[Federal Register Volume 64, Number 233 (Monday, December 6, 1999)]
[Proposed Rules]
[Pages 68202-68226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30975]



[[Page 68201]]

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Part II





Department of Health and Human Services





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Administration for Children and Families



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45 CFR Part 270



Bonus to Reward States for High Performance; Proposed Rule

  Federal Register / Vol. 64, No. 233 / Monday, December 6, 1999 / 
Proposed Rules  

[[Page 68202]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 270

RIN 0970-AB66


Bonus to Reward States for High Performance

AGENCY: Administration for Children and Families, HHS.

ACTION: Proposed rule.

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SUMMARY: The Administration for Children and Families (ACF) is 
proposing both work and non-work measures and a funds allocation 
formula for awarding bonuses in FY 2002 and beyond to high performing 
States under the Temporary Assistance for Needy Families Block Grant 
(TANF program). We are proposing to award bonuses based on four work 
measures (substantially the same work measures currently in effect for 
the FY 1999 and FY 2000 awards) and three non-work measures. These are: 
One measure on family formation and family stability (increase in the 
number of children below 200 percent of poverty who reside in married 
couple families); and two measures that support work and self-
sufficiency, i.e., participation by low-income working families in the 
Food Stamp Program and participation in the Medicaid and Children's 
Health Insurance Programs.
    We are inviting public comment on both the proposed provisions and 
on the development and use of additional measures, data sources, and 
other provisions. Bonus funds of up to $200 million each year are 
authorized for awards in fiscal years 1999 through 2003. The amount 
awarded to each high performing State may not exceed five percent of 
the State's family assistance grant. Earlier, we issued program 
guidance covering bonus awards in FY 1999 and FY 2000. Guidance will 
also be issued for the FY 2001 bonus awards.

DATE: You must submit comments by February 4, 2000.

ADDRESSES: You may mail comments to the Administration for Children and 
Families, Office of Planning, Research and Evaluation, 7th Floor West, 
370 L'Enfant Promenade, SW, Washington, DC 20447. You may also transmit 
written comments electronically via the Internet. To transmit comments 
electronically, or download an electronic version of the proposed rule, 
you should access the ACF Welfare Reform Home Page at http://
www.acf.dhhs.gov/news/welfare/ and follow any instructions provided. 
You may also hand-deliver comments at the street address below.
    We will make all comments available for public inspection at the 
Office of Planning, Research and Evaluation, 7th Floor West, 901 D 
Street, SW, Washington, DC 20447, from Monday through Friday between 
the hours of 9 a.m. and 4 p.m. EST. (This is the street address, as 
opposed to the mailing address above.)
    We will only accept written comments. In addition, all your 
comments should:
     Be specific;
     Address only issues raised by the proposed rule, not the 
law itself;
     Where appropriate, propose alternatives;
     Explain reasons for any suggestions, objections, or 
recommended changes; and
     Where possible, reference the specific section of the 
proposed rule that you are addressing.
    We will not acknowledge the individual comments we receive. 
However, we will review and consider all comments that are germane and 
are received during the comment period.

FOR FURTHER INFORMATION CONTACT: Sean Hurley, Director, Division of 
Data Collection and Analysis, Office of Planning, Research and 
Evaluation, ACF, at 202-401-9297.
    Deaf and hearing-impaired individuals may call the Federal Dual 
Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern 
time.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Legislative and Regulatory Background
    A. The Temporary Assistance for Needy Families Program
    B. Summary of the Statutory Provisions Applicable to High 
Performance Bonus
    C. External Consultation
    D. Reader-Friendly Regulations
II. Background: Increasing Use of Performance Measurement
III. Major Issues in Developing Performance Measures
    A. General Approach
    B. Short-Term vs Long-Term Strategies
    C. Formula and Distribution Issues
    D. Measures
    E. Data Sources
IV. FYs 1999, 2000, and 2001 Bonus Awards
V. Discussion of the Regulatory Provisions
    A. Principles for a High Performance Bonus System
    B. Section-by-Section Discussion of the Proposed Rule
VI. Discussion of Other Issues Related to Performance Measurement
    A. Consideration of Issues Relating to Absolute Performance, 
Performance Improvement, and Threshold Levels
    B. Consideration of Alternate Ways to Structure the High 
Performance Bonus to Ensure an Objective and Fair Competition: the 
Impact of External Factors
    C. Other Measures and Data Sources Considered
VII. Regulatory Impact Analyses
    A. Executive Order 12866
    B. Regulatory Flexibility Analysis
    C. Assessment of the Impact on Family Well-Being
    D. Paperwork Reduction Act
    E. Unfunded Mandates Reform Act of 1995
    F. Congressional Review

I. Legislative and Regulatory Background

A. The Temporary Assistance for Needy Families Program

    Title I of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Public Law 104-193, established the 
Temporary Assistance for Needy Families (TANF) program at title IV-A of 
the Social Security Act (the Act). TANF is a block grant program 
designed to make dramatic reforms in the nation's welfare system. Its 
focus is on moving recipients into work and turning welfare into a 
program of temporary assistance, preventing and reducing the incidence 
of out-of-wedlock births, and promoting stable two-parent families. 
Other key features of TANF include provisions that emphasize program 
accountability through financial penalties and rewards for high 
performance.
    TANF replaced the national welfare program known as Aid to Families 
with Dependent Children (AFDC) which provided cash assistance to needy 
families on an entitlement basis. It also replaced the related programs 
known as the Job Opportunities and Basic Skills Training (JOBS) program 
and the Emergency Assistance (EA) program.
    The new TANF program went into effect on July 1, 1997, except in 
States that elected to submit a complete plan and implement the program 
at an earlier date. We published a Notice of Proposed Rulemaking (NPRM) 
to implement the work, penalties, and data collection provisions of the 
TANF program in the Federal Register on November 20, 1997 (62 FR 
62124). A final TANF rule was published April 12, 1999 (64 FR 17720). 
We have also published a number of other related regulations, including 
rules covering annual reports of State child poverty rates in relation 
to the TANF program (NPRM published September 23, 1998 (63 FR 50837) 
and bonuses to reward decreases in illegitimacy (final rule published 
April 14, 1999 (64 FR 18484)).

[[Page 68203]]

    The new law reflects widespread, bipartisan agreement on a number 
of key principles:
     Welfare reform should help move people from welfare to 
work.
     Welfare should be a short-term, transitional experience, 
not a way of life.
     Parents should receive the child care and the health care 
they need to protect their children as they move from welfare to work.
     Child support programs should become tougher and more 
effective in securing support from noncustodial parents.
     Because many factors contribute to poverty and dependency, 
solutions to these problems should not be ``one size fits all.'' The 
system should allow States, Indian tribes, and localities to develop 
diverse and creative responses to these problems.
     The Federal government should place more emphasis on 
program results.
    Under section 401(a)(1) of the Act, States (and certain Indian 
tribes) have the authority to use Federal welfare funds ``in any manner 
that is reasonably calculated to accomplish the purpose'' of the new 
program. It provides them broad flexibility to set eligibility rules 
and decide what benefits are most appropriate. In short, it offers 
States an opportunity to try new, far-reaching changes that can respond 
more effectively to the needs of families within their own unique 
environments.

B. Summary of the Statutory Provisions Applicable to the High 
Performance Bonus

    Section 403(a)(4) of the Act requires the Secretary to award 
bonuses to ``high performing States.'' (Indian tribes are not eligible 
for these bonuses.) The term ``high performing State'' is defined in 
section 403(a)(4)(E) to mean those States that are most successful in 
achieving the goals and purposes of the TANF program as specified in 
section 401(a) of the Act. These goals and purposes are to--
    (1) Provide assistance to needy families so that children may be 
cared for in their own homes or in the homes of relatives;
    (2) End the dependence of needy parents on government benefits by 
promoting job preparation, work, and marriage;
    (3) Prevent and reduce the incidence of out-of-wedlock pregnancies 
and establish annual numerical goals for preventing and reducing the 
incidence of these pregnancies; and
    (4) Encourage the formation and maintenance of two-parent families.
    Section 403(a)(4)(B) specifies that the bonus award for a fiscal 
year will be based on a State's performance in the previous fiscal year 
and may not exceed five percent of the State's TANF grant.
    The statute at section 403(a)(4)(C) requires the Department to 
develop a formula for measuring State performance. This formula must be 
developed in consultation with the National Governors' Association 
(NGA) and the American Public Welfare Association, now the American 
Public Human Services Association (APHSA).
    Section 403(a)(4)(D) requires the Secretary to use the formula 
developed to assign a score to each eligible State for the fiscal year 
preceding the bonus year and prescribe a performance threshold as the 
basis for awarding the bonus. Section 403(a)(4)(D) also specifies that 
$1 billion (or an average total of $200 million each year) will be 
awarded over five years, beginning in FY 1999.

C. External Consultation

    As we have done with all regulations related to the TANF program, 
we implemented a broad consultation strategy prior to drafting these 
proposed regulations. In addition, as required by section 403(a)(4)(C), 
we consulted intensively with representatives of the NGA and the APHSA 
on the development of provisions for awarding high performance bonus 
funds. We met with staff of these two national organizations as well as 
staff of the National Conference of State Legislatures (NCSL) and 
approximately 30 representatives of States who participated by 
conference call hookup on a regular basis over a period of 
approximately nine months.
    We want to express our appreciation to these national organizations 
and to the representatives of their State members who provided expert 
information, analysis, and in-depth programmatic knowledge. We also 
appreciated the commitment they displayed and their willingness to 
approach these discussions in such a collegial manner.
    We also consulted with a number of other audiences: Researchers, 
data experts, and academics; other Federal and non-Federal agencies 
which had developed or were in the process of developing performance 
measures for their programs; and representatives of a broad range of 
non-profit, advocacy, and community-based programs.
    These consultations were very useful in helping us identify key 
issues, evaluate policy options, develop the program guidance that will 
be used to award bonuses in FY 1999 and FY 2000, and formulate the 
proposals set forth in this NPRM. (The program guidance for the awards 
to be made in FY 1999 is found in TANF-ACF-PI-98-1 and TANF-ACF-PI-98-
5; the guidance for the FY 2000 awards is found in TANF-ACF-PI-99-1, 
March 3, 1999.)
    We would like to emphasize that we are publishing these regulations 
as a proposed rule. Thus, all interested parties have the opportunity 
to state their views and react to the specific policies we are 
proposing for awards in FY 2002 and FY 2003 (and any subsequent fiscal 
years for which Congress authorizes and appropriates funds). We will 
review all comments we receive during the comment period and take them 
into consideration before issuing a final rule.

D. Reader-Friendly Regulations

    In its latest Document Drafting Handbook, the Office of the Federal 
Register supports the efforts of the National Partnership for 
Reinventing Government to encourage Federal agencies to produce more 
reader-friendly regulations and to use plain language in developing all 
new documents and regulations. In drafting this proposed rule, we have 
paid close attention to this guidance and tried to draft a rule that 
achieves these goals.

II. Background: Increasing Use of Performance Measurement

    The TANF provisions for a high performance bonus and a bonus to 
reward a decrease in State illegitimacy ratios represent only two 
recent examples of Administration and Congressional efforts to increase 
accountability and reward performance among federally-funded programs. 
These bonus provisions also reflect a growing interest in and movement 
toward the use of performance measurement by both the public and the 
private sector. The list below includes examples of such efforts and 
initiatives that we reviewed as a part of the development of this NPRM. 
It also provides historical and substantive context for public review 
of the measures we have proposed in the NPRM.

A. Federal Activities

     The National Performance Review (now the National 
Partnership for Reinventing Government), under the leadership of the 
Vice President, has emphasized customer service standards, benchmarking 
against the best in the business, and rewarding outstanding results 
achieved by Federal agencies and offices.

[[Page 68204]]

     In May 1997, the National Partnership for Reinventing 
Government identified 31 ``Reinvention Impact Centers'' (now ``High 
Impact Agencies'') to implement identified improvements. It selected 
the Administration for Children and Families (ACF) as one of 19 
agencies to achieve measurable goals by October 2000. ACF's performance 
is being measured against four ``high impact goals.''
     Congress enacted the Government Performance and Results 
Act of 1993 (GPRA) to create a comprehensive strategic planning and 
performance measurement system for the Federal government. Under this 
law, all Federal agencies must develop multi-year strategies, identify 
long-term goals and objectives, and prepare annual performance plans on 
a program-by-program basis. To the extent feasible, the levels of 
performance and specific indicators must be objective, quantifiable, 
measurable, and focused on outcomes and accomplishments rather than 
activities and processes.
     One of the early GPRA pilot programs, the Office of Child 
Support Enforcement (OCSE) in ACF, worked with States to reach 
consensus on national goals and objectives, and OCSE then negotiated 
voluntary performance agreements with each State specifying intended 
program outcomes for establishing paternities and obtaining child 
support orders and collections.
     In the Welfare Indicators Act of 1994, Congress required 
the Department to measure and report annually on indicators of welfare 
receipt in three Federal means-tested programs: AFDC, Supplemental 
Security Income (SSI), and the Food Stamp program. The purpose of the 
report is to provide the public with generally accepted data in order 
to evaluate the progress of reducing the rate and duration of welfare 
receipt.
     Congress included in the Balanced Budget Act of 1997, Pub. 
L. 105-33, a provision authorizing the Department of Labor to award 
performance bonuses in the Welfare-to-Work program. (See Notice of 
Welfare-to-Work performance bonus criteria, published November 23, 1998 
(63 FR 64832).) This legislation specified that 50 percent of funds for 
job placement contracts be held until an individual has been on the job 
for at least six months.
     Since 1982, the Job Training Partnership Act program has 
required States and local service agencies to report data on client 
outcomes and has provided corresponding incentives and sanctions on the 
basis of that outcome data.
     ``Healthy People 2000,'' initiated in 1985, represents an 
early effort by DHHS to develop a national prevention strategy for 
improving the health of the American people. This strategic plan 
defines broad goals and targeted objectives in 22 priority areas and 
involves a national consortium of nearly 300 national membership 
organizations, all State Health Departments, and others working to 
achieve these goals. The Department is currently developing the next 
ten-year plan, ``Healthy People 2010.'' We expect the new plan to 
include 26 national objectives.
     The Federal Interagency Forum on Child and Family 
Statistics, formally established by Executive Order in April 1997, 
issues an annual data report, ``America's Children: Key National 
Indicators of Well-Being,'' that uses Federal statistical data to 
monitor the well-being of the Nation's children. Twenty-five key 
indicators cover a wide range of conditions that impact children, 
including economic security, health, behavioral and social environment, 
and education.
     The Department is using Public Health Performance 
Partnerships as a new way of managing grant relationships with States 
for programs within the Substance Abuse and Mental Health Services 
Administration and the Centers for Disease Control and Prevention. 
These Partnerships will identify performance measures to clarify 
program goals and objectives and document specific performance. They 
offer States increased flexibility in program management but require an 
account of the results achieved.
     Child Trends, Inc., a private research organization, 
prepares an annual report entitled ``Trends in the Well-Being of 
America's Children and Youth'' for the DHHS Office of the Assistant 
Secretary for Planning and Evaluation.

