the 
operation of the E&T programs. It also amended section 16(h)(1) of the 
Food Stamp Act (7 U.S.C. 2025(h)(1)), to require that all 100 percent 
Federal E&T funding remain available to FNS to allocate to States until 
expended.
    The apparent intent behind the additional E&T funding provided by 
the Balanced Budget Act is to enable State agencies to provide 
additional work opportunities for individuals subject to the 3-month 
Food Stamp Program time limit discussed in the first section of this 
preamble. By providing State agencies with the resources to create more 
work opportunities, the supplemental funding will help insure that it 
is only those individuals who deliberately choose not to satisfy the 
program's work requirements who lose their eligibility and not those 
who are willing to work but cannot find opportunities to do so.

Increased Funding Levels

    Section 1002 of the Balanced Budget Act significantly increased the 
amount of 100 percent Federal funding available to State agencies for 
the operation of Food Stamp E&T programs. Section 817 of PRWORA amended 
section 16(h)(1) of the Food Stamp Act to provide $405 million in 100 
percent Federal E&T funding for FYs 1998 through 2002. The Balanced 
Budget Act further amended section 16(h)(1) of the Food Stamp Act to 
increase that amount by $599 million. It also amended section 16(h)(1) 
of the Food Stamp Act to require that all 100 percent Federal E&T 
funding remain available to FNS to allocate to States until expended.
    Whereas all State agencies are eligible to receive some percentage 
of the 100 percent Federal E&T funding provided under PRWORA, section 
1002 of the Balanced Budget Act further amended section 16(h)(1) to 
require that for a State agency to receive an allocation of the 
additional or ``supplemental'' funding provided under that Act, the 
State agency must maintain its level of expenditure of State funds on 
E&T and optional workfare programs at a level that is not less than the 
level of State agency expenditures on such programs in FY 1996. 
Therefore, only State agencies that choose to meet this maintenance of 
effort requirement are eligible to receive a portion of the 
supplemental Federal E&T funding provided by the Balanced Budget Act. 
The Balanced Budget Act's maintenance of effort requirement is 
discussed in greater detail below.

Allocation of E&T Grants

    Current regulations at Sec. 273.7(d)(1)(i)(A) require that 
nonperformanced-based, 100 percent Federal E&T funding be allocated 
among States based on the number of work registrants in each State 
relative to the total number of work registrants nationwide. In order 
to target Federal E&T funding toward serving recipients subject to the 
time limit at section 6(o)(2) of the Food Stamp Act, the Balanced 
Budget Act amended section 16(h)(1) of the Food Stamp Act to require 
that in FY 1998 E&T grants be allocated among States based on (1) 
changes in each State's caseload (defined as the average monthly number 
of individuals receiving food stamps during the 12-month period ending 
the preceding June 30); and (2) each State's portion of food stamp 
recipients who are not eligible for an exception under section 6(o)(3) 
of the Food Stamp Act to the work requirement at section 6(o)(2). The 
Balanced Budget Act further amended section 16(h) to require that in 
FYs 1999 through 2002, E&T grants be allocated to States based on (1) 
changes in each State's caseload; and (2) each State's portion of food 
stamp recipients who are not eligible for an exception under section 
6(o)(3) of the Food Stamp Act who (A) do not reside in an area of the 
State granted a waiver to the work requirement under section 6(o)(4) of 
the Food Stamp Act, or (B) do reside in an area of the State granted a 
waiver to the work requirement under section 6(o)(4) of the Food Stamp 
Act if the State agency provides E&T services in the area to food stamp 
recipients who are subject to the work requirement. This rulemaking 
amends food stamp regulations at Sec. 273.2(d)(1)(i)(C) to describe the 
new procedures for allocating Federal E&T grants.
    Section 1002 of the Balanced Budget Act further amended section 
16(h) of the Food Stamp Act to require that, for purposes of 
determining each State's allocation of the Federal E&T grant in a 
fiscal year, FNS estimate the portion of food stamp recipients residing 
in each State who are not eligible for an exception under section 
6(o)(3) of the Food Stamp Act using the 1996 QC survey data. This 
rulemaking amends food stamp regulations at Sec. 273.2(d)(1)(i)(D) to 
incorporate this requirement.
    In accordance with the requirements of the Balanced Budget Act, FNS 
used the following three-step process to determine each State's 
allocation of Federal E&T funds in FY 1998:
    1. Determine Population Not Excepted from Work Requirement. FNS 
estimated the portion of food stamp recipients residing in each State 
who are not eligible for an exception under section 6(o)(3) of the Food 
Stamp Act to the work requirement at section 6(o)(2) of that Act using 
the 1996 QC survey data.
    2. Adjust for Expected Caseload Changes. FNS determined the actual 
changes in each State's caseload between FY 96 and FY 97 and the 
expected change in national caseload between FY 97 and FY 98. These 
adjustments provided a caseload adjustment percentage for each State 
that FNS used to modify the FY 96 QC data to represent, as closely as 
possible, the population in each State in FY 98 that is not eligible 
for an exception under section 6(o)(3) of the Food Stamp Act.
    3. Determine the State-By-State Allocation of the 100 percent 
Federal E&T Grant. FNS established the percentage basis for the E&T 
allocation by dividing each State's estimated FY 98 population of 
recipients not eligible for an exception under section 6(o)(3) of the 
Food Stamp Act by the national estimate of that population in FY 98. 
FNS then multiplied the resulting percentage by both the base Federal 
E&T appropriation of $81 million provided under PRWORA and the 
supplemental appropriation of $131 million provided

[[Page 48251]]

