[Federal Register Volume 64, Number 195 (Friday, October 8, 1999)]
[Proposed Rules]
[Pages 55074-55102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25900]



[[Page 55073]]

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Part III





Department of Health and Human Services





_______________________________________________________________________



Administration of Children and Families



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45 CFR Part 302, et al.



Child Support Enforcement Program; Incentive Payments, Audit Penalties; 
Proposed Rules

  Federal Register / Vol. 64, No. 195 / Friday, October 8, 1999 / 
Proposed Rules  

[[Page 55074]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 302, 303, 304 and 305

RIN 0970-AB85


Child Support Enforcement Program; Incentive Payments, Audit 
Penalties

AGENCY: Office of Child Support Enforcement (OCSE), ACF, HHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This regulation proposes to implement the statutory 
requirement of the Social Security Act that requires the Secretary of 
Health and Human Services to establish the new performance-based 
incentive system. It also proposes a performance-based penalty system 
and establishes standards for certain types of audits. Finally, OCSE is 
proposing a requirement that States establish an administrative review 
process. Beginning in fiscal year 2000, the incentive system will be 
used to reward States for their performance in running a Child Support 
Enforcement (IV-D) Program. The penalty system will be used to penalize 
States that fail to perform at acceptable levels or fail to submit 
complete and reliable data.

DATES: Consideration will be given to written comments received by 
December 7, 1999.

ADDRESSES: Comments should be submitted in writing to the Office of 
Child Support Enforcement, Administration for Children and Families, 
370 L'Enfant Promenade, SW., 4th Floor, Washington, DC 20447, 
Attention: Director of Policy and Planning Division, Mail Stop: OCSE/
DPP. Comments will be available for public inspection Monday through 
Friday, 8:30 a.m. to 5:00 p.m. on the 4th floor of the Department's 
offices at the above address. Comments may also be submitted by sending 
electronic mail (e-mail) to [email protected], or by telefaxing to 
202-401-3444. This is a not a toll-free number. Comments sent 
electronically must be in ASCII format.

FOR FURTHER INFORMATION CONTACT: Joyce Pitts, OCSE Division of Policy 
and Planning, (202) 401-5374. Hearing impaired individuals may call the 
Federal Dual Party Relay Service at 800-877-8339 between 8:00 a.m. and 
7:00 p.m. eastern time.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Authority

    These proposed regulations implement sections 409(a)(8), 452 (a)(4) 
and (g), and 458A of the Social Security Act (Act), as added by the 
Personal Responsibility and Work Opportunity Reconciliation Act of 
1996, Public Law 104-193, (PRWORA), by the Child Support Performance 
and Incentive Act of 1998, Public Law 105-200, and as amended by the 
Welfare Reform Technical Amendments Act of 1997, Public Law 105-34.
    These regulations are also issued under the authority granted to 
the Secretary of Health and Human Services (the Secretary) by section 
1102 of the Act, 42 U.S.C. 1302. Section 1102 of the Act authorizes the 
Secretary to publish regulations that may be necessary for the 
efficient administration of the functions for which the Secretary is 
responsible under the Act.

II. Summary

    These regulations cover four subjects: incentives to States; 
penalties against State TANF grants; audits; and administrative 
reviews. Each is briefly summarized below and is discussed in detail in 
subsequent sections of the preamble.
    The incentive payment provisions are set forth in section 458A of 
the Act. Incentive payments would be made to States each fiscal year 
based on their collections and their performance levels on five 
statutory performance measures: paternity establishment; establishment 
of support orders; collections for current support; case collections 
for child support arrearages; and cost-effectiveness. The States would 
be assigned a statutorily set percentage based on their performance 
levels on each measure or their improved performance levels over the 
preceding year. The precise amount a State would be entitled to receive 
would be determined based on a number of different formulae set forth 
in the statute. First, an incentive base amount would be calculated for 
each State taking into account the State's collections base amount. 
This latter amount would be computed based on the amounts collected by 
the State with extra weight being given to cases that are or were 
formerly assigned to the State. For certain performance measures, the 
State would be credited with the full amount of the collections base 
and for others, 75 percent of the collections base. These amounts would 
then be multiplied by the percentages earned on each of the five 
performance measures and all would be added together to compute the 
State incentive base. Second, the incentive base amount would be used 
to compute the State's share of the incentive pool appropriated each 
year. A State's share of the pool would be the State's incentive base 
amount divided by the sum of the incentive base amounts for all States 
for that year multiplied by the amount appropriated for incentives for 
the year. However, in order to receive incentive amounts each year, the 
State's data must also be determined to be complete and reliable. 
Incentive payments would be made quarterly based on estimates with 
adjustments made following the end of the year based on actual data and 
performance levels. These provisions would be used to determine one-
third of incentive payments made to States in fiscal year 2000, two-
thirds of the incentive payments made for fiscal year 2001, and all of 
the incentive payments in subsequent years.
    The penalty provisions are contained in section 409(a)(8) of the 
Act. A reduction of up to five percent would be taken against a State's 
family assistance grant for any of the following types of failures to 
meet requirements of the child support enforcement program under title 
IV-D of the Act: the failure to meet the paternity establishment 
percentages; the failure to meet other performance standards specified 
by the Secretary; the failure to submit complete and reliable data; and 
the failure to substantially comply with one or more IV-D program 
requirements. The Secretary proposes to adopt two additional 
performance measures for penalty purposes, i.e. support order 
establishment and collections for current support. These failures would 
be determined either based on a review of data submitted by a State, or 
as a result of a federal audit. After a failure has been identified, a 
State would have an automatic one-year corrective action period to 
remedy the failure or meet the performance standard or other 
requirement. A reduction would be imposed for quarters following the 
end of the corrective action year if the State fails to take sufficient 
corrective action and would continue through the first quarter in which 
the State is fully in compliance. The hearing and appeal provisions and 
25 percent penalty ceiling applicable to other reductions in the 
State's family assistance grant under section 409 of the Act would also 
apply.
    The audit provisions are set forth mainly in section 452(a)(4)(C) 
of the Act, but are also further clarified in section 409(a)(8) of the 
Act. OCSE would be required to conduct audits for the following 
purposes: to assess the completeness, reliability, and security of the 
data and the accuracy of the reporting systems used in calculating 
incentive and penalty performance measures; to determine the adequacy 
of financial management of the State IV-D

[[Page 55075]]

programs; to determine whether a State IV-D program is substantially 
complying with IV-D program requirements; and such other purposes as 
the Secretary finds necessary. The proposed regulations also establish 
specific standards for audits to determine whether a State IV-D program 
is in substantial compliance. Certain audits must be performed at least 
once every three years or more frequently if the State fails to meet 
standards.
    The administrative review provisions are being proposed based on 
the Secretary's rulemaking authority under section 1102 of the Act. 
They would require a State to establish procedures to provide 
recipients of IV-D program services the opportunity to request a review 
of actions taken or not taken in their case. The State must establish 
procedures for reviewing such requests, taking appropriate actions, if 
necessary, and notifying the recipients of the results of the review 
and any actions taken.

III. Background

A. The National Strategic Plan

    OCSE and its State IV-D program partners saw an opportunity to 
create a closer working relationship in the Government Performance and 
Results Act of 1993. This Act required Federal programs to set goals 
and measure results by establishing strategic plans. OCSE and State 
partners embarked on an effort to develop a National Child Support 
Enforcement Strategic Plan by consensus with a vision, mission, goals 
and objectives. This was achieved in February, 1995. The plan can be 
viewed on OCSE's website at http://www.acf.dhhs.gov/programs/cse/new/
spwith.htm.
    The plan includes three major goals for the child support program--
that all children have paternity established, all children in the 
program have financial and medical support orders established, and all 
children in the program receive financial and medical support from both 
parents.
    The plan has provided the foundation for both reshaping the State-
Federal relationship into a collaborative partnership and building a 
results-oriented framework for the child support enforcement program. 
After development of the National Child Support Enforcement Strategic 
Plan, States and OCSE worked together to develop specific performance 
indicators that could be used to measure the program's success in 
achieving the goals and objectives.
    It was this Strategic Plan and its array of performance measures 
that the States and OCSE looked to in order to recommend a performance-
based incentive funding system to reward States for results. State and 
Federal partners sought a formula that would spur States to achieve the 
goals and objectives of the Strategic Plan. The array of performance 
measures was reviewed and the key indicators for the major activities 
of the child support enforcement program were selected. Essentially, 
the performance measures selected for the new incentive system are a 
subset of key measures for the program. The Strategic Plan measures and 
incentive measures for paternity establishment, support order 
establishment, collections on current support and cost-effectiveness 
are the same. The only deviation from the plan was the measure for 
collections on past-due support. State and Federal partners rejected 
the Strategic Plan measure that would provide an arrearage collection 
rate because there is a wide variation in how States laws affect 
arrearages. State and Federal partners concluded that the only workable 
measure that would level the playing field among States in this 
important area was one based on the number of cases that were paying on 
arrears.
    After the incentive funding proposals were developed, State and 
Federal partners further collaborated to recommend a system of 
performance penalties for States. They returned to the Strategic Plan, 
its full array of measures and the recommended incentive funding system 
that was being considered for legislation. First the larger array of 
measures from the Strategic Plan were considered for penalties but 
rejected. Next, the partners focused on those key measures of the 
program's performance which had been recommended for incentives. The 
States and OCSE chose a subset of the incentive measures for 
application of financial penalties. These were the incentive measures 
which were given a greater weight in the computation of the incentive 
formula--paternity establishment, order establishment and the 
collection of current support.
    In addition to the use of the Strategic Plan for developing 
performance measures for the child support enforcement program, 
recommending a State incentive funding system, and a system of 
performance penalties, it has also more recently shaped a revision of 
the child support data reporting and collection systems and the role of 
the Federal audit process. This proposed rule would implement key 
structures that have been shaped and guided by the Strategic Plan and 
these structures will, in turn, help achieve outcomes that fulfill the 
goals and objectives of the Plan itself.

B. Issues and Activities Leading to the New Incentive Provisions

    Under section 458 of title IV-D of the Act, States are paid a 
minimum of six percent of their collections in TANF cases and six 
percent of their non-TANF collections as an incentive. Under this 
system, there is also the potential to earn up to 10 percent of 
collections based on the State's cost-effectiveness in running a child 
support program. However, the amount of non-TANF incentives is capped 
at 115 percent of the TANF incentive earned.
    This incentive system has been questioned for focusing on only one 
aspect of the IV-D program--cost-effectiveness. It does not reward 
States for other important aspects of child support enforcement, such 
as paternity and support order establishment. In addition, since all 
States receive the minimum incentive amount of six percent of 
collections regardless of performance, this system was not regarded as 
having a real incentive effect.
    Over the past decade, a number of commissions and organizations 
have recommended the adoption of a new performance-based incentive 
system. In 1988, Congress authorized the creation of the U.S. 
Commission on Interstate Child Support to make recommendations to 
Congress on improving the child support program. That Commission's 
report called for a study of the Federal funding formula and changes to 
an incentive structure that is based on performance. In addition, other 
national organizations, including the National Conference of State 
Legislatures, the American Public Welfare Association (now the American 
Public Human Services Association, APHSA), the National Governor's 
Association, and several national advocacy organizations recommended 
the adoption of a new performance-based incentive system.
    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 (PRWORA) required the Secretary, in consultation with State IV-
D Program Directors, to recommend to Congress a new incentive funding 
system for State IV-D programs based on program performance. Section 
341(a) of PRWORA required that: (1) the Secretary of Health and Human 
Services develop a new incentive funding system, in a revenue neutral 
manner; (2) the new system provide additional payments to any State 
based on that

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State's performance; and (3) the Secretary report to Congress on the 
new system.
    The Incentive Funding Workgroup was formed in October 1996. This 
group consisted of 15 State and local IV-D directors or their 
representatives and 11 Federal staff representatives from HHS. Earlier 
efforts of this State-Federal partnership produced the National 
Strategic Plan for the IV-D program and a set of outcome measures to 
indicate the program's success in achieving the goals and objectives of 
the plan. Using the same collaboration and consensus-building approach, 
State and Federal partners recommended a new incentive funding system 
based on the foundation of the National Strategic Plan.
    Over a period of three months, recommendations for the new 
incentive funding system emerged. State partners consulted with State 
IV-D programs not represented directly on the Workgroup. The final 
recommendations represented a consensus among State and Federal 
partners on the new incentive funding system. The Secretary fully 
endorsed the incentive formula recommendations. The Secretary's report 
made recommendations to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate.
    Most of the recommendations were included in Public Law 105-200, 
the Child Support Performance and Incentive Act of 1998. This proposed 
rule would implement that legislation. The legislative language is very 
explicit. Therefore, we are for the most part, merely repeating the 
language in these proposed rules. However, the proposed regulations add 
details or guidance on how to treat certain cases or actions and 
describe when it is permissible to exclude certain cases for purposes 
of calculating State performance. We developed the specific exclusions 
and definitions contained in the proposed regulations based on the work 
done by the Incentive Funding Workgroup. Any non-statutory proposed 
elements of this regulation are subject to public comment and may be 
changed based on comments received.

C. Audit and Penalties

    Prior to enactment of PRWORA, the Federal statute at former section 
452(a)(4) of the Act required periodic, comprehensive Federal audits of 
State IV-D programs to ensure substantial compliance with all Federal 
IV-D requirements. If the audit found that the State program was not in 
substantial compliance and if the deficiencies identified in an audit 
were not corrected, States faced a mandatory fiscal penalty of between 
1 and 5 percent of the Federal share of the State's title IV-A program 
funding under section 403(h) of the Act. Once an audit determined 
compliance with identified deficiencies, the penalty was lifted or 
ceased.
    Such a detailed, process-oriented audit was time-consuming and 
labor-intensive for both Federal auditors and the States. In addition, 
audit findings did not measure current State performance or current 
program requirements because of delays and the time it took to conduct 
audits. States contended that the audit system focused too much on 
administrative procedures and processes rather than performance outcome 
and results.
    Notwithstanding these deficiencies, it is widely agreed that 
efforts to pass the Federal audit were a significant driving force 
behind States' improved program performance during the years that these 
audit and penalty provisions were in place prior to enactment of 
PRWORA. While two-thirds of the States failed the initial audit, three-
fourths of these same States came into compliance after a corrective-
action period and avoided the financial penalty.
    Section 452(a)(4) of the Act, as amended by PRWORA, changed the 
Federal audit process to focus on measuring performance and program 
results, instead of process. Subsequently as part of technical 
amendments to PRWORA, the penalty provision under 409(a)(8) of the Act 
was modified to conform to the new audit approach under the IV-D 
program. The new approach to measuring program results changes the 
Federal audit focus to determining the reliability of program data used 
to measure performance and requires States to conduct self-reviews, 
similar to the former Federal process audits, to assess whether or not 
all required IV-D services are being provided. States have the 
opportunity to use these self-reviews (as the Office of Child Support 
Enforcement is publishing under a separate proposed rule) to find and 
correct deficiencies and avoid frequent Federal audits. Federal 
auditors will assess States' data used to compute performance outcome 
measures and determine if these data are complete and reliable. In 
addition, Federal auditors will conduct periodic financial and other 
audits, as necessary. The statute allows OCSE to make an annual 
determination on the completeness and reliability of State data used to 
compute performance measures. However, once a State's data has been 
determined to be complete and reliable, we plan to only audit the data 
every three years--unless there is a reason to believe it is needed 
more often.
    The penalty system in this proposed rule would replace the previous 
penalty under former section 403(h) of the Act that focused on 
substantial compliance with prescriptive Federal IV-D requirements. 
However, sections 452(a)(4)(C) and 409(a)(8) continue to allow the 
Secretary discretion to determine substantial noncompliance with IV-D 
requirements and to assess a penalty under section 409(a)(8) of the 
Act, based on discretionary audits of State IV-D programs.
    Federal auditors will work with States to assess the reliability of 
their data as well as to test State systems used to produce the data 
and the tools used to make the reliability determinations. Federal 
auditors' assessment of data reliability is a critical aspect of 
assuring that both incentives and penalties are based on accurate and 
reliable State-reported data. This is an important control, not only on 
the expenditure of Federal funds, but because it underpins the fairness 
of the incentive and penalty system and the resulting confidence that 
States have in rewards dispensed and penalties assessed nationwide.
    State-reported, statistical and financial data taken from the new 
reporting forms, the OCSE-157, the OCSE-34A, and the OCSE-396A will be 
used in determining State performance levels. The OCSE-157 statistical 
report is, in part, the culmination of a Federal-State data improvement 
initiative that began in early 1992. That initiative, referred to as 
the Measuring Excellence Through Statistics (METS) initiative, 
developed clear reporting instructions and State reporting of data 
critical to measuring program results, which in turn will result in 
improved State program statistical and financial data. State data as 
reported on the OCSE-157, as well as on the expenditure reporting form 
(the OCSE-396A) and the support collection reporting form (the OCSE-
34A), will be evaluated for completeness and reliability by Federal 
auditors. State-reported data that is determined to be incomplete or 
unreliable may cause reductions in the State's funding under the IV-A 
program and loss of Federal incentive payments under the IV-D program.
    The performance measures and standards proposed in this regulation 
for penalty purposes reflect three objectives: (1) To insure 
consistency and integration with the proposed incentive system; (2) to 
neither reward nor penalize a State for certain levels of performance 
with no significant increase over the previous year; and (3) to assess 
a penalty for poor State

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performance with no significant improvement over the previous year. 
While the specifics of performance measures for penalty purposes, with 
the exception of the Paternity Establishment Percentage (PEP) under 
section 452(g) of the Act, are left to the discretion of the Secretary, 
the approach to assessing penalties proposed in this regulation takes 
into consideration the results of work done by State and Federal 
partners during the development of the National Strategic Plan and the 
proposal for incentive measures, as well as consultations with a wide 
variety of other interested parties, including the Congress, State 
representatives, advocates, and national organizations.