B. Non-governmental Activities

    Non-governmental groups are also providing leadership in 
highlighting policy and program issues and pressing for accountability 
and performance measurement. For example--
     A national foundation, the Annie E. Casey Foundation, has 
provided funds since 1985 to create an annual data book on child and 
family well-being that focuses on indicators of State-level 
performance. The ``KIDS COUNT DATA BOOK'' enables States and others to 
compare the status of ten indicators of child well-being. The Casey 
Foundation also issues ``CITY KIDS COUNT,'' a data book on the well-
being of children in large cities.
     The United Way of America has established a resource 
network to assist local United Ways in implementing systems for 
measuring local program performance.
     A citizen's group in Los Angeles publishes the mortality 
rates for patients of individual physicians.
     In Florida, a taxpayer's organization regularly reports 
measures of productivity and performance by State agencies.
     Case Western Reserve University's Center on Urban Poverty 
and Social Change compiles community data from roughly 20 sources into 
a publicly-accessible database for the Cleveland, Ohio area.
     The Citizen's League of Greater Cleveland publishes 
``Rating the Region,'' which compares that metropolitan area with 25 
others on a variety of measures, from the strength of its business 
climate to the quality of its education system and government. 
(Citizens groups in Jacksonville, Pittsburgh, St. Louis, Seattle, and 
Philadelphia have also published regional comparisons.)

C. State and Local Governmental Activities

     In the late 1980s and early 1990s, some States took the 
lead in developing State benchmarks or measurement goals to guide 
public policy and public expenditures. The ``Oregon Option'' and 
``Minnesota Milestones'' are examples of State-wide efforts that 
include executive and legislative involvement as well as extensive 
citizen input.
     An August 1997 National Governors' Association report 
found that 20 States were establishing performance standards for their 
entire workforce development systems.
     Some State and local governments are innovators in their 
efforts to manage based on performance. For example, Ohio counties can 
select various consolidation of funding and spending options. 
``Partnership counties,'' for example, operate under an agreement that 
provides incentive funds for performance measures such as exceeding the 
all family or the two-parent participation rate or decreasing out-of-
wedlock births.
     Several States are contracting with private organizations 
to provide employment-related assistance and services, basing payment 
on performance.
     The Wisconsin Works (W-2) program has established 
performance benchmarks for local welfare agencies and allows outside 
contractors and non-profit organizations to compete for service 
contracts in those cases where

[[Page 68205]]

local agencies fail to meet performance goals. The W-2 program also 
provides funding incentives. Counties receive 80 percent of their 
annual budget on a cost reimbursement basis. The balance of the funds 
is placed in a statewide pool from which counties are rewarded based on 
performance, e.g., the number of persons entering full-time employment.
     A recent report from Mathematica Policy Research, Inc., 
details the Pennsylvania Department of Welfare's early experiences with 
implementing the ``Community Solutions'' initiative, a set of voluntary 
programs operated throughout the State to provide pre-and post-
employment services to TANF recipients. This initiative is performance 
based; contractors receive payment based on the number of clients who 
achieve specific employment goals such as placement in full-time 
employment, placement in a job that offers medical benefits within six 
months of hire, and continuous employment for at least 12 months after 
placement.

III. Major Issues in Developing Performance Measures

    In implementing the high performance bonus provision, we faced a 
significant challenge in developing a performance measurement system 
for the new TANF program. Although there is considerable activity in 
this area in both the public and private sector, performance 
measurement is a field in the early stages of development. Currently, 
no single, agreed-upon approach for measuring performance exists. In 
addition, in relation to measuring performance in the TANF program, we 
identified a number of difficult and inter-related questions and 
issues. We have listed many of the major issues below and invite 
comment on how we have addressed them in the proposed rule.

A. General Approach

    What is the purpose of the bonus award? What outcomes should we be 
trying to influence through performance bonuses? Should we reward 
accomplishment (comparing one State with another) or improvement 
(comparing one State with its own previous record) or both? Does the 
bonus represent only a reward for State achievement or does it also 
represent an incentive to other States for improved performance? Should 
we focus on awards for innovation and creativity? Should the system 
reward only a few States or a larger number of States?

B. Short-term vs Long-term Strategies

    Should we approach our task with the idea of developing interim 
measures for the short-term and working on more rigorous (e.g., more 
refined, sophisticated, or specific) measures over time as we learn 
more about the nature of State TANF programs, as better data become 
available, and as we get more experience with the high performance 
bonus award process itself? Should we award $200 million each year in 
bonuses or award less money in the initial years, rolling unused funds 
into increased awards in the out-years?

C. Formula and Distribution Issues

    Should we develop a single, composite formula for awarding bonuses, 
or several formulae? Should the formula be designed to include several 
categories of performance? Should States be allowed to choose the 
categories in which they wish to compete? Should the formula include a 
pre-determined standard of performance with bonuses being awarded only 
if the State exceeds the standard? How can we avoid unintended effects 
or perverse consequences of a particular formula design? Should funds 
be divided equally among the measures? Since a State cannot receive a 
bonus greater than five percent of its Family Assistance Grant, how 
should funds be re-distributed if a State's award exceeds this amount? 
For what purposes may a State use bonus award funds?

D. Measures

    What specific measures should we use? Should the measures address 
each of the goals in section 401 of the Act? If not, which goals should 
receive priority? Should we identify a broad set of measures or focus 
on a more limited set of key measures? Should we focus primarily on 
work-related measures--a major goal of TANF? Should individual measures 
be tied to the TANF population only or to the entire State population? 
Should the measures be quantifiable or should some measures be 
qualitative, e.g., patterned after the Baldridge Awards with a panel of 
judges selected from a mix of national organizations and looking at 
such criteria as leadership, collaboration, worker-client 
relationships, customer satisfaction? Should we propose a set of core 
measures against which all States would compete and a set of optional 
measures against which States could choose to compete? Should there be 
State-identified measures?

E. Data Sources

    What data sources are available? How reliable, objective, and 
verifiable are they? What would be the administrative burden associated 
with alternative data sources? Will the data be comparable across 
States? What data may be expected to be available in the future? Should 
all data be verified before awards are made? What data validation 
parameters should be undertaken? Should we limit the measures to those 
that could be reasonably validated or collected from ``independent'' 
sources? Should we limit the measures to those for which all States 
have data or reasonable access to data?

IV. FYs 1999, 2000, and 2001 Bonus Awards

    We would have preferred to set the formula for all years through 
rulemaking. However, FY 1998 (and FY 1997 in relation to improvement 
measures) was the first year in which State performance would be 
measured in order to make first year bonus awards in FY 1999. We were 
not able to conduct adequate consultations and complete a formal 
rulemaking process in order to advise States, in a timely way, how we 
would be assessing their performance in FY 1998 and FY 1999 in order to 
make awards in FY 1999 and FY 2000. Therefore, we decided to issue 
program guidance covering the first two performance years without the 
benefit of a formal rulemaking process.
    We issued two Program Instructions covering bonus awards for FY 
1999. Following the extensive external consultation noted above, and 
consideration of comments received on draft proposals, we issued a 
Program Instruction to States on March 17, 1998 (TANF-ACF-PI-98-1), 
specifying the allocation formula and performance measures we would use 
to make FY 1999 bonus awards.
    The first Program Instruction grew out of our consultations with 
NGA, APHSA, NCSL, and State representatives. From February through July 
1997, we scheduled bi-weekly discussions with these groups covering the 
principles underlying a performance system, the viability of individual 
measures and data options, and the general allocation and distribution 
rules. In July 1997, we shared a ``preliminary proposal'' with our 
State partners and other interested parties, including advocates and 
technical and policy experts, on which we received wide-ranging and 
very helpful comments.
    Based on the comments we received and further consultations, we 
incorporated a number of changes to our initial proposal, and issued 
the March 1998 Program Instruction. We made a few additional technical 
changes and clarifications before issuing the

[[Page 68206]]

reporting form (ACF-200) on August 13, 1998 (TANF-ACF-PI-98-5, OMB No. 
1970-0180).
    We issued program guidance for the FY 2000 bonus awards on March 3, 
1999 (TANF-ACF-PI-99-1).
    We plan to issue guidance for the bonuses to be awarded in FY 2001 
since final rules will not be published until well into the performance 
years for these awards. (Awards in FY 2001 will be based on information 
from States for FY 2000 and FY 1999 (improvement measure).)

V. Discussion of the Regulatory Provisions

A. Principles for a High Performance Bonus System

    Given the substantive and technical complexities associated with 
the development of high performance bonus measures, NGA and APHSA 
developed a set of principles they believed should apply to a high 
performance bonus system. We believed that these principles offered a 
positive approach to and useful criteria for developing a bonus award 
system while avoiding major pitfalls. We also found these principles 
helpful as we addressed specific issues in developing the NPRM.
    The NGA/APHSA principles stated that a high performance bonus 
system should:
     Be simple, credible, quantifiable, understandable to the 
public, and consistent with the goals of the law;
     Focus on outcomes rather than process;
     Take varying State economic circumstances and policies 
into account and not impede the flexibility provided to States under 
Public Law 104-193;
     Minimize double jeopardy or reward. (For example, the law 
already provides bonuses for reducing out-of-wedlock births, a caseload 
reduction credit, and penalties and incentives related to child support 
enforcement and paternity establishment);
     Avoid additional data collection requirements and costs 
and build on existing systems;
     Avoid unintended consequences;
     Focus on positive rather than negative measures; and
     Reflect the strong emphasis on employment and self-
sufficiency in the Federal law and in the States' implementation of the 
law. This emphasis should influence the measures included in the system 
and the distribution of bonus funds.

B. Section-by-Section Discussion of the Proposed Rule

    We believe the central goal of the TANF program is to move welfare 
recipients into work, and we are committed to specific work measures as 
a basis for awarding high performance bonuses. In addition, the law 
also works to ensure that the needs of low-income children and families 
are met. The Department has underway several studies to monitor changes 
in the situations of needy children and families after enactment of the 
TANF program, e.g., how certain children are affected by the provisions 
of the new law. The statute also requires us to track whether a State's 
child poverty rate increased as the result of the TANF program in the 
State and requires States to initiate corrective actions when such 
increases occur.
    Bonus awards in FY 1999 and FY 2000 will be based solely on 
measures addressing the goal of work. However, the Department has been 
interested in developing a broader set of measures that more fully 
reflect other purposes and goals of the TANF program, as have the NGA, 
APHSA, NCSL, Congress, and others. We sought to develop measures that 
would address other purposes but, until recently, were unable to 
identify measures for which we had a reliable data source. In our 
consultations with States, Congress, national organizations, and 
experts, these groups have recommended the inclusion of other purposes 
and measures. Given the potential availability of a new data source, we 
are proposing both work and non-work measures in this NPRM to address 
three of the statutory purposes: work, child and family well-being, and 
family formation and family stability.
    In summary, we are proposing to:
     Award bonuses beginning in FY 2002 based on four work 
measures (substantially the same work measures currently in use for FY 
1999 and FY 2000 bonus awards);
     Award bonuses beginning in FY 2002 based on three non-work 
measures: one measure on family formation and family stability 
(increase in the number of children below 200 percent of poverty who 
reside in married couple families) and two measures that support work 
and self-sufficiency, i.e., participation by low-income working 
families in the Food Stamp Program and participation in the Medicaid 
and the Children's Health Insurance Program (CHIP);
     Use one of two alternative sources of data for the four 
work measures; we are exploring the possibility of using information 
from the National Directory of New Hires as one of the data sources;
     Use data from the Census Bureau's decennial and annual 
demographic programs as the data source for two of the three non-work 
measures. i.e., the measure on family formation and stability and the 
measure on participation in the Food Stamps Program; to measure 
performance on Medicaid/CHIP participation, States will match TANF data 
with data on Medicaid/CHIP enrollment;
     Award bonuses to the ten States with the highest scores in 
each measure;
     Specify an allocation of funds for each measure in FYs 
2002 and FY 2003 (and beyond, if high performance bonus awards are 
subsequently authorized); we would award $140 million to the work 
measures and $60 million to the non-work measures:
     Create an annual review process, as needed, if future 
modifications and technical changes are necessary to these performance 
components; and
     Reiterate the requirement in Sec. 265.3(d) of this chapter 
that, if a State wishes to receive a high performance bonus, it must 
file the information in Sections One and Three of the SSP-MOE Data 
Report.
    We have taken this approach for several reasons. First, we continue 
to believe that, given the primary focus of the TANF program on work, 
we should reward States for their efforts in this area. Our funds 
allocation proposals also reflect the importance we place on measuring 
and rewarding State performance directed towards work. In addition, a 
potential new data source may be available (i.e., the National 
Directory of New Hires) that could serve as a research data source and 
would provide more comparable and reliable national data.
    Second, as we noted earlier, we received strong encouragement in 
our external consultations to address the other purposes of the TANF 
program in addition to work. (The law explicitly ties the bonus to the 
four purposes in section 401(a) of the Act.) We believe States should 
be rewarded not only for their accomplishments in the area of work and 
self-sufficiency but also for their efforts in addressing other 
purposes, e.g., assisting needy families, promoting marriage, 
preventing and reducing the incidence of out-of-wedlock births, and 
encouraging two-parent families.
    The non-work measures reflect our concern that the lives of 
children and families, particularly low-income children and families, 
should be a focus of attention in relation to the TANF program. We also 
believe that families are one of the strongest factors in developing 
and sustaining high levels of individual competence and functioning in 
our complex society. In addition, we believe that Medicaid and Food 
Stamps are critical supports for many working

[[Page 68207]]

families as they move towards self-sufficiency through employment. 
State performance to ensure that eligible families receive Food Stamps 
and Medicaid address two of the statutory goals of the TANF program: 
Providing assistance to needy families so that children may be cared 
for in their own homes and ending the dependence of needy parents on 
government benefits by promoting job preparation and work. Receipt of 
Medicaid and Food Stamps also helps make it possible for families to 
move off of welfare into employment and to progress on the job to 
eventual full independence.
    We anticipate that national data may also be available to measure 
performance directed towards these goals, i.e., from the Census 
Bureau's decennial and annual demographic programs. We expect these 
data to be available in time to make bonus awards in FY 2002.
    Finally, we have proposed an annual review process that reflects 
our concern that we have had very little experience with a high 
performance bonus system. We are aware that not all elements in the 
proposed bonus award process are fully established. We may need to make 
changes and adjustments after the final rule is published, and we 
believe we need to allow for an opportunity and mechanism to do this. 
We would use the review process, which might include consultations, as 
appropriate, a tool for making technical changes and issuing guidance, 
but not for changing the basic allocation of funds or adding new 
measures.
    Our aim for future bonus awards is that they reflect the outcome 
goals of TANF, remain as simple as possible to understand and 
administer, and incorporate the best information available.
    The preamble includes a section-by-section discussion of the NPRM 
and a discussion of other issues related to performance measurement 
including other measures and data sources that we considered but have 
not included in this NPRM. We welcome comment on our specific 
regulatory proposals, on the issues raised earlier in developing this 
NPRM, on the alternate measures and data sources we considered but did 
not include in our regulatory proposals, on provisions we may have 
overlooked, and on the policy options and questions we have raised 
throughout this preamble.
    Following is a discussion of the regulatory provisions in this 
part, in the order of the regulatory text.