under the Balanced Budget Act to determine each State's share of base 
and supplemental E&T funds. All State agencies were eligible for the 
base allocation. To receive a supplemental allocation, a State agency 
must meet its maintenance of effort requirement as described below.
    To determine each State agency's allocation of 100 percent Federal 
E&T funds in FYs 1999 through 2002, FNS will follow the same three-step 
procedure as described above, except that in estimating the number of 
recipients in each State not eligible for an exception under section 
6(o)(3) of the Food Stamp Act, FNS will adjust FY 96 QC data by 
eliminating recipients eligible for an exception under section 6(o)(3) 
who reside in an area of the State granted a waiver to the work 
requirement under section 6(o)(4) of the Food Stamp Act except if the 
State agency provides E&T services in the area to food stamp recipients 
who are subject to the work requirement. (FNS estimates that 30 out of 
the 39 State agencies which had waivers under section 6(o)(4) in April 
1998 provided E&T services in at least some of the waived areas). FNS 
will also adjust QC data to reflect caseload changes for the 
appropriate fiscal years.
    Current regulations at Sec. 273.7(d)(1)(i)(B) require that each 
State agency receive at a minimum $50,000 in 100 percent Federal E&T 
funding a year. The Balanced Budget Act left this requirement 
unchanged. In order to ensure that each State agency receives a minimum 
allocation of $50,000, FNS shall reduce the grant of each State agency 
that is allocated to receive more than $50,000, if necessary, 
proportionate to the number of food stamp recipients not eligible for 
an exception under section 6(o)(3) of the Food Stamp Act that reside in 
the State as compared to the total number of such recipients in all the 
State agencies receiving more than $50,000. The funds from the 
reduction shall be distributed to State agencies initially allocated to 
receive less than $50,000 so that they receive the $50,000 minimum. 
This rulemaking amends Food Stamp Program regulations at 
Sec. 273.2(d)(1)(i)(E) to incorporate this requirement.
    Current regulations at Sec. 273.7(d)(1)(i)(D) provide that FNS may 
reallocate unexpended 100 percent Federal E&T grants during a fiscal 
year if a State agency will not expend all of its E&T grant. The 
Balanced Budget Act contains the same requirement except it provides 
FNS the authority to reallocate unexpended funds in the fiscal year 
that those funds are allocated or the next fiscal year. This rulemaking 
amends Food Stamp Program regulations at Sec. 273.2(d)(1)(i)(F) to 
incorporate this requirement.

Use of Funds

    The Balanced Budget Act amended section 16(h)(1)(E) of the Food 
Stamp Act to require that at least 80 percent of the 100 percent 
Federal E&T grant a State agency receives in a fiscal year, including 
both the base allocation for which each State agency is eligible and 
the supplemental allocation available only to State agencies that 
choose to meet their maintenance of effort requirement, be earmarked to 
serve food stamp recipients who are not eligible for an exception under 
section 6(o)(3) of the Food Stamp Act and who are placed in and comply 
with either a workfare program that meets the requirements of section 
20 of the Food Stamp Act, 7 U.S.C. 2029, or a comparable program 
established by a State or political subdivision of a State, or a work 
program for 20 hours or more per week. The 80 percent use of funds 
requirement applies to any grant of 100 percent Federal E&T funds a 
State receives in a fiscal year, including both the initial grant 
received by a State at the beginning of a fiscal year and any grant 
composed of reallocated funding which a State receives during a fiscal 
year. State funds, including State monies expended to satisfy a State 
agency's maintenance of effort requirement as described in the next 
section, are not subject to the requirement.
    The remaining 20 percent of a State's 100 percent Federal E&T grant 
may be used to provide work activities for food stamp recipients who 
are eligible for an exception under section 6(o)(3) of the Food Stamp 
Act, or on work activities that do not qualify either as work or 
workfare programs under sections 6(o)(2)(B) and (C) of the Food Stamp 
Act, such as job search or job search training programs for any food 
stamp recipient.
    Although the language of section 1002 of the Balanced Budget Act 
which amends section 16(h)(1)(E) of the Food Stamp Act might be 
interpreted as requiring that a specified dollar amount (not less than 
80 percent of the funds actually received by a given State agency) must 
be expended by the State agency to serve ABAWDs in qualifying 
activities, such an interpretation would necessitate an accounting of 
each dollar expended by a State so that no less than 80 cents could be 
used to serve ABAWDs in qualifying activities and, conversely, not more 
than 20 cents could be expended for other allowable E&T costs. In 
addition, if a State agency wished to expend the full 20 percent of its 
allocation permitted to be used for unrestricted E&T activities, it 
would be required to expend all of the amount allocated to it in order 
to meet the 80 percent requirement. However, because nothing in the 
Balanced Budget Act specifies that 80 percent of the funds which are 
restricted to serving ABAWDs in qualifying activities must be expended 
before a State agency may expend any of the 20 percent which may be 
used for other E&T purposes, the Department is permitting State 
agencies to spend the 20 percent of their E&T allocations that are 
available for non-ABAWD activities independent of whether they spend 
any of the 80 percent of their E&T grants that are earmarked for 
ABAWDs. This interpretation of Section 1002 of the Balanced Budget Act 
will significantly increase State flexibility in operating their E&T 
programs.
    State agencies, therefore, are not required to utilize all or any 
of the 80 percent of their 100 percent E&T grant earmarked to serve 
participants subject to the work requirement but may operate their E&T 
programs utilizing only the 20 percent of their grant available to 
serve non-ABAWDs and to be spent on non-qualifying activities. If a 
State agency chooses not to spend some or any of the 80 percent of its 
E&T grant earmarked for ABAWDs and ABAWD qualifying activities, 
however, FNS may reallocate the unexpended funds to other State 
agencies as it considers appropriate and equitable in accordance with 
regulations at Sec. 273.2(d)(1)(i)(F).
    If a State agency spends more than 20 percent of the 100 percent 
E&T grant it receives for a fiscal year to provide work activities for 
food stamp recipients eligible for an exception under section 6(o)(3) 
of the Act, or on activities that do not qualify either as work or 
workfare programs under sections 6(o)(2)(B) and (C) of the Food Stamp 
Act, the allowable costs incurred that are in excess of the 20 percent 
threshold will be reimbursed at the normal administrative 50-50 match 
rate.
    One hundred percent E&T funds that a State expends on ABAWDs who 
reside in an area of a State granted a waiver under section 6(o)(4) of 
the Food Stamp Act or on ABAWDs who have been granted an exemption 
under section 6(o)(6) of the Act will count toward the 80 percent 
expenditure requirement so long as the funds are spent creating 
activities that meet the requirements of sections 6(o)(2)(B) and (C).
    This rulemaking amends food stamp regulations to add a new section 
that contains the requirements for State agency use of Federal 100 
percent E&T