D. Performance Measures

    This section gives a description of each of the performance 
measures to be used for incentive and penalty purposes.
    The new child support incentive system, in section 458A of the Act, 
as amended by the Child Support Performance and Incentive Act of 1998, 
measures State IV-D program performance in five major areas: (1) 
Paternity establishment; (2) cases with child support orders; (3) 
collections on current support; (4) cases with collections on arrears; 
and (5) cost-effectiveness.
    The penalty system proposed in this regulation would measure State 
IV-D program performance in three areas: (1) Paternity establishment, 
(2) cases with child support orders, and (3) collections on current 
support. The first is required by the statute pursuant to 409(a)(8)(i) 
and the other two are measures being proposed by the Secretary.
1. Paternity Establishment
    The measure for paternity establishment is that included by 
Congress for purposes of paternity establishment penalties under 
section 452(g) of the Act, as amended by PRWORA. It is also one of the 
performance measures for incentives purposes under section 
458A(b)(6)(A)(i) of the Act. States may use either one of the following 
two measures set forth in 452(g)(2) of the Act:
    (1) IV-D Paternity Establishment Percentage (PEP) is the ratio that 
the total number of children in the IV-D caseload in the fiscal year 
(or, at the option of the State, as of the end of the fiscal year) who 
have been born out-of-wedlock and for whom paternity has been 
established or acknowledged, bears to the total number of children in 
the IV-D caseload as of the end of the preceding fiscal year who were 
born out of wedlock.
    (2) Statewide Paternity Establishment Percentage (PEP) is the ratio 
that the total number of minor children who have been born out-of-
wedlock and for whom paternity has been established or acknowledged 
during the fiscal year, bears to the total number of children born out-
of-wedlock during the preceding fiscal year.
    Under section 452(g)(2) of the Act, the count of children will not 
include any child who is a dependent by reason of the death of a parent 
(unless paternity is established for that child), nor any child whose 
parent is found to have good cause for refusing to cooperate with the 
State agency in establishing paternity, or for whom the appropriate 
State agency determines it is against the best interest of the child to 
pursue paternity issues.
2. Cases With Child Support Orders
    This measure is found in section 458A(b)(6)(B)(i) of the Act and 
shows, for incentive purposes, the percentage of cases in the IV-D 
caseload in which there is a support order. This proposed regulation 
would apply the same measure for penalty purposes.
3. Collections on Current Support
    The third measure is at section 458A(b)(6)(C)(i) of the Act for 
purposes of incentives, and is proposed as the measure for penalty 
purposes in this regulation. This measure focuses on the proportion of 
current support owed that is collected in IV-D cases during the fiscal 
year.
    Another approach would be to look at cases with payments instead of 
actual collections. We invite comment on the use of ``Cases with 
Collections'' as an alternative to the ``Collections on Current 
Support'' penalty measure.
4. Collections on Arrears
    The fourth measure, found in section 458A(b)(6)(D) of the Act for 
incentive purposes, measures the total number of cases under the IV-D 
program in which payments of past-due child support were received in 
the fiscal year and part or all of the payments were distributed to the 
family to whom the past-due child support was owed (or, if all past-due 
child support owed to the family was, at the time of receipt, subject 
to an assignment to the State under title IV-A of the Act, part or all 
of the payments were retained by the State) divided by the total number 
of IV-D cases in which there is past-due child support.
    This measure includes those cases where, during the fiscal year, 
all of the past-due support collected was disbursed to the family, or 
was retained by the State because all the support was assigned to the 
State. If some of the past-due support owed in a IV-D case was assigned 
to the State and some was owed to the family, only those cases where 
some of the support actually went to the family can be included.
5. Cost-Effectiveness
    The final measure for incentive purposes under section 
458A(b)(6)(E)(i) of the Act, compares the total amount of support 
collected by the State's IV-D program during the fiscal year to the 
total amount expended during the fiscal year in the IV-D program.

E. Weighting the Measures

    The statute requires some measures to get more weight than other 
measures. For incentive purposes under section 458A of the Act, each 
State would earn five scores based on performance on each of the five 
measures. The statute specifies that more emphasis should be placed on 
some of the measures, such as those that ensure timely and consistent 
support for children. Therefore, in accordance with section 
458A(b)(5)(A) of the Act, we propose to weight the first three measures 
(paternity establishment, order establishment, and collections on 
current support) slightly more heavily than the last two (collections 
on arrears and cost effectiveness). The weighted scores are used to 
determine a State's maximum base amount.

F. Exclusion of Other Measures From Penalty Measures

    While the incentives measures, formula, and process is laid out or 
cross referenced explicitly in section 458A of the Act, the penalty 
provisions in sections 409(a)(8) of the Act allow the Secretary to set 
the measures, performance standards (other than those for paternity 
establishment), and process that will be used to determine if State 
performance is sufficiently inadequate to warrant a financial penalty.
    As noted earlier, we based these measures on the Strategic Plan. 
Under this proposed regulation, penalties would be based on a State's 
failure to meet minimum standards on paternity establishment, support 
order establishment and collection on current support performance 
measures, which are all in the strategic plan. The remaining measures--
collections on arrears and cost-effectiveness are not included in the 
penalty system. We do not propose that these two measures be included 
for the following reasons:
    (1) The Child Support Performance and Incentive Act of 1998 changed 
the recommended performance standard for

[[Page 55078]]

the number of cases paying arrears. The impact of this adjustment to 
the proposed standard may have the effect of reducing the number of 
cases for which past-due support is collected which may be counted for 
incentives purposes. If some past due support was assigned to the State 
and some due to the family, the case can only be included where some of 
the support actually went to the family. We do not believe a State 
should be measured, for penalty purposes, on collection of arrears 
cases at this time. This is a new area of reporting for states and the 
impact of the statutory adjustment to this standard is not clear.
    (2) We also do not propose including the cost-effectiveness measure 
for penalty purposes. Including it might have discouraged States from 
investing in program improvements that might raise program costs and 
might reduce cost-effectiveness or might not yield results immediately. 
We believe that there are other, adequate mechanisms to address 
concerns for cost-shifting or improper use of IV-D funds (such as 
financial management and administrative cost audits). In addition, 
State automated IV-D systems costs are expected to remain high over the 
next few years due to continued development and modification of 
statewide-automated systems to meet the requirements of PRWORA, thus 
making such a measure less reflective of the actual cost-effectiveness 
of the program.
    For these reasons, we propose to begin the new penalty system with 
just three penalty measures and intend to evaluate the possibility of 
including other measures at a later time when more is known about the 
impact of this penalty system. For example, we are in the process of 
developing a recommendation to the Congress on a medical support 
performance measure for incentive purposes, in accordance with section 
201(d)(2) of the Child Support Performance and Incentive Act of 1998. 
The Secretary's report is due to the Congress on October 1, 1999, 
including recommendations for incorporation of a medical support 
measure in a revenue neutral manner in the incentive payments system 
established under section 458A of the Act. When changes are made to 
incorporate such a measure in the statutory incentives system, it would 
be appropriate to consider changes to the penalty measures presented in 
these regulations.

G. Interaction Between Incentives and Penalties

    We believe there are levels of State performance that merit an 
incentive payment and there are levels that warrant a penalty. However, 
there are also levels of State performance that neither merit an 
incentive nor warrant a penalty.
    There is an interaction between the incentive and penalty systems 
proposed in this regulation. States with certain levels performance on 
the three penalty measures would be able to avoid a penalty and qualify 
for an incentive payment if a significant increase over the previous 
year's performance is achieved in those measures (i.e., 10 percent on 
the PEP, 5 percent on support orders and current support collections). 
However, under this alternative improvement formula the incentive 
payment would never be more than half of the maximum incentive 
possible. As a result, those States with lower performance levels would 
at least receive some incentive provided the program is improving 
sufficiently and quickly. Penalties would be assessed against States 
with very poor performance and decreasing, static, or minimal increases 
in performance over the previous year.
    While Congress was clear in setting a performance standard for the 
paternity establishment percentage, the statute provided the Secretary 
with discretion to set standards for performance in other areas. State 
and Federal partners strongly considered the mandated paternity 
establishment penalty model and determined that it would not work for 
the other measures. Setting such a high standard for order 
establishment and current support would be unrealistic and would cause 
almost every State to be penalized.
    The order establishment and current support performance standards 
for determining at what level a penalty would be assessed against a 
State were set applying historical program data. Using this 
information, an analysis was done to determine the number of States 
that might receive incentive funding, the number that might receive 
neither incentive or penalty, and the number that would receive a 
penalty. The partners agreed that the resulting system would provide a 
graduated scale of punishment and rewards that would motivate States to 
improve from year to year. Under the proposed levels, the majority of 
States would not potentially be subject to penalties.

IV. Description of Regulatory Provisions--Incentives and 
Administrative Review

Parts 302, 303 and 304--State Plan Requirements, Standards for Program 
Operations, and Federal Financial Participation

    The cross-references to existing regulations mentioned in this 
Description of Regulatory Provisions are as amended by the Interim 
Final Conforming Rule (64 FR 6237) published in the Federal Register 
February 9, 1999.

Sections 302.55 and 304.12--Regulations for Existing Incentives Process

    Currently, under section 454(22) of the Act and 45 CFR 302.55, the 
only restriction on the use of incentive funds awarded to the State is 
that States must share incentives earned with any political subdivision 
that shares in funding the administrative cost of the program. The 
restriction to share funds with political subdivisions is not being 
changed. Although Section 454(22) does not refer to Section 458A, the 
restriction will be applicable when Section 458A is redesignated as 
Section 458. Thus, we believe it was Congress' intent to have this 
restriction apply continuously to the payment of incentives. Therefore, 
we propose adding reference to the proposed new part 305 in Sec. 302.55 
by adding the words ``and part 305'' after ``Sec. 304.12''.
    Current 45 CFR 304.12(b)(1), as revised on 2/9/99 at 64 FR 6237, 
based on section 458 of the Act, computes incentive payments for States 
for a fiscal year as a percentage of the State's TANF collections, and 
a percentage of its non-TANF collections. The percentages are 
determined separately for TANF and non-TANF portions of the incentive. 
The percentages are based on the ratio of the State's TANF collections 
to the State's total administrative costs and the State's non-TANF 
collections to the State's total administrative costs. This is known as 
a State's cost-effectiveness ratio. The portion of the incentive 
payment paid to a State in recognition of its non-TANF collections is 
limited to 115 percent of the portion of the incentive payment paid in 
recognition of its TANF collections.
    HHS estimates the total incentive payment that each State will 
receive for the upcoming fiscal year. Each State includes one-quarter 
of the estimated total payment in its quarterly collection report that 
will reduce the amount that would otherwise be paid to the Federal 
government. Following the end of a fiscal year, HHS calculates the 
actual

[[Page 55079]]

incentive payment the State should have received. If adjustments to the 
estimated amount are necessary, an additional positive or negative 
title IV-D grant award is issued. Under section 201(f) of the Child 
Support Performance and Incentive Act of 1998, effective October 1, 
2001, current section 458 of the Act will be repealed and section 458A 
of the Act, will be redesignated as section 458. To implement this 
statutory provision, we propose to add a new paragraph (d) to 
Sec. 304.12 under which Sec. 304.12 would become obsolete on October 1, 
2001.
    A new paragraph (e) would be also added to reflect the phase-in of 
the new incentive system. In fiscal year 2000, the amount of incentives 
paid under Sec. 304.12 would be reduced by one-third. In fiscal year 
2001, the amount of incentives paid under Sec. 304.12 would be reduced 
by two-thirds.

Section 303.35--Administrative Review Process

    We are proposing an outcome-oriented approach to child support 
enforcement program accountability and responsibility. The proposed 
approach seeks to balance the Federal government's oversight 
responsibility with States' responsibilities for child support service 
delivery and fiscal accountability. One element of the proposal being 
implemented by these proposed regulations, is the focus on results-
oriented performance measures for incentives and penalties purposes. A 
second aspect of the proposal replaces statutory and regulatory Federal 
audit requirements with States' responsibility for ensuring that their 
programs meet IV-D requirements. The requirement for these periodic 
State self-reviews, intended for management purposes to identify and 
resolve deficiencies in case processing, was also adopted under PRWORA 
as a State plan requirement at section 454(15)(A) of the Act. 
Procedures for State self-reviews are being implemented under a 
separate rulemaking.
    Although Federal funding of administrative review processes has 
long been considered an allowable expenditure under the IV-D program, 
we believe it to be a key element to any IV-D program. In the era of 
our focus on program results, we believe it appropriate to ensure that 
these administrative review processes are available to recipients of 
IV-D services. Using the authority under section 1102 of the Act to 
publish regulations that the Secretary deems necessary for the 
efficient administration of the IV-D program, we propose to add a 
section to part 303 requiring States to provide for an administrative 
review.
    Under proposed Sec. 303.35, entitled Administrative Review 
Procedure, each State must have a procedure in place to allow 
individuals receiving IV-D services the opportunity to request a review 
of actions taken, or not taken when there is evidence that an action 
should have been taken, on a particular case. In addition, the State 
must have a procedure for reviewing the individual's complaint and 
resolving it where appropriate action was not taken and for notifying 
the individual of the results of the review and any actions taken.

Part 305--Program Performance Measures, Standards, Financial 
Incentives, and Penalties

    We propose adding a new part 305 to implement the new incentive 
system under section 458A of the Act and certain audit and penalty 
provisions found in sections 409(a)(8), 452(a)(4)(C) and (g) of the 
Act. Former Part 305 was revoked on 2/9/99 at 64 FR 6237.

Section 305.0  Scope

    Proposed Sec. 305.0, Scope, explains what part 305 covers, 
including the statutory basis for the incentive and penalty systems, 
when the incentive and penalty systems, described above, are effective 
and a general description of the contents of part 305. Proposed 
Sec. 305.1 contains definitions and proposed Sec. 305.2 contains 
performance measures. Proposed Secs. 305.31 through Sec. 305.36 of part 
305 would describe the incentive system. Proposed Secs. 305.40 through 
Sec. 305.42 and Secs. 305.60 through Sec. 305.66 would describe the 
grounds for penalties under section 409(a)(8), the procedures for 
imposing penalties, the types of audits, and set forth the standards 
for substantial compliance audits and certain audit procedures.

Section 305.1  Definitions

    Under proposed Sec. 305.1, Definitions, the definitions found in 
Sec. 301.1 of program regulations would also apply to part 305. In 
addition, for purposes of part 305, Sec. 305.1 would define the 
following terms:
    The term IV-D case is a parent (mother, father, or putative father) 
who is now or eventually may be obligated under law for the support of 
a child or children receiving services under the title IV-D program. In 
counting cases for the purposes of this part, States may exclude cases 
closed under Sec. 303.11 and cases over which the State has no 
jurisdiction. Lack of jurisdiction cases are those in which a non-
custodial parent resides in the civil jurisdictional boundaries of 
another country or Federally recognized Indian Tribe and no income or 
assets of this individual are located or derived from outside that 
jurisdiction, and the State has no other means through which to enforce 
the order.
    The definition of a IV-D case in proposed Sec. 305.1 implements the 
requirement in section 458A(e) that the Secretary include in 
regulations directions for excluding from the incentive calculations 
certain closed cases and cases over which the States do not have 
jurisdiction. The definition itself was developed during the METS 
initiative and used in required Federal report forms and defines which 
cases may be excluded for purposes of calculating incentives, namely, 
IV-D cases meeting the conditions for case closure under Sec. 303.11 
and cases over which the State has no jurisdiction. This definition 
assures that workable cases are counted while those cases in which 
there is no possible action by the IV-D agency would be discounted. It 
is essential that we use consistent definitions for all data and we 
propose, therefore, that the definitions in Sec. 305.1 apply equally 
for incentives and penalties purposes.
    Under proposed paragraph (b), the term Current Assistance 
collections means collections received and distributed on behalf of 
individuals whose rights to support are required to be assigned to the 
State under title IV-A of the Act, under title IV-A of the Act, under 
title IV-E of the Act, or under title XIX of the Act. In addition, a 
referral to the State's IV-D agency must have been made. Current 
Assistance collections do not include assistance paid under Tribal TANF 
because the statute includes only those collections where there is an 
assignment to the State. Tribal TANF does not fall within that 
category.
    Under proposed paragraph (c), the term Former Assistance 
collections means collections received and distributed on behalf of 
individuals whose rights to support were formerly required to be 
assigned to the State under either title IV-A (TANF or Aid to Families 
with Dependent Children, AFDC), title IV-E (Foster Care), or title XIX 
(Medicaid) of the Act.
    Under proposed paragraph (d), the term Never Assistance/Other 
collections means all other collections received and distributed on 
behalf of individuals who are receiving child support enforcement 
services under title IV-D of the Act.
    The definitions of various categories of collections proposed above 
reflect categories of collections described in section 458A(b)(5)(C) of 
the Act and used to calculate the State collections

[[Page 55080]]

base used for computing incentives. Current Assistance and Former 
Assistance are multiplied by 2 and added to Never Assistance/Other 
collections to determine the State's collections base. The current 
report that States use to report collection information to OCSE, the 
OCSE-34A, did not originally address how title XIX, Medicaid, 
collections should be reported. This was changed to be consistent with 
the definitions stated above, when the report was last submitted for 
clearance.
    Under proposed paragraph (e), the term total IV-D administrative 
costs means total IV-D administrative expenditures claimed by a State 
in a specified fiscal year adjusted in accordance with Sec. 305.32 of 
this part. Proposed Sec. 305.32, addressed later, includes specific 
expenditures that are excluded when calculating a State's total IV-D 
administrative expenditures for calculation of the cost-effectiveness 
performance measure.
    The term Consumer Price Index or CPI, in proposed paragraph (f), is 
taken from the definition in section 458A(b)(2)(B) of the Act, and 
means the last Consumer Price Index for all-urban consumers published 
by the Department of Labor. The CPI for a fiscal year is the average of 
the Consumer Price Index for the 12-month period ending on September 30 
of the fiscal year.
    Under proposed paragraph (g), the term State incentive payment 
share for a fiscal year means the incentive base amount for the State 
for the fiscal year divided by the sum of the incentive base amounts 
for all of the States for the fiscal year. This definition is found in 
section 458A(b)(3) of the Act.
    Under proposed paragraph (h), the term State incentive base amount 
for a fiscal year means the sum of the State's performance level 
percentages (determined in accordance with Sec. 305.33) multiplied by 
the State's corresponding maximum incentive base amount for each of the 
following measures: (1) The paternity establishment performance level; 
(2) the support order performance level; (3) the current collections 
performance level; (4) the arrears collection performance level; and 
(5) the cost-effectiveness performance level. This definition is found 
in section 458A(b)(4) of the Act.
    Under proposed paragraph (i), the term reliable data includes the 
most recent data available which are found by the Secretary to be 
reliable for purposes of computing the paternity establishment 
percentage. In addition, we have gone beyond the legislative definition 
by adding that data for computing each of the measures must be found to 
be sufficiently complete and error free to be convincing for their 
purpose and context. This definition is based on Sec. 452(g)(2)(C) of 
the Act and includes further elaboration of the circumstances under 
which the Secretary will consider data to be reliable. This is 
consistent with the recognition that data may contain errors as long as 
they are not of a magnitude that would cause a reasonable person, aware 
of the errors, to doubt a finding or conclusion made based on the data. 
Part of this definition is lifted verbatim from the Chapter 1, 
Introduction of the U.S. General Accounting Office, Office of Policy 
Booklet (Standards) entitled, Assessing the Reliability of Computer-
Processed Data, dated September 1990. The official designation of this 
booklet is GAO/OP-8.1.3. The Government Auditing Standards--generally 
referred to as the ``Yellow Book''--provide the standards and 
requirements for financial and performance audits. A key standard 
covers the steps to be taken when relying on computer-based evidence. 
This booklet from the Office of Policy is intended to help auditors 
meet the Yellow Book standard for ensuring that computer-based data are 
reliable.
    Under proposed paragraph (j), the term complete means all reporting 
elements from OCSE OMB approved reporting forms that are necessary to 
compute a State's performance levels, incentive base amount, and 
maximum incentive base amount have been provided.
    We believe the definitions in (i) and (j) are appropriate for 
purposes of Part 305 since State IV-D programs are required to have 
comprehensive statewide automated systems which, under section 454A(c) 
of the Act must enable the Secretary to determine the incentive 
payments and penalty adjustments required by sections 452(g) and 458 of 
the Act. In addition, under section 454(15)(A), States must have a 
process of extracting from the automated data processing system and 
transmitting to the Secretary, data and calculations concerning the 
levels of accomplishment and rates of improvement with respect to the 
applicable performance indicators for purposes of sections 452(g) and 
458 of the Act. Finally, Federal auditors are required under section 
452(a)(4)(C)(i) of the Act to conduct audits to assess the 
completeness, reliability, and security of the data, and the accuracy 
of the reporting systems used in calculating performance indicators. 
These provisions, taken together, require a clear, accepted and 
supportable definition of reliable data.
    Reliable data on all the key data elements is critical for 
calculating accurate incentive payments. States must ensure that they 
will be able to accurately report this data. Federal auditors will 
determine the reliability of State data using commonly accepted 
standards. We invite comment on the definition of reliable data set 
forth at proposed section 305.1(i) and the methods for ensuring 
reliable data is reported. Specifically, we request alternate 
suggestions for methods or approaches which would address this issue 
within the context of the statutory requirement and the procedures of 
conducting the data reliability assessments.