Section 270.1--What Does This Part Cover?

    This section specifies the scope and content of part 270.

Section 270.2--What Definitions Apply to This Part?

    In this section we are proposing definitions for terms used in this 
part. To the extent possible, we are proposing definitions that are 
consistent with those in other TANF rules.
    We use the term ``Act'' to refer to the Social Security Act, as 
amended, e.g., by the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA), the Balanced Budget Act of 1997, 
and any future amendments.
    We are proposing a definition of ``bonus year'' to mean the year in 
which bonus funds are awarded and to clarify the fiscal years covered 
by this NPRM, i.e., FYs 2002 and 2003 and any subsequent fiscal year 
for which Congress authorizes and appropriates bonus funds.
    This definition differs from the statutory definition in section 
403(a)(4)(E)(i) of the Act in that the statute specifies that bonuses 
will be awarded in each of the fiscal years 1999 through 2003. There 
are two reasons for the difference. First, the NPRM does not address 
FYs 1999 through 2001 because, as discussed earlier, we decided to make 
awards in these years based on program guidance so that States would 
have advance notice of the measures that would be used. Second, we have 
proposed, as a part of this definition, to cover future bonus years 
should Congress authorize and appropriate bonus funds. This will allow 
us to continue to use the provisions of this part in making future 
bonus awards.
    We have proposed a definition of ``comparison year'' to mean the 
fiscal year preceding the ``performance year,'' which we have also 
defined. We need this definition to clarify that, for two of the 
proposed work measures (the improvement measures), we are looking not 
only at data in the performance year, but also in the year that 
precedes the performance year, i.e., the ``comparison year.''
    Because the terms ``bonus year'' and ``performance year'' are based 
on the fiscal year, we have included a definition of ``fiscal year'' 
for clarity.
    We have proposed a definition of ``performance year'' to mean the 
fiscal year immediately preceding the ``bonus year.'' This clarifies 
that the year for which we will measure performance is the year 
preceding the year in which we will award the bonus as specified in 
section 403(a)(4)(D) of the Act. (As discussed earlier in the 
definition of ``comparison year,'' we will base performance for two 
work measures (the improvement measures) on the degree of improvement 
in performance between the performance year and the comparison year.)
    We include a definition of ``separate State program'' and ``SSP-MOE 
Data Report'' for clarity regarding reporting of data. The first 
definition is taken from the final TANF rule published April 12, 1999 
(64 FR 17720). The second definition is self-explanatory.
    We propose a definition of ``State'' to mean each of the 50 States 
of the United States, the District of Columbia, the Commonwealth of 
Puerto Rico, the United States Virgin Islands, Guam, and American 
Samoa. This definition is consistent with the definition in section 
419(a)(5) of the Act.
    We have included a definition of the ``Food Stamp Program'' and 
have explained the following acronyms: ``CHIP'' is the Children's 
Health Insurance Program described in title XXI of the Social Security 
Act, ``HCFA'' is the Health Care Financing Administration, ``Medicaid'' 
is a State program of medical assistance operated in accordance with a 
State plan under title XIX of the Social Security Act, and ``MSIS'' is 
the Medicaid Statistical Information System. We also propose to use the 
acronym ``TANF'' for the Temporary Assistance for Needy Families 
program.
    We use the term ``we'' throughout the regulatory text and preamble. 
The term ``we'' (and any other first person plural pronouns) means the 
Secretary of Health and Human Services or any of the following 
individuals or organizations acting in an official capacity on the 
Secretary's behalf: The Assistant Secretary for Children and Families, 
the Department of Health and Human Services, and the Administration for 
Children and Families.

Section 270.3--What Is the Annual Maximum Amount We Will Award and the 
Maximum Amount That a State Can Receive Each Year?

    In paragraph (a), we propose to award $200 million in bonus funds 
for each of fiscal years 2002 and 2003 and any subsequent years if 
Congress authorizes the continuation of the bonus awards and 
appropriates funds. Section 403(a)(4)(D)(ii)(I) of the Act states that 
``the average annual total amount of grants to be made under this 
paragraph for each bonus year equals $200,000,000.'' We have 
interpreted this statement to mean that the actual amount of bonus 
funds awarded for

[[Page 68208]]

each bonus year could vary as long as a total of $1 billion was awarded 
over the five year period. However, after consultation with interested 
parties, we believe that we would foster the positive effects of the 
bonus by aiming to award $200,000,000 in each of these bonus years. We 
believe that a fixed, substantial award amount each bonus year provides 
States with a significant incentive that remains constant and promotes 
continuity of effort. Of course, the bonus amounts for fiscal years 
beyond FY 2003 will be determined based on any new authorizations and 
appropriations.
    In paragraph (b) of this section, we specify that the amount 
payable to a State for a bonus year may not exceed five percent of the 
State's family assistance grant, as specified in section 
403(a)(4)(B)(ii) of the Act. See the Appendix to this NPRM for a list 
of the potential maximum amounts that could be awarded to each State 
annually, based on the statutory limitation.

Section 270.4--On What Measures Will We Base the Bonus Awards?

    In paragraph (a) of this section, we propose to base the high 
performance bonus awards on four work measures and three non-work 
measures.
    These proposed provisions reflect the importance we place on work 
as a primary goal of TANF. They also reflect our concern that the lives 
of children and families in the State, particularly low-income children 
and families, should also be a focus of our attention in relation to 
the TANF program.
    As discussed more fully below in Sec. 270.6, States may select the 
work measures on which they wish to compete, and they will be ranked on 
these measures. Because we will be using Census Bureau data as the data 
source for the measure on family formation and family stability and the 
measure on participation in the Food Stamp Program, we will rank all 
eligible States on these measures. For the measure on participation in 
Medicaid/CHIP, we will obtain data from States based on matching 
records of individuals leaving TANF assistance with Medicaid/CHIP 
enrollment records. We will also rank all eligible States on this 
measure. We emphasize that, if a State wishes to be considered for a 
bonus in relation to any measure, it must submit the information in 
Sections One and Three of the SSP-MOE Data Report.

Work Measures

    In paragraph (b), we propose that, beginning in FY 2002, we will 
measure State performance based on four work measures. States may 
compete on one, any number of, or none of these work measures. We will 
score and rank competing States and award bonuses to the ten States 
with the highest scores in each measure.
    We are proposing these four measures because we believe that work 
measures most directly promote the purpose of TANF as stated in section 
401 of the Act, i.e., ``increase the flexibility of States in operating 
a program designed to end the dependence of needy parents on government 
benefits by promoting job preparation, work, and marriage * * *.''
    In addition, these work measures relate to three of the four 
statutory goals. While they relate most directly to goal two, (i.e., to 
``end the dependence of needy parents on government benefits by 
promoting job preparation, work, and marriage),'' they also address 
goal one indirectly, (i.e., to ``provide assistance to needy families 
so that children may be cared for in their own homes or in the homes of 
relatives'') as the provision of temporary cash assistance and other 
services leading to employment strengthens families and help keep them 
together. We also believe the work measures support the maintenance of 
families in goal four, (i.e., to ``encourage the formation and 
maintenance of two-parent families'') as a substantial body of evidence 
indicates that continued unemployment is associated with an increased 
incidence of marital break-up.
    The four work measures are: Job Entry; Success in the Work Force 
(Job Retention and Earnings Gain); and improvement from the prior 
fiscal year in each of these measures.
    We will use the proposed measures to measure State performance 
along three parameters of employment: the extent to which States are 
moving recipients into the work force, the degree to which recipients 
are able to remain in the work force, and the quality of the 
recipients' jobs. In different ways, all four measures reflect a 
State's success in moving families from welfare to work. Full success 
requires not only getting recipients into jobs, but also keeping them 
in jobs and increasing earnings in order to reduce dependency and 
enable families to support themselves over the long term. Our measures 
address all these aspects of success.
    Overall, we believe these measures reflect the critical importance 
of and emphasis on work in the TANF program; are generally consistent 
with State data collection efforts; and reflect substantial agreement 
that, taken together, positive outcomes on these measures would be 
associated with achievement of employment-based self-sufficiency.
    In paragraph (b)(3), we propose that States have the option to 
compete on one, any number of, or none of the work measures specified 
in this section. The opportunity to compete for one or more work 
measures furthers Congressional intent to support State flexibility in 
the design and operation of their TANF programs. We also know that 
States are in different stages of implementing the TANF program, have 
diverse programmatic emphases, and vary in their current levels of 
performance. We believe that offering States the option to choose from 
a list of work measures allows States that have different work 
philosophies to compete fairly for bonuses and compete in the areas of 
their highest achievement. Compared to a single measure, multiple 
measures are less likely to distort State policy decisions or to cause 
unintended consequences.
    We discuss our proposal to award the bonus to the ten States with 
the highest scores in each measure in the preamble discussion of 
Sec. 270.6.

Measures for Supporting Working Families

    One of the key goals of welfare reform is to support and sustain 
working families. Food Stamps and Medicaid are potentially essential 
supports during the period when families are working but are not yet 
earning at the level that will enable them to achieve full self-
sufficiency. The Administration and others have expressed concern at 
the falling levels of coverage in these programs. Therefore, we have 
implemented a variety of strategies to prompt States to reach working 
families who are eligible.

 Food Stamps

    Like child care, the Earned Income Tax Credit, and Medicaid, 
receipt of food stamps is an important support for working families. 
Our colleagues at U.S. Department of Agriculture (USDA) are committed 
to working with States to ensure that eligible families obtain food 
stamps. Families with incomes up to 130 percent of the poverty line, or 
$17,748 for a family of three, can be eligible for food stamps. A 
typical family of three with a full time worker earning the minimum 
wage can get $220 a month in food stamps.
    In recent years, States have taken remarkable action to 
revolutionize the welfare system. A strong economy combined with 
innovative State policies and an unyielding commitment to helping 
families become self-sufficient as they move from welfare to work has

[[Page 68209]]

resulted in a dramatic decline in the number of families receiving cash 
assistance. Many more individuals are now working to support themselves 
and their families than ever before. Critical to their continued 
success, however, is their ability to feed their families adequately. 
Food stamps can help parents working full-time at minimum wage who are 
taking advantage of the maximum Earned Income Tax Credit to escape 
poverty. In some cases, these individuals may only be able to keep 
their jobs and feed their families because food stamps help make ends 
meet.
    Participation in the Food Stamp Program, however, has decreased 
dramatically in recent years. Since March 1996, participation has 
fallen by over 7 million people. One group for which participation is 
especially low is the working poor; only 39 percent of individuals with 
earnings who are eligible for food stamps benefits participate in the 
Food Stamp Program, compared to a participation rate of 71 percent 
overall.
    Food stamps can make the difference between living in poverty and 
moving beyond it. It is imperative to the success of welfare reform, 
and more fundamentally to the well-being of all Americans, that States 
devote attention to making sure that needed supportive services, in 
particular food stamps, are available to those families that have left 
welfare but remain poor.
    The President recently announced a series of actions to help ensure 
working families access to food stamps, including: (1) Allowing States 
to make it easier for working families to own a car and still be 
eligible for food stamps; (2) simplifying food stamp reporting rules to 
reduce bureaucracy and encourage work; and (3) launching a nationwide 
public education campaign and a toll-free hotline to help working 
families know whether they're eligible for food stamps.
    As part of this effort, USDA has published ``The Nutrition Safety 
Net at Work for Families: A Primer for Enhancing the Nutrition Safety 
Net for Workers and Their Children,'' a companion piece to the DHHS 
Medicaid guide discussed below. This Food Stamps guide will assist 
State, local and community leaders in understanding Food Stamp Program 
access requirements. It also includes the following best practices for 
serving working families already implemented in some communities.
    1. The State agency can take steps to inform low-income households 
about the availability, eligibility requirements, application 
procedures, and benefits of the Food Stamp Program. For example, States 
could:
     Submit a Program Information Plan to the Food and 
Nutrition Service, as specified at Section 11(e) of the Food Stamp Act 
of 1977.
     Implement a toll-free telephone number for application and 
enrollment information.
     Place billboards and posters in places frequented by low-
income families.
     Provide flyers or brochures to community organizations 
that work with low-income households.
     Produce public service announcements for radio and 
television.
     Develop partnerships with private sector entities such as 
retail grocers to display or distribute materials.
    2. The State agency can take steps to simplify the Food Stamp 
application and recertification process for working families. For 
example, States could:
     Shorten application forms.
     Use joint Food Stamp-TANF-Medicaid applications.
     Increase the availability of application sites.
     Place Food Stamp workers in the community (hospitals, 
health centers, schools or one-stop centers) and in TANF sites for 
States where programs are administered separately.
     Adopt flexible, family-friendly hours so parents do not 
have to miss work for eligibility and redetermination interviews.
     Clarify inconsistencies by telephone or mail.
     Conduct staff training on the three programs.
     Encourage Food Stamp applications even if the TANF 
application halts.
    3. The State agency can take advantage of the option to extend 
categorical eligibility to participants in programs that receive the 
majority of their funding from sources other than TANF.
    4. The State agency can adopt income reporting waivers to ease the 
reporting burdens of working families. States may request to:
     Implement a quarterly reporting system for households with 
earnings, and allow quarterly reporting of unearned income for such 
households.
     Allow for 6-month recertifications.
     Increase the reporting threshold from $25 to $100.
    5. The State agency can take steps to educate families receiving 
Food Stamps about possible continuous eligibility, regardless of 
discontinued TANF receipt. For example, States could:
     Advise families to report earnings instead of simply 
calling to have their case closed or not going through the 
redetermination process.
     Review closed TANF cases in which Food Stamps was not 
continued, and inform families with cases closed in error of their 
entitlement to restore benefits.
    We believe States who use these best practices are likely to 
increase enrollment of eligible families, and therefore, to perform 
better on the outcome measure below. Along with encouraging and 
assisting States in using these best practice innovations to help 
ensure working families access to food stamps, USDA is also committed 
to vigorous enforcement of the food stamp law and will investigate 
complaints about State and local practices and pursue administrative 
and legal action as required.