[[Page 48252]]

funding established by the Balanced Budget Act. The new section will be 
designated Sec. 273.7(d)(1)(ii) and titled ``Use of funds.'' Former 
Sec. 273.7(d)(1)(ii), which contained requirements for reimbursements 
for E&T program participants, will be redesignated Sec. 273.7(d)(1)(v) 
and remain unchanged except for changes to several cite references.
    Regulations currently contained at Sec. 273.7(d)(1)(i)(E), (F), and 
(G), list additional requirements for use of Federal 100 percent E&T 
funds. Current regulations at Sec. 273.7(d)(1)(i)(E) require that 
Federal 100 percent E&T grants be used only for the purposes of funding 
the administrative costs of planning, implementing, and operating E&T 
programs and not for funding other activities, such as work 
registration or sanctioning activities. Current regulations at 
Sec. 273.7(d)(1)(i)(F) require that State agencies have an E&T plan 
approved by FNS prior to receiving any Federal 100 percent E&T funding. 
Current regulations at Sec. 273.7(d)(1)(i)(G) prohibit State agencies 
from using Federal 100 percent E&T funding to supplant nonfederal funds 
for existing educational services and activities that are part of 
allowable E&T components. This rulemaking makes no changes to the 
content of any of the three provisions but moves them all to revised 
Sec. 273.7(d)(1)(ii) in order that all requirements concerning use of 
Federal 100 percent E&T funds may be in the same location. Current 
regulations at Sec. 273.7(d)(1)(i)(E), (F), and (G) will be 
redesignated as Sec. 273.7(d)(1)(ii)(E), (F), and (G), respectively.
    As noted above, section 824 of the PRWORA amended section 6(o) of 
the Food Stamp Act to provide that ABAWDs can only receive food stamps 
for 3 months in 3 years unless they are working, participating in a 
workfare program, or participating in a work program for 20 hours or 
more per week. Section 824 defined a work program as a program operated 
under the Job Training Partnership Act (JTPA), a program under section 
236 of the Trade Act of 1974, or an E&T program operated or supervised 
by the State or a political subdivision that meets standards approved 
by the Governor of the State, other than a job search or job search 
training program. On August 7, 1998, President Clinton signed the 
Workforce Investment Act of 1998 (WIA) (Pub. L. 105-220). Section 199 
of the WIA repeals the JTPA effective July 1, 2000. Section 199(A) of 
that Act requires that all references in any other law to the JTPA be 
deemed to refer to the corresponding provision in the WIA. To address 
this change, the new regulations at Sec. 273.7(d)(1)(ii)(A) define a 
qualifying work program as one operated under the JTPA or, after July 
1, 2000, one that was previously operated under the JTPA that is now 
operated under the WIA, a program under section 236 of the Trade Act of 
1974, or an E&T program operated or supervised by the State or a 
political subdivision that meets standards approved by the Governor of 
the State, other than a job search or job search training program.

Maintenance of Effort

    Section 1002 of the Balanced Budget Act also amended section 
16(h)(1)(F) of the Food Stamp Act to require that, in order for a State 
agency to receive its portion of the supplemental E&T funds allocated 
under the Balanced Budget Act in any fiscal year, that State agency 
must spend in that fiscal year at least the same amount of State funds 
it spent in FY 96 to administer E&T and the optional workfare program 
(if one was available).
    State agencies are required to meet the maintenance of effort 
requirement only if they wish to spend some or all of the supplemental 
E&T allocation provided under the Balanced Budget Act. State agencies 
that chose not to utilize any of the supplemental allocation for which 
they are eligible are not required to satisfy the maintenance of effort 
requirement. If a State agency chooses not to meet its maintenance of 
effort requirement, the supplemental allocation for which it was 
eligible will be reallocated to other States in accordance with 
regulations at Sec. 273.7(d)(1)(i)(F).
    In order to increase State flexibility in operating E&T programs, 
FNS is not requiring State agencies to expend all of their required 
maintenance of effort funds before they begin spending their 
supplemental E&T grants. Instead, FNS is requiring those State agencies 
which plan to spend the supplemental allocation for which they are 
eligible in a fiscal year to provide in their annual State E&T plans 
good faith assurance that they will meet their maintenance of effort 
requirement. This rulemaking amends E&T State plan requirements at 
Sec. 273.7(c)(4)(ii) to add this requirement. At the end of each fiscal 
year, FNS will review State expenditures for operating food stamp E&T 
programs to ensure that State agencies which noted in their E&T plans 
that they intended to meet their maintenance of effort (MOE) 
requirements did in fact do so.
    In accordance with the requirements of section 1002 of the Balanced 
Budget Act, State funds that are expended to meet a State's MOE 
requirement are not subject to the use of funds requirement that at 
least 80 percent of a State agency's E&T grant be earmarked to serve 
individuals subject to the work requirement at section 6(o)(2) of the 
Food Stamp Act and to operate activities that meet the requirements of 
sections (6)(o)(2)(B) and (C).
    State agencies may not count participant reimbursements as part of 
their maintenance of effort expenditure, as this is prohibited under 
section 16(h)(3) of the Food Stamp Act. The only exception is in the 
case of optional workfare programs in which reimbursements to 
participants for work-related expenses are counted as part of the State 
agency's administrative expenses. The only State agencies that operated 
optional workfare programs in FY 96 were Florida, North Carolina, 
Wisconsin, Arkansas, and Colorado. They are the only State agencies 
that may apply this exception.
    This rulemaking amends food stamp regulations to add a new section 
that contains the maintenance of effort requirements established by the 
Balanced Budget Act. The new section will be designated 
Sec. 273.7(d)(1)(iii) and titled ``Maintenance of Effort.'' Former 
Sec. 273.7(d)(1)(iii), which provided for a 50 percent Federal match 
for administrative costs incurred by State agencies in operating E&T 
programs, will be redesignated Sec. 273.7(d)(1)(vi).

Component Costs

    Section 1002 of the Balanced Budget Act amended section 16(h)(1) of 
the Food Stamp Act to require FNS to monitor State expenditures of 100 
percent Federal E&T funding, including the costs of individual 
components of State E&T programs. The Balanced Budget Act also provided 
FNS the discretion to set reimbursable costs for individual components 
of State E&T programs, making sure that the amount spent or planned to 
be spent on the components reflect the reasonable cost of efficiently 
and economically providing components appropriate to recipients' 
employment and training needs.
    FNS has determined that setting reimbursement rates for E&T 
activities is necessary to promote the intent of the increased E&T 
funding, which was to create a sufficient number of work opportunities 
so that as many food stamp recipients as possible who are subject to 
the work requirement that wish to work can be given the opportunity to 
do so before losing eligibility for the program. Use of the 
reimbursement rates will help to ensure that the maximum number of work 
opportunities can be created with the available funds, thus potentially