Section 305.2  Performance Measures

    This section describes the performance measures that will be used 
in the incentive and penalty systems. Proposed paragraph (a) of 
Sec. 305.2, Performance measures, indicates the child support incentive 
system would measure State performance levels in five areas: (1) 
Paternity establishment; (2) child support order establishment (cases 
with orders); (3) collections on current support; (4) collections on 
arrears; and (5) cost-effectiveness. It also proposes that the penalty 
system measure State performance in three of these areas: (1) paternity 
establishment; (2) child support order establishment; and (3) 
collections on current support.
    Proposed paragraph (a)(1), Paternity Establishment Performance 
Level, reflects the explicit statutory language in section 
458A(b)(6)(A)(i) of the Act, which gives States the choice of being 
evaluated on one of the following two measures, discussed in detail 
later for their paternity establishment percentage (commonly known as 
the PEP). The statute and the proposed paragraph provide that the count 
of children shall not include any child who is a dependent by reason of 
the death of a parent (unless paternity is established for that child). 
It shall also not include any child with respect to whom there is a 
finding of good cause for refusing to cooperate with the State agency 
in establishing paternity, or for whom the appropriate State agency 
determines it is against the best interest of the child to pursue 
paternity issues.
    The IV-D paternity establishment percentage and statewide paternity 
establishment percentage definitions that follow are contained in 
subparagraphs (a)(1)(i) and (ii) are set forth in sections 452(g)(2)(A) 
and (B) of the Act:
    IV-D Paternity Establishment Percentage means the ratio that the 
total number of children in the IV-D caseload

[[Page 55081]]

in the fiscal year (or, at the option of the State, as of the end of 
the fiscal year) who have been born out-of-wedlock and for whom 
paternity has been established or acknowledged, bears to the total 
number of children in the IV-D caseload as of the end of the preceding 
fiscal year who were born out-of-wedlock. The equation to compute the 
measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.000

    Statewide Paternity Establishment Percentage is the ratio that the 
total number of minor children who have been born out-of-wedlock and 
for whom paternity has been established or acknowledged during the 
fiscal year, bears to the total number of children born out-of-wedlock 
during the preceding fiscal year. The equation to compute the measure 
is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.001

    The IV-D PEP is a measure of children in the caseload at a point-
in-time (i.e. the end of the fiscal year). The Statewide PEP is a 
measure of what happened during the fiscal year. Both counts include 
children in interstate cases.
    As we propose the measure, paternities include those established 
by: (1) Voluntary acknowledgments; and (2) all types of orders, 
including court, administrative, and default. However, a paternity can 
only be counted once--either when a voluntary acknowledgment is 
completed or when an order determining paternity is established.
    The second performance measure contained in proposed 
Sec. 305.2(a)(2), Support Order Performance Level, requires a 
determination of whether or not there is a support order for each case. 
These support orders include all types of legally enforceable orders, 
including court, default, and administrative. Since the measure is a 
case count at a point-in-time, modifications to an order do not affect 
the count. The equation to compute the measure is as follows (expressed 
as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.002

    While the performance measure is defined in section 
458A(b)(6)(B)(i) of the Act, paragraph (a)(2) provides guidance as to 
which orders are counted for calculation of performance measures. This 
is to ensure consistency across States and is consistent with reporting 
instructions for States.
    The proposed performance measure in paragraph (a)(3) is Current 
Collections Performance Level. It measures the amount of current 
support collected as compared to the total amount owed. Current support 
is money applied to current support obligations and does not include 
payment plans for payment towards arrears. If included, voluntary 
collections must be included in both the numerator and the denominator. 
This measure would be computed monthly and the total of all months 
reported at the end of the year.
    The equation to compute the measure would be as follows (expressed 
as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.003

    As with the other performance measures, this measure derives from 
section 458A(b)(6) of the Act. This approach and definition ensures a 
consistent interpretation across States and captures a true picture of 
payments made, voluntarily or under order, which families receive each 
month. Finally, as provided under section 458A(c), support collected by 
one State at the request of another State would be treated as having 
been collected in full by both States.
    Section 458A(b)(6)(D)(i) of the Act sets forth the arrearage 
collection performance level included in proposed Sec. 305.2(a)(4) 
Arrearage Collection Performance Level. This measure would include 
those cases where all of the past-due child support was disbursed to 
the family, or all of the past due child support was retained by the 
State because all the past due child support was assigned to the State. 
If some of the past due child support was assigned to the State and 
some was owed to the family, only those cases where some of the support 
actually was disbursed to the family would be included. The equation to 
compute the measure would be as follows (expressed as a percent):

[[Page 55082]]

[GRAPHIC] [TIFF OMITTED] TP08OC99.004


    This measure, unlike the current collections measure, counts cases 
with child support arrearage collections, rather than the percentage of 
arrearages collected.
    Because we recognize the confusion that may ensue from reporting, 
as required by section 452(a)(10)(C)(vi) of the Act, widely disparate 
levels of arrearage debts in States, any display of this data at the 
Federal level will be accompanied with a clear explanation of why State 
performance cannot be compared and circumstances that affect this 
measure. This would include such things as: (1) The optional charging 
and calculation of interest on arrearages, (2) cases entering the IV-D 
caseload with existing large arrearages, and (3) old arrearages set 
before Federal law mandated establishing support orders based on the 
obligor's income rather than based on the amount of public assistance 
paid to the obligor's family.
    The final performance measure, reflecting section 458A(b)(6)(E)(i) 
of the Act, appears at proposed paragraph (a)(5) Cost-Effectiveness 
Performance Level. This measure compares the total amount of IV-D 
collections for the fiscal year to the total amount of IV-D 
expenditures the fiscal year. The equation to compute this measure is 
as follows (expressed as a ratio):
[GRAPHIC] [TIFF OMITTED] TP08OC99.005

    This indicator provides a basic cost-benefit analysis of a child 
support enforcement program. As provided under section 458A(c) of the 
Act, collections by one State at the request of another State will be 
counted as having been collected in full by both States and any amounts 
expended by a State in carrying out a special project under section 
455(e) of the Act will be excluded.
    Under proposed Sec. 305.2(b), as specified in section 458A(b)(5) of 
the Act for incentive purposes, the 5 performance measures would be 
weighted in the following manner. Each State will earn five scores 
based on performance on each of the five measures. The first three 
measures (paternity establishment, order establishment, and current 
collections) percent score earn 100 percent of the collections base as 
defined in proposed Sec. 305.31(e). The last two measures (collections 
on arrears and cost-effectiveness) earn a maximum of 0.75 percent of 
the collection base as defined in proposed Sec. 305.31(e).
    The weighting provision was recommended by State and Federal 
partners and included in the Secretary's report to Congress as an 
essential aspect of the incentive system, which would place extra 
emphasis on getting support to families each and every month.

Section 305.31  Amount of Incentive Payment

    Under proposed paragraph (a) of Sec. 305.31 (which addresses the 
contents of section 458A(b) of the Act), the incentive payment for a 
State for a fiscal year would be equal to the incentive payment pool 
for the fiscal year, multiplied by the State incentive payment share 
for the fiscal year. As specified in section 458A(b)(2) of the Act, 
proposed paragraph (b) would define the incentive payment pool as:
    (1) $422,000,000 for fiscal year 2000;
    (2) $429,000,000 for fiscal year 2001;
    (3) $450,000,000 for fiscal year 2002;
    (4) $461,000,000 for fiscal year 2003;
    (5) $454,000,000 for fiscal year 2004;
    (6) $446,000,000 for fiscal year 2005;
    (7) $458,000,000 for fiscal year 2006;
    (8) $471,000,000 for fiscal year 2007;
    (9) $483,000,000 for fiscal year 2008; and
    (10) For any succeeding fiscal year, the amount of the incentive 
payment pool for the fiscal year that precedes such succeeding fiscal 
year multiplied by the percentage (if any) by which the CPI for such 
preceding fiscal year exceeds the CPI for the second preceding fiscal 
year. In other words, for each fiscal year following fiscal year 2008, 
the incentive payment pool would be multiplied by the percentage 
increase in the CPI between the two preceding years. For example for 
fiscal year 2009, if the CPI increases by 1 percent between fiscal 
years 2007 and 2008, then the incentive pool for fiscal year 2009 would 
be a 1 percent increase over the $483,000,000 incentive payment pool 
for fiscal year 2008, or $487,830,000.
    Proposed paragraph (c) defines, in accordance with section 
458A(b)(3), the State incentive payment share for a fiscal year to be 
the incentive base amount for the State for the fiscal year divided by 
the sum of the incentive base amounts for all of the States for the 
fiscal year.
    Under proposed paragraph (d), a State's maximum incentive base 
amount for a fiscal year would be the combined sum of: the State's 
collections base for the fiscal year for each of the paternity 
establishment, support order, and current collections performance 
measures; and 75 percent of the State's collections base for the fiscal 
year for the arrearage payment and cost-effectiveness performance 
measures. This is specified in section 458A(b)(5) of the Act.
    Under proposed paragraph (e), a State's maximum incentive base 
amount for a fiscal year would be zero, unless a Federal audit 
performed under proposed Sec. 305.60 (described later in this preamble) 
determined that the data which the State submitted for the fiscal year 
and which would be used to determine the performance level involved are 
complete and reliable. This provision is required by section 
458A(b)(5)(B) of the Act. It is essential to ensure the integrity of 
the incentive system and the timeliness of the determinations. States 
are accountable for providing reliable data or they receive no 
incentives. This would prevent a State from being able to submit 
repeated adjusted data, should data used to compute incentives and 
penalties be determined unreliable.
    Finally, under proposed paragraph (f), a State's collections base 
for a fiscal year, as provided in section 458A(b)(5)(C) of the Act, 
would be equal to: 2 times the sum of the total amount of support 
collected for Current Assistance cases plus two times the total amount 
of support collected in Former Assistance cases, plus the total amount 
of support collected in all other cases during the fiscal year, that 
is:

2(Current Assistance collections + Former Assistance collections) + all 
other collections.

    This double-weighting of collections in Current Assistance and 
Former

[[Page 55083]]

Assistance cases when calculating the collection base is another key 
component of the new incentives system. As with the emphasis placed on 
the current collections performance measure to ensure consistent and 
timely support to families, the calculation of the State's collection 
base also emphasizes the goal of helping families become and remain 
self-sufficient. Under the current incentive system, States lose 
incentives when families leave the State assistance rolls because 
collections in non-assistance cases are capped at 115 percent of 
collections in assistance cases. However, under section 458A of the Act 
and these proposed regulations, collections in Former Assistance cases, 
as well as collections in Current Assistance cases will count double, 
while collections in all other cases (often seen as requiring less work 
by IV-D programs) will only be counted once. We would note that current 
assistance cases do not include cases in which assistance is paid under 
a Tribal TANF program because the statutory language covers only cases 
where an assignment to the State is required by the Act. Tribal TANF 
cases have no such required assignment to the State. Tribal TANF cases 
will be included in Former Assistance cases to the extent that the 
individuals formerly were required to assign support rights to the 
State.

Section 305.32  Requirements Applicable to Calculations

    Proposed Sec. 305.32 would establish certain special provisions 
applicable to calculating the amount of incentives and penalties. Some 
are derived from current incentive rules and practice and some are 
based on explicit rules in section 458A of the Act. They are also 
applied to penalty calculations because we are using the same measures. 
Under this section the following conditions would apply:
    Paragraph 305.32(a) specifies that each measure would be based on 
data relating to the Federal fiscal year (FY). The Federal fiscal year 
runs from October 1st of one year through September 30th of the 
following year. This is consistent with current practice and reference 
to the fiscal year in section 458A of the Act.
    Paragraph 302.32(b) specifies that only collections disbursed or 
retained, as applicable, and only those expenditures made by the State, 
in the fiscal year would be used to determine the incentive payment 
payable for that fiscal year. This is consistent with the way 
collections have always been counted on Federal reporting forms.
    Paragraph 305.32(c) specifies that support collected by one State 
at the request of another State would be treated as having been 
collected in full by each State. Required by section 458A(c) of the 
Act, this implements for the new incentive system the same practice 
that exists under the current incentive system.
    Paragraph 305.32(d) specifies that amounts expended by the State in 
carrying out a special project under section 455(e) of the Act would be 
excluded from the State's total IV-D administrative costs in computing 
incentive payments. This implements section 458A(c) of the Act, and 
also appears in section 458 of the Act.
    Paragraph 305.32(e) specifies that fees paid by individuals, 
recovered costs, and program income such as interest earned on 
collections would be deducted from total IV-D administrative costs. 
This is consistent with Sec. 304.12(b)(4)(iii) which is applicable to 
the current incentive system under section 458 and the requirement 
under Sec. 304.50 that States exclude from quarterly expenditure claims 
an amount equal to all fees, interest and other income earned from 
services provided under the State IV-D plan.
    Paragraph 305.32(f) specifies that States would be required to 
submit data used to determine incentives following instructions and 
formats required by HHS and on Office of Management and Budget (OMB) 
approved reporting instruments. This is consistent with the requirement 
in Sec. 302.15 under which States must maintain statistical, fiscal and 
other records necessary for reporting and accountability required by 
the Secretary and make such reports in the form and containing 
information the Secretary requires.

Section 305.33  Determination of Applicable Percentages Based on 
Performance Levels

    This proposed section sets forth the explicit requirements in 
section 458A(b)(6) of the Act for determining the applicable 
percentages used to calculate incentives based on a State's performance 
levels in the five performance measures.
Paternity Establishment Percentage
    Under proposed paragraph (a), a State's paternity establishment 
performance level for a fiscal year would be, at the option of the 
State, the IV-D paternity establishment percentage or the Statewide 
paternity establishment percentage determined under proposed Sec. 305.2 
of this part. The applicable percentage for each level of a State's 
paternity establishment performance would be set forth in table 1, 
except as provided in paragraph (b).
    Under proposed paragraph (b), if the State's paternity 
establishment performance level for a fiscal year is less than 50 
percent, but exceeds its paternity establishment performance level for 
the immediately preceding fiscal year by at least 10 percentage points, 
then the State's applicable percentage for the paternity establishment 
performance level would be 50 percent.
Support Order
    Under proposed paragraph (c), a State's support order performance 
level for a fiscal year would be the percentage of the total number of 
IV-D cases where there is a support order determined under Sec. 305.2 
and Sec. 305.32. The applicable percentage for each level of a State's 
support order performance would be found on table 1, except as provided 
in paragraph (d).
    Under proposed paragraph (d), if the State's support order 
performance level for fiscal year is less than 50 percent, but exceeds 
the State's support order performance level for the immediately 
preceding fiscal year by at least 5 percentage points, then the State's 
applicable percentage would be 50 percent.

                                                     Table 1
   [Use this table to determine the maximum incentive levels for the paternity establishment and support order
                                             performance measures.]
----------------------------------------------------------------------------------------------------------------
                      If the paternity establishment or support order performance level is:
-----------------------------------------------------------------------------------------------------------------
                                                       The                                               The
                                       But less    applicable                             But less    applicable
        At least:  (percent)            than:      percentage    At least:  (percent)      than:      percentage
                                      (percent)        is:                               (percent)       is:
----------------------------------------------------------------------------------------------------------------
80.................................  ...........          100   64....................           65           74

[[Page 55084]]

 
79.................................           80           98   63....................           64           73
78.................................           79           96   62....................           63           72
77.................................           78           94   61....................           62           71
76.................................           77           92   60....................           61           70
75.................................           76           90   59....................           60           69
74.................................           75           88   58....................           59           68
73.................................           74           86   57....................           58           67
72.................................           73           84   56....................           57           66
71.................................           72           82   55....................           56           65
70.................................           71           80   54....................           55           64
69.................................           70           79   53....................           54           63
68.................................           69           78   52....................           53           62
67.................................           68           77   51....................           52           61
66.................................           67           76   50....................           51           60
65.................................           66           75   0.....................           50            0
----------------------------------------------------------------------------------------------------------------

Current Support Collections
    Under proposed paragraph (e), a State's current collections 
performance level for a fiscal year would be equal to the total amount 
of current support collected during the fiscal year divided by the 
total amount of current support owed during the fiscal year in all IV-D 
cases, as determined under Sec. 305.32. The applicable percentage with 
respect to a State's current collections performance level would be 
found on table 2, except as provided in paragraph (f).
    Under proposed paragraph (f), if the State's current collections 
performance level for a fiscal year is less than 40 percent but exceeds 
the current collections performance level of the State for the 
immediately preceding fiscal year by at least 5 percentage points, then 
the State's applicable percentage would be 50 percent.
Arrearage Collections
    Under proposed paragraph (g), a State's arrearage collections 
performance level for a fiscal year would be equal to the total number 
of IV-D cases in which payments of past-due child support were received 
and disbursed during the fiscal year, divided by the total number of 
IV-D cases in which there was past-due child support owed, as 
determined under Sec. 305.32 of this part. The applicable percentage 
with respect to a State's arrearage collections performance level would 
be found on table 2, except as provided in paragraph (h).
    Under proposed paragraph (h), if the State's arrearage collections 
performance level for a fiscal year is less than 40 percent but exceeds 
the arrearage collections performance level for the immediately 
preceding fiscal year by at least 5 percentage points, then the State's 
applicable percentage would be 50 percent.