 Medicaid/CHIP

    Medicaid enrollment dropped by about 1 million from 1996 to 1997. 
Though there are many potential reasons for the decline, we do not have 
any definitive answers about why it has occurred. Improvements in 
earnings and employment resulting from the strong national economy have 
probably played an important role in this decline, making it possible 
for some low-income Medicaid families to find jobs that offer health 
insurance. It is also important to note that, while Medicaid enrollment 
has declined, the number of people under the poverty level who are 
uninsured has not increased in the last few years. Changes in attitudes 
toward public assistance may also be playing a role in falling TANF, 
Food Stamp, and Medicaid caseloads.
    To help States navigate the opportunities and challenges inherent 
in providing Medicaid to all eligible families, DHHS developed and 
issued ``Supporting Families in Transition; A Guide to Expanding Health 
Coverage in the Post-Welfare Reform World.'' This publication was sent 
to all State Medicaid Directors and other interested parties. We have a 
follow-up strategy that includes an educational component, aggressive 
outreach, and a proactive enforcement process. We are also undertaking 
research activities to promote increased participation of eligible 
individuals in these programs.
    It is in this context that we are proposing performance measures 
related to Food Stamps and the Medicaid/CHIP programs that will reward 
State efforts to support work, self-sufficiency, and the well-being of 
low-income eligible families through rewarding States for year to year 
improvements. We believe that basing high performance bonus awards on 
these measures will provide another valuable strategy in the 
Administrations's efforts to advance the

[[Page 68210]]

goals of welfare reform, focus attention on these critical supports, 
assist working families, improve outcomes for children, and encourage 
States to take action to increase the likelihood that low-income 
families not receiving cash assistance will participate.
    We have taken a similar approach in developing these two measures. 
Each is designed as an improvement measure; each measure will receive 
$20 million in bonus funds. In addition, the food stamp and the 
Medicaid/CHIP measures are also similar in that we have proposed 
``qualifying conditions'' in each measure. These conditions are ones a 
State must meet in order to be eligible to compete for the bonus. For 
both Food Stamps and Medicaid/CHIP, these conditions include 
requirements of law and regulation that States must meet. For Medicaid/
CHIP, these conditions also include a number of options a State must 
take to maximize participation of those eligible for Medicaid and CHIP.
    This difference in the design of the food stamp and the Medicaid/
CHIP qualifying conditions reflects the nature of the two programs. The 
Medicaid law and regulations provide States considerable flexibility 
and makes a broad set of such programmatic options available to States. 
In contrast, the Food Stamp Program offers very little State option or 
flexibility in these areas because it has national standards of 
eligibility with many key service requirements mandated by statute. 
However, we invite comments on whether the decision to include 
qualifying conditions is appropriate, as well as whether the specific 
conditions and distinctions made between the programs are valid.
A. Measure of Participation by Low-Income Working Families in the Food 
Stamp Program
    In paragraph (c)(1), we identify certain qualifying conditions, 
i.e., practices that a State must be in compliance with in order to 
compete for a high performance bonus related to food stamp 
participation:
    (i) The State agency has issued policy instructions or regulations 
clearly specifying that, at first contact with the State agency which 
administers the Food Stamp Program, individuals must be informed of the 
opportunity to apply for food stamps in accordance with 7 CFR 
273.2(c)(1).
    (ii) The State agency has issued policy instructions or regulations 
clearly specifying that food stamp application forms are to be readily 
accessible and available upon request, in accordance with 7 CFR 
273.2(c)(3).
    (iii) As evidenced through policy instructions, regulations, and 
administrative reviews, the State agency is complying with application 
processing time frames and expedited service rules, as required by 7 
CFR 273.2(g).
    (iv) As evidenced through policy instructions, regulations, and 
administrative reviews, the State agency has taken steps to prevent 
inappropriate denials and terminations of eligible food stamp 
participants who have lost TANF eligibility, in accordance with 7 CFR 
273.12(f). Since food stamp eligibility is not based on TANF 
eligibility, States may not deny food stamp eligibility to a family or 
family member simply because the family is ineligible for TANF.
    These required qualifying conditions reflect food stamp policies 
that are required by statute or regulation. We do not believe that a 
State which is out of compliance with these requirements should be 
eligible for a bonus. The Food and Nutrition Service of the U.S. 
Department of Agriculture will determine whether a State is meeting 
these conditions through its ongoing oversight of the Food Stamp 
Program.
    In paragraph (c)(2), we are proposing the outcome measure on which 
the bonus will be based. Beginning in FY 2002, we will measure the 
improvement in the number of low-income working families (i.e., 
families with children under the age of 18 who have an income of less 
than 130 percent of poverty and earnings equal to at least half-time, 
full-year employment at minimum wage) receiving food stamps as a 
percentage of the number of low-income families working in the State, 
using the same definition. For any given year, we will compare a 
State's performance on this measure to its performance in the previous 
year, beginning with a comparison of CY 2000 to CY 2001, based on 
Census Bureau data. We will rank all States and will award bonuses to 
the 10 States with the greatest percentage improvement in this measure.
    We are proposing this outcome measure in order to reward States 
that have identified and implemented successful strategies to provide 
food stamps to eligible, low-income working families.
B. Measure of Participation of Low-Income Families in the Medicaid and 
CHIP Programs
    In paragraph (d)(1), we identify certain qualifying conditions that 
a State must meet in order to compete for a high performance bonus 
related to the Medicaid and CHIP programs, based on requirements in 
Medicaid law and regulation; in paragraph (d)(2), we propose that the 
State must document that it has adopted at least two of a list of seven 
State options, (i.e., programmatic policies or practices that are 
designed to facilitate Medicaid and CHIP enrollment and the retention 
of eligible children and families.) In paragraph (d)(3), we propose the 
specific outcome measure on which the bonus would be awarded.
    We propose the following qualifying conditions in paragraph (d)(1):
    (1) The State has issued policy instructions or regulations clearly 
specifying that, at first contact with the TANF agency (when the TANF 
agency is also the Medicaid agency), an individual must be given the 
opportunity to apply for Medicaid in accordance with 42 CFR 435.906;
    (2) When eligibility under section 1931 of the Act is lost due to 
hours of, or earnings from, employment or loss of time-limited earning 
disregards, the State issues to the affected family a written notice 
that meets the requirements of section 1925(a)(2)(A) of the Act and a 
card or other evidence of the family's entitlement to assistance as 
required under section 1925(a)(2)(B) of the Act;
    (3) The State has issued policy instructions or regulations clearly 
specifying that family members may not be terminated from Medicaid 
until it has been determined that they are not eligible under any other 
Medicaid group; and
    (4) The State has fulfilled all data requirements under the law, 
including being up to date on all Medicaid and CHIP data submissions, 
and having the MSIS on-line and operating properly.
    All of these programmatic criteria reflect State policy actions and 
processes that are mandated by Medicaid statute or regulation, and we 
do not believe that a State that is out of compliance with these 
requirements should be eligible for a bonus related to Medicaid and 
CHIP participation. We propose that, to be eligible for the bonus, 
States must fulfill these required conditions. HCFA will verify States' 
compliance through State documentation and the agency's ongoing 
oversight of the Medicaid/CHIP programs.
    In addition to complying with these qualifying conditions, we 
propose that applicant States must meet at least two qualifying State 
options. These are programmatic options that are designed to maximize 
participation by those eligible for Medicaid and CHIP. We propose that 
a State that adopts at least two of the qualifying options below (in

[[Page 68211]]

addition to satisfying the required qualifying conditions described 
above) would be eligible to compete for the high performance bonus 
related to Medicaid and CHIP, based on the outcome measure in paragraph 
(d)(3). We propose that States provide documentation demonstrating that 
they have adopted two or more of these optional measures. HCFA will 
verify compliance through the agency's ongoing review of the Medicaid/
CHIP programs. We believe States that exercise these options are likely 
to increase enrollment of eligible families, and therefore, to perform 
better on the outcome measure in paragraph (d)(3) as discussed below.
    Programmatic Options:
    (1) The State accepts mail-in or phone-in applications for Medicaid 
for families and children, which can be completed without a face-to-
face interview;
    (2) State Medicaid workers have been outstationed at locations in 
addition to the locations required under 42 CFR 435.904 (c)(1) and 
(c)(2);
    (3) The State has expanded Medicaid eligibility for recipient and 
applicant families through the use of less restrictive methodologies, 
authorized by section 1931(b)(2) (B) and (C) of the Act;
    (4) The State uses a definition of ``unemployed parent'' that 
includes parents who are employed more than 100 hours per month, as 
authorized under 45 CFR 233.101 and section 1931(d) of the Act;
    (5) The State provides continuous Medicaid eligibility for children 
for a period of time without regard to changes in circumstances, as 
authorized by section 1902(e)(12) of the Act;
    (6) The State provides a period of presumptive Medicaid eligibility 
for children, as authorized by section 1920A of the Act; or
    (7) The State has simplified the enrollment and re-enrollment 
processes for children and low-income families by implementing such 
improvements as shortened application forms.
    Once the States are identified as eligible for consideration, based 
on the qualifying conditions and options in paragraphs (d)(1) and 
(d)(2), we propose a specific outcome measure for determining which 
States would receive a bonus. The outcome measure we are proposing in 
paragraph (d)(3) would assess Medicaid and CHIP participation among 
persons leaving TANF assistance. The population whose Medicaid/CHIP 
participation would be measured is those individuals whose TANF 
assistance cases were closed in the calendar year who also were 
enrolled in Medicaid or CHIP at the time of case closure. The measure 
of State performance would be the percentage of such individuals who 
are enrolled in Medicaid or CHIP six months after leaving TANF (and who 
are not currently receiving TANF assistance in that month).
    We chose this approach because nearly all individuals leaving TANF 
are likely to be eligible for a minimum of six months of transitional 
Medicaid under section 1925 or to qualify for Medicaid under other 
eligibility groups (e.g., section 1931, poverty-related children) or to 
be eligible for CHIP. Continued health insurance coverage is a critical 
support to families making the transition from welfare to self-
sufficiency, and we expect States to achieve a high rate of Medicaid 
and CHIP participation among this population in order to be considered 
high performers. We propose that bonuses would be awarded to the ten 
States with the largest percentage improvement in their Medicaid/CHIP 
participation rates.
    The data for this measure will be submitted quarterly by States at 
an aggregate level for purposes of this evaluation. States will obtain 
these data by matching records of individuals leaving TANF assistance 
with Medicaid/CHIP enrollment data.
    We also considered an outcome measure that would capture State 
performance in enrolling and retaining all eligible families and 
children in Medicaid and CHIP, regardless of their former or current 
welfare status. This measure would reward States for the Medicaid and 
CHIP participation of those families and children leaving TANF 
assistance, and also for the participation of eligible families and 
children who may not participate in, be diverted from, or may not have 
any contact with, the TANF program.
    In operational terms, this measure would be based on data from the 
Census Bureau, supplemented with data from State MSIS data and HCFA 
Form 21-E.
    After careful consideration, we proposed an outcome measure limited 
to individuals leaving TANF assistance because we believe that it 
better captures the mission and responsibility of the TANF agency to 
move families toward self-sufficiency. While the broader population 
measure would reflect a critical goal of expanding health coverage and 
also encourage States to enroll eligible individuals who are diverted 
from TANF assistance, the proposed measure is more directly related to 
the goals and purposes of TANF. We invite comments on this matter.

Measure of Family Formation and Stability

    In paragraph (e), we propose that, beginning in FY 2002, we will 
measure the percentage increase in all children below 200 percent of 
poverty who reside in married couple families, based on a comparison of 
data between CY 2000 and CY 2001 from the Census Bureau. For any given 
subsequent year, we will compare a State's performance on this measure 
to its performance in the previous year. We will rank all States and 
award bonuses to the ten States with the greatest percentage increase 
in this measure, if they have filed the information in Sections One and 
Three of the SSP-MOE Data Report. Like the Food Stamps and Medicaid/
CHIP measures, a total of $20 million will be awarded for this 
improvement measure.
    We are proposing this measure of family formation and family 
stability for several reasons: the law's emphasis on promoting marriage 
and encouraging the formation and maintenance of two-parent families 
(section 401(a) of the Act); our concern for the well-being of children 
and families, particularly low-income families; and our interest in 
stimulating successful State initiatives in this area. The number of 
parents living with a child is generally tied to the amount and quality 
of human and economic resources available to that child. Children who 
live in a household with one parent are five times more likely to have 
family incomes below the poverty line than are children who grow up in 
a household with two parents.
    We also know that children who live with only one parent suffer 
more emotional, behavioral, and intellectual problems. They are at 
greater risk of dropping out of school, alcohol and drug use, 
adolescent pregnancy and childbearing, juvenile delinquency, mental 
illness, and suicide.
    Using this measure would entail no new data collection 
responsibilities on the part of States, assuming the Census Bureau data 
are available.

Consideration of Other Measures

    During the course of our consultations and internal discussions, we 
considered and evaluated a wide range of possible measures and data 
sources. We also tried to keep in mind the principles for a high 
performance bonus system developed by NGA and APHSA; sought to avoid 
additional data collection requirements and costs and to build on 
existing systems; tried to focus on positive rather than negative 
measures; and attempted to avoid unintended consequences. Specifically, 
we

[[Page 68212]]

considered a number of other measures related to the non-work purposes 
in the law. These included:
     Child support: The average monthly number of TANF families 
that have both earned income and child support paid within the same 
month.
     Diversion: The number of applicants with a financial 
payment diverted from the TANF cash assistance program divided by the 
number of newly approved cash assistance cases.
     Out-of-wedlock births: Measures of such births to TANF 
recipients, to all persons in the State as a whole, or in relation to 
the same standards and provisions as defined in the bonus to reward 
decrease in illegitimacy ratios (section 403(a)(2) of the Act).
     Child poverty: The reduction in the State's rate of child 
poverty for all families with children under age 18 and the reduction 
in the rate of child poverty for working families with children under 
age 18, i.e., families with earnings equivalent to half-time full year 
employment (parallel to the food stamp measure).
    (See the following preamble section entitled ``Discussion of Other 
Issues Related to Performance Measurement'' in which we address other 
measures and data sources we also considered.)
    For several reasons, we did not include a number of potential 
measures where there were other mechanisms in the statute for 
addressing them. First, we were concerned that inclusion of too many 
measures would spread the bonus funds too thinly and thereby weaken 
their ability to provide incentives to States to achieve the goals and 
purposes of TANF. Second, we believed the measures duplicated other 
measures for which performance funding is already in place, e.g., out-
of-wedlock birth reduction and child support enforcement, or where 
there are other mechanisms to monitor and correct State performance 
(child poverty). Finally, we were particularly aware of the issue of 
diversity among States and how that diversity might impact the design 
and implementation of the high performance bonus award system. There 
was general agreement that the uneven resources and multiple 
differences in economic and demographic circumstances and program and 
caseload characteristics among States were serious complicating factors 
in designing a high performance bonus system. For example, a State with 
a stronger economy, a less disadvantaged caseload, or lower grant 
levels may be more successful in moving recipients into jobs and off 
welfare than the State with a weak economy, a more disadvantaged 
caseload, or a higher grant level. Also, a State which began moving 
recipients into jobs several years before TANF was enacted and high 
performance was measured may have difficulty showing the same level of 
accomplishment in current years.
    However, we would like to discuss our consideration of a child 
poverty measure in greater detail because it relates to two of the 
goals/purposes of TANF: promoting work and employment and strengthening 
child and family well-being by assisting needy children in their own 
homes or in the homes of relatives.
    Several innovative States are already using child poverty as a 
measure of their efforts, and some States are using the resources and 
flexibility under TANF to address this issue. AFDC was limited in its 
ability to address child poverty in that the primary flexibility States 
had was in setting benefit levels. In contrast, the TANF program offers 
States the opportunity to utilize a wide range of investments to help 
families escape poverty while strengthening their commitment to work. 
These investments include:
     Increasing the stability of work through investments in 
the wages parents earn or the hours they work, such as employer 
partnerships that focus on the first job, on job advancement after the 
first job, or on combinations of work and training; mentoring and case 
management strategies; strategies that combine work, education, and 
training; and supported work for families with barriers to private 
sector employment;
     Utilizing well-known strategies to supplement work, such 
as more generous earning disregards, earnings supplements, and wage 
subsidies;
     Improving child support, such as increasing the amount of 
support collected from non-custodial parents that is passed through to 
children;
     Helping families during periods between jobs, such as 
quick re-employment services; and
     Providing employment assistance for other families, such 
as a child-only family where a caretaker relative is not receiving 
assistance.
    In addition, there is empirical evidence from rigorous evaluations 
that several of these strategies can be effective in reducing poverty. 
For example, interim findings from the Minnesota Family Investment 
Program, which implemented generous earning disregards, nearly doubled 
the percentage of families above poverty; and a strongly employment-
focused welfare-to-work program in Portland, Oregon, which stressed 
getting recipients higher paying jobs along with higher quality, 
reliable child care, increased the number of families with above 
poverty income by nearly one quarter.
    We encourage States to use the available flexibility and resources 
to pursue strategies that support working families and help move them 
out of poverty. However, after a full consideration of all factors, we 
chose not to include a child poverty measure in the proposed rule for 
the following reasons:
     A child poverty measure was duplicative of the 
requirements in section 413(i) of the Act for States to report on their 
child poverty rates and take corrective action where any increase in 
child poverty of five percent or more is attributable to the TANF 
program in the State; and
     Improvements in the proportion of families receiving food 
stamps and increases in employment and earnings both raise family 
income and thereby contribute to poverty reduction.
     Since the official poverty measure does not reflect income 
sources such as food stamps or EITC, it may not accurately reward State 
strategies to support working families.
    In developing the NPRM, we also considered additional measures and 
various data sources, including the Current Population Survey (CPS), 
other Census Bureau surveys, the National Center on Health Statistics, 
Unemployment Insurance data, and State administrative data. Except for 
the Census Bureau's decennial and annual demographic programs, we 
identified problems with each of these measures and with the data 
sources considered, e.g., lack of State-reliable and comparable data; 
data collection burden; and, in some cases, lack of consistent 
definitions for the measure across the States. In other cases, we 
believed the measures duplicated other measures for which performance 
funding is already in place, e.g., out-of-wedlock birth reduction and 
child support enforcement.
    For additional discussion of other issues related to performance 
measurement, including absolute performance, performance improvement, 
and other measures and data sources considered, please see the 
following preamble section entitled, ``Discussion of Other Issues 
Related to Performance Measurement.''
    We are committed to work measures as a major component of the bonus 
award. However, we invite comment about whether we should make changes 
in these work measures and whether we should consider different 
options. We raise the following questions on the