[[Page 48253]]

keeping as many ABAWDs as possible eligible for the program.
    FNS recognizes, however, that use of the reimbursement rates will 
significantly increase State administrative burdens. Therefore, FNS is 
operating a one-year demonstration to test an alternative to the 
reimbursement rates. Under the alternative, a State agency may spend 
its Federal 100 percent E&T allocation without consideration of per 
slot costs if the State agency commits to offering a work opportunity 
to every ABAWD applicant or recipient who has exhausted the food stamp 
time limit. The alternative to the reimbursement rates is discussed in 
more detail below.
    The reimbursement rates represent FNS' estimate of the reasonable 
cost of efficiently and economically providing the work opportunities. 
The rates apply to all 100 percent Federal E&T funds which a State 
expends to provide work activities that meet the requirements of 
section 6(o)(2)(B) and (C) of the Food Stamp Act for food stamp 
recipients who are (1) subject to the work requirement at section 
6(o)(2), exempt from the requirement because they reside in an area of 
a State granted a waiver under section 6(o)(4), or (3) granted an 
exemption from the requirement under section 6(o)(6) of the Act. The 
rates do not apply to expenditures of the 20 percent of a State's 100 
percent E&T grant that is not earmarked for ABAWDs, unless those funds 
are used to create qualifying workfare and education and training slots 
for ABAWDs.
    The reimbursement rates went into effect on October 1, 1998. For FY 
1998, the reimbursement rates did not apply and State agencies were 
reimbursed for their actual costs in creating work slots. States were 
notified of the reimbursement rates by memorandum from FNS regional 
offices in February 1998. The amount of the reimbursement rates, which 
is discussed below, may be revised based on cost data submitted by 
State agencies. If the rates are revised, FNS will inform States of the 
new rates through a policy memorandum.
    In determining the reimbursement rates, FNS utilized available 
information on the costs of providing E&T components that meet the 
requirements of section 6(o)(2)(B) and (C). Because State agencies have 
generally emphasized in their E&T programs activities such as job 
search and job club that are expressly prohibited as qualifying work 
programs under sections 6(o)(2)(B) and (C), FNS had little information 
that is directly applicable in establishing reimbursement rates for 
qualifying work activities. However, information from job search 
activities was used as a basis for extrapolating certain costs, such as 
for intake and monitoring, that are common to workfare and education 
and training programs. FNS, therefore, has been able to use the 
information it has available, in combination with information from 
other sources, including a study of workfare programs conducted by the 
Manpower Demonstration Research Corporation,\1\ to establish what it 
believes to be a reasonable estimate of the maximum costs State 
agencies will need to spend to provide workfare and education and 
training slots for recipients not eligible for an exception under 
section 6(o)(3).
---------------------------------------------------------------------------

    \1\ Unpaid Work Experience for Welfare Recipients: Findings and 
Lessons from MDRC Research, 1993. Thomas Brock, David Butler, David 
Long.
---------------------------------------------------------------------------

    FNS has established one reimbursement rate for both workfare and 
20-hour a week work program components. However, because FNS recognizes 
the uncertain level of compliance with various work requirements among 
the childless, able-bodied adult population subject to the work 
requirement at section 6(o)(2), it has set two levels for the 
reimbursement rate--one level for filled work slots and the other for 
unfilled or ``offered'' work slots. A slot is ``filled'' when a 
participant reports to a work or training site to begin his or her work 
activities. A slot is ``offered'' when a bona fide workfare or training 
opportunity is made available to a participant (i.e., the participant 
is told to report to a work site at a given date and time) but the 
participant either refuses the assignment or does not report. This two-
tiered rate structure insures that a State agency is not denied 
reimbursement for costs it incurred in creating work opportunities when 
program participants choose not to comply with program work 
requirements.
    It should be noted that under the reimbursement rate structure 
State agencies are reimbursed not for simply creating qualifying 
workfare or 20-hour-a week education/training slots but for placing, or 
offering to place, participants who are subject to the food stamp work 
requirement in those slots. A State agency that assigns two ABAWDs to 
the same work slot (one to work four hours in the morning, the other 
four hours in the afternoon), would claim reimbursement for two filled 
slots since two ABAWDs are retaining eligibility for the program. A 
State agency that assigns one ABAWD to two slots in one month, a 
workfare slot and a 20-hour-a-week education and training slot, may 
only claim reimbursement for one filled slot for that month because 
only one ABAWD is retaining eligibility for the program.
    The reimbursement rates currently are as follows:

Offered Work Slot: $30
Filled Work Slot: $175

    These rates represent the maximum amount of 100 percent Federal 
funds that FNS will reimburse State agencies for their expenditures in 
providing workfare and work program slots that meet the requirements of 
section 6(o)(2)(B) and (C). The rates represent a monthly average per 
slot cost, although reconciliation will be conducted on a yearly, not 
monthly, basis.
    To apply the rates, FNS will sum the number of filled and unfilled 
slots a State agency reports at the end of a fiscal year and multiply 
each by the appropriate rate. FNS will add the two resulting sums and 
compare that against the State's actual expenditure of Federal E&T 
money for that year. If the amount spent is less than the amount 
allowed under the rates, the actual amount would be paid out of the E&T 
grant. If the amount spent by the State agency exceeds the amounts 
allowed under the rates, the State agency will be required to pay that 
excess amount out of their own funds (which would be eligible for the 
standard 50 percent administrative cost Federal match). This procedure 
allows State agencies to average the cost of creating slots--i.e., 
balance the cost of higher priced slots with lower costing slots--and 
still fall within the rate structure.
    FNS is confident that State agencies will be able to create work 
opportunities within the fiscal constraints set by the rates. Not only 
will State agencies be able to average the costs of more expensive and 
less expensive work slots over a fiscal year, but the two-tiered rate 
structure enables State agencies to effectively claim reimbursement for 
more than the fixed rate for a filled slot. Although the reimbursement 
rate for a filled slot is $175, State agencies can claim an additional 
$30 reimbursement if the slot is turned down by one participant before 
being accepted by another. For example, if a work slot is refused by 
four participants before being accepted by a fifth, the State agency 
may claim reimbursement for offering the slot four times, or $120, in 
addition to claiming a $175 reimbursement for filling the slot. In 
other words, the State agency could claim $295 under this example for 
the cost of creating one work slot.
    A State agency may not claim reimbursement for a filled slot for a 
participant who is satisfying the work

[[Page 48254]]

requirement by working 20 hours or more a week. In this case, the State 
agency is incurring no reimbursable E&T cost (costs associated with 
monitoring the participant's employment would be included as 
certification costs).
    As noted above, FNS may revise the amount of the reimbursement 
rates based on actual data on the cost of creating work slots compiled 
by State agencies. This information may be forwarded to FNS at the 
address noted earlier in this document. FNS would also be interested in 
obtaining from States examples of the types of E&T components that 
States would like to operate for ABAWDs which they are not currently 
operating, either because the components cannot be supported under the 
existing reimbursement rate structure or for some other reason. States 
should provide estimates of the costs of these components.
    This rulemaking amends food stamp regulations to add a new section 
that contains requirements regarding E&T components costs. The new 
section will be designated Sec. 273.7(d)(1)(iv) and titled ``Component 
Costs.'' Former Sec. 273.7(d)(1)(iii), which provides that enhanced 
cost-sharing for placement of workfare participants in paid employment 
be available only for placements that occur through optional workfare 
programs funded under Sec. 273.22(g), will be redesignated 
Sec. 273.7(d)(1)(vii).