                                                     Table 2
   [Use this table to determine the maximum incentive levels for the current and arrearage support collections
                                              performance measures]
----------------------------------------------------------------------------------------------------------------
                    If the current collections or arrearage collections performance level is:
-----------------------------------------------------------------------------------------------------------------
                                                       The                                           The applica
                                      But  less    applicable                             But less       ble
        At least:  (percent)            than:      percentage    At least:  (percent)      than:     (percentage
                                      (percent)        is:                               (percent)       is:
----------------------------------------------------------------------------------------------------------------
80.................................  ...........          100   59....................           60           69
79.................................           80           98   58....................           59           68
78.................................           79           96   57....................           58           67
77.................................           78           94   56....................           57           66
76.................................           77           92   55....................           56           65
75.................................           76           90   54....................           55           64
74.................................           75           88   53....................           54           63
73.................................           74           86   52....................           53           62
72.................................           73           84   51....................           52           61
71.................................           72           82   50....................           51           60
70.................................           71           80   49....................           50           59
69.................................           70           79   48....................           49           58
68.................................           69           78   47....................           48           57
67.................................           68           77   46....................           47           56
66.................................           67           76   45....................           46           55
65.................................           66           75   44....................           45           54
64.................................           65           74   43....................           55           53
63.................................           64           73   42....................           43           52
62.................................           63           72   41....................           42           51

[[Page 55085]]

 
61.................................           62           71   40....................           41           50
60.................................           61           70   0.....................           40            0
----------------------------------------------------------------------------------------------------------------

    Under proposed paragraph (i), a State's cost-effectiveness 
performance level for a fiscal year would be equal to the total amount 
of IV-D support collected and disbursed or retained, as applicable 
during the fiscal year, divided by the total amount expended during the 
fiscal year, as determined under Sec. 305.32 of this part. The 
applicable percentage with respect to a State's cost-effectiveness 
performance level would be found on table 3.

                                 Table 3
 [Use this table to determine the maximum incentive level for the cost-
                   effectiveness performance measure.]
------------------------------------------------------------------------
             If the cost-effectiveness performance level is:
-------------------------------------------------------------------------
                                                      The  applicable
       At least:              But less than:            percentage:
------------------------------------------------------------------------
             5.00        .......................                100
             4.50                     4.99                       90
             4.00                     4.50                       80
             3.50                     4.00                       70
             3.00                     3.50                       60
             2.50                     3.00                       50
             2.00                     2.50                       40
             0.00                     2.00                        0
------------------------------------------------------------------------

    Because of the complexity of the incentives formula set forth in 
section 458A of the Act and implemented by these proposed regulations, 
we have included an example of how the system would work in a 
particular year for State A under proposed paragraph (j):
    Let's make the following assumptions regarding State A (See table 
A):
     State A's paternity performance level is 54 percent, 
making its applicable percent 64 percent (see table 1)
     State A's order establishment performance level is 79 
percent, making its applicable percent 98 percent (see table 1)
     State A's current support collections performance level is 
41 percent, making its applicable percent 51 percent (see table 2)
     State A's arrearage support collections performance level 
is 40 percent, making its applicable percent 50 percent (see table 2)
     State A's cost-effectiveness ratio is 3.00, making its 
applicable percent 60 percent (see table 3)
     State A's collections base is $50 million (determined by 2 
times the collections for Current Assistance and Former Assistance 
cases plus collections for other cases)
     The maximum incentive is:

--$32 million collections base for paternity ($50 mil. times 0.64), 
plus
--$49 million collections base for orders ($50 mil. times 0.98), plus
--$25.5 million collections base for current collections ($50 mil. 
times 0.51), plus
--$18.8 million collections base for arrearage collections ($50 million 
times 0.75 times 0.50) plus
--$22.5 million collections base for cost-effectiveness ($50 million 
times 0.75 times 0.60) equals
--Resulting in a maximum incentive base amount of $147.8 million for 
State A.

                                                     Table A
----------------------------------------------------------------------------------------------------------------
                                                                                                     State A's
                                                                                                    collection
                                                     State A's      Applicable                       base  (in
                     Measure                        performance   percent  based      Weight         millions)
                                                       level            on                        (assumed to be
                                                     (percent)      performance                        $50.0
                                                                                                     million)
----------------------------------------------------------------------------------------------------------------
Paternity Establishment.........................              54              64            1.00           $32.0
Order Establishment.............................              79              98            1.00            49.0
Current Collections.............................              41              51            1.00            25.5
Arrearage Collections...........................              40              50            0.75            18.8
Cost-Effectiveness..............................             (*)              60            0.75            22.5
                                                                                                 ---------------
      State A's Maximum Incentive Base Amount...  ..............  ..............  ..............           147.8
----------------------------------------------------------------------------------------------------------------
* $3.00

     We must now make some assumptions regarding the other 
States. Let's assume that there are only two other States in our 
country--and the maximum incentive base amount is $82 million for State 
B and $52 million for State C, making the total maximum incentive base 
amount $281.8 million for all three States (See table B).
     We must now determine what State A's share of the $281.8 
million is. It is 52 percent ($147.8 divided by $281.8)

[[Page 55086]]



                                                     Table B
----------------------------------------------------------------------------------------------------------------
                                                                                                     Incentive
                                                                      Maximum      State's share   payment pool
                              State                                  incentive       of $281.8     $422 million
                                                                   base  amounts      million      (in millions)
----------------------------------------------------------------------------------------------------------------
A...............................................................          $147.8            0.52          $219.4
B...............................................................            82.0            0.34           143.5
C...............................................................            52.0            0.14            59.1
                                                                 -----------------------------------------------
      Totals....................................................           281.8            1.00           422.0
----------------------------------------------------------------------------------------------------------------

     Let us assume the incentive payment pool for the FY is 
$422 million.
     Since State A's share is 0.52, this State has earned 52 
percent of the $422 million incentive payment pool that Congress is 
allowing, or $219.4 ($422 mil. times 0.52) million incentive payment 
for this particular fiscal year.

Section 305.34  Payment of Incentives

    Section 458A(d) of the Act includes administrative provisions for 
estimating and paying incentives. Proposed Sec. 305.34 implements those 
provisions. Under proposed paragraph (a), each State must claim/include 
one-fourth of its estimated annual incentive payment on each of its 
four quarterly expenditure reports for a fiscal year. When combined 
with the other amounts reported on each of the State's four quarterly 
expenditure reports, the portion of the annual incentive payment as 
reported each quarter would be included as in the calculation of the 
next quarterly grant awarded to the State under title IV-D of the Act.
    We have not specified any procedures for determining how States 
should calculate their estimated payments. We invite comment on whether 
we should specify a methodology in the regulations or merely provide 
guidance to States. We also invite comment on appropriate methods for 
determining the amount of estimated payments to be paid. We believe it 
is in the interest of States to avoid estimates that result in 
significant additional payments to States or significant repayments 
when final incentive amounts are determined.
    Under proposed paragraph (b), following the end of each fiscal 
year, HHS would calculate the State's annual incentive payment, using 
the actual collection and expenditure data and the performance data 
submitted by the State and other States for that fiscal year. A 
positive or negative grant would then be awarded to the State under 
title IV-D of the Act to reconcile an actual annual incentive payment 
that has been calculated to be greater or lesser, respectively, than 
the annual incentive payment estimated prior to the beginning of the 
fiscal year.
    Under proposed paragraph (c), payment of incentives would be 
contingent on a State's data being determined reliable data by Federal 
auditors, consistent with the requirement for complete and reliable 
data set forth in section 458A(b)(5)(B) of the Act.

Section 305.35  Reinvestment

    Section 458A(f) of the Act requires a State to use incentive 
payments to supplement and not supplant other funds used by the State 
in its IV-D program, or otherwise with approval of the Secretary. Under 
proposed Sec. 305.35, which implements this requirement, proposed 
paragraph (a) would require a State to expend the full amount of 
incentive payments received under the IV-D program to supplement, and 
not supplant other funds used by the States to carry out IV-D program 
activities; or funds for other activities approved by the Secretary 
which may contribute to improving the effectiveness or efficiency of 
the State's IV-D program, including cost-effective contracts with local 
agencies, whether or not the expenditures for the activity are eligible 
for reimbursement under title IV-D of the Act.
    Under proposed paragraph (b), in those States in which incentive 
payments are passed through to political subdivisions or localities, in 
accordance with section 454(22) of the Act and Sec. 302.55, such 
payments must be used in accordance with this section.
    Under proposed paragraph (c), State IV-D expenditures may not be 
reduced as a result of the receipt and reinvestment of incentive 
payments.
    In order to determine if incentive payments are used to supplement 
rather than supplant other amounts used by the State to fund the IV-D 
program, a base year level of program expenditures is necessary. 
Therefore, under proposed paragraph (d), a base amount would be 
determined by subtracting the amount of actual incentives paid to the 
State invested in the IV-D program for fiscal year 1998 from the total 
amount expended by the State in the IV-D program during the same 
period. The proposal would also allow States, in the alternative, to 
use the average of the previous three fiscal years (1996, 1997, and 
1998) as a base amount. This base amount of State spending would have 
to be maintained in future years. Incentive payments under this part 
would be used in addition to, and not in lieu of, the base amount.
    We selected fiscal year 1998 rather than fiscal year 1999 because 
we believe that the total for fiscal year 1999 may not be available 
until some time in fiscal year 2000 and we want States to know what 
their base amount that must be maintained is in advance of receiving 
any incentive payments under section 458A. Additionally, we allow the 
States the alternative of computing a 3-year average. We propose this 
alternative because we believe it might more closely approximate the 
amount a State has been spending on its IV-D program and will not give 
undue weight to any extraordinary or non-recurring expenditures that 
the State may have made in fiscal year 1998.
    We also considered and rejected using a changing base year, i.e. 
the year immediately preceding the year for which incentives are paid. 
We believe that such an approach would penalize States for, or 
discourage them from, making large one time expenditures for 
improvements to their programs because they would have to maintain 
their program expenditures at that artificially high level. However, we 
recognize concerns that a fixed base year could possibly penalize 
States that improve the cost-effectiveness of their program.
    We invite comment on the method we have chosen and other 
alternative ways of ensuring that incentive funds are used to 
supplement and not supplant State expenditures.
    Again, based on the complexity of the statute, we believe an 
example would be helpful and have included one under proposed paragraph 
(e). Therefore,
    (1) State A expended $15 million in FY1998 to conduct IV-D 
activities and used incentive payments received by the State as general 
revenues to fund an

[[Page 55087]]

assortment of non-IV-D State and local programs or activities. If State 
A receives incentives, it must continue to expend at least $15 million 
of its money annually to conduct IV-D activities, not including 
incentive money. In addition, State A must henceforth expend any 
incentive payments received pursuant to section 458A of the Act and 
this part for IV-D activities, or other activities approved by the 
Secretary. These incentive payments will be expended in addition to, 
and not in lieu of, the current $15 million expended;
    (2) State B expended $20 million in FY1998 in its IV-D program and, 
of the $20 million, $5 million represents incentive funds that the 
State received and reinvested in its IV-D program. If State B receives 
incentive payments, it must continue to spend at least $15 million in 
State money (not including incentive money) annually. Incentive 
payments received by the State must continue to be used in addition to, 
and not in lieu of, this $15 million base amount.
    Under proposed paragraph (f), requests for approval of expending 
incentives on activities not currently eligible for funding under the 
IV-D program, but which would benefit the IV-D program (e.g., work 
programs for noncustodial parents), must be submitted in accordance 
with instructions issued by the Commissioner of the Office of Child 
Support Enforcement. We will develop and disseminate by Action 
Transmittal instructions for States seeking approval to expend 
incentives on activities that would benefit the IV-D program.

Section 305.36  Incentive Phase-in

    Section 201(b) of the Child Support Performance and Incentive Act 
of 1998 establishes a transition period which phases in the new 
incentives system under section 458A of the Act. Under proposed 
Sec. 305.36, the incentive system under part 305 would be phased-in 
over a three-year period during which both the current system and the 
new system would be used to determine the amount a State will receive. 
For fiscal year 2000, a State would receive two-thirds of what it would 
have received under the incentive formula set forth in Sec. 304.12, and 
one-third of what it would received under the formula set forth under 
part 305. In fiscal year 2001, a State would receive one-third of what 
it would have received under the incentive formula set forth under 
Sec. 304.12 and two-thirds of what it would received under the formula 
under part 305. In fiscal year 2002, the formula set forth under part 
305 would be fully implemented and would be used to determine all 
incentive amounts.

V. Description of Regulatory Provisions-Penalties and Audit

Former Audit and Penalty Process

    In implementing the former requirement at section 452(a)(4) of the 
Act, the former regulations at part 305 required HHS to conduct an 
audit at least once every three years, to evaluate the effectiveness of 
each State's program in carrying out the purposes of title IV-D of the 
Act and to determine that the program met the title IV-D requirements. 
These audits were the sole basis for imposing a penalty under former 
section 403 (h) of the Act.
    The audits were a comprehensive review which used the criteria 
prescribed in the regulations, including requirements governing: 
statewide operations; reports and maintenance of records; separation of 
cash handling and accounting functions; notice of collection of 
assigned support; case closure criteria; collection and distribution of 
support payments; establishment of paternity; establishment, review and 
adjustment of orders for maintenance and medical support using 
mandatory guidelines and expedited processes; location of non-custodial 
parents; enforcement of support obligations through State and Federal 
income tax refund offset and income withholding; and case processing 
timeframes. There were numerical standards that the State had to meet 
for each category.
    A penalty was assessed in accordance with section 403(a) of the Act 
when the State failed the audit, but it was suspended during the period 
the State was under a corrective action plan. If the State passed the 
follow-up review, the penalty was not applied. In addition, HHS then 
conducted the comprehensive audit on an annual basis in the case of a 
State that was subject to a penalty. For a State operating under a 
corrective action plan, the review at the end of the corrective action 
period covered only the criteria specified in the notice of non-
compliance.
    Part 305 of the regulations were removed as part of an omnibus 
clean-up regulation designed to conform existing program regulations to 
mandatory changes, made by PRWORA and subsequent enactments. Since 
PRWORA and P.L. 105-200 significantly changed audit and penalty 
provisions of the statute, we removed all of part 305. The clean-up 
regulation was published February 9, 1999 (64 FR 6237). We include this 
summary of the former Federal process, however, because under the 
revised audit and penalty provisions in sections 409(a)(8) and 
452(a)(4) and (g) of the Act, the Secretary is required to assess a 
penalty if a State IV-D program is determined not to be in substantial 
compliance with IV-D requirements. As explained in greater detail later 
in this preamble, the proposed process for making such a determination 
is based largely on the former audit and penalty standards and 
procedures.

Proposed Regulations

    Under section 409(a)(8) of the Act, if, based on the data submitted 
by the State or a review, the State program fails to achieve the 
paternity establishment or other performance standards set by the 
Secretary; or if an audit finds that the State data is incomplete or 
unreliable; or the State failed to substantially comply with one or 
more IV-D requirements, and the State fails to correct the deficiencies 
in the following year, then the amounts otherwise payable to the State 
under title IV-A will be reduced.
    However, a State will be determined to be in substantial compliance 
with IV-D requirements if the Secretary determines that the 
noncompliance is of a technical nature which does not adversely affect 
the performance of the State's IV-D program, or will be determined to 
have submitted accurate data where the incompleteness or unreliability 
of the data is of a technical nature which does not affect the 
determination of the State's performance on the performance standards.
    In these proposed regulations, we have relied heavily on the well-
established, tested and experienced Federal audit process, which was 
used for penalties, assessed under the former section 403(h) of the Act 
and former part 305 to establish the new audit regulations. In fact, 
much of our proposed language governing the audit process is taken 
almost verbatim from former part 305, particularly in sections dealing 
with the audit process, State responsibilities, definition of 
substantial compliance and notice and assessment of the penalty.

Section 305.40  Penalty Performance Measures, and Levels

    Proposed Sec. 305.40 would establish the performance measures to be 
used to determine whether a State IV-D program is performing adequately 
to avoid a financial penalty under section 409(a)(8)(A)(i)(I) of the 
Act. As discussed earlier in this preamble, under proposed paragraph 
(a), there would be three performance measures for which States would 
have to achieve

[[Page 55088]]

certain levels of performance in order to avoid being penalized for 
poor performance. These measures are paternity establishment, order 
establishment, and collection of current support set forth in 
Sec. 305.2 of these proposed regulations.
    The proposed levels of performance that would determine whether or 
not a State would be subject to a penalty were established based on 
analysis of historical statistical and financial program data submitted 
by States. This program data was used to set the expected levels of 
performance and improvements, which are based on past State 
performance, and reasonable expectations of improved performance. The 
expectations of performance in this proposed rule were set taking into 
consideration State concerns, prior work done by State and Federal 
partners to develop the incentive system, and consultations with State 
partners about what constituted reasonable performance levels supported 
by historical data.
    The proposed measures and levels of performance would be:
    (1) The paternity establishment percentage which is required under 
section 452(g) of the Act for penalty purposes. States have the option 
of using either the IV-D paternity establishment percentage or the 
statewide paternity establishment percentage defined in proposed 
Sec. 305.2. However, as stated on the OCSE-157 form that States will 
use to report incentive information, ``the option can be changed at a 
later date, however, for calculation purposes, like data must be 
compared from year-to-year.'' Table 4 shows at which level of 
performance the State would be subject to a penalty under the paternity 
establishment measure. For example, if State A earned a paternity 
establishment percent of 34 percent and only improved by 3 percentage 
points over the previous fiscal year, then State A would be subject to 
a penalty of 1-2 percent of TANF funds, for the first finding.