[[Page 68213]]

work and non-work measures for public consideration:
    1. Are the work measures proposed in Sec. 270.4 the work measures 
we should be using?
    2. Are there other measures and data sources we should consider?
    3. Does the definition of ``assistance'' included in the final TANF 
rule affect the data captured in the work measures?
    4. Should we consider other measures that address the first purpose 
of the TANF program, i.e., to assist needy families?
    5. What data sources should we consider for the non-work measures 
if the Census Bureau data are not available for bonus awards in FY 
2002?
    6. Should we consider measures that would be duplicative or similar 
to measures used with other performance awards, e.g, a measure of out-
of-wedlock births?
    7. Should we consider State enforcement of the TANF non-
displacement requirements in awarding bonuses and, if so, how?

Section 270.5  What factors will we use to determine a State's score on 
the work measures?

    In this section, we propose the specific definitions for each of 
the work measures and an explanation of how we will calculate the 
percentage rate for the work measures, both for the absolute measures 
and for the improvement measures, and rank State performance.
    In paragraph (a), we propose the specific definitions for each of 
the work measures as follows:
    The Job Entry Rate means the unduplicated number of adult 
recipients who entered not fully subsidized employment for the first 
time in the performance year (job entries) as a percent of the total 
unduplicated number of adult recipients unemployed at some point in the 
performance year. Adult recipients in fully subsidized employment are 
not included in the numerator but are included in the denominator.
    We are proposing an unduplicated count of adult recipients because 
we believe that allowing one individual to be counted more than once in 
the numerator would unfairly inflate a State's performance. We are 
proposing not to include in the numerator recipients in fully 
subsidized employment because that would mitigate against self-
sufficiency. However, we are proposing to include them in the 
denominator because we believe they should be considered as part of the 
pool of unemployed recipients who potentially could be placed in 
unsubsidized employment and, thus, could be an incentive to the State 
to help these recipients obtain a job that is not fully subsidized.
    The Success in the Work Force Rate measure is composed of two 
submeasures defined as follows:
     The Job Retention Rate means the performance year sum of 
the unduplicated number of employed adult recipients in each quarter 
one through four who were also employed in the first and second 
subsequent quarters, as a percent of the sum of the unduplicated number 
of employed adult recipients in each quarter. (At some point, the adult 
might become a former recipient.) Adult recipients in fully subsidized 
employment are not included in either the numerator or the denominator; 
and
     The Earnings Gain Rate means the performance year sum of 
the gain in earnings between the initial and second subsequent quarter 
in each of quarters one through four for adult recipients employed in 
both these quarters as a percent of the sum of their initial earnings 
in each of quarters one through four. (At some point, the adult might 
become a former recipient.) Earnings gains of adult recipients in fully 
subsidized employment are not included in either the numerator or the 
denominator.
    We believe these two submeasures are the two most important 
components for determining success in the workplace. We are proposing 
to give job retention a weight of two compared to one for earnings 
gain. We believe that earnings gain is dependent on job retention and, 
therefore, should be given a lesser weight.
    We are proposing that job retention be measured in the initial 
quarter and the two consecutive subsequent quarters, because this is 
consistent with related measures of job retention in the Job Training 
Partnership Act, Welfare-to-Work, and Work Investment Act programs.
    We propose to measure earnings gain from the initial quarter to the 
second subsequent quarter because we believe it is more reasonable to 
expect earnings gain at a later rather than earlier date. We considered 
measuring a longer period for success in the workplace and welcome 
comments from the public on whether we should measure job retention or 
earnings over a longer period of time.
    The Increase in the Job Entry Rate means the positive difference 
between the performance year job entry rate and the comparison year job 
entry rate as a percent of the comparison year job entry rate.
    The Increase in Success in the Work Force Rate means the positive 
difference between the performance year success in the work force rate 
and the comparison year success in the work force rate as a percent of 
the comparison year success in the work force rate. It is composed of 
two submeasures defined as follows:
     The Increase in the Job Retention Rate means the positive 
difference between the performance year job retention rate and the 
comparison year job retention rate as a percent of the comparison year 
job retention rate; and
     The Increase in the Earning Gain Rate means the positive 
difference between the performance year earnings gain rate and the 
comparison year earnings gain rate as a percent of the comparison year 
earnings gain rate.
    We are proposing that increase in the job entry rate and success in 
the work force be measured in the simplest and most straightforward 
way, i.e., a percentage increase from the comparison year to the 
performance year. However, we welcome comments on alternative ways of 
measuring improvement.
    We believe these measures are the best measures of self-
sufficiency, are measures based on readily available data, and are 
measures that will not create a heavy administrative burden on States.
    In addition, these measures are consistent with both past and 
current legislation designed to measure performance in the work area. 
Section 106(a)(2) of the Job Training Partnership Act (JTPA) stated 
that ``the basic return on the investment is to be measured by long-
term economic self-sufficiency, increased employment and earnings, 
reductions in welfare dependency, and increased educational attainment 
and occupational skills.'' Section 106(b)(3) of JTPA listed several 
factors on which to base performance standards including: (A) Placement 
in unsubsidized employment; (B) retention for not less than 6 months in 
unsubsidized employment; and (C) any increase in earnings, including 
hourly wages.
    Recent legislation, the Workforce Investment Act of 1998, 
authorizes a performance accountability system. Section 136 of this 
legislation specifies State performance measures including entry into 
unsubsidized employment, retention (in unsubsidized employment) six 
months after entry into unsubsidized employment, and earnings received 
(in unsubsidized employment) six months after entry into unsubsidized 
employment.
    Another law enacted by Congress, the Balanced Budget Act of 1997, 
authorized Welfare-to-Work Grants to

[[Page 68214]]

States and local communities to provide transitional employment 
assistance that moves hard-to-employ welfare recipients and certain 
non-custodial parents into unsubsidized employment and economic self-
sufficiency. The legislation authorizes the Department of Labor to 
award performance bonuses. Section 5001(a)(5)(E)(iii) of this 
legislation specifies that the formula for measuring State performance 
be based on certain factors including ``(I) the success of States in 
placing individuals in private sector employment or in any kind of 
employment * * * (II) the duration of such placements; (III) any 
increase in earnings of such individuals * * * and such other factors 
as the Secretary of Labor deems appropriate * * *'' The formula may 
also take into account general economic conditions on a State by State 
basis.
    Finally, the work measures we have proposed are similar to those 
developed by the Department of Labor for the Welfare-to-Work 
performance bonus. See Notice of Welfare-to-Work performance bonus 
criteria, published November 23, 1998 (63 FR 64832).
    In paragraph (b)(1), we propose to measure performance over the 
course of an entire fiscal year as specified in section 403(a)(4)(B) of 
the Act. We believe that measuring performance over an entire fiscal 
year (or fiscal years, in the case of improvement measures) will help 
ensure that a State's performance score is not unfairly deflated or 
inflated because of seasonal or other fluctuations in employment 
patterns.
    In paragraph (b)(2), we explain that we will rank competing States 
on the measures for which they indicate they wish to compete and for 
which they submit the data specified in Sec. 270.6 within the 
timeframes specified in Sec. 270.11.
    In paragraph (b)(3), we propose to rank States on their absolute 
performance (for the measures in paragraphs (a)(1) and (a)(2) of this 
section) and on their performance improvement from the previous fiscal 
year (on the measures in paragraphs (a)(3) and (a)(4) of this section). 
We believe that awarding bonuses for both absolute and improved 
performance provides a way to ensure a more objective and fair 
competition, i.e., States starting from a lower baseline would have a 
reasonable chance of competing for the bonus awards.
    In addition, improvement measures serve as an added incentive to 
States to compete and excel. While it is conceivable that a State 
scoring high on an improvement measure might score very low on an 
absolute measure, we, nevertheless, believe that a State which is a 
high performer relative to its past performance should be rewarded 
accordingly. The overall benefit to the TANF recipients served and the 
contribution to the success of the overall TANF program outweigh any 
concerns that absolute and improvement scores might appear inconsistent 
to some observers. We have included a discussion of alternate ways to 
structure the high performance bonus award system and questions for 
public comment on the issue of an objective and fair competition in the 
subsequent preamble section.
    Paragraph (b)(3) also proposes that the scoring of the two measures 
(success in the work force rate and increase in success in the work 
force rate) will be a composite weighted score of the rank of the 
retention and earnings gain measures with the job retention rank having 
a weight of ``2.'' We believe earnings gain is dependent on job 
retention, and job retention is the more familiar measure with a more 
substantial history.
    In paragraph (b)(4), we propose how we will rank the States on the 
four work measures. Each State will be ranked from high to low with 
``1'' being the rank for the State with the highest score. We will 
assign a rank to each State not competing or submitting data for a 
measure which is the number following the last rank for States that 
properly submitted data for that measure on a timely basis and notified 
us of their interest in competing.
    In paragraph (b)(5), we propose that, if we identify more than ten 
States due to a tie in score for a measure, we will calculate the rate 
to as many decimal points as necessary to eliminate the tie. Since we 
are proposing that no more than ten States can receive a bonus award 
for each measure, we believe that this calculation is the fairest and 
least controversial procedure.
    For clarity, we propose in paragraph (c) a definition of 
Improvement Rate to mean the positive percentage change between the 
performance year and the comparison year for each measured rate (job 
entry, retention, earnings gain).
    We have included additional discussion on absolute performance, 
performance improvement, and other issues relating to performance 
measurement in the subsequent preamble section.
    We also raise the following questions for public consideration:
    1. Should we allow States to select the measures on which they wish 
to compete?
    2. Should we require all States to compete on certain ``core'' or 
``mandatory'' measures as a condition of receiving a bonus?
    3. If we require ``core'' measures, should we allow States to 
compete on other measures at their option?
    4. Should we base some measures on absolute performance and others 
on performance improvement as proposed in this part?
    5. Should we consider a longer employment period as the retention 
rate in future years, e.g., one year, 18 months?
    6. Should the definitions and/or specifications for these work 
measures be modified, e.g., to include fully subsidized work, minimum 
hours of earnings? (See also Sec. 270.6 for a discussion of the data 
that must be reported.)

Section 270.6  What Data for the Work Measures Must the State Report to 
Us?

    We have not included the option to submit sample data under these 
proposed rules. Sampling adds a significant level of complexity and 
raises data precision questions without significant cost savings.
    In paragraph (a), we propose that, if a State wishes to compete on 
any or all of the work measures in Sec. 270.5(a), it must report one of 
two alternative sets of data, as specified by the Secretary, either:
    (1) An unduplicated list of all adult recipients by name, social 
security number, and date of birth for each quarter of the semi-annual 
reporting period; adult recipients in fully subsidized employment must 
be included in the list but identified separately; or
    (2) Certain information based on a match between the State's adult 
recipient identification data and the Unemployment Insurance (UI) 
employment data, also for each quarter of the semi-annual reporting 
period. Adult recipients in fully subsidized employment must be 
excluded from this data match but must be included in the count of 
unemployed recipients.
    We are proposing these two different sets of data for several 
reasons. First, we wish to obtain public comment on the content and 
desirability of each alternative. Second, in relation to the first 
alternative, we are exploring the possibility of using the National 
Directory of New Hires (NDNH) on an ongoing basis. We would match the 
recipient identifying information in paragraph (a)(1), with the data in 
the NDNH to determine the State's scores for the work measures.
    The NDNH is one of two databases managed by the Federal Parent 
Locator Service (FPLS) in the Office of Child

[[Page 68215]]