Reporting Requirements

    Current regulations at Sec. 273.7(c)(6) contain requirements for 
State agency reporting of monthly figures for E&T program participants. 
Current regulations at Sec. 273.7(d)(3) contain the requirements for 
State agency reporting of expenditures on food stamp E&T programs.
    Because of the new restrictions on the use of Federal 100 percent 
E&T funding imposed by the Balanced Budget Act and described in this 
rulemaking, FNS is increasing the reporting burden on State agencies 
with regard to E&T programs. Although increased reporting requirements 
impose increased administrative burdens on States, FNS concluded that 
increasing State reporting requirements for E&T activities was the 
simplest and most efficient means for monitoring State compliance with 
the 80-20 use of funds requirement and the component cost reimbursement 
rates, both described earlier in this memorandum.
    In addition to submitting all the information previously required 
under Sec. 273.7(c)(6) and Sec. 273(d)(3), State agencies must report 
the number of workfare and 20-hour-a-week education and training slots 
they created to serve recipients subject to the work requirement at 
section 6(o) of the Food Stamp Act. This information must be broken out 
to show the number of slots that were filled and the number that were 
offered. State agencies must further break out the information to show 
the number of slots that were created in areas of a State that have 
received a waiver in accordance with section 6(o)(4) and in non-waived 
areas (this information will be used by FNS to evaluate the impact on 
participants subject to the work requirement of allowing State agencies 
to spend the 80 percent of their 100 percent Federal E&T grant on 
ABAWDs not in danger of losing eligibility). State agencies must also 
report the amount of Federal 100 percent E&T funding spent on workfare 
slots and on qualifying 20-hour-a-week work program slots that were 
created to serve recipients subject to the work requirement at section 
6(o). This information must be included on the Employment and Training 
Program Report (FNS-583).
    In this rulemaking we are amending food stamp regulations at 
Sec. 273.7(c)(6) and Sec. 273(d)(3) to incorporate the new reporting 
requirements.

Alternative to the Reimbursement Rates

    Although FNS believes that the reimbursement rate structure will be 
effective in creating a sufficient number of work opportunities to 
insure that most ABAWDs who want to work will be provided the 
opportunity to do so before losing eligibility for the Food Stamp 
Program, we are also interested in exploring alternatives to the rate 
structure which will provide State agencies greater flexibility while 
at the same time satisfying the intent behind the increased funding 
provided under the Balanced Budget Act. To this end, FNS will operate 
in FY 1999 a one-year demonstration under which a State agency may 
spend its Federal 100 percent E&T allocation without consideration of 
per slot costs if the State agency commits to offering a work 
opportunity to every ABAWD applicant or recipient who has exhausted the 
time limit and does not reside in an area of a State that has a 
received a waiver in accordance with section 6(o)(4) or has not already 
received an exemption from the work requirement in accordance with 
section 6(o)(6).
    FNS will monitor whether State agencies approved for this 
alternative are meeting their commitment to offer work opportunities to 
all ABAWDs that have exhausted the time limit. In addition, QC errors 
will be cited against a State agency operating under this alternative 
if it terminated an ABAWD from the program, denied his or her 
application because of the time limit without offering the ABAWD a work 
slot, or issued benefits to an individual that had exhausted his or her 
three months of eligibility but was not offered a slot. A State agency 
that does not appear to be meeting its commitment, or that has a 
significant number of such QC errors will be required to correct its 
operation or be denied this alternative if FNS allows it in future 
years.
    The State agencies that operate under this alternative must still 
meet the requirement that not less than 80 percent of the 100 percent 
Federal funds the State agency expends in a fiscal year be spent on 
activities that meet the requirements of sections 6(o)(2)(B) and (C) of 
the Food Stamp Act.
    The criteria FNS shall use to select the State agencies that may 
participate in the alternative shall include the following factors:
    The size of a State agency's ABAWD caseload;
    The State agency's ability to offer a work opportunity to every 
ABAWD applicant and participant that has exhausted the time limit;
    The State agency's procedures for monitoring its compliance with 
the requirements of the demonstration; and
    The State agency's plans for taking corrective action if compliance 
is not being met.
    FNS welcomes comments from States on the alternative program. FNS 
would also be interested in obtaining from States other proposals for 
alternatives or modifications to the rate structure, such as providing 
States a temporary exemption from the rates to start new food stamp E&T 
programs in areas not previously served or to expand the capacity of 
existing programs so that all ABAWDs reaching the time limit can be 
provided with qualifying work opportunities.
    Because FNS is operating the reimbursement rate alternative as a 
one year demonstration that began on October 1, 1998, we are not 
including in this interim rule regulations on the alternative program. 
However, depending on the comments received on this program and FNS' 
evaluation of the demonstration, FNS may elect to implement the 
reimbursement rate alternative as a permanent program available to all 
States. If a permanent program is implemented, regulations will be 
issued, possibly in the final version of this interim rule.

[[Page 48255]]

Report to Congress

    Section 1002(b) of the Balanced Budget Act requires that not later 
than 30 months after the date of enactment of the Act, The Secretary of 
Agriculture must submit to the Committee on Agriculture of the House of 
Representatives and the Committee on Agriculture, Nutrition, and 
Forestry of the Senate a report regarding whether the increased E&T 
funds provided under section 1002 of the Balanced Budget Act have been 
used by State agencies to increase the number of work slots for 
recipients subject to the food stamp time limit at section 6(o) of the 
Food Stamp Act (7 U.S.C. 2015(o)) in employment and training programs 
and workfare in the most efficient and effective manner practicable.
    In order to complete the required report, the Department of 
Agriculture released a Request for Proposals in April 1998 in which it 
solicited bids from parties interested in conducting the study. In 
September 1998, the contract to complete the E&T study was awarded to 
Health Systems Research, an independent research group.