                                 Table 4
 [Use this table to determine the level of performance for the paternity
            establishment measure that would incur a penalty]
------------------------------------------------------------------------
   Statutory penalty performance standards for paternity establishment
-------------------------------------------------------------------------
                                    Increase
                                  required over     Penalty FOR FIRST
         PEP  (percent)             previous     FAILURE if increase not
                                   year's PEP              met
                                    (percent)
------------------------------------------------------------------------
90 or more.....................            None  No Penalty.
75 to 89.......................               2  1-2% TANF Funds.
50 to 74.......................               3  1-2% TANF Funds.
45 to 49.......................               4  1-2% TANF Funds.
40 to 44.......................               5  1-2% TANF Funds.
39 or less.....................               6  1-2% TANF Funds.
------------------------------------------------------------------------

    (2) The order establishment performance measure to be used for 
penalty purposes is the measure defined in proposed Sec. 305.2. For 
purposes of the penalty with respect to this measure, there would be a 
threshold of 40 percent, below which a State would be penalized unless 
an increase of 5 percent over the previous year is achieved--which 
would qualify it for an incentive. Performance in the 40 percent to 49 
percent range with no significant increase would not be penalized, but 
neither would it qualify for an incentive payment. Table 5 shows at 
which level of performance a State would incur a penalty under the 
order establishment measure.

                                 Table 5
   [Use this table to determine the level of performance for the order
            establishment measure that would incur a penalty]
------------------------------------------------------------------------
              Performance standards for order establishment
-------------------------------------------------------------------------
                                  Increase over
      Performance level           previous year       Incentive/penalty
------------------------------------------------------------------------
50% or more.................  no increase over      Incentive.
                               previous year
                               required.
40% to 49%..................  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  No Incentive/No
                                                     Penalty.
Less than 40%...............  w/5% increase over     Incentive.
                               previous year.
                              w/out 5% increase...  Penalty equal to 1-
                                                     2% of TANF funds
                                                     for the first
                                                     failure, 2-3% for
                                                     second failure, and
                                                     so forth, up to a
                                                     maximum of 5% of
                                                     TANF funds.
------------------------------------------------------------------------

    (3) For the current collections performance measure, there would be 
a threshold of 35 percent below which a State would be penalized unless 
an increase of 5 percent over the previous year is achieved (that would 
qualify it for an incentive). Performance in the 35 percent to 40 
percent range with no significant increase would not be penalized but 
neither would it qualify for an incentive payment. Table 6 shows at 
which level of performance the State would incur a penalty under the 
current collections measure.

[[Page 55089]]



                                 Table 6
  [Use this table to determine the level of performance for the current
             collections measure that would incur a penalty]
------------------------------------------------------------------------
              Performance standards for current collections
-------------------------------------------------------------------------
                                  Increase over
      Performance level           previous year       Incentive/penalty
------------------------------------------------------------------------
40% or more.................  no increase over      Incentive.
                               previous year
                               required.
35% to 40%..................  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  No Incentive/No
                                                     Penalty.
Less than 35%...............  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  Penalty equal to 1-
                                                     2% of TANF funds
                                                     for the first
                                                     failure, 2-3% for
                                                     second failure, and
                                                     so forth, up to a
                                                     maximum of 5% of
                                                     TANF funds.
------------------------------------------------------------------------

    Under proposed paragraph (b), the provisions applicable to 
calculations listed under Sec. 305.32, would apply to the calculation 
of performance levels for penalty purposes, for e.g., counting only 
disbursed collections, and double-counting interstate collections.

Section 305.42  Penalty Phase-in

    Proposed Sec. 305.42 sets a schedule for phasing in the new penalty 
provisions which relates to the incentive phase-in under Sec. 305.36. 
Penalties would be measured for the first full fiscal year beginning 
after the publication of final rules. We expect this will be fiscal 
year 2001. States would be subject to the performance penalties based 
on data reported for FY 2001. Data reported for FY 2000 would be used 
as a base year to determine improvements in performance during FY 2001. 
There would be a statutory corrective action period of one year before 
any penalty would be assessed. The penalties would be assessed and then 
suspended during the corrective action period.

Section 305.60  Timing and Scope of Federal Audits

    Based on explicit statutory requirements at sections 452(a)(4)(C) 
and 409(a)(8)(A)(i)(II) of the Act, under proposed Sec. 305.60, OCSE 
would conduct audits, in accordance with the Government auditing 
standards of the Comptroller General of the United States--
    (1) At least once every three years (or more frequently if the 
State fails to meet performance standards and reliability of data 
requirements) to assess the completeness, authenticity, reliability, 
accuracy and security of data and the systems used to process the data 
in calculating performance indicators under part 305;
    (2) To determine the adequacy of financial management of the State 
IV-D program, including assessments of:
    (i) Whether funds to carry out the State program are being 
appropriately expended, and are properly and fully accounted for; and
    (ii) Whether collections and disbursements of support payments are 
carried out correctly and are fully accounted for; and
    (3) For such other purposes as the Secretary may find necessary, 
including audits to determine if the State is substantially complying 
with one or more of the requirements of the IV-D program (with the 
exception of the requirements of section 454(24) of the Act relating to 
statewide-automated systems). Substantial compliance audits are defined 
in Sec. 305.63 and are discussed later in this preamble.
    Under the proposed rules the substantial compliance audits would be 
conducted at the discretion of the Secretary, and would be triggered 
based on substantiated evidence of a failure by the State to meet IV-D 
program requirements. We propose that evidence that might warrant such 
an audit to determine substantial compliance would include:
    (i) The results of 2 or more sequential State self-reviews 
conducted under section 454(15)(A) of the Act which: show evidence of 
sustained poor performance, or indicate that the State has not 
corrected deficiencies identified in previous self-assessments and that 
these deficiencies are determined to seriously impact the performance 
of the State's program; or
    (ii) Evidence of a State program's systemic failure to provide 
adequate services under the program through a pattern of non-compliance 
over time.
    While we recognize the advantage and responsibility to maintain the 
authority to conduct audits similar to those which resulted in improved 
State performance in years past, we are committed to the philosophy 
which focuses on measuring program results, and allowing States the 
flexibility and responsibility to manage their own programs, while 
assuring that Federal requirements are met. We expect States to take 
both the self-reviews to determine compliance with IV-D requirements 
and the proposed requirements for administrative review procedures in 
Sec. 303.35 seriously and to use those processes to continually 
critique and adjust their programs to ensure that children and families 
are adequately served. These discretionary Federal process audits 
authorized under section 452(a)(4)(C) provide a fall back measure for 
the Secretary's use should systemic or serious problems with IV-D 
programs become apparent.
    The Child Support Performance and Incentive Act of 1998 established 
a specific financial penalty for a State's failure to meet statewide-
automated systems requirements in section 454(24) of the Act. As a 
conforming amendment, section 409(a)(8) of the Act was amended to 
preclude a financial penalty under that section for failing to meet 
automated systems requirements under section 454(24). While compliance 
with particular system's requirements will be excluded from any Federal 
audit to determine substantive compliance with IV-D requirements, 
States must still meet the individual IV-D program requirements being 
audited, as defined in proposed Sec. 305.63, in order to avoid a 
financial penalty under Sec. 305.61. These program requirements exist 
independently from the systems requirements under section 454(24) of 
the Act and, therefore, States will be held accountable for compliance 
with them.
    Under proposed paragraph (b), as with past audits, during the 
course of the audit, OCSE would make a critical investigation of the 
State's IV-D program through inspection, inquiries, observation, and 
confirmation and use the audit standards promulgated by the Comptroller 
General of the United States in ``Government Auditing Standards.''

Section 305.61  Penalty for Failure to Meet IV-D Requirements

    To implement the requirements of section 409(a)(8) of the Act, 
under proposed paragraph (a) of Sec. 305.61, a State would be subject 
to a financial penalty and the amounts otherwise

[[Page 55090]]

payable to the State under title IV-A of the Act would be reduced:
    If, on the basis of:
    (i) Data submitted by the State or the results of an audit 
conducted under proposed Sec. 305.60, the State's program failed to 
achieve the paternity establishment percentages, as defined in section 
452(g)(2) of the Act and proposed section Sec. 305.40, or to meet the 
support order and current collections performance measures set forth in 
proposed Sec. 305.40; or
    (ii) The results of an audit under proposed Sec. 305.60, the State 
did not submit complete and reliable data, as defined in proposed 
Sec. 305.1; or
    (iii) The results of an audit under proposed Sec. 305.60, the State 
failed to substantially comply with 1 or more of the requirements of 
the IV-D program, as defined in proposed Sec. 305.63;
    And, with respect to the following fiscal year, the State failed to 
take sufficient corrective action to achieve the appropriate 
performance levels or compliance or the data submitted by the State are 
still incomplete or unreliable.
    A penalty would be applied when a State was determined not to meet 
a requirement, but the penalty would be suspended during the following 
year and applied only if the State failed to correct any identified 
deficiencies by the end of this corrective action year.
    Under proposed paragraph (b) of Sec. 305.61, the penalty reductions 
described under proposed Sec. 305.61(c) (discussed below) would be made 
for quarters following the end of the fiscal year following the fiscal 
year in which the determination under Sec. 305.61(a)(1) is made that 
the State is subject to a penalty and would continue until the State, 
as appropriate:
    (1) Has achieved the paternity establishment percentages, the order 
establishment or the current collections performance measures defined 
in Sec. 305.40; or
    (2) Is in substantial compliance with the IV-D requirements audited 
for substantial compliance, as defined in Sec. 305.63; or
    (3) Has submitted data that is complete and reliable.
    It is important to note that the statute at section 409(a)(8)(A) of 
the Act and these proposed regulations clearly require States to submit 
complete and reliable data or face financial penalties. However, unlike 
other penalty circumstances, penalties for incomplete or unreliable 
data may also trigger potential penalties for failure to meet 
performance standards. This is because when data is incomplete or 
unreliable, it may be impossible to accurately determine the State's 
level of performance on one or more of the performance measures. In 
such cases, a State would have one year following a determination that 
its data was incomplete or unreliable, to submit complete and reliable 
data, and demonstrate that the submitted data meets the performance 
measures in order to avoid the imposition of a penalty. Correcting 
incomplete or unreliable data within the one-year period would not be 
enough; the data must also show that the State performed at a high 
enough level to avoid a financial penalty.
    Proposed paragraph (c) sets forth the penalty levels from section 
408(a)(8)(B) of the Act under which, the payments for a fiscal year 
under title IV-A of the Act will be reduced by the following 
percentages:

(1) One to two percent for the first finding;
(2) Two to three percent for the second such finding; and
(3) Not less than three percent and not more than 5 percent for the 
third or a subsequent consecutive finding.

    These section 409(a)(8) penalties, which increase with each 
subsequent finding, are identical to the level and source of penalties 
assessed under the former audit and penalty process in former section 
403(h) of the Act. In actual practice, OCSE has used the lower amount 
for each situation. Thus, under past practice, while the penalty 
imposed for the first failure would be 1 percent of a State's TANF 
block grant, if a State fails to meet the appropriate standard on one 
or all of the three performance measures two years in a row, the 
penalty would be 2 percent of TANF funds. Three years of failure would 
garner a 3 percent penalty against TANF funds and so forth, up to a 
maximum of 5 percent of TANF funds. The maximum penalty that would be 
imposed would be 5 percent regardless of the number of different 
grounds for which a State would be subject to a penalty. However, OCSE 
reserves the right to impose the higher range of the amount allowed 
under the statute in the case of multiple penalty grounds or if the 
State's failures are willful or egregious .
    Because the penalty is taken against a State's TANF block grant, 
certain provisions applicable to other TANF penalties also apply to 
this penalty. The provisions in section 409(d) of the Act which provide 
that the total penalties that may be taken may not exceed 25 percent of 
the TANF grant would apply. In addition, section 410 of the Act 
provides for appeals when penalties are taken pursuant to section 409 
of the Act.
    Finally, section 409(a) (12) of the Act which requires that a State 
spend additional funds to replace the reductions in funds resulting 
from the imposition of a penalty, would apply. The TANF regulations 
published April 12, 1999 at 64 FR 17720 and effective October 1, 1999, 
contain provisions in new 45 CFR Part 262 which address and implement 
these statutory provisions. We incorporate those provisions by cross 
reference.

Section 305.62  Disregard of a Failure Which is of a Technical Nature

    Section 409(a)(8)(C) of the Act, like the former section 403(h) of 
the Act, recognizes that certain noncompliance may be insufficient to 
significantly impact a State's performance or data reliability. Under 
proposed Sec. 305.62, we implement this concept by proposing that a 
State subject to a penalty under Sec. 305.61(a)(1)(ii) or (iii) may be 
determined, as appropriate, to have submitted adequate data or to have 
achieved substantial compliance with one or more IV-D requirements, as 
defined in Sec. 305.63 (discussed below), if the Secretary determines 
that the incompleteness or unreliability of the data, or the 
noncompliance with one or more of the IV-D requirements, are of a 
technical nature which does not adversely affect the performance of the 
State's IV-D program or does not adversely affect the determination of 
the level of the State's paternity establishment or other performance 
measures percentages.

Sec. 305.63     Definition of Substantial Compliance With IV-D 
Requirements

    Because section 409(a)(8) of the Act requires the assessment of a 
penalty should a State be found, as a result of an audit, to have 
failed to substantially comply with one or more IV-D requirements which 
it fails to correct in the subsequent year, we must provide a 
definition of substantial compliance that will be used by the auditors 
to measure State compliance with IV-D requirements. Fortunately, it is 
not necessary to reinvent the wheel because of the existence of a 
previously established and tested definition of substantial compliance 
from former section Sec. 305.20. That section established for purposes 
of the former Federal audit and penalty process, the definition of an 
effective program in substantial compliance with the requirements of 
title IV-D of the Act. Therefore, we propose under Sec. 305.63 to use 
the definition under former Sec. 305.20 as the basis for a 
determination that a State failed to achieve substantial

[[Page 55091]]

compliance with one or more IV-D requirements.
    However, there is one significant difference between the proposed 
and former audit and penalty process which deals with the required 
scope of the audit. Under the former statute and regulations, a penalty 
was based on a complete audit of a State's program for substantial 
compliance with all of the applicable IV-D requirements. Under section 
408(a)(9) of the Act and these proposed regulations, a State may be 
audited on one, some or all of the requirements and may be assessed a 
penalty, if it is found not to comply with one or more IV-D 
requirements. Assessment of a penalty could be based, therefore, on a 
targeted audit of specific IV-D requirements. Specifically, for the 
purposes of a determination under Sec. 305.61(a)(1)(iii), in order to 
be determined in substantial compliance with one or more of the IV-D 
requirements as a result of an audit conducted under Sec. 305.60, a 
State would be required to meet the specific IV-D State plan 
requirement or requirements that was audited. The IV-D requirements 
subject to audit are contained in part 302 of this chapter, and are 
measured as described in the following paragraphs.
    Under proposed paragraph (a), the State would have to meet all the 
requirements under any of the following areas being audited:

Statewide operations, Sec. 302.10;
Reports and maintenance of records, Sec. 302.15(a);
Separation of cash handling and accounting functions, Sec. 302.20; 
and
Notice of collection of assigned support, Sec. 302.54.

    These areas are identical to those in former Sec. 305.20, which 
measured management and accountability of the program.
    Under proposed paragraph (b), the State would be required to meet 
the requirements under the following areas in at least 90 percent of 
the cases reviewed for each criterion being audited, consistent with 
the requirement used under the former Sec. 305.20:

Establishment of cases, Sec. 303.2(a); and
Case closure criteria, Sec. 303.11.

    We believe these criteria should continue to be met in 90 percent 
of cases reviewed because of their critical nature. They are intended 
to ensure that cases are opened and closed appropriately.
    Under proposed paragraph (c), States would be held to the same test 
they have been held to under former audit and penalty requirements in 
place and used since the early to mid-1990s. Under the proposed 
paragraph, the State would be required to meet the following areas in 
at least 75 percent of the cases reviewed for each area being audited:
    (1) Collection and distribution of support payments, including: 
collection and distribution of support payments by the IV-D agency 
under Sec. 302.32(b); distribution of support collections under 
Sec. 302.51; and distribution of support collected in title IV-E foster 
care maintenance cases under Sec. 302.52;
    (2) Establishment of paternity and support orders, including: 
establishment of a case under Sec. 303.2(b); services to individuals 
not receiving TANF or title IV-E foster care assistance, under 
Sec. 302.33(a) (1) through (4); provision of services in interstate IV-
D cases under Sec. 303.7(a), (b) and (c)(1) through (6) and (8) through 
(10); location of non-custodial parents under Sec. 303.3; establishment 
of paternity under Sec. 303.5(a) and (f); guidelines for setting child 
support awards under Sec. 302.56; and establishment of support 
obligations under Sec. 303.4(d), (e) and (f);
    (3) Enforcement of support obligations, including, in all 
appropriate cases: establishment of a case under Sec. 303.2(b); 
services to individuals not receiving TANF or title IV-E foster care 
assistance, under Sec. 302.33(a) (1) through (4); provision of services 
in interstate IV-D cases under Sec. 303.7(a), (b) and (c)(1) through 
(6) and (8) through (10); location of non-custodial parents under 
Sec. 303.3; enforcement of support obligations under Sec. 303.6 and 
State laws enacted in accordance with section 466 of the Act, including 
submitting once a year all appropriate cases in accordance with 
Sec. 303.6(c)(3) to State and Federal income tax refund offset; and 
wage withholding under Sec. 303.100. In cases in which wage withholding 
cannot be implemented or is not available and the non-custodial parent 
has been located, States must use or attempt to use at least one 
enforcement technique available under State law in addition to Federal 
and State tax refund offset, in accordance with State laws and 
procedures and applicable State guidelines developed under 
Sec. 302.70(b) of this chapter;
    (4) Review and adjustment of child support orders, including: 
establishment of a case under Sec. 303.2(b); services to individuals 
not receiving TANF or title IV-E foster care assistance, under 
Sec. 302.33(a) (1) through (4); provision of services in interstate IV-
D cases under Sec. 303.7(a), (b) and (c)(1) through (6) and (8) through 
(10); location of non-custodial parents under Sec. 303.3; guidelines 
for setting child support awards under Sec. 302.56; and review and 
adjustment of support obligations under Sec. 303.8;
    (5) Medical support, including: establishment of a case under 
Sec. 303.2(b); services to individuals not receiving TANF or title IV-E 
foster care assistance, under Sec. 302.33(a) (1) through (4); provision 
of services in interstate IV-D cases under Sec. 303.7(a), (b) and 
(c)(1) through (6) and (8) through (10); location of non-custodial 
parents under Sec. 303.3; securing medical support information under 
Sec. 303.30; and securing and enforcing medical support obligations 
under Sec. 303.31; and.
    (6) Disbursement of support payments in accordance with the 
timeframes in section 454B of the Act or the regulation at Sec. 302.32.
    Except for the last requirement for disbursement of support 
collected within the timeframe set forth in requirements for a State 
Disbursement Unit in section 454B of the Act, the provisions are taken 
from the former Sec. 305.20. We have proposed to use those standards 
because we still consider them to represent the critical aspects of IV-
D program requirements and believe they are essential to any 
determination of substantial compliance with any of the requirements 
being audited for that purpose. The subparagraphs, as written, are 
broad and are intended to incorporate revised provisions of title IV-D 
of the Act, such as any changes in distribution, additional enforcement 
techniques, revised review and adjustment procedures and evolving 
medical support expectations that are indicated in the statute or 
regulations. We do not believe it is necessary to include an explicit 
reference to each and every aspect of the program.
    The timeframe for disbursement of support collections by the State 
Disbursement Unit under section 454B of the Act is included because it 
is one of the essential case processing timeframes added by PRWORA. 
Other explicit requirements of PRWORA are included by reference to laws 
enacted under section 466 of the Act and still others, for example, the 
State Directory of New Hires and other new locate sources, will be 
evaluated as part of the State's automated system certification.
    It is not our intention to include every aspect of IV-D case 
processing or every State responsibility under this definition of 
substantial compliance. There are a number of means of carrying out 
Federal oversight responsibilities and ensuring State accountability 
and provision of services to those in need of them without including 
every IV-D requirement under this definition. We intend to use the 
Secretary's discretion to conduct process audits only in