Support Enforcement, ACF. The FPLS is a computerized network, 
established pursuant to section 453 of the Act, through which States 
may request and receive information to find noncustodial parents and/or 
their employers for purposes of establishing paternity and securing 
support. The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 required the Secretary to develop an 
expanded FPLS to improve States' ability to locate child support 
obligors, establish and enforce child support orders, and for other 
specified purposes in the Act.
    The expanded FPLS includes the NDNH, which was implemented on 
October 1, 1997, and a Federal Case Registry. The purpose of the NDNH 
is to develop a repository of information on newly-hired employees and 
on the earnings and unemployment compensation claims data of employees 
to enable States to quickly locate information on the address of, 
employment of, and unemployment compensation being paid to, parents 
with child support obligations who are residing or working in other 
States.
    This data reporting alternative would be our preference for several 
different reasons. We would envision using the State data in paragraph 
(a)(1) along with the NDNH data not only for purposes of determining 
eligibility for high performance bonus awards, but, more importantly, 
for research purposes. We believe these data will provide an 
unparalleled source of objective, national, and comparable data on the 
TANF program. We would be able to gain insight into such areas as 
national trends in job entry, employment retention and earnings, and 
the impact of State policy choices on employment outcomes. Additional 
research might provide information on the relationships between outcome 
levels (low employment, retention, and earnings gain) and economic 
conditions; the effects on employment and earnings when individuals 
reside in one geographic area and work in another; and the extent to 
which welfare recipients enter employment that is not covered by the UI 
system, such as Federal government employment.
    The NDNH also has the most comprehensive data on both Federal and 
State employment. As such, it would allow tracking of employment across 
State lines as well as identifying Federal government employment, 
something the UI system does not allow. We estimate that the NDNH would 
provide us with at least 90 percent of the job entries for TANF and 
former TANF recipients. It would also give us a single data source 
against which State performance would be measured. Bonus awards would 
not be dependent on the States' ability to obtain the information and 
would allow us more easily to measure performance and success as well 
as reduce the burden on States. Also, having specific recipient 
identifying information would permit the use of the data for a variety 
of additional research purposes.
    Since the availability of the NDNH data has not yet been 
determined, we are proposing an alternative data source in paragraph 
(a)(2), i.e., a State would submit data based on matches of its adult 
recipient data with its Unemployment Insurance (UI) employment data. 
This information would be submitted as follows to facilitate the 
calculation of the scores for each work measure:
    (i) The cumulative number of unduplicated adult recipients who, by 
the end of the quarter, were unemployed recipients at some point during 
the performance year. (Adult recipients in fully subsidized employment 
are considered unemployed and should be included in this count. This 
includes employed recipients, who in the same quarter, became 
unemployed and then entered new employment for the first time in the 
performance year.);
    (ii) The total number of unduplicated adult recipients employed at 
any time during the quarter;
    (iii) The total number of employed adult recipients in paragraph 
(a)(2)(ii) of this section who, as a recipient in each quarter, entered 
employment for the first time this performance year. (This includes 
employed recipients, who in the same quarter, became unemployed and 
then entered new employment for the first time in the performance 
year.);
    (iv) The total number of employed adult recipients in paragraph 
(a)(2)(ii) of this section who were also employed in the following 
quarter;
    (v) The total number of adult recipients in paragraph (a)(2)(ii) of 
this section who were also employed in the second following quarter;
    (vi) The total amount of earnings in the quarter of all employed 
adult recipients in paragraph (a)(2)(v) of this section; and
    (vii) The total amount of earnings in the second following quarter 
of all employed adult recipients in paragraph (a)(2)(v) of this 
section.
    We understand that some States might prefer this second alternate 
way of reporting data for various reasons, such as having an 
established working relationship with the UI agency, or because they do 
not want to submit the necessary identifying information on recipients 
for a match with the NDNH. However, we note that these data are already 
required by the TANF final rule. On the other hand, the State UI 
database has the same limitations as the NDNH database, plus it lacks 
information on Federal and out-of-State employment. Employment data for 
individuals living in one State and working in another are generally 
not available unless a special data matching agreement has been 
implemented.
    Nevertheless, some States may have developed procedures for 
overcoming these obstacles. In addition to comments on the use of these 
proposed data sources, we also invite comment on any other data sources 
for the work measures we might have overlooked or rejected. See the 
subsequent preamble section for additional discussion of data sources 
we considered but did not propose to use.
    You will note that, in paragraph (a)(1), we are proposing that when 
States report information on all adult recipients (TANF and SSP-MOE 
recipients), they must identify in their report to us those recipients 
in fully subsidized employment. Using this information from the State 
and the NDNH data, we will be able to calculate the State scores for 
the various work measures.
    In contrast, in paragraph (a)(2), we are proposing that the State 
exclude all adult TANF and SSP-MOE recipients in fully subsidized 
employment from their calculation before submitting their data to us. 
However, the State must include all recipients in fully subsidized 
employment in the count of unemployed recipients.
    Workfare programs, in the context of the TANF program, are 
generally considered to be work experience and community service 
programs; individuals participating in workfare programs are not 
considered as employed and are, therefore, used only in the denominator 
in the calculation of this bonus.
    We propose to clarify in paragraph (b) that the data required in 
paragraph (a) must be submitted for both adult TANF recipients and 
adult Separate State Program--Maintenance-of-Effort (SSP-MOE) 
recipients for whom the State would be required to complete Sections 
One and Three of the SSP-MOE Data Report.
    In paragraph (c), we cross-reference the requirement in 
Sec. 265.3(d) of this chapter (see the TANF final TANF rule published 
on April 12, 1999 (64 FR 17720) that, if a State wishes to receive a 
high performance bonus, it must file the information in Sections One 
and Three of the SSP-MOE Data Report. We

[[Page 68216]]

believe that in order to measure the full impact or success of the TANF 
program or the rate of improvement in the program in moving adult 
recipients toward self-sufficiency, it is essential that we know what 
adults are receiving assistance in the separate State program(s) and 
what is happening to them in the areas of job entry, job retention, and 
earnings.
    As we stated in the preamble to the TANF NPRM, published on 
November 20, 1997, and in the final rule, published on April 12, 1999, 
information on SSP-MOE programs is needed for several reasons including 
to ``help ensure that State decisions to establish such programs do not 
undermine the work provisions of the new law.'' Regarding the work 
measures, for example, a State could score well on a work measure by 
moving certain families, e.g., families with multiple employment 
barriers, to a separate State program where they receive no self-
sufficiency services. Because this State would then be able to work 
intensively with the easier to serve TANF recipients, it might receive 
a high score on a work performance measure(s). In reality, however, it 
would not be performing as well as a State which achieved a similar, or 
even a lower, score while serving all families in its TANF program.
    We will analyze the nature of benefits provided in the separate 
State programs as well as the information we receive from the SSP-MOE 
Data Report to assess how and whether to adjust a State's TANF 
performance data. If a State has been identified as having moved its 
hard-to-serve population to a separate State program, for example, we 
would adjust the State's high performance bonus score, if appropriate, 
or find the State ineligible for a bonus.
    We welcome comments on the criteria that should be used to 
determine whether such a transfer has occurred and whether any 
adjustment to State high performance bonus scores is appropriate. We 
also welcome comments on ways in which we might make additional use of 
these SSP-MOE data.
    In paragraph (d), we propose to require a State to inform us of the 
work measures on which it chooses to compete in that bonus year. It is 
important that a State provide this information so that we will know in 
advance how many States are competing in each of the measures in order 
to plan accordingly. We need to know the measures on which a State 
chooses to compete so that we can allocate the necessary time and 
resources to rank the States within a reasonable time frame that 
permits us to award the bonus funds as soon as possible and before the 
end of the bonus year.
    We raise the following questions for public consideration:
    1. Should the bonus awards in FY 2002 and beyond be based only on 
measures that use national or standardized data?
    2. Should we permit States to file sampled data for bonus awards 
and, if so, what would be the rationale and what sampling 
specifications should be used?

Section 270.7  What Data Will We Use To Measure Performance on the Non-
Work Measures?

    We have proposed to base two of the three non-work measures 
entirely on the data from the Census Bureau. We propose to use these 
data to measure State performance related to the measure on family 
formation and stability and the measure on participation by low-income 
working families in the Food Stamp program. The data for the third non-
work measure--participation in the Medicaid/CHIP program--will be 
provided by the States, based on a match between TANF data and Medicaid 
enrollment data.
    The Census Bureau's decennial and annual demographic programs will 
provide uniform objective and reliable State-level data. We have 
proposed to award bonuses in FY 2002 and beyond based on these data for 
CY 2000 and CY 2001. In addition, if a State wishes to receive a high 
performance bonus, it must report the data in Sections One and Three of 
the SSP-MOE Data Report. We welcome comments on alternate measures and 
data sources and on whether States should have the option to compete on 
these non-work measures.

Section 270.8  How Will We Allocate Bonus Award Funds?

    We propose in paragraph (a) of this section a funds allocation 
formula for FY 2002 and beyond. We considered a number of ways to 
design a high performance bonus award system. We rejected an approach 
that would have more strictly limited the number of awards, developed a 
formula to calculate a single numerical score for each State, or set 
performance or threshold levels, i.e., numerical scores which a State 
must exceed in order to receive a bonus.
    First, we believe that a major purpose of the bonus award is to 
offer an incentive to States to implement programs to meet the goals 
and purposes of the TANF program. Therefore, in order to encourage 
State participation, we propose to award bonuses to a reasonable number 
of States rather than just a few States. We believe that proposing to 
award bonuses to the 10 States with the highest scores in each measure 
constitutes a reasonable number, i.e., a number which is large enough 
to reward several States, but small enough so that the performance will 
reflect reasonably high performance and the amount of the bonus will be 
a clear incentive. We also believe that awarding bonuses to the ten 
States with the highest scores for each measure will help to avoid the 
problems associated with reallocation of funds, given the limitation in 
the statute on the amount of a State's total bonus award, i.e., five 
percent of the State's family assistance grant.
    Second, we believe an approach that consists of several measures, 
focused on different aspects of program success, and that rewards the 
top ten performers in each of these measures, is less complex and 
offers States more opportunity to demonstrate program success. Also, we 
did not want to set a numerical threshold based on absolute level of 
performance given the absence of baseline data.
    We solicit the public's view on whether this approach may be more 
appropriate in the early days of implementing the TANF program and 
whether a different design may be appropriate in later years.
    Specifically, in paragraph (a), we propose how we will divide $140 
million in FY 2002 and beyond among the four work measures. In general, 
we have based this allocation formula on what we believe are the 
relative importance and impact of each measure. We are proposing to 
give more weight to absolute measures than improvement measures because 
scores for absolute measures will generally reflect a higher outcome 
than the scores for improvement measures. In addition, we believe that 
job entry and increase in job entry should be given more weight than 
the other two measures, i.e., success in the work force and increase in 
success in the work force. The success in the work force measures 
clearly are dependent on job entry, i.e., a recipient must first get a 
job before achieving job retention or earnings gain.
    In paragraph (b), we propose to allocate $20 million to each of the 
three non-work measures, a total of $60 million or 30 percent of the 
$200 million to be awarded annually. We believe that the largest 
percentage of funds (70 percent or $140 million), however, should be 
designated for the work measures, given the importance of

[[Page 68217]]

work in the program. We welcome comments on and supporting rationale 
for alternative allocations of funds.
    In paragraph (c), we explain that we will distribute the dollars 
allocated to each measure based on each State's percentage of the total 
SFAG (State family assistance grant) of the ten States that will 
receive a bonus. We considered other methods of allocating the bonus 
funds, such as allocating the amount of the bonus based on a State's 
rank, but we concluded that the bonus award should be in proportion to 
the size of the State and perhaps the number of persons potentially 
affected. In that context, we also considered allocating funds based on 
the number of children in poverty in the State, but we were concerned 
that this allocation method might foster unintended consequences. 
Therefore, we have proposed an allocation formula based on the size of 
the TANF grant.
    We believe this to be a proportional and equitable way to allocate 
these funds, consistent with and a logical extension of section 
403(a)(4)(B)(ii) of the Act. (This section limits the total amount 
payable to a State in a bonus year to no more than five percent of the 
State's SFAG.) Under this method, both the amount of the State's award 
for each measure and the maximum overall amount payable to a State 
would be proportional to the SFAG.
    In the next section of the preamble, we include additional 
discussion related to measurement and allocation of funds. In light of 
that discussion and the provisions in this section, we raise the 
following questions for consideration:
    1. How should the funds be distributed to the high performing 
States?
    2. What criteria should we use to establish the distribution of 
funds among the various measures?
    3. Should we use the criterion ``the ten States with the highest 
score in each measure'' as a way of distributing funds?
    4. Should the percent of funds distributed between the absolute 
measures and the improvement measures be changed?
    5. If additional measures and data sources are recommended, what 
percentage of funds should they receive?
    6. How should we handle the situation where more than one State has 
the tenth highest score?
    7. Should we consider setting a numerical threshold for each 
measure that each State would need to exceed in order to be eligible 
for a bonus award on that measure?
    8. Should we consider other thresholds, such as not awarding a 
bonus to a State subject to a work participation penalty or other non-
compliance penalties?
    9. Should the amount of the bonus for each State be weighted by the 
State's ranking or score, in addition or as an alternative to the size 
of its State family assistance grant?

Section 270.9  How Will We Redistribute Funds If That Becomes 
Necessary?

    In this section, we propose a method to reallocate any 
undistributed amount of the annual $200 million high performance bonus 
funds. Full distribution might not occur, for example, if the funds 
cannot be awarded because of the limitation on the amount payable to a 
State for a bonus year to no more than 5 percent of a State's family 
assistance grant. This section clarifies what we will do if we cannot 
award the full $200 million.
    We propose two steps. We would first reallocate the remaining funds 
among the measures listed in Sec. 270.4. If any funds still cannot be 
distributed within the bonus year, they will remain available for 
distribution in the next bonus year.
    We raise the following questions for public consideration:
    1. How should we redistribute funds when a qualifying State cannot 
be awarded the full amount of the bonus because of the limitation of 
the bonus to no more that five percent of its TANF grant?
    2. How should we redistribute funds that cannot be distributed 
within a bonus year?

Section 270.10  How Will We Annually Review the Award Process?

    We have proposed in this section an annual review process, as 
needed, to address any future circumstances or events that we cannot 
predict but that we anticipate may occur and for which we will need to 
make modifications, adjustments, or technical changes to the high 
performance bonus specifications. We are still learning from State 
experience in competing for the first year bonus awards, including the 
process of gathering and reporting data in FY 1999 for State 
performance in FY 1998. Because the high performance bonus system is 
new for both the States and the Federal government, we think that it is 
critical to be able to continue to refine our award system based on 
what we learn from that award process.
    We also know that State TANF programs are changing and that the 
field of performance measurement continues to evolve. States and others 
are in the forefront of these activities, and we are learning from 
their experiences. We believe that taking these changes into account in 
making future awards will strengthen the process greatly. In addition, 
in anticipation of events occurring over which we have no control, we 
believe it is important that States know, to the extent possible before 
the measurement year, the measures, data sources, and other provisions 
on which we would base the bonus awards.
    We propose in Sec. 270.10 to allow for certain changes, 
modifications, and technical corrections. We would add new measures or 
make changes in the allocation formula only through regulations. We 
want to use this NPRM to determine if there is support for retaining 
some flexibility in order that we could take advantage of new 
developments, such as the emergence of new national data sources, to 
adjust to changes in external events such as lack of available data 
from the Census Bureau, or changes in the amount of funding available 
for bonus awards. We have proposed external consultation with 
interested parties as well as the criteria we would use to make these 
decisions. We welcome comments on the efficacy of this approach; we 
also welcome suggestions for the criteria under which such flexibility 
should be exercised.

Section 270.11  When Must the States Report the Adult Recipient Data 
and Other Information Related to Work Measures?

    In paragraph (a), we propose that each State must collect quarterly 
the data specified in Sec. 270.6(a) and (b) and report them semi-
annually (by February 28 and August 31 of the bonus year) for the 
performance year (and for the comparison year if the State is competing 
on a work improvement measure). We propose that States collect data 
quarterly so that any problems that might occur in data reporting can 
be addressed by the State early in the bonus year. However, we are 
proposing to require reporting only semi-annually to minimize 
administrative burden.
    We propose in paragraph (b) that each State must collect quarterly 
and submit the information in the SSP-MOE Data Report, as specified in 
Sec. 270.6(c), either:
     At the same time as it submits its quarterly TANF Data 
Report; or
     At the time it seeks to be considered for a high 
performance bonus as long as it submits the required data for the full 
period for which this determination will be made.