Implementation

    State welfare agencies have been instructed through agency 
directive to implement the provisions of the BBA without waiting for 
formal regulations. Sections 1001 (15 percent exemption) and 1002 
(increased E&T funding) were required to be implemented as of October 
1, 1997. The changes in this rule are effective and must be implemented 
November 2, 1999. Any variances resulting from implementation of the 
provisions of this amendment shall be excluded from error analysis for 
120 days from this required implementation date in accordance with 
Sec. 275.12(d)(2)(vii).

List of Subjects

7 CFR Part 272

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

7 CFR Part 273

    Administrative practice and procedures, Aliens, Claims, Food 
Stamps, Fraud, Grant Programs--social programs, Penalties, Reporting 
and recordkeeping requirements, Social Security, Students.
    Accordingly, 7 CFR parts 272 and 273 are amended as follows:
    1. The authority citation for 7 CFR parts 272 and 273 continues to 
read as follows:

    Authority: 7 U.S.C. 2011-2036.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, paragraph (g)(156) is added to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (156) Amendment No. 379. The provision of Amendment No. 379 
regarding the 15-percent exemption and additional funding for E&T is 
effective and must be implemented no later than November 2, 1999. Any 
variances resulting from implementation of the provisions of this 
amendment shall be excluded from error analysis for 120 days from this 
required implementation date in accordance with Sec. 275.12(d)(2)(vii) 
of this chapter.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    3. In Sec. 273.7:
    a. A fourth sentence is added to the end of paragraph (c)(4)(ii).
    b. New paragraphs (c)(6)(vi) and (c)(6)(vii) are added;
    c. Paragraph (d)(1)(i) is revised.
    d. Paragraphs (d)(1)(ii), (d)(1)(iii), and (d)(1)(iv) are 
redesignated as (d)(1)(v), (d)(1)(vi) and (d)(1)(vii), respectively;
    e. Newly redesignated paragraph (d)(1)(v) is amended by removing 
references to ``(d)(1)(ii)(A)'' and ``(d)(1)(ii)(B)'' wherever they 
appear, and by adding in their place references to ``(d)(1)(v)(A)'' and 
``(d)(1)(v)(B)''.
    f. New paragraphs (d)(1)(ii), (d)(1)(iii), and (d)(1)(iv) are 
added;
    g. A fourth sentence is added to paragraph (d)(3).
    The revisions and additions read as follows:


Sec. 273.7  Work requirements.

* * * * *
    (c) State agency responsibilities. * * *
    (4) * * *
    (ii) * * * A State agency which intends to spend the supplemental 
E&T grant allocation for which it is eligible in a fiscal year in 
accordance with paragraph (d)(1)(i)(B) of this section must declare its 
intention to maintain its level of expenditures for E&T and workfare at 
a level not less than the level of such expenditures in FY 1996.
* * * * *
    (6) * * *
    (vi) The number of filled and offered slots created under a 
workfare program as described in Sec. 273.22 or a comparable program 
that are intended to serve recipients subject to the work requirement 
at section 6(o) of the Food Stamp Act. This information must be broken 
out to show the number of slots that were created in areas of the State 
that have received a waiver in accordance with section 6(o)(4) of the 
Food Stamp Act and in non-waived areas;
    (vii) The number of filled and offered slots created under a 20-
hour-a-week work program as described in paragraph (d)(1)(ii)(A) of 
this section that are intended to serve recipients subject to the work 
requirement at section 6(o) of the Food Stamp Act. This information 
must be broken out to show the number of slots that were created in 
areas of the State that have received a waiver in accordance with 
section 6(o)(4) of the Food Stamp Act and in non-waived areas;
* * * * *
    (d) Federal financial participation. (1) Employment and training 
grants.--(i) Allocation of grants. Each State agency will receive an 
E&T program grant for each fiscal year to operate an E&T program. The 
grant will consist of a base amount that requires no State matching and 
a supplemental amount which will be available only to those State 
agencies that elect to meet their maintenance of effort requirements as 
described in paragraph (d)(1)(iii) of this section.
    (A) In determining each State agency's base 100 percent Federal E&T 
grant amount for FYs 1998 through 2002, FNS will apply the percentage 
determined in accordance with paragraph (d)(1)(i)(C) of this section to 
the total amount of 100 percent Federal E&T grant provided under the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
for each fiscal year.
    (B) In determining each State agency's supplemental 100 percent 
Federal E&T grant amount for FYs 1998 through 2002, FNS will apply the 
percentage determined in accordance with paragraph (d)(1)(i)(C) of this 
section to the total amount of 100 percent Federal E&T grant provided 
under the Balanced Budget Act of 1997 for each fiscal year.
    (C) Except as otherwise provided in paragraph (d)(1)(i)(F) of this 
section, effective in FY 1998, Federal funding for E&T grants, 
including both the base and supplemental amounts, shall be allocated on 
the basis of food stamp recipients in each State who are not eligible 
for an exception under section 6(o)(3) of the Food Stamp Act as a 
percentage of such recipients nationwide. Effective in FY 1999, Federal 
funding for E&T grants shall be allocated on the basis of food stamp 
recipients in each State who are not eligible for an exception under 
section 6(o)(3) of the Food Stamp Act and who either do not reside in 
an area subject

[[Page 48256]]