[[Page 55092]]

egregious situations. Other processes, including penalties for failure 
to meet performance standards, Federal audits to ensure appropriate 
financial management of program funds and general Federal review and 
oversight of State programs, together with State self-reviews and the 
availability of administrative review procedures for recipients of IV-D 
services, should work together to ensure successful IV-D programs.
    As with the former audit process which recognized that citing 
States for each failure to meet a specific timeframe could remove a 
State's motivation to move forward in such a case, we propose to adopt 
the provisions from former Sec. 305.20 under which States can receive 
credit for a case being reviewed if they accomplish the necessary 
action within the audit period, despite having missed an interim 
timeframe. We remain committed to this concept in these proposed 
regulations and have incorporated it into proposed paragraph (d).
    Finally, as under the former audit standards in Sec. 305.20, 
proposed paragraph (e) would require a State to meet the requirements 
for expedited processes under Sec. 303.101(b)(2) (i) and (iii), and 
(e).
    Under the new penalty standards in section 409(a)(8) and the new 
audit responsibilities under section 452(a)(4) of the Act, the Federal 
audit and subsequent penalty can cover simply one, or a number of IV-D 
requirements. Using the definition of substantial compliance proposed 
above, Federal auditors, States and other interested parties would be 
aware of the expected level of State performance with respect to any 
particular requirement being audited.

Section 305.64  Audit procedures and State comments

    This proposed section would adopt the same procedures as were in 
effect under former Sec. 305.12. Under proposed paragraph (a), prior to 
the start of the actual audit, Federal auditors would hold an audit 
entrance conference with the State IV-D agency. At that conference, the 
auditors would explain how the audit will be performed and make any 
necessary arrangements.
    Under proposed paragraph (b), at the conclusion of audit fieldwork, 
Federal auditors would afford the State IV-D agency an opportunity to 
have an audit exit conference at which time preliminary audit findings 
would be discussed and the State IV-D agency may present any additional 
matter it believes should be considered in the audit findings.
    Under proposed paragraph (c), after the exit conference, Federal 
auditors would prepare and send to the State IV-D agency, a copy of an 
interim report on the results of the audit. Within 45 days from the 
date the report was sent by certified mail, the State IV-D agency would 
be able to submit written comments on any part of the report that the 
State IV-D agency believes is in error. The auditors would note such 
comments and incorporate any response into the final audit report.

Section 305.65  State cooperation in audit

    Also consistent with historic State responsibilities with respect 
to Federal audits, we propose to incorporate former Sec. 305.13 and 
require that each State make available to the Federal Auditors such 
records or other supporting documentation (electronic and manual) as 
the audit staff may request, including records to support the data as 
submitted on the Federal statistical and financial reports that will be 
used to calculate the State's performance. We have included specific 
reference to the data States must submit because it is essential to the 
auditors' work. States would also be required to make available 
personnel associated with the State's IV-D program to provide 
information that the audit staff may find necessary in order to conduct 
or complete the audit.
    We also propose to require, under paragraph (b), that States 
provide evidence to OCSE that their data are complete and reliable. 
This ensures the responsibility for maintaining and providing reliable 
data is the State's responsibility.
    As was the case under former audit regulations at Sec. 305.13, we 
propose in paragraph (c), that failure to comply with the requirements 
of this section with respect to audits conducted under proposed 
Sec. 305.64 may necessitate a finding that the State has failed to 
comply with the particular criteria being audited. State cooperation 
with the audit is essential to assess performance.

Sec. 305.66  Notice, corrective action year, and imposition of penalty 
for failure to meet requirements

    Proposed Sec. 305.66 addresses notice to the State of any 
deficiency or deficiencies identified. Similar to the notice aspects of 
the former audit process at former Sec. 305.99, the proposed paragraph 
(a) would require that, if the Secretary, on the basis of the results 
of an audit or review, finds a State to be subject to a penalty, OCSE 
would notify the State in writing of such finding.
    Under proposed paragraph (b), the notice would:
    (1) Explain the deficiency or deficiencies which result in the 
State being subject to a penalty, indicate the amount of the potential 
penalty, and give reasons for the Secretary's finding; and
    (2) Specify that the penalty would be assessed if the State fails 
to correct the deficiency or deficiencies cited in the notice during 
the subsequent fiscal year, referred to as the ``corrective action'' 
year.
    As discussed earlier in the preamble, the imposition of a penalty 
is subject to certain limitations, appeals and replacement of funds 
requirements specified in sections 409 and 410 of the Act. We 
incorporate those statutory requirements in paragraph (b)(2) by cross 
reference to the specific TANF regulatory provisions in 45 CFR Part 262 
that implement those requirements.
    Under proposed paragraph (c), the penalty would be assessed if the 
Secretary determines that the State has not corrected the deficiency or 
deficiencies cited in the notice by the end of the corrective action 
year. This determination would be made as of the first full three-month 
period beginning after the end of corrective action year.
    We propose, as supported by the language of section 409(a)(8) of 
the Act, under paragraph (d), that only one corrective action period be 
provided to a State in relation to a given deficiency when consecutive 
findings of noncompliance are made on that deficiency. In the case of a 
State in which the penalty is accessed and which failed to correct the 
deficiency or deficiencies cited in the notice by the end of the 
corrective action year, the penalty would be applied for any quarter 
that ends after the end of the corrective action year and until the 
first quarter throughout which the State is determined to have 
corrected the deficiency or deficiencies cited in the notice.
    Under proposed paragraph (e), a consecutive finding would occur 
only when the State does not meet or achieve substantial compliance 
with the same criterion or criteria cited in the notice.

VI. Regulatory Flexibility Analysis

    The Secretary certifies, under 5 U.S.C. 605(b), the Regulatory 
Flexibility Act (Pub. L. 96-354), that these proposed regulations will 
not result in a significant impact on a substantial number of small 
entities. The primary impact is on State governments. State governments 
are not considered small entities under the Act.

[[Page 55093]]

VII. Executive Order 12866

    Executive Order 12866 requires that regulations be reviewed to 
ensure that they are consistent with the priorities and principles set 
forth in the Executive Order. The Department has determined that this 
proposed rule is consistent with these priorities and principles. The 
proposed rule implements the statutory provisions by specifying the 
performance-based incentive and penalty systems.

VIII. Unfunded Mandates Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act) requires that a covered agency prepare a budgetary impact 
statement before promulgating a rule that includes any Federal mandate 
that may result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.
    If a covered agency must prepare a budgetary impact statement, 
section 205 further requires that it select the most cost-effective and 
least burdensome alternative that achieves the objectives of the rule 
and is consistent with the statutory requirements. In addition, section 
203 requires a plan for informing and advising any small government 
that may be significantly or uniquely impacted by the proposed rule.
    We have determined that the proposed rules will not result in the 
expenditure by State, local, and Tribal governments, in the aggregate, 
or by the private sector, of more than $100 million in any one year. 
Accordingly, we have not prepared a budgetary impact statement, 
specifically addressed the regulatory alternatives considered, or 
prepared a plan for informing and advising any significantly or 
uniquely impacted small government.

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995, Public Law 104-13, all 
Departments are required to submit to the Office of Management and 
Budget (OMB) for review and approval any reporting or recordkeeping 
requirements inherent in a proposed or final rule. The reports 
necessary to implement this proposed rule have received OMB approvals. 
They are the OCSE-157, OMB No. 0970-0177; the OCSE-34A, OMB No. 0970-
0181; and the OCSE-396A, OMB No. 0970-0181. This proposed rule requires 
no other reporting or recordkeeping requirements.

X. Congressional Review

    This proposed rule is not a major rule as defined in 5 U.S.C., 
Chapter 8.

XI. Assessment of Federal Regulations and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 requires Federal agencies to determine whether a proposed 
policy or regulation may affect family well-being. If the agency's 
conclusion is affirmative, then the agency must prepare an impact 
assessment addressing seven criteria specified in the law. These 
proposed regulations will not have an impact on family well-being as 
defined in the legislation.

List of Subjects

45 CFR Parts 302 and 303

    Child support, Grant programs/social programs, Reporting and 
recordkeeping requirements.

45 CFR Part 304

    Child support, Grant programs/social programs, Penalties, Reporting 
and recordkeeping requirements, Unemployment compensation.

45 CFR Part 305

    Child support, Grant programs/social programs, Accounting.

(Catalog of Federal Domestic Assistance Programs No. 93.563, Child 
Support Enforcement Program)

    Dated: April 29, 1999.
Olivia A. Golden,
Assistant Secretary for Children and Families.

    Approved: June 21, 1999.
Donna E. Shalala,
Secretary, Department of Health and Human Services.

    For the reasons discussed above, we propose to amend title 45 CFR 
Chapter III of the Code of Federal Regulations as follows:

PART 302--STATE PLAN REQUIREMENTS

    1. The authority citation for part 302 is revised to read as 
follows:

    Authority: 42 U.S.C. 651 through 658A, 660, 664, 666, 667, 1302, 
1396(a)(25), 1396B(d)(2), 1396b(o), 1396(p), 1396(k).

    2. Section 302.55 is amended by adding the words ``and part 305'' 
after ``Sec. 304.12''.

PART 303--STANDARDS FOR PROGRAM OPERATIONS

    3. The authority section for Part 303 continues to read as follows:

    Authority: 42 U.S.C. 651 through 658, 660, 663, 664, 667, 1302, 
1396a(a)(25), 1396b(d)(2), 1396b(o), 1396b(p), and 1396(k).

    4. A new Sec. 303.35 is added to read as follows:


Sec. 303.35   Administrative complaint procedure.

    (a) Each State must have an administrative complaint procedure in 
place to allow individuals the opportunity to request a review of 
actions taken, or not taken when there is evidence that an action 
should have been taken, on a particular case. In addition, the State 
must have a procedure for reviewing the individual's complaint and 
resolving it where appropriate action was not taken.
    (b) A State need not establish a formal hearing process but must 
have clear procedures in place and available for recipients of IV-D 
services to use when requesting such a review and for notifying them of 
the results of the review and any actions taken.

PART 304--FEDERAL FINANCIAL PARTICIPATION

    5. The authority citation for part 304 continues to read as 
follows:

    Authority: 42 U.S.C. 651 through 655, 657, 658, 1302, 
1396(a)(25), 1396b(d)(2), 1396b(o), 1396(p), and 1396(k).

    6. Section 304.12 is amended by adding new paragraphs (d) and (e) 
to read as follows:


Sec. 304.12  Incentive payments.

* * * * *
    (d) This section is in effect only through 9/30/01.
    (e) The amounts payable under this section will be reduced by one-
third for fiscal year 2000 and two-thirds for fiscal year 2001.
    7. A new part 305 is added to read as follows:

PART 305--PROGRAM PERFORMANCE MEASURES, STANDARDS, FINANCIAL 
INCENTIVES, AND PENALTIES

Sec.
305.0 Scope.
305.1 Definitions.
305.2 Performance measures.
305.31 Amount of incentive payment.
305.32 Requirements applicable to calculations.
305.33 Determination of applicable percentages based on performance 
levels.
305.34 Payment of incentives.
305.35 Reinvestment.
305.36 Incentive phase-in.
305.40 Penalty performance measures and levels.
305.42 Penalty phase-in.
305.60 Types and scope of Federal audits.

[[Page 55094]]

305.61 Penalty for failure to meet IV-D requirements.
305.62 Disregard of noncompliance which is of a technical nature.
305.63 Standards for determining substantial compliance with IV-D 
requirements.
305.64 Audit procedures and State comments.
305.65 State cooperation in the audit.
305.66 Notice, corrective action year, and imposition of penalty.

42 U.S.C. 609(a)(8), 652(a)(4) and (g), 658A and 1302.


Sec. 305.0  Scope.

    This part implements the incentive system requirements as described 
in section 458A (to be redesignated as section 458 effective October 1, 
2001) of the Act and the penalty provisions as required in sections 
409(a)(8) and 452(g) of the Act. This part also implements Federal 
audit requirements under sections 409(a)(8) and 452(a)(4) of the Act. 
Sections 305.0 through 305.2 contain general provisions applicable to 
this part. Sections 305.31 through 305.36 of this part describe the 
incentive system. Sections 305.40 through 305.42 and Secs. 305.60 
through 305.66 describe the penalty and audit processes.


Sec. 305.1  Definitions.

    The definitions found in Sec. 301.1 of this chapter are also 
applicable to this part. In addition, for purposes of this part:
    (a) The term IV-D case means a parent (mother, father, or putative 
father) who is now or eventually may be obligated under law for the 
support of a child or children receiving services under the title IV-D 
program. In counting cases for the purposes of this part, States may 
exclude cases closed under Sec. 303.11 of this chapter and cases over 
which the State has no jurisdiction. Lack of jurisdiction cases are 
those in which a non-custodial parent resides in the civil 
jurisdictional boundaries of another country or Federally recognized 
Indian Tribe and no income or assets of this individual are located or 
derived from outside that jurisdiction and the State has no other means 
through which to enforce the order.
    (b) The term Current Assistance collections means collections 
received and distributed on behalf of individuals whose rights to 
support are required to be assigned to the State under title IV-A of 
the Act, under title IV-E of the Act, or under title XIX of the Act. In 
addition, a referral to the State's IV-D agency must have been made.
    (c) The term Former Assistance collections means collections 
received and distributed on behalf of individuals whose rights to 
support were formerly required to be assigned to the State under title 
IV-A (TANF or Aid to Families with Dependent Children, AFDC), title IV-
E (Foster Care), or title XIX (Medicaid) of the Act.
    (d) The term Never Assistance/Other collections means all other 
collections received and distributed on behalf of individuals who are 
receiving child support enforcement services under title IV-D of the 
Act.
    (e) The term total IV-D administrative costs means total IV-D 
administrative expenditures claimed by a State in a specified fiscal 
year adjusted in accordance with Sec. 305.32 of this part.
    (f) The term Consumer Price Index or CPI means the last Consumer 
Price Index for all-urban consumers published by the Department of 
Labor. The CPI for a fiscal year is the average of the Consumer Price 
Index for the 12-month period ending on September 30 of the fiscal 
year.
    (g) The term State incentive payment share for a fiscal year means 
the incentive base amount for the State for the fiscal year divided by 
the sum of the incentive base amounts for all of the States for the 
fiscal year.
    (h) The term incentive base amount for a fiscal year means the sum 
of the State's performance level percentages (determined in accordance 
with Sec. 305.33 of this part) multiplied by the State's corresponding 
maximum incentive base on each of the following measures:
    (1) The paternity establishment performance level;
    (2) The support order performance level;
    (3) The current collections performance level;
    (4) The arrears collections performance level; and
    (5) The cost-effectiveness performance level.
    (i) The term reliable data means the most recent data available 
which are found by the Secretary to be reliable and is a state that 
exists when data are sufficiently complete and error free to be 
convincing for their purpose and context. This is with the recognition 
that data may contain errors as long as they are not of a magnitude 
that would cause a reasonable person, aware of the errors, to doubt a 
finding or conclusion based on the data.
    (j) The term complete data means all reporting elements from OCSE 
OMB approved reporting forms, necessary to compute a State's 
performance levels, incentive base amount, and maximum incentive base 
amount, have been provided.


Sec. 305.2  Performance measures.