to a waiver granted in accordance with section 6(o)(4) of the Food 
Stamp Act or do reside in an area subject to a waiver in which the 
State agency provides employment and training services to food stamp 
recipients who are not eligible for an exception under section 6(o)(3) 
of the Food Stamp Act as a percentage of such recipients nationwide.
    (D) FNS shall determine each State's percentage of food stamp 
recipients not eligible for an exception under section 6(o)(3) of the 
Food Stamp Act using FY 1996 Quality Control survey data adjusted for 
changes in each State's caseload.
    (E) Effective in FY 1998, no State agency shall receive less than 
$50,000 in Federal E&T funds. To insure that no State agency receives 
less than $50,000 in FY 1998, each State agency that is allocated to 
receive more than $50,000 shall have its grant reduced, if necessary, 
proportionate to the number of food stamp recipients in the State who 
are not eligible for an exception under section 6(o)(3) of the Food 
Stamp Act as compared to the total number of such recipients in all the 
State agencies receiving more than $50,000. The funds from the 
reduction shall be distributed to State agencies initially allocated to 
receive less than $50,000. To insure that no State agency receives less 
than $50,000 in FY 1999 and subsequent years, each State agency that is 
allocated to receive more than $50,000 shall have its grant reduced, if 
necessary, proportionate to the number of food stamp recipients in the 
State who are not eligible for an exception under section 6(o)(3) of 
the Food Stamp Act, and who do not reside in an area subject to a 
waiver granted in accordance with section 6(o)(4) of the Food Stamp Act 
or who do reside in an area subject to a waiver in which the State 
agency provides employment and training services to food stamp 
recipients who are not eligible for an exception under section 6(o)(3) 
of the Food Stamp Act as compared to the total number of such 
recipients in all the State agencies receiving more than $50,000. The 
funds from the reduction shall be distributed to State agencies 
initially allocated to receive less than $50,000 so that they receive 
the $50,000 minimum.
    (F) If a State agency will not expend all of the funds allocated to 
it for a fiscal year under paragraph (d)(1)(i)(C) of this section, FNS 
shall reallocate the unexpended funds to other States during the fiscal 
year or the subsequent fiscal year as it considers appropriate and 
equitable.
    (ii) Use of funds. (A) Not less than 80 percent of the funds a 
State agency receives in a fiscal year under paragraph (d)(1)(i) of 
this section shall be used to serve food stamp recipients who are not 
eligible for an exception under section 6(o)(3) of the Food Stamp Act 
and who are placed in and comply with either a workfare program as 
described in Sec. 273.22 or a comparable program, or a work program for 
20 hours or more per week. A qualifying work program is a program 
operated under the JTPA or, after July 1, 2000, a program that was 
previously operated under the JTPA that is now operated under the 
Workforce Investment Act, a program under section 236 of the Trade Act 
of 1974, or an E&T program operated or supervised by the State or a 
political subdivision that meets standards approved by the Governor of 
the State, including programs described in paragraphs (f)(1)(iv), 
(f)(1)(v), (f)(1)(vi) and (f)(1)(vii) of this section. Job search and 
job search training programs as described in paragraphs (f)(1)(i) and 
(f)(1)(ii) of this section do not meet the definition of qualifying 
work program.
    (B) Funds which a State agency receives in a fiscal year under 
paragraph (d)(1)(i) of this section which are used to serve food stamp 
recipients who are not eligible for an exception under section 6(o)(3) 
of the Food Stamp Act but who either reside in an area of a State 
granted a waiver under section 6(o)(4) of the Food Stamp Act or have 
been granted an exemption under section 6(o)(6) of that Act and which 
are expended on qualifying work activities as described in paragraph 
(d)(1)(ii)(A) of this section shall count toward a State's 80 percent 
expenditure.
    (C) Not more than 20 percent of the funds a State agency receives 
in a fiscal year under paragraph (d)(1)(i) of this section may be used 
to serve households eligible for an exception under section 6(o)(3) of 
the Food Stamp Act or on work activities that do not meet the 
definition of qualifying work activities as described in paragraph 
(d)(1)(ii)(A) of this section. E&T funds expended in accordance with 
this paragraph (d)(1)(ii)(C) may be spent independent of whether or not 
the State agency expends any Federal funds that meet the requirements 
of paragraph (d)(1)(ii)(A) of this section. E&T funds expended in 
accordance with this paragraph (d)(1)(ii)(C) are not subject to the 
component cost reimbursement rates described in paragraph (d)(1)(iv) of 
this section.
    (D) If at the end of a fiscal year, FNS determines that a State 
agency has spent more than 20 percent of the Federal E&T funds it 
receives for that fiscal year under paragraph (d)(1)(i) of this section 
to serve food stamp recipients who are eligible for an exception under 
section 6(o)(3) of the Food Stamp Act or on work activities that do not 
meet the definition of qualifying work activities as described in 
paragraph (d)(1)(ii)(A) of this section, it shall reimburse States for 
allowable costs incurred in excess of the 20 percent threshold at the 
normal administrative 50-50 match rate.
    (E) State agencies must use E&T program grants to fund the 
administrative costs of planning, implementing and operating food stamp 
E&T programs in accordance with approved State agency E&T plans. E&T 
grants must not be used for the process of determining whether an 
individual must be work registered, the work registration process, or 
any further screening performed during the certification process, nor 
for sanction activity that takes place after the operator of an E&T 
component reports noncompliance without good cause. For purposes of 
this paragraph (d)(1)(ii)(E), the certification process is considered 
ended when an individual is referred to an E&T component for assessment 
or participation. E&T grants must also not be used to reimburse 
participants under paragraph (d)(1)(ii) of this section, since these 
reimbursements which include dependent care and job-related 
transportation costs are provided for in a separate 50:50 Federal/State 
matching grant. Lastly, E&T grants must not be used to subsidize the 
wages of participants, as reflected in current regulations, and in view 
of section 16(b) of the Food Stamp Act, added by the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, which 
provides authority for food stamp recipients who also participate in 
TANF and other public assistance programs to have their food stamp 
benefits paid directly to employers.
    (F) A State agency's receipt of the E&T program grant as allocated 
under paragraph (d)(1)(i) of this section is contingent on FNS' 
approval of the State agency's E&T plan. If an adequate plan is not 
submitted, FNS may reallocate a State agency's grant among other State 
agencies with approved plans. Non-receipt of an E&T program grant does 
not release a State agency from its responsibility under paragraph 
(c)(3) of this section to operate an E&T program or from sanctions for 
insufficient performance.
    (G) Federal funds made available to a State agency to operate a 
component under paragraph (f)(1)(vi) of this section must not be used 
to supplant nonfederal funds for existing educational services and 
activities that promote the purposes of this component. Education 
expenses are approvable to the extent that E&T

[[Page 48257]]