    (a) The child support incentive system measures State performance 
levels in five program areas: paternity establishment; support order 
establishment; current collections; arrearage collections; and cost-
effectiveness. The penalty system measures State performance in three 
of these areas: paternity establishment; establishment of support 
orders; and current collections.
    (1) Paternity establishment performance level. States have the 
choice of being evaluated on one of the following two measures for 
their paternity establishment percentage (commonly known as the PEP). 
The count of children shall not include any child who is a dependent by 
reason of the death of a parent (unless paternity is established for 
that child). It shall also not include any child whose parent is found 
to have good cause for refusing to cooperate with the State agency in 
establishing paternity, or for whom the State agency determines it is 
against the best interest of the child to pursue paternity issues.
    (i) IV-D paternity establishment percentage means the ratio that 
the total number of children in the IV-D caseload in the fiscal year 
(or, at the option of the State, as of the end of the fiscal year) who 
have been born out-of-wedlock and for whom paternity has been 
established or acknowledged, bears to the total number of children in 
the IV-D caseload as of the end of the preceding fiscal year who were 
born out-of-wedlock. The equation to compute the measure is as follows 
(expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.006


[[Page 55095]]


    (ii) Statewide paternity establishment percentage means the ratio 
that the total number of minor children who have been born out-of-
wedlock and for whom paternity has been established or acknowledged 
during the fiscal year, bears to the total number of children born out-
of-wedlock during the preceding fiscal year. The equation to compute 
the measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.007

    (2) Support order establishment performance level. This measure 
requires a determination of whether or not there is a support order for 
each case. These support orders include all types of legally 
enforceable orders, such as court, default, and administrative. Since 
the measure is a case count at a point-in-time, modifications to an 
order do not affect the count. The equation to compute the measure is 
as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.008

    (3) Current collections performance level. Current support is money 
applied to current support obligations and does not include payment 
plans for payment towards arrears. If included, voluntary collections 
must be included in both the numerator and the denominator. This 
measure is computed monthly and the total of all months is reported at 
the end of the year. The equation to compute the measure is as follows 
(expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.009

    (4) Arrearage collection performance level. This measure includes 
those cases where all of the past-due support was disbursed to the 
family, or retained by the State because all the support was assigned 
to the State. If some of the past-due support was assigned to the State 
and some was to be disbursed to the family, only those cases where some 
of the support actually went to the family can be included. The 
equation to compute the measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TP08OC99.010

    (5) Cost-effectiveness performance level. Interstate incoming and 
outgoing distributed collections will be included for both the 
initiating and the responding State in this measure. The equation to 
compute this measure is as follows (expressed as a ratio):
[GRAPHIC] [TIFF OMITTED] TP08OC99.011

    (b) For incentive purposes, the measures will be weighted in the 
following manner. Each State will earn five scores based on performance 
on each of the five measures. Each of the first three measures 
(paternity establishment, order establishment, and current collections) 
earn 100 percent of the collections base as defined in Sec. 305.31(e) 
of this part. The last two measures (collections on arrears and cost-
effectiveness) earn a maximum of 0.75 percent of the collections base 
as defined in Sec. 305.31(e) of this part.


Sec. 305.31  Amount of incentive payment.

    (a) The incentive payment for a State for a fiscal year is equal to 
the incentive payment pool for the fiscal year, multiplied by the State 
incentive payment share for the fiscal year.
    (b) The incentive payment pool is:
    (1) $422,000,000 for fiscal year 2000;
    (2) $429,000,000 for fiscal year 2001;
    (3) $450,000,000 for fiscal year 2002;
    (4) $461,000,000 for fiscal year 2003;
    (5) $454,000,000 for fiscal year 2004;
    (6) $446,000,000 for fiscal year 2005;
    (7) $458,000,000 for fiscal year 2006;
    (8) $471,000,000 for fiscal year 2007;
    (9) $483,000,000 for fiscal year 2008; and
    (10) For any succeeding fiscal year, the amount of the incentive 
payment pool for the fiscal year that precedes such succeeding fiscal 
year multiplied by the percentage (if any) by which the CPI for such 
preceding fiscal year exceeds the CPI for the second preceding fiscal 
year. In other words, for each fiscal year following fiscal year 2008, 
the incentive payment pool will be multiplied by the percentage 
increase in the CPI between the two preceding years. For example, if 
the CPI increases by 1 percent between fiscal years 2007 and 2008, then 
the incentive pool for fiscal year 2009 would be a 1 percent increase 
over the $483,000,000 incentive payment pool for fiscal year 2008, or 
$487,830,000.
    (c) The State incentive payment share for a fiscal year is the 
incentive base amount for the State for the fiscal year divided by the 
sum of the incentive base amounts for all of the States for the fiscal 
year.
    (d) A State's maximum incentive base amount for a fiscal year is 
the State's collections base for the fiscal year for the paternity 
establishment, support order, and current collections performance 
measures and 75 percent of the State's collections base for the fiscal 
year for the arrearage collections and

[[Page 55096]]

cost-effectiveness performance measures.
    (e) A State's maximum incentive base amount for a State for a 
fiscal year is zero, unless a Federal audit performed under Sec. 305.60 
of this part determines that the data which the State submitted for the 
fiscal year and which are used to determine the performance level 
involved are complete and reliable.
    (f) A State's collections base for a fiscal year is equal to: 2 
times the sum of the total amount of support collected for Current 
Assistance cases plus two times the total amount of support collected 
in Former Assistance cases, plus the total amount of support collected 
in Never Assistance/other cases during the fiscal year, that is:

2(Current Assistance collections + Former Assistance collections) + all 
other collections.


Sec. 305.32  Requirements applicable to calculations.

    In calculating the amount of incentive payments or penalties, the 
following conditions apply:
    (a) Each measure is based on data submitted for the Federal fiscal 
year. The Federal fiscal year runs from October 1st of one year through 
September 30th of the following year.
    (b) Only those Current Assistance, Former Assistance and Never 
Assistance/other collections disbursed and those expenditures claimed 
by the State in the fiscal year will be used to determine the incentive 
payment payable for that fiscal year;
    (c) Support collected by one State at the request of another State 
will be treated as having been collected in full by each State;
    (d) Amounts expended by the State in carrying out a special project 
under section 455(e) of the Act will be excluded from the State's total 
IV-D administrative costs in computing incentive payments;
    (e) Fees paid by individuals, recovered costs, and program income 
such as interest earned on collections will be deducted from total IV-D 
administrative costs; and
    (f) States must submit data used to determine incentives and 
penalties following instructions and formats as required by HHS on 
Office of Management and Budget (OMB) approved reporting instruments. 
If not submitted within the timeframes specified in the instructions to 
the OMB approved reporting instruments, we may consider the data to be 
incomplete.


Sec. 305.33  Determination of applicable percentages based on 
performance levels.

    (a) A State's paternity establishment performance level for a 
fiscal year is, at the option of the State, the IV-D paternity 
establishment percentage or the Statewide paternity establishment 
percentage determined under Sec. 305.2 of this part. The applicable 
percentage for each level of a State's paternity establishment 
performance can be found in table 1 of this part, except as provided in 
paragraph (b) of this section.
    (b) If the State's paternity establishment performance level for a 
fiscal year is less than 50 percent, but exceeds its paternity 
establishment performance level for the immediately preceding fiscal 
year by at least 10 percentage points, then the State's applicable 
percentage for the paternity establishment performance level is 50 
percent.
    (c) A State's support order establishment performance level for a 
fiscal year is the percentage of the total number of cases where there 
is a support order determined under Secs. 305.2 and 305.32 of this 
part. The applicable percentage for each level of a State's support 
order establishment performance can be found in table 1 of this part, 
except as provided in paragraph (d) of this section.
    (d) If the State's support order establishment performance level 
for a fiscal year is less than 50 percent, but exceeds the State's 
support order establishment performance level for the immediately 
preceding fiscal year by at least 5 percentage points, then the State's 
applicable percentage is 50 percent.

                                               Table 1 to Part 305
 [Use this table to determine the applicable percentage levels for the paternity establishment and support order
                                      establishment performance measures.]
----------------------------------------------------------------------------------------------------------------
               If the paternity establishment or support order establishment performance level is:
-----------------------------------------------------------------------------------------------------------------
                                                                  The                                    The
                                                  But less    applicable    At least:     But less    applicable
             At least:  (percent)                  than:      percentage    (percent)      than:      percentage
                                                 (percent)        is:                    (percent)       is:
----------------------------------------------------------------------------------------------------------------
80............................................  ...........          100            64           65           74
79............................................           80           98            63           64           73
78............................................           79           96            62           63           72
77............................................           78           94            61           62           71
76............................................           77           92            60           61           70
75............................................           76           90            59           60           69
74............................................           75           88            58           59           68
73............................................           74           86            57           58           67
72............................................           73           84            56           57           66
71............................................           72           82            55           56           65
70............................................           71           80            54           55           64
69............................................           70           79            53           54           63
68............................................           69           78            52           53           62
67............................................           68           77            51           52           61
66............................................           67           76            50           51           60
65............................................           66           75             0           50            0
----------------------------------------------------------------------------------------------------------------

    (e) A State's current collections performance level for a fiscal 
year would be equal to the total amount of current support collected 
during the fiscal year divided by the total amount of current support 
owed during the fiscal year in all IV-D cases, determined under 
Sec. 305.32 of this part. The applicable percentage with respect to a 
State's current collections performance level can be found in table 2 
of this part, except as provided in paragraph (f) of this section.
    (f) If the State's current collections performance level for a 
fiscal year is less

[[Page 55097]]

than 40 percent but exceeds the current collections performance level 
of the State for the immediately preceding fiscal year by at least 5 
percentage points, then the State's applicable percentage is 50 
percent.
    (g) A State's arrearage collections performance level for a fiscal 
year is equal to the total number of IV-D cases in which payments of 
past-due child support were received and distributed during the fiscal 
year, divided by the total number of IV-D cases in which there was 
past-due child support owed, as determined under Sec. 305.32 of this 
part. The applicable percentage with respect to a State's arrearage 
collections performance level can be found in table 2 of this part, 
except as provided in paragraph (h) of this section.
    (h) If the State's arrearage collections performance level for a 
fiscal year is less than 40 percent but exceeds the arrearage 
collections performance level for the immediately preceding fiscal year 
by at least 5 percentage points, then the State's applicable percentage 
is 50 percent.

                                               Table 2 to Part 305
    [Use this table to determine the percentage levels for the current collections and arrearage collections
                                              performance measures]
----------------------------------------------------------------------------------------------------------------
                    If the Current Collections or Arrearage Collections Performance Level Is:
-----------------------------------------------------------------------------------------------------------------
    At least:        But less than:     The applicable       At least:        But less than:     The applicable
    (percent)          (percent)        percentage is:       (percent)          (percent)        percentage is:
----------------------------------------------------------------------------------------------------------------
            80     .................             100                 59                 60                 69
            79                 80                 98                 58                 59                 68
            78                 79                 96                 57                 58                 67
            77                 78                 94                 56                 57                 66
            76                 77                 92                 55                 56                 65
            75                 76                 90                 54                 55                 64
            74                 75                 88                 53                 54                 63
            73                 74                 86                 52                 53                 62
            72                 73                 84                 51                 52                 61
            71                 72                 82                 50                 51                 60
            70                 71                 80                 49                 50                 59
            69                 70                 79                 48                 49                 58
            68                 69                 78                 47                 48                 57
            67                 68                 77                 46                 47                 56
            66                 67                 76                 45                 46                 55
            65                 66                 75                 44                 45                 54
            64                 65                 74                 43                 55                 53
            63                 64                 73                 42                 43                 52
            62                 63                 72                 41                 42                 51
            61                 62                 71                 40                 41                 50
            60                 61                 70                  0                 40                  0
----------------------------------------------------------------------------------------------------------------

    (i) A State's cost-effectiveness performance level for a fiscal 
year is equal to the total amount of IV-D support collected and 
disbursed or retained, as applicable during the fiscal year, divided by 
the total amount expended during the fiscal year, as determined under 
Sec. 305.32 of this part. The applicable percentage with respect to a 
State's cost-effectiveness performance level can be found in table 3 of 
this part.

  Table 3 to Part 305 [Use this table to determine the percentage level
            for the cost-effectiveness performance measure.]
------------------------------------------------------------------------
             If the cost-effectiveness performance level is:
-------------------------------------------------------------------------
                                                      The applicable
       At least:              But less than:            percentage
------------------------------------------------------------------------
             5.00        .......................                100
             4.50                     4.99                       90
             4.00                     4.50                       80
             3.50                     4.00                       70
             3.00                     3.50                       60
             2.50                     3.00                       50
             2.00                     2.50                       40
             0.00                     2.00                        0
------------------------------------------------------------------------

    (j) The following example shows how an incentive payment would be 
determined for State A. Let's make the following assumptions regarding 
State A (see table A of this paragraph):

    State A's paternity performance level is 54 percent, making its 
applicable percent 64 percent (see table 1 of this part).
    State A's order establishment performance level is 79 percent, 
making its applicable percent 98 percent (see table 1).
    State A's current support collections performance level is 41 
percent, making its applicable percent 51 percent (see table 2 of 
this part).
    State A's arrearage collections performance level is 40 percent, 
making its applicable percent 50 percent (see table 2).
    State A's cost-effectiveness ratio is 3.00, making its 
applicable percent 60 percent (see table 3 of this part).
    State A's collections base is $50 million (determined by 2 times 
the collections for current assistance and Former Assistance cases, 
plus collections for other cases).
    The maximum incentive base is:

$32 million collections base for paternity ($50 million times .64), 
plus
$49 million collections base for orders ($50 million times .98), 
plus
$25.5 million collections base for current collections ($50 million 
times .51), plus
$18.8 million collections base for arrearage collections ($50 
million times .75 times .50) plus
$22.5 million collections base for cost-effectiveness ($50 million 
times .75 times .60) equals
Resulting in a maximum incentive base amount of $147.8 million for 
State A.

[[Page 55098]]



                                            Table A to Paragraph (j)
----------------------------------------------------------------------------------------------------------------
                                                                                                     State A's
                                                                                                    collection
                                                     State A's      Applicable                       base (in
                     Measure                        performance    percent based      Weight         millions)
                                                       level            on                        (assumed to be
                                                     (percent)      performance                        $50.0
                                                                                                     million)
----------------------------------------------------------------------------------------------------------------
Paternity Establishment.........................              54              64            1.00           $32.0
Order Establishment.............................              79              98            1.00            49.0
Current Collections.............................              41              51            1.00            25.5
Arrearage Collections...........................              40              50            0.75            18.8
Cost-Effectiveness..............................               *              60            0.75            22.5
                                                 ---------------------------------------------------------------
      State A's Maximum Incentive Base Amount...  ..............  ..............  ..............  147.8 million
----------------------------------------------------------------------------------------------------------------
* $3.00.

    We must now make some assumptions regarding the other States. 
Let's assume that there are only two other States in our country--
and the maximum incentive base amount is $82 million for State B and 
$52 million for State C, making the total maximum incentive base 
amount $281.8 million for all three States (See table B of this 
paragraph).
    We must now determine what State A's share of the $281.8 million 
is. It is 52 percent ($147.8 divided by $281.8).

                                            Table B to Paragraph (j)
----------------------------------------------------------------------------------------------------------------
                                                                                                     Incentive
                                                                      Maximum      State's share   payment pool
                              State                               incentive base     of $281.8     $422 million
                                                                      amounts         million      (in millions)
----------------------------------------------------------------------------------------------------------------
A...............................................................          $147.8             .52          $219.4
B...............................................................            82.0             .34           143.5
C...............................................................            52.0             .14            59.1
                                                                 -----------------------------------------------
      Totals....................................................           281.8            1.00  ..............
----------------------------------------------------------------------------------------------------------------

    Let us assume the incentive payment pool for the FY is $422 
million.
    Since State A's share is .52, this State has earned 52 percent 
of the $422 million incentive payment pool that Congress is allowing 
or a $219.4 ($422 million times .52) million incentive payment for 
this particular fiscal year.


Sec. 305.34  Payment of incentives.

    (a) Each State must report one-fourth of its estimated annual 
incentive payment on each of its four quarterly collections' reports 
for a fiscal year. When combined with the amounts claimed on each of 
the State's four quarterly expenditure reports, the portion of the 
annual incentive payment as reported each quarter will be included in 
the calculation of the next quarterly grant awarded to the State under 
title IV-D of the Act.
    (b) Following the end of each fiscal year, HHS will calculate the 
State's annual incentive payment, using the actual collection and 
expenditure data and the performance data submitted by the State and 
other States for that fiscal year. A positive or negative grant will 
then be awarded to the State under title IV-D of the Act to reconcile 
an actual annual incentive payment that has been calculated to be 
greater or lesser, respectively, than the annual incentive payment 
estimated prior to the beginning of the fiscal year.
    (c) Payment of incentives is contingent on a State's data being 
determined complete and reliable by Federal auditors.


Sec. 305.35  Reinvestment.

    (a) A State must expend the full amount of incentive payments 
received under this part to supplement, and not supplant other funds 
used by the State to carry out IV-D program activities; or funds for 
other activities approved by the Secretary which may contribute to 
improving the effectiveness or efficiency of the State's IV-D program, 
including cost-effective contracts with local agencies, whether or not 
the expenditures for the activity are eligible for reimbursement under 
this part.
    (b) In those States in which incentive payments are passed through 
to political subdivisions or localities, such payments must be used in 
accordance with this section.
    (c) State IV-D expenditures may not be reduced as a result of the 
receipt and reinvestment of incentive payments.
    (d) A base amount will be determined by subtracting the amount of 
incentive funds received by the State IV-D program for fiscal year 1998 
from the total amount expended by the State in the IV-D program during 
the same period. Alternatively, States have an option of using the 
average amount of the previous three fiscal years (1996, 1997, and 
1998) as a base amount. This base amount of State spending must be 
maintained in future years. Incentive payments under this part must be 
used in addition to, and not in lieu of, the base amount.
    (e) For example: (1) State A expended $15 million in FY1998 to 
conduct IV-D activities and used incentive payments received by the 
State as general revenues to fund an assortment of non-IV-D State and 
local programs or activities. If State A receives incentives, it must 
continue to expend at least $15 million of its money annually to 
conduct IV-D activities (not including incentive money). In addition, 
State A must henceforth expend any incentive payments received pursuant 
to section 458A of the Act and this part for IV-D activities, or other 
activities approved by the Secretary. These incentive payments will be 
expended in addition to, and not in lieu of, the current $15 million 
expended;
    (2) State B expended a total of $20 million in FY 1998 in its IV-D 
program and, of the $20 million, $5 million

[[Page 55099]]

represented incentive funds, which the State received and reinvested in 
its IV-D program. If State B receives incentive payments, it must 
continue to spend at least $15 million in State money (not including 
incentive money) annually. Incentive payments received by the State 
must continue to be used in addition to, and not in lieu of, this $15 
million base amount.
    (f) Requests for approval of expending incentives on activities not 
currently eligible for funding under the IV-D program, but which would 
benefit the IV-D program, must be submitted in accordance with 
instructions issued by the Commissioner of the Office of Child Support 
Enforcement.


Sec. 305.36  Incentive phase-in.

    The incentive system under this part will be phased-in over a 
three-year period during which both the old system and the new system 
would be used to determine the amount a State will recieve. For fiscal 
year 2000, a State will receive two-thirds of what it would have 
received under the incentive formula set forth in Sec. 304.12 of this 
chapter, and one-third of what it would receive under the formula set 
forth under this part. In fiscal year 2001, a State will receive one-
third of what it would have received under the incentive formula set 
forth under Sec. 304.12 of this chapter and two-thirds of what it would 
receive under the formula under this part. In fiscal year 2002, the 
formula set forth under this part will be fully implemented and would 
be used to determine all incentive amounts.


Sec. 305.40  Penalty performance measures and levels.