component costs exceed the normal cost of services provided to persons 
not participating in an E&T program.
    (iii) Maintenance of Effort. (A) To be eligible for a grant derived 
from the supplemental level of E&T funding described in paragraph 
(d)(1)(i)(B) of this section, a State agency must maintain State 
expenditures on E&T programs and workfare at a level not less than the 
level of such expenditures in FY 1996. A State agency need not expend 
all of its required maintenance of effort funds before it begins 
spending its supplemental E&T grant. A State agency which intends to 
spend the supplemental allocation for which it is eligible in a fiscal 
year must, in accordance with paragraph (c)(4)(ii) of this section, 
declare in its State E&T plan for that fiscal year its intention to 
maintain its level of expenditures for E&T and workfare at a level not 
less than the level of such expenditures in FY 1996.
    (B) State funds which a State agency expends in order to meet its 
maintenance of effort requirement are not subject to the requirements 
of paragraph (d)(1)(ii) of this section.
    (C) Participant reimbursements paid through State funds shall not 
count toward a State agency's maintenance of effort requirement, except 
in the case of optional workfare programs in which reimbursements to 
participants for work-related expenses are counted as part of the State 
agency's administrative expenses in accordance with section 20(g)(1) of 
the Food Stamp Act.
    (iv) Component costs. FNS shall monitor State agencies' 
expenditures of 100 percent Federal E&T funds, including the costs of 
individual components of State agencies' programs.
    (A) Federal 100 percent E&T funds that State agencies expend in 
accordance with paragraph (d)(1)(ii)(A) of this section are subject to 
component cost reimbursement rates. The rates represent the maximum 
amount of 100 percent Federal funds that FNS will reimburse States on 
average each month for their expenditures in providing work 
opportunities or ``slots'' that meet the requirements of section 
(6)(o)(2)(B) and (C) of the Food Stamp Act.
    (B) Separate reimbursement rates will apply for filled slots and 
for offered slots. A slot is ``filled'' when a participant reports to a 
work or training site to begin his or her work activities. A slot is 
``offered'' when a bona fide workfare or training opportunity is made 
available to a participant (i.e., the participant is told to report to 
a work site at a given date and time) but the participant either 
refuses the assignment or does not report.
    (C) A State agency may claim reimbursement for only one filled slot 
per participant per month. A State agency that assigns one participant 
to two slots in the same month, for example a workfare slot and a 20-
hour-a-week training slot, may only claim reimbursement for one filled 
slot in that month.
    (D) Reconciliation will be conducted on a yearly basis. When 
applying the rate, FNS will sum the number of filled and offered slots 
a State agency reports for a fiscal year and multiply each by the 
appropriate rate. FNS will add the two resulting sums and compare that 
against the State agency's actual expenditure of Federal 100 percent 
E&T money for that fiscal year. If the amount spent is less than the 
amount allowed under the rates, the actual amount would be paid out of 
the State agency's 100 percent Federal E&T grant for that fiscal year. 
If the amount spent by the State agency exceeds the amounts allowed 
under the rates, the State agency will be required to pay that excess 
amount. State funds used to cover any shortfalls will be eligible for 
the standard 50 percent Federal match in accordance with paragraph 
(d)(1)(vi) of this section and Sec. 273.22(g).
* * * * *
    (3) Fiscal recordkeeping and reporting requirements. * * * States 
shall include as footnotes to the FNS-269 the amount of Federal 100 
percent E&T funding spent on slots created under a workfare program as 
described in Sec. 273.22 or a comparable program, and the amount of 
Federal 100 percent E&T funding spent on slots created under a 20-hour-
a-week work program as described in paragraph (d)(1)(ii)(A) of this 
section.
* * * * *
    4. A new Sec. 273.24 is added to read as follows:


Sec. 273.24  15 Percent exemption authority for able-bodied adults.

    (a) Definitions. For purposes of the food stamp time limit, the 
terms below have the following meanings:
    (1) Caseload means the average monthly number of individuals 
receiving food stamps during the 12-month period ending the preceding 
June 30.
    (2) Covered individual means a food stamp recipient, or an 
individual denied eligibility for food stamp benefits solely due to 
paragraph 6(o)(2) of the Food Stamp Act who:
    (i) Is not exempt from the work requirements under paragraph 
6(o)(3) of the Food Stamp Act,
    (ii) Does not reside in an area covered by a waiver granted under 
paragraph 6(o)(4) of the Food Stamp Act,
    (iii) Is not fulfilling the work requirements of 6(o)(2) of the 
Food Stamp Act by working 20 hours a week averaged monthly, 
participating and complying with the requirements of a work program for 
20 hours or more per week, participating in and complying with the 
requirements of a program under section 20 or a comparative program 
established by a State or political subdivision of a State,
    (iv) Is not receiving food stamp benefits during the 3 months of 
eligibility provided under paragraph 6(o)(2) of the Food Stamp Act, and
    (v) Is not receiving food stamp benefits under paragraph 6(o)(5) of 
the Food Stamp Act.
    (b) General rule. Subject to paragraphs (c) through (e) of this 
section, a State agency may provide an exemption from the time limits 
of paragraph 6(o)(2) of the Food Stamp Act for covered individuals. 
Exemptions do not count towards a State's allocation if they are 
provided to an individual who is otherwise exempt from the time limit 
during that month.
    (1) Fiscal year 1998. A State agency may provide a number of 
exemptions such that the average monthly number of exemptions in effect 
during FY 1998 does not exceed 15 percent of the number of covered 
individuals in the State in FY 1998, as estimated by FNS, based on FY 
1996 quality control data, and other factors FNS deems appropriate.
    (2) Subsequent fiscal years. For FY 1999 and each subsequent fiscal 
year, a State agency may provide a number of exemptions such that the 
average monthly number of exemptions in effect during the fiscal year 
does not exceed 15 percent of the number of covered individuals in the 
State, as estimated by FNS, and adjusted by FNS to reflect changes in:
    (i) The State's caseload, and
    (ii) FNS' estimate of changes in the proportion of food stamp 
recipients covered by waivers granted under paragraph 6(o)(4) of the 
Food Stamp Act.
    (c) Adjustments will be made as follows:
    (1) Caseload adjustments. FNS shall adjust the number of covered 
individuals estimated for a State under paragraphs (c) and (d) of this 
section during a fiscal year if the number of food stamp recipients in 
the State varies from the State's caseload by more than 10 percent, as 
estimated by FNS.
    (2) Exemption adjustments. During FY 1999 and each subsequent 
fiscal year, FNS shall adjust the number of exemptions allocated to a 
State agency based on the number of exemptions in

[[Page 48258]]

effect in the State for the preceding fiscal year.
    (i) If the State agency does not use all of its exemptions by the 
end of the fiscal year, FNS shall increase the estimated number of 
exemptions allocated to the State agency for the subsequent fiscal year 
by the remaining balance.
    (ii) If the State agency exceeds its exemptions by the end of the 
fiscal year, FNS shall reduce the estimated number of exemptions 
allocated to the State agency for the subsequent fiscal year by the 
corresponding number.
    (d) Reporting requirement. The State agency shall track the number 
of exemptions used each month and report this number to the regional 
office on a quarterly basis as an addendum to the quarterly employment 
and training report (Form FNS-583) required by Sec. 273.7(c)(6).
    (e) Other Program rules. Nothing in this section shall make an 
individual eligible for benefits under the Food Stamp Act if the 
individual is not otherwise eligible for benefits under the other 
provisions of the Food Stamp Act.

    Dated: August 23, 1999.
Julie Paradis,
Acting Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 99-23017 Filed 9-2-99; 8:45 am]
BILLING CODE 3410-30-P