    (a) There are three performance measures for which States must 
achieve certain levels of performance in order to avoid being penalized 
for poor performance. These measures are the paternity establishment, 
support order establishment, and current collections measures set forth 
in Sec. 305.2 of this part. The levels the State must meet are:
    (1) The paternity establishment percentage which is required under 
section 452(g) of the Act for penalty purposes. States have the option 
of using either the IV-D paternity establishment percentage or the 
statewide paternity establishment percentage defined in Sec. 305.2 of 
this part. Table 4 of this part shows the level of performance at which 
a State will be subject to a penalty under the paternity establishment 
measure.

                           Table 4 to Part 305
 [Use this table to determine the level of performance for the paternity
            establishment measure that will incur a penalty]
------------------------------------------------------------------------
   Statutory Penalty Performance Standards for Paternity Establishment
-------------------------------------------------------------------------
                                       Increase
                                     required over    Penalty FOR FIRST
                PEP                    previous      FAILURE if increase
                                      year's PEP           not met
                                       (percent)
------------------------------------------------------------------------
90% or more.......................            None  No Penalty.
75% to 89%........................               2  1-2% TANF Funds.
50% to 74%........................               3  1-2% TANF Funds.
45% to 49%........................               4  1-2% TANF Funds.
40% to 44%........................               5  1-2% TANF Funds.
39% or less.......................               6  1-2% TANF Funds.
------------------------------------------------------------------------

    (2) The support order establishment performance measure is set 
forth in Sec. 305.2 of this part. For purposes of the penalty with 
respect to this measure, there is a threshold of 40 percent, below 
which a State will be penalized unless an increase of 5 percent over 
the previous year is achieved--which would qualify it for an incentive. 
Performance in the 40 percent to 49 percent range with no significant 
increase would not be penalized but neither would it qualify for an 
incentive payment. Table 5 of this part shows at which level of 
performance a State will incur a penalty under the child support order 
establishment measure.

                           Table 5 to Part 305
   [Use this table to determine the level of performance for the order
            establishment measure that will incur a penalty]
------------------------------------------------------------------------
              Performance Standards for Order Establishment
-------------------------------------------------------------------------
                                  Increase over
      Performance level           previous year       Incentive/penalty
------------------------------------------------------------------------
50% or more.................  no increase over      Incentive.
                               previous year
                               required.
40% to 49%..................  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  No Incentive/No
                                                     Penalty.
Less than 40%...............  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  Penalty equal to 1-
                                                     2% of TANF funds
                                                     for the first
                                                     failure, 2-3% for
                                                     second failure, and
                                                     so forth, up to a
                                                     maximum of 5% of
                                                     TANF funds.
------------------------------------------------------------------------

    (3) The current collections performance measure is set forth in 
Sec. 305.2 of this part. There is a threshold of 35 percent below which 
a State will be penalized unless an increase of 5 percent over the 
previous year is achieved (that would qualify it for an incentive). 
Performance in the 35 percent to 40 percent range with no significant 
increase would not be penalized but neither would it qualify for an 
incentive payment. Table 6 of this part shows at which level of 
performance the State will incur a penalty under the current 
collections measure.

[[Page 55100]]



                           Table 6 to Part 305
  [Use this table to determine the level of performance for the current
             collections measure that will incur a penalty]
------------------------------------------------------------------------
              Performance Standards for Current Collections
-------------------------------------------------------------------------
                                  Increase over
      Performance level           previous year       Incentive/penalty
------------------------------------------------------------------------
40% or more.................  no increase over      Incentive.
                               previous year
                               required.
35% to 40%..................  w/5% increase over    Incentive.
                               previous year.
                              w/out 5%............  No Incentive/No
                                                     Penalty.
Less than 35%...............  w/5% increase over    Incentive.
                               previous year.
                              w/out 5% increase...  Penalty equal to 1-
                                                     2% of TANF funds
                                                     for the first
                                                     failure, 2-3% for
                                                     second failure, and
                                                     so forth, up to a
                                                     maximum of 5% of
                                                     TANF funds.
------------------------------------------------------------------------

    (b) The provisions listed under Sec. 305.32 of this part also apply 
to the penalty performance measures.


Sec. 305.42  Penalty phase-in.

    States are subject to the performance penalties based on data 
reported for FY 2001. Data reported for FY 2000 will be used as a base 
year to determine improvements in performance during FY 2001. There 
will be a statutory one-year corrective action period before any 
penalty is assessed. The penalties will be assessed and then suspended 
during the corrective action period.


Sec. 305.60  Types and scope of Federal audits.

    (a) OCSE will conduct audits, at least once every three years (or 
more frequently if the State fails to meet performance standards and 
reliability of data requirements) to assess the completeness, 
authenticity, reliability, accuracy and security of data and the 
systems used to process the data in calculating performance indicators 
under this part.
    (b) OCSE will conduct audits to determine the adequacy of financial 
management of the State IV-D program, including assessments of:
    (1) Whether funds to carry out the State program are being 
appropriately expended, and are properly and fully accounted for; and
    (2) Whether collections and disbursements of support payments are 
carried out correctly and are fully accounted for.
    (c) OCSE will conduct audits for such other purposes as OCSE may 
find necessary.
    (1) These audits include audits to determine if the State is 
substantially complying with one or more of the requirements of the IV-
D program (with the exception of the requirement of section 454(24) of 
the Act relating to statewide-automated systems) as defined in 
Sec. 305.63 of this part. Other audits will be conducted at the 
discretion of OCSE.
    (2) Audits to determine substantial compliance will be initiated 
based on substantiated evidence of a failure by the State to meet IV-D 
program requirements. Evidence, which could warrant an audit to 
determine substantial compliance, includes:
    (i) The results of 2 or more State self-reviews conducted under 
section 454(15)(A) of the Act which: show evidence of sustained poor 
performance; or indicate that the State has not corrected deficiencies 
identified in previous self-assessments, or that those deficiencies are 
determined to seriously impact the performance of the State's program; 
or
    (ii) Evidence of a State program's systemic failure to provide 
adequate services under the program through a pattern of non-compliance 
over time.
    (d) OCSE will conduct audits of the State's IV-D program through 
inspection, inquiries, observation, and confirmation and in accordance 
with standards promulgated by the Comptroller General of the United 
States in ``Government Auditing Standards.''


Sec. 305.61  Penalty for failure to meet IV-D requirements.

    (a) A State will be subject to a financial penalty and the amounts 
otherwise payable to the State under title IV-A of the Act will be 
reduced in accordance with Sec. 305.66 of this part:
    (1) If on the basis of:
    (i) Data submitted by the State or the results of an audit 
conducted under Sec. 305.60 of this part, the State's program failed to 
achieve the paternity establishment percentages, as defined in section 
452(g)(2) of the Act and Sec. 305.40 of this part, or to meet the 
support order establishment and current collections performance 
measures as set forth in Sec. 305.40 of this part; or
    (ii) The results of an audit under Sec. 305.60 of this part, the 
State did not submit complete and reliable data, as defined in 
Sec. 305.1 of the part; or
    (iii) The results of an audit under Sec. 305.60 of this part, the 
State failed to substantially comply with 1 or more of the requirements 
of the IV-D program, as defined in Sec. 305.63 of this part; and
    (2) With respect to the following fiscal year, the State failed to 
take sufficient corrective action to achieve the appropriate 
performance levels or compliance or the data submitted by the State are 
still incomplete and unreliable.
    (b) The reductions under paragraph (c) of this section will be made 
for quarters following the end of the fiscal year following the fiscal 
year in which the determination under paragraph (a)(1) of this section 
is made that the State is subject to a penalty and continues until the 
State, as appropriate:
    (1) Has achieved the paternity establishment percentages, the order 
establishment or the current collections performance measures set forth 
in Sec. 305.40 of this part; or
    (2) Is in substantial compliance with IV-D requirements as defined 
in Sec. 305.63 of this part; or
    (3) Has submitted data that are determined to be complete and 
reliable.
    (c) The payments for a fiscal year under title IV-A of the Act will 
be reduced by the following percentages:
    (1) One to two percent for the first finding under paragraph (a) of 
this section;
    (2) Two to three percent for the second such finding; and
    (3) Not less than three percent and not more than 5 percent for the 
third or a subsequent consecutive finding.
    (d) The reduction will be made in accordance with the provisions of 
45 CFR 262.1 (b) through (e) and 262.7.


Sec. 305.62  Disregard of noncompliance which is of a technical nature.

    A State subject to a penalty under Sec. 305.61(a)(1)(ii) or (iii) 
of this part may be determined, as appropriate, to have submitted 
adequate data or to have achieved substantial compliance with one or 
more IV-D requirements, as defined in Sec. 305.63 of this part, if the 
Secretary determines that the incompleteness or unreliability of the 
data, or the noncompliance with one or

[[Page 55101]]

more of the IV-D requirements, is of a technical nature which does not 
adversely affect the performance of the State's IV-D program or does 
not adversely affect the determination of the level of the State's 
paternity establishment or other performance measures percentages.


Sec. 305.63  Standards for determining substantial compliance with IV-D 
requirements.

    For the purposes of a determination under Sec. 305.62(a)(1)(iii) of 
this part, in order to be found to be in substantial compliance with 1 
or more of the IV-D requirements as a result of an audit conducted 
under Sec. 305.60 of this part, a State must meet the standards set 
forth in this section for each specific IV-D State plan requirement or 
requirements being audited and contained in parts 302 and 303 of this 
chapter, measured as follows:
    (a) The State must meet the requirements under the following areas:

(1) Statewide operations, Sec. 302.10;
(2) Reports and maintenance of records, Sec. 302.15(a);
(3) Separation of cash handling and accounting functions, Sec. 302.20; 
and
(4) Notice of collection of assigned support, Sec. 302.54.
    (b) The State must provide services required under the following 
areas in at least 90 percent of the cases reviewed:
    (1) Establishment of cases, Sec. 303.2(a); and
    (2) Case closure criteria, Sec. 303.11.
    (c) The State must provide services required under the following 
areas in at least 75 percent of the cases reviewed:
    (1) Collection and distribution of support payments, including: 
collection and distribution of support payments by the IV-D agency 
under Sec. 302.32(b); distribution of support collections under 
Sec. 302.51; and distribution of support collected in title IV-E foster 
care maintenance cases under Sec. 302.52;
    (2) Establishment of paternity and support orders, including: 
establishment of a case under Sec. 303.2(b); services to individuals 
not receiving TANF or title IV-E foster care assistance, under 
Sec. 302.33(a)(1) through (4); provision of services in interstate IV-D 
cases under Sec. 303.7(a), (b), (c)(1) through (6), and (c)(8) through 
(10); location of non-custodial parents under Sec. 303.3; establishment 
of paternity under Sec. 303.5(a) and (f); guidelines for setting child 
support awards under Sec. 302.56; and establishment of support 
obligations under Sec. 303.4(d), (e) and (f);
    (3) Enforcement of support obligations, including, in all 
appropriate cases: establishment of a case under Sec. 303.2(b); 
services to individuals not receiving TANF or title IV-E foster care 
assistance, under Sec. 302.33(a)(1) through (4); provision of services 
in interstate IV-D cases under Sec. 303.7(a), (b), (c)(1) through (6), 
and (c)(8) through (10); location of non-custodial parents under 
Sec. 303.3; enforcement of support obligations under Sec. 303.6 and 
State laws enacted under section 466 of the Act, including submitting 
once a year all appropriate cases in accordance with Sec. 303.6(c)(3) 
to State and Federal income tax refund offset; and wage withholding 
under Sec. 303.100. In cases in which wage withholding cannot be 
implemented or is not available and the non-custodial parent has been 
located, States must use or attempt to use at least one enforcement 
technique available under State law in addition to Federal and State 
tax refund offset, in accordance with State laws and procedures and 
applicable State guidelines developed under Sec. 302.70(b).
    (4) Review and adjustment of child support orders, including: 
establishment of a case under Sec. 303.2(b); services to individuals 
not receiving TANF or title IV-E foster care assistance, under 
Sec. 302.33(a)(1) through (4); provision of services in interstate IV-D 
cases under Sec. 303.7(a), (b), (c)(1) through (6), and (c)(8) through 
(10); location of non-custodial parents under Sec. 303.3; guidelines 
for setting child support awards under Sec. 302.56; and review and 
adjustment of support obligations under Sec. 303.8; and
    (5) Medical support, including: establishment of a case under 
Sec. 303.2(b); services to individuals not receiving TANF or title IV-E 
foster care assistance, under Sec. 302.33(a)(1) through (4); provision 
of services in interstate IV-D cases under Sec. 303.7(a), (b), (c)(1) 
through (6), and (c)(8) through (10); location of non-custodial parents 
under Sec. 303.3; securing medical support information under 
Sec. 303.30; and securing and enforcing medical support obligations 
under Sec. 303.31; and
    (6) Disbursement of support payments in accordance with the 
timeframes in section 454B of the Act and Sec. 302.32.
    (d) With respect to the 75 percent standard in paragraph (b) of 
this section:
    (1) Notwithstanding timeframes for establishment of cases in 
Sec. 303.2(b); provision of services in interstate IV-D cases under 
Sec. 303.7(a), (b), (c)(4) through (6), and (c)(8) and (9); location 
and support order establishment under Sec. 303.3(b)(3) and (5), and 
Sec. 303.4(d), if a support order needs to be established in a case and 
an order is established during the audit period in accordance with the 
State's guidelines for setting child support awards, the State will be 
considered to have taken appropriate action in that case for audit 
purposes.
    (2) Notwithstanding timeframes for establishment of cases in 
Sec. 303.2(b); provision of services in interstate IV-D cases under 
Sec. 303.7(a), (b), (c)(4) through (6), and (c)(8) and (9); and 
location and review and adjustment of support orders contained in 
Sec. 303.3(b)(3) and (5), and Sec. 303.8, if a particular case has been 
reviewed and meets the conditions for adjustment under State laws and 
procedures and Sec. 303.8, and the order is adjusted, or a 
determination is made, as a result of a review, during the audit 
period, that an adjustment is not needed, in accordance with the 
State's guidelines for setting child support awards, the State will be 
considered to have taken appropriate action in that case for audit 
purposes.
    (3) Notwithstanding timeframes for establishment of cases in 
Sec. 303.2(b); provision of services in interstate IV-D cases under 
Sec. 303.7(a), (b), (c)(4) through (6), and (c)(8) and (9); and 
location and wage withholding in Sec. 303.3(b)(3) and (5), and 
Sec. 303.100, if wage withholding is appropriate in a particular case 
and wage withholding is implemented and wages are withheld during the 
audit period, the State will be considered to have taken appropriate 
action in that case for audit purposes.
    (4) Notwithstanding timeframes for establishment of cases in 
Sec. 303.2(b); provision of services in interstate IV-D cases under 
Sec. 303.7(a), (b), (c)(4) through (6), and (c)(8) and (9); and 
location and enforcement of support obligations in Sec. 303.3(b)(3) and 
(5), and Sec. 303.6, if wage withholding is not appropriate in a 
particular case, and the State uses at least one enforcement technique 
available under State law, in addition to Federal and State income tax 
refund offset, which results in a collection received during the audit 
period, the State will be considered to have taken appropriate action 
in the case for audit purposes.
    (e) The State must meet the requirements for expedited processes 
under Sec. 303.101(b)(2)(i) and (iii), and (e).


Sec. 305.64  Audit procedures and State comments.

    (a) Prior to the start of the actual audit, Federal auditors will 
hold an audit entrance conference with the IV-D agency. At that 
conference, the auditors will explain how the audit will be performed 
and make any necessary arrangements.
    (b) At the conclusion of audit fieldwork, Federal auditors will 
afford the State IV-D agency an opportunity for an audit exit 
conference at which

[[Page 55102]]

time preliminary audit findings will be discussed and the IV-D agency 
may present any additional matter it believes should be considered in 
the audit findings.
    (c) After the exit conference, Federal auditors will prepare and 
send to the IV-D agency a copy of their interim report on the results 
of the audit. Within 45 days from the date the report was sent by 
certified mail, the IV-D agency may submit written comments on any part 
of the report which the IV-D agency believes is in error. The auditors 
will note such comments and incorporate any response into the final 
audit report.


Sec. 305.65  State cooperation in the audit.

    (a) Each State shall make available to the Federal auditors such 
records or other supporting documentation (electronic and manual) as 
the audit staff may request, including records to support the data as 
submitted on the Federal statistical and financial reports that will be 
used to calculate the State's performance. The State shall also make 
available personnel associated with the State's IV-D program to provide 
information that the audit staff may find necessary in order to conduct 
or complete the audit.
    (b) States must provide evidence to OCSE that their data are 
complete and reliable as defined in Sec. 305.2 of this part.
    (c) Failure to comply with the requirements of this section with 
respect to audits conducted to determine compliance with IV-D 
requirements under Sec. 305.60 of this part, may necessitate a finding 
that the State has failed to comply with the particular criteria being 
audited.


Sec. 305.66  Notice, corrective action year, and imposition of penalty.

    (a) If a State is found by the Secretary to be subject to a penalty 
as described in Sec. 305.61 of this part, the Office will notify the 
State in writing of such finding.
    (b) The notice will:
    (1) Explain the deficiency or deficiencies which result in the 
State being subject to a penalty, indicate the amount of the potential 
penalty, and give reasons for the Secretary's finding; and
    (2) Specify that the penalty will be assessed in accordance with 
the provisions of 45 CFR 262.1(b) through (e) and 262.7 if the State 
fails to correct the deficiency or deficiencies cited in the notice 
during the subsequent fiscal year (corrective action year).
    (c) The penalty under Sec. 305.61 will be assessed if the Secretary 
determines that the State has not corrected the deficiency or 
deficiencies cited in the notice by the end of the corrective action 
year. This determination will be made as of the first full three-month 
period beginning after the end of the corrective action year.
    (d) Only one corrective action period is provided to a State with 
respect to a given deficiency where consecutive findings of 
noncompliance are made with respect to that deficiency. In the case of 
a State against which the penalty is assessed and which failed to 
correct the deficiency or deficiencies cited in the notice by the end 
of the corrective action year, the penalty will be effective for any 
quarter after the end of the corrective action year and ends for the 
first full quarter throughout which the State IV-D program is 
determined to have corrected the deficiency or deficiencies cited in 
the notice.
    (e) A consecutive finding occurs only when the State does not meet 
the same criterion or criteria cited in the notice in paragraph (a) of 
this section.

[FR Doc. 99-25900 Filed 10-7-99; 8:45 am]
BILLING CODE 4184-01-P