[[Page 68218]]

    These options for filing the SSP-MOE Data Report are the same as 
those contained Sec. 265.3(d) of this chapter.
    We are proposing in paragraph (c) to require that each State submit 
the list of work measures on which it is competing, as specified in 
Sec. 270.6(c), by February 28 of the bonus year. This date is the same 
as the date proposed in paragraph (b) for the submission of the first 
semi-annual data report. We believe that by this date States will have 
determined on which measures they wish to compete and consistency of 
reporting dates will benefit both States and ACF.

Section 270.12  Must States File the Data Electronically?

    In order to compete for a high performance bonus, we are proposing 
that each State must submit data electronically on the work measures 
and on the Medicaid/CHIP outcome measure to be included in the final 
rule. ACF will specify the reporting format and specifications for the 
work measures in program guidance after publication of a Paperwork 
Reduction Act (PRA) package. HCFA will also specify any specific 
reporting requirements.
    We are proposing electronic submission for several reasons. For 
each collection of information, OMB regulations at 5 CFR 1320.8 require 
Federal agencies to evaluate whether the burden on respondents can be 
reduced by use of automatic, electronic, mechanical, or other 
technological collection techniques. This Department has for many years 
encouraged programs and grantees to use such non-paperwork approaches 
to meet data collection requirements.
    With respect to the work measures, all States currently report the 
Emergency TANF Data Report in an electronic format that we have 
specified. In external consultation meetings, State representatives 
supported electronic submission of data reports. Therefore, we believe 
that electronic submission of the high performance bonus data will not 
be a burden on States, will reduce paperwork and administrative costs, 
be less expensive and time-consuming, and be more efficient for both 
States and the Federal Government.

Section 270.13  What do States Need To Know About the Use of Bonus 
Funds?

    In the context of the flexibility provided to States under the TANF 
program, we decline to specify how States must use bonus award funds. 
States have the same flexibility in the use of these funds that they 
have in the use of TANF block grant funds.
    We propose in paragraph (a) that a State must use the bonus award 
funds in accordance with two sections of the Act: Section 401 (Purpose) 
and section 404 (Use of Grants). We propose in paragraph (b) that the 
bonus funds are also subject to the statutory requirements and 
limitations in section 404 (Use of Grants) and section 408 
(Prohibitions; Requirements) of the Act. In paragraph (c), we propose 
that, if the State uses bonus funds to provide assistance as defined in 
Sec. 260.31 of this chapter, Sec. 263.11 of this chapter also applies.
    Grants made to a State under section 403 of the Act--whether TANF 
block grant funds, bonus award funds, or Welfare-to-Work grants--are 
subject to these limitations and requirements. For example, if a State 
uses bonus funds to provide assistance (as defined in Sec. 260.31 of 
this chapter), the prohibitions against providing assistance to certain 
individuals in section 408 will apply. If the State does not use bonus 
funds to provide such assistance, these prohibitions are not 
applicable.
    Finally, some of the general requirements in sections 404 and 408 
of the Act will apply regardless of how the States choose to use these 
funds. For example, the 15 percent limitation on the use of TANF grant 
funds for administrative purposes (section 404(b) of the Act) means 
that any bonus award funds will be added to the State's total amount of 
TANF funds and the administrative cost percentage will be computed 
based on the total.
    We propose in paragraph (d) to add, for clarity, the statutory 
provision that, for Puerto Rico, Guam, the Virgin Islands, and American 
Samoa, the bonus award funds are not subject to the mandatory ceilings 
on funding established in section 1108(c)(4) of the Act.

VI. Discussion of Other Issues Related to Performance Measurement

    In this section of the preamble, we discuss and raise questions 
concerning issues relating to absolute performance, performance 
improvement, threshold levels, and alternative ways to ensure an 
objective and fair competition. We also include a list of measures and 
data sources that we believe do not merit further consideration at this 
time, although we welcome comment on this conclusion.

A. Consideration of Issues Relating to Absolute Performance, 
Performance Improvement, and Threshold Levels

    It is easy to understand absolute performance; whoever receives the 
highest or best score is the winner. However, such measures can reward 
high performers without additional effort on their part, and it can 
also discourage low performers who would need to make extraordinary 
progress in order to compete.
    Measuring improvement, on the other hand, allows a wider range of 
States to compete successfully and encourages low performers to invest 
in greater efforts. It also recognizes that States work in different 
environments and that success needs to be measured in more than one 
way. However, use of such measures could allow a low performer to 
register a significant improvement while still remaining a low 
performer. It might also be difficult for a high performing State to 
compete successfully over time because it would need to continue to 
sustain high levels of improvement or even to maintain the same level 
of performance year to year.
    Because these bonuses are intended for ``high performing'' States, 
we decided it would be appropriate to set some levels of performance. 
We had several options available in establishing these levels. We have 
proposed the threshold level as the ``top ten States'' competing in 
each measure. Another option would be to establish a numerical score 
which could be absolute, e.g., 75 percent or another score which a 
State would need to meet or exceed in order to be eligible to receive a 
bonus in a certain category, or a score tied to self-sufficiency such 
as one related to above poverty-level wages. A third option was to 
establish individually negotiated targets with each State. This last 
option provides the greatest flexibility to States in setting 
performance outcomes and competing for bonuses. However, it could be 
perceived as inconsistent with statutory intent and with the public's 
understanding of high performance. It would also entail a greater 
workload for States and the Department. A final option would be to 
raise the score each year, e.g., a 75 percent score must be achieved in 
FY 2002, an 80 percent score in FY 2003.

B. Consideration of Alternate Ways To Structure the High Performance 
Bonus To Ensure an Objective and Fair Competition: The Impact of 
External Factors

    We believe that competition for the high performance bonus should 
primarily reflect a State's welfare and work strategies and should be a 
competition among States that is objective and fair. We can achieve 
this goal, to some extent, in our use of common measures and uniform, 
reliable

[[Page 68219]]

data sources, allowing for measures of both absolute and improved 
performance. However, there are factors over which the State has little 
control, such as the health of the State's economy, the demographics of 
its TANF caseload and its resident population, and State population 
growth. As a result, many individuals would like us to incorporate some 
adjustments for these external factors. However, the inclusion of 
multiple adjustment factors in some type of weighting scheme poses 
serious methodological problems. Such a scheme might create a more 
equitable starting point, but it could also lead to misunderstandings, 
challenges, and contentious debates.
    In light of this discussion, we raise the following questions:
    1. Should we attempt to develop adjustment factors in order to 
ensure an objective and fair competition?
    2. If so, what adjustment factors should we consider and how should 
they be used?
    3. Should we consider the use of the State's employment rate or 
changes in State caseloads as adjustment factors?

C. Other Measures and Data Sources Considered

    We considered and evaluated a wide range of possible measures and 
data sources in developing this NPRM. As noted earlier in our 
discussion of Sec. 270.4, one of the factors we were particularly aware 
of was the issue of diversity among States and how that diversity might 
impact the design and implementation of the high performance bonus 
award system. For example, under AFDC, each State defined its standard 
of need for assistance, set its own benefit levels, and established 
(within Federal limitations) income and resource limits. As a result, 
there were sizeable differences from State to State in the definitions 
used in these programs, in the level of assistance families received, 
and in the types of families served. Waivers from Federal requirements 
used by some States to test the effect of changes in certain rules 
increased these differences. The table below illustrates the range in 
State AFDC caseload sizes, case characteristics, benefit levels, 
employment levels, and program costs for fiscal year 1996.

------------------------------------------------------------------------
                                                       Range
                Category                 -------------------------------
                                              Lowest          Highest
------------------------------------------------------------------------
Number of families......................           4,700         896,000
Number of adults........................           3,700         821,000
Number of Children......................           9,100       1,805,000
Percent of families headed by one adult.            57.0            83.8
Percent of families headed by two (or                0.4            18.5
 more) adults...........................
Percent of families headed by no adult               7.6            38.5
 recipient**............................
Average monthly benefit per family......            $118            $731
Average monthly benefit per recipient...             $44            $247
Percent of recipient adults (male and               1.1%           27.3%
 female) with employment (full or part-
 time)..................................
Average monthly earnings of families                $127            $505
 with earnings..........................
Average monthly administrative expenses              $13            $128
 per family.............................
Average monthly administrative expenses               $5            $49
 per recipient..........................
------------------------------------------------------------------------
** ``No adult recipient'' means that the children are living with
  parents or adult caretakers who are not receiving AFDC due to a wide
  variety of reasons.

    Since States now have even greater flexibility in designing their 
TANF programs, we believe this diversity across States will continue to 
grow. We noted some examples of these differences in a review of State 
TANF plans:
    (1) Although assistance under the TANF statute is limited to 5 
years, only 25 States have a five year limit;
    (2) About half the States plan not to provide extra payments to 
families that have an additional child while on welfare (sometimes 
called a ``family cap''); and
    (3) Thirty States operate or allow counties to operate ``up-front'' 
diversion programs. These generally involve a one-time cash payment to 
meet immediate needs.
    Because of these differences, as we evaluated performance measures 
related to work, we chose not to include measures that were based 
solely on receipt of cash benefits or type of benefits. We believe such 
measures could have serious unintended effects. Instead, we focused on 
work measures which would gauge work and self-sufficiency performance. 
We discussed our rationale for this choice earlier in the preamble.
    We also considered using a number of national data sources, 
including:
    1. The Current Population Survey (CPS).--The CPS contains detailed 
questions related to labor force participation (e.g., employment/
unemployment status; hours and weeks worked throughout the past year; 
and reasons for non-participation, joblessness, and part-year/part-time 
employment) as well as questions on whether an individual/family/
household received public assistance. We seriously considered using 
this database. However, the CPS has a limited data set and most 
importantly, a small sample size. Because of the sample size, State 
figures may vary widely which would restrict its usefulness for 
awarding the high performance bonus.
    2. In addition to the CPS, the data sources listed below were also 
found to have various limitations including inconsistent definitions, 
non-comparability across States, tangential relevance, and different 
sample populations. These databases included:

Food Stamp Quality Control Data
Internal Revenue Service Data
(PSID) Panel Study of Income Dynamics
(SIPP) The Survey of Income and Program Participation
(NLSY) National Longitudinal Survey of Youth
(NSFG) National Survey of Family Growth
(YRBSS) Youth Risk Behavior Surveillance System
(NCHS) National Center on Health Statistics
(UI) Unemployment Insurance
State administrative data

    Below is a summary list of the major performance measures and data 
sources we considered but did not propose at this time for various 
reasons, including a lack of uniform national data availability, 
variation in definitions among States, and measures beyond the scope of 
the bonus.
    Other Measures and Data Sources Considered:

[[Page 68220]]



------------------------------------------------------------------------
                Variable                              Source
------------------------------------------------------------------------
Percent of caseload entering employment  CPS.
 without a high school diploma.
Percent of long-term caseload entering   State administrative data.
 employment.
Work participation rate................  State administrative data.
Percent of cases that reach time limit   State administrative data.
 without job.
Percent of TANF teens attending school   State administrative data.
 or working.
Percent of TANF teens not attending      State administrative data.
 school and not working.
Number of out-of-wedlock births........  State administrative data;
                                          NCHS.
Recidivism rate........................  No data source identified.
Average length of stay on assistance...  State administrative data.
Cases with transitional benefits.......  State administrative data.
Receipt of TANF benefit................  State administrative data
Number of applicants diverted from the   No data source identified.
 TANF cash assistance program.
Reduction in dependence................  State administrative data.
Increase in number of persons in         Department of Labor data.
 training/non-traditional employment
 under Welfare-to-Work program.
Percent of children living in            CPS.
 households with no adult male ages 21
 and over.
Educational attainment.................  CPS.
Improvement in immunization............  No data source identified.
Proportion of recipients who receive     No data source identified.
 domestic violence services.
Percent of current/former recipients     State administrative data.
 receiving subsidized child care.
Quality child care.....................  No data source identified.
Percent of caseload with paternity       State administrative data.
 established.
Number of TANF families that have both   State administrative data.
 earned income and child support paid.
Percent of caseload married............  State administrative data.
Percent of caseload leaving welfare for  State administrative data.
 marriage.
Administrative cost per work placement.  State administrative data.
Marriage/Divorce rates statewide.......  Vital statistics.
Number of children entering foster care  Adoption and Foster Care
                                          Analysis and Reporting System
                                          (AFCARS).
Percent of children in poverty.........  Census Bureau data.
Services to the harder to serve          No data source identified.
 population.
------------------------------------------------------------------------

    We welcome comments on any of the measures or data sources we 
considered but rejected.

VII. Regulatory Impact Analyses

A. Executive Order 12866

    Executive Order 12866 requires that regulations be drafted 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. This 
proposed rulemaking implements statutory authority based on broad 
consultation and coordination.
    The Executive Order encourages agencies, as appropriate, to provide 
the public with meaningful participation in the regulatory process. 
Section 403(a)(4) of the Act also requires the Department to consult 
with the National Governors' Association and the American Public Human 
Services Association in the development of a system for awarding high 
performance bonuses. As described elsewhere in the preamble, ACF 
consulted extensively with State and local officials and their 
representative organizations as well as a broad range of advocacy 
groups, researchers, and others to obtain their views. These proposed 
rules reflect the discussions with and the concerns of the groups with 
whom we consulted.
    This rule is a significant regulatory action that will have an 
annual effect on the economy of $100 million or more, according to 
section 3(F)(1) of the Executive Order. This rule will determine how 
$200 million will be awarded to high performing States to be used to 
benefit the recipients of State TANF programs and will have the 
additional effect of improving States' efforts in implementing welfare 
reform. High performing States could see their State family assistance 
grants increase by as much as five percent. We believe the cost of 
competing for a high performance bonus award should be minimal since 
competition for these awards will be based, to the extent possible, on 
existing data sources.

B. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. Ch. 6) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. 
Small entities are defined in the Act to include small businesses, 
small non-profit organizations, and small governmental entities. This 
rule will affect only the 50 States, the District of Columbia, and 
certain territories. Therefore, the Secretary certifies that this rule 
will not have a significant impact on small entities.

C. Assessment of the Impact on Family Well-Being

    We certify that we have made an assessment of this rule's impact on 
the well-being of families, as required under section 654 of the 
Treasury and General Appropriations Act of 1999. The high performance 
bonus awards proposed in this NPRM are a component part of the TANF 
program and are designed to reward State efforts in strengthening the 
economic and social stability of families and carrying out other 
purposes in the statute. The NPRM does not limit State flexibility to 
design programs to serve these purposes.

D. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), no persons are 
required to respond to a collection of information unless it displays a 
valid OMB control number. As required by this Act, we have submitted 
the proposed data collection requirements to OMB for review and 
approval. We are concurrently using this NPRM as a vehicle for seeking 
comment from the public on these and any additional

[[Page 68221]]

information collection activities that they believe should be added as 
a part of the bonus award process.
    This NPRM proposes to award bonuses, in FY 2002 and beyond, based 
on four work measures and three non-work measures. No reporting burden 
would fall on the States for two of the non-work measures for which we 
will use Census Bureau decennial and annual demographic program data as 
the data source, i.e., food stamp participation measure and measure on 
family formation and stability. To measure Medicaid/CHIP participation, 
States must match TANF data with Medicaid/CHIP enrollment data, using 
the information from HCFA's MSIS system and the HCFA Form 21-E.
    We have computed the burden based only on the work measures and the 
measure of Medicaid/CHIP participation specified in Sec. 270.4. If 
additional measures are added or additional reporting is required in 
the final rule, we will solicit comments on the increased burden of 
reporting through a Paperwork Reduction Act Notice.
Burden Estimate for the Work Measures
    The NPRM proposes two alternative reporting mechanisms for the work 
measures, i.e., either the information specified in Sec. 270.(6)(a)(1) 
or the data specified in Sec. 270.6(a)(2). After a consideration of 
public comments, the Secretary's decision will be reflected in the 
final rule. Under both alternatives, the State must collect information 
quarterly and report it semi-annually for both the adult TANF 
recipients and the adult SSP-MOE recipients for whom the State reports 
data in the SSP-MOE Data Report.
    If the State wishes to receive a high performance bonus, it must 
report the data in Sections One and Three of the SSP-MOE Data Report as 
required in Sec. 265.3(d) of this chapter. (The burden for this 
reporting requirement was previously estimated in the TANF final rule, 
published April 12, 1999 (64 FR 17720).) We will specify the reporting 
format for these proposed requirements.
    We estimate the burden for the first reporting alternative in 
Sec. 270.6(a)(1) as 1,728 hours, based on the requirement that States 
report the name, birth date, and social security number of all adult 
TANF and SSP-MOE recipients and identify those in fully subsidized 
employment. Our estimate of the burden is as follows: 16 hours per 
response, times 54 respondents, times two (semi-annual reporting).
    Because the four work measures proposed in this NPRM are 
substantially the same as the work measures on which we will award 
bonuses in FY 1999 and FY 2000, we estimate the burden for the second 
reporting alternative in Sec. 270.6(a)(2) to be the same as the current 
number in the OMB PRA Inventory of 8,640 hours. This current number 
represents the annual burden estimate of collecting data from 54 
respondents, responding quarterly, at 40 hours per response. (See ACF-
Form 200, OMB No. 0970-0180.) The actual burden may be less since we 
are proposing to require that States submit quarterly data twice a 
year. On the other hand, the burden may be the same because the primary 
burden is the quarterly collection of the data rather than the semi-
annual reporting of the data.
    We estimate the total burden of the two reporting alternatives is 
10,368 hours (1,728 plus 8,640). We realize that this number is an 
over-estimate, reflecting the total burden of two proposed alternatives 
in the NPRM, only one of which will be included in the final rule.
    We believe the burden of reporting the information on work measures 
will be minimal, particularly if we are able to use the NDNH. In 
addition, States already have experience in extracting case/individual 
identifying information from their electronic data bases for matching 
purposes, including the Income and Eligibility Verification System 
(IEVS) matches required by statute.
Burden Estimate for the Measures on Medicaid/CHIP Participation
    The Medicaid/CHIP performance measure at Sec. 270.4(d) consists of 
qualifying conditions and an outcome measure. The qualifying conditions 
will be evaluated by HCFA based on State documentation and HCFA 
oversight of the Medicaid/CHIP programs. There is no new burden 
associated with these process measures.
    The outcome measure in Sec. 270.4(d)(4) is based on quarterly 
reporting of the data from a match of TANF data and Medicaid enrollment 
data. Because this activity is similar to State activity in matching 
TANF data and UI data (see Sec. 270.6(a)(2)), we estimate that the 
burden will be approximately the same, i.e., 8,640 hours, excluding 
start-up costs. We understand that some States may not have social 
security numbers for CHIP recipients. In that instance, there may be an 
additional burden.
    The total annual burden estimate includes the development of a one-
time extraction program (based on our specifications), computer run-
time to execute the program, the creation of an extract data file, and 
transmitting the information.
    We estimate that the 50 States, the District of Columbia, Guam, 
Puerto Rico, and the United States Virgin Islands will be respondents. 
(Currently, American Samoa has not applied to implement the TANF 
program.)
    The annual burden estimate for this data collection is:

----------------------------------------------------------------------------------------------------------------
                                                                            Number of     Average
                                                               Number of    responses      burden       Total
                  Instrument or requirement                   respondents      per       hours per      burden
                                                                            respondent    response      hours
----------------------------------------------------------------------------------------------------------------
High Performance Bonus Report: WORK MEASURES (total of two             54            2           96       10,368
 alternative................................................
measures)...................................................
High Performance Bonus Report: MEDICAID/CHIP MEASURE........           54            4           40        8,640
                                                                                                    ------------
    Estimated Total Annual Burden Hours.....................                                              19,008
----------------------------------------------------------------------------------------------------------------

    We encourage States, organizations, individuals, and other parties 
to submit comments regarding the information collection requirements to 
the Administration for Children and Families, Office of Information 
Services, Office of Information Resource Management Services, 370 
L'Enfant Promenade SW., Washington, DC 20447, Attention: Reports 
Clearance Officer.
    To ensure that public comments have maximum effect in developing 
the final regulations and the data collection instrument, we urge that 
each comment clearly identify the specific section or sections of the 
proposed rule or Appendices.
    We will consider comments by the public on these proposed 
collections of information in:

[[Page 68222]]

     Evaluating whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical utility;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections of information, including the validity of the 
methodology and assumptions used, and the frequency of collection;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technology, e.g., the 
electronic submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed rules between 30 and 60 days 
after publication of this document in the Federal Register. Therefore, 
a comment is assured of having its full effect if OMB receives it 
within 30 days of publication. This OMB review schedule does not affect 
the deadline for the public to comment to ACF on the proposed rules. 
Written comments to OMB for the proposed information collection should 
be sent directly to the following: Office of Management and Budget, 
Office of Information and Regulatory Affairs, Room 3208 New Executive 
Office Building, 725 17th Street, NW, Washington, DC 20503, Attention: 
Desk Officer for ACF.

E. Unfunded Mandates Reform Act of 1995

    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.

F. Congressional Review

    This proposed rule is a major rule as defined in 5 U.S.C., Chapter 
8.

List of Subjects in 45 CFR Part 270

    Grant Programs (Social Programs); Public Assistance Programs 
(Welfare Programs); Recordkeeping and Reporting Requirements.

(Catalogue of Federal Domestic Assistance Programs: No. 93.558 
Temporary Assistance for Needy Families (TANF) Program; State Family 
Assistance Grants; Tribal Family Assistance Grants; Assistance 
Grants to Territories; Matching Grants to Territories; Supplemental 
Grants for Population Increases; Contingency Fund; High Performance 
Bonus; Decrease in Illegitimacy Bonus)

    Dated: November 17, 1999.
Olivia A. Golden,
Assistant Secretary for Children and Families.
    Approved: November 19, 1999.
Donna E. Shalala,
Secretary, Department of Health and Human Services.
    For the reasons set forth in the preamble, we propose to amend 45 
CFR chapter II by adding part 270 to read as follows:

PART 270--HIGH PERFORMANCE BONUS AWARDS

Sec.
270.1  What does this part cover?
270.2  What definitions apply to this part?
270.3  What is the annual maximum amount we will award and the 
maximum amount that a State can receive each year?
270.4  On what measures will we base the bonus awards?
270.5  What factors will we use to determine a State's score on the 
work measures?
270.6  What data for the work measures must a State report to us?
270.7  What data will we use to measure performance on the non-work 
measures?
270.8  How will we allocate the bonus award funds?
270.9  How will we redistribute funds if that becomes necessary?
270.10  How will we annually review the award process?
270.11  When must the States report the adult recipient data and 
other information related to the work measures?
270.12  Must States file the data electronically?
270.13  What do States need to know about the use of bonus funds?

    Authority: 42 U.S.C. 603(a)(4)


Sec. 270.1  What does this part cover?

    This part covers the regulatory provisions relating to the bonus to 
reward high performing States in the TANF program, as authorized in 
section 403(a)(4) of the Social Security Act.


Sec. 270.2  What definitions apply to this part?

    The following definitions apply under this part:
    Act means the Social Security Act, as amended.
    Bonus year means each of the fiscal years 2002 and 2003 in which 
TANF bonus funds are awarded, and any subsequent fiscal year for which 
Congress authorizes and appropriates bonus funds.
    CHIP is the Children's Health Insurance Program as described in 
title XXI of the Social Security Act.
    Comparison year means the fiscal year preceding the performance 
year.
    Fiscal year means the 12-month period beginning on October 1 of the 
preceding calendar year and ending on September 30.
    Food Stamp Program means the program administered by the United 
States Department of Agriculture pursuant to the Food Stamp Act of 
1977, U.S.C. 2011 et.seq.
    HCFA is the Health Care Financing Administration.
    Medicaid is a State program of medical assistance operated in 
accordance with a State plan under title XIX of the Act.
    MSIS is the Medicaid Statistical Information System.
    Performance year means the fiscal year in which a State's 
performance is measured, i.e., the fiscal year immediately preceding 
the bonus year.
    Separate State program (SSP) means a program operated outside of 
TANF in which the expenditure of State funds may count for TANF 
maintenance-of-effort (MOE) purposes.
    SSP-MOE Data Report is the report containing disaggregated and 
aggregated data required to be filed on SSP-MOE recipients in separate 
State programs as specified in Sec. 265.3(d).
    State means each of the 50 States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, the United 
States Virgin Islands, Guam, and American Samoa.
    TANF means The Temporary Assistance for Needy Families Program.
    We (and any other first person plural pronouns) means the Secretary 
of Health and Human Services or any of the following individuals or 
organizations acting in an official capacity on the Secretary's behalf: 
The

[[Page 68223]]

Assistant Secretary for Children and Families, the Department of Health 
and Human Services, and the Administration for Children and Families.


Sec. 270.3  What is the annual maximum amount we will award and the 
maximum amount that a State can receive each year?

    (a) Except as provided in Sec. 270.9, we will award $200 million in 
bonus funds annually, subject to Congressional authorization and the 
availability of the appropriation.
    (b) The amount payable to a State in a bonus year may not exceed 
five percent of a State's family assistance grant.


Sec. 270.4  On what measures will we base the bonus awards?

    (a) Performance measures: General. We will base the high 
performance bonus awards on four work measures; one measure of family 
formation and family stability; and two measures that support work and 
self-sufficiency, i.e., participation by low-income working families in 
the Food Stamp Program and participation in the Medicaid and CHIP 
programs.
    (b) Work Measures.
    (1) Beginning in FY 2002, we will measure State performance on the 
following work measures:
    (i) Job entry rate;
    (ii) Success in the work force rate;
    (iii) Increase in the job entry rate; and
    (iv) Increase in success in the work force rate.
    (2) For any given year, we will score and rank competing States and 
award bonuses to the ten States with the highest scores in each work 
measure.
    (3) Each State has the option to compete on one, any number of, or 
none of the work measures specified in this paragraph.
    (c) Measure of participation by low-income working families in the 
Food Stamp Program--(1) Qualifying conditions. In order to compete on 
the Food Stamp outcome measure in paragraph (c)(2) of this section, 
States must meet all the following qualifying conditions. The Food and 
Nutrition Service of the U.S. Department of Agriculture will determine 
whether a State is meeting these conditions through its ongoing 
oversight of the Food Stamp Program.
    (i) The State agency has issued policy instructions or regulations 
clearly specifying that, at first contact with the State agency which 
administers the Food Stamp Program, individuals must be informed of the 
opportunity to apply for food stamps in accordance with 7 CFR 
273.2(c)(1).
    (ii) The State agency has issued policy instructions or regulations 
clearly specifying that application forms are to be readily accessible 
and available upon request, in accordance with 7 CFR 273.2(c)(3).
    (iii) As evidenced through policy instructions, regulations, and 
administrative reviews, the State agency is complying with application 
processing time frames and expedited service rules, as required by 7 
CFR 273.2(g).
    (iv) As evidenced through policy instructions, regulations, and 
administrative reviews, the State agency has taken steps to prevent 
inappropriate denials and terminations of eligible food stamp 
participants who have lost TANF eligibility. Since food stamp 
eligibility is not based on TANF eligibility, States may not deny food 
stamp eligibility to a family or a family member simply because the 
family is ineligible for TANF.
    (2) Outcome measure. (i) Beginning in FY 2002, we will measure the 
improvement in the number of low-income working families (i.e., 
families with children under age 18 who have an income less than 130 
percent of poverty and earnings equal to at least half-time, full-year 
minimum wage) receiving food stamps as a percentage of the number of 
low-income working families (as defined in this subparagraph) in the 
State.
    (ii) For any given year, we will compare a State's performance on 
this measure to its performance in the previous year, beginning with a 
comparison of CY 2000 to CY 2001, based on Census Bureau decennial and 
annual demographic program data.
    (iii) We will rank all States that meet the conditions in paragraph 
(c)(1) of this section and will award bonuses to the 10 States with the 
greatest percentage improvement in this measure.
    (d) Measure of participation by low-income families in the 
Medicaid/CHIP Programs--(1) Qualifying conditions. In order to compete 
on the Medicaid/Children's Health Insurance Program (CHIP) outcome 
measure in paragraph (d)(3) of this section, a State must meet all of 
the following qualifying conditions:
    (i) The State has issued policy instructions or regulations clearly 
specifying that, at first contact with the TANF agency, an individual 
must be given the opportunity to apply for Medicaid in accordance with 
42 CFR 435.906;
    (ii) When eligibility under section 1931 of the Act is lost due to 
hours of, or earnings from, employment or loss of the time-limited 
earning disregards, the State issues to the affected family a written 
notice that meets the requirements of section 1925(a)(2)(A) of the Act, 
and a card or other evidence of the family's entitlement to assistance, 
as required under section 1925(a)(2)(B) of the Act;
    (iii) The State has issued policy instructions or regulations 
clearly specifying that family members may not be terminated from 
Medicaid until it has been determined that they are not eligible under 
any other Medicaid group; and
    (iv) The State has fulfilled all data requirements under the law, 
including being up to date on all Medicaid and CHIP data submissions 
and having the MSIS system on-line and operating properly.
    (2) Qualifying options. In addition, in order to compete on the 
outcome measure in paragraph (d)(3) of this section, the State must 
have implemented at least two of the following qualifying State 
options:
    (i) The State accepts mail-in or phone-in applications for Medicaid 
for families and children which can be completed without a face-to-face 
interview;
    (ii) State Medicaid workers have been outstationed at locations in 
addition to the locations required under 42 CFR 435.904 (c)(1) and 
(c)(2);
    (iii) The State has expanded Medicaid eligibility for recipient and 
applicant families through the use of less restrictive methodologies, 
authorized by section 1931(b)(2) (B) and (C) of the Act;
    (iv) The State uses a definition of ``unemployed parent'' that 
includes parents who are employed more than 100 hours per month, as 
authorized under 45 CFR 233.101 and section 1931(d) of the Act;
    (v) The State provides continuous Medicaid eligibility for children 
for a period of time without regard to changes in circumstances, as 
authorized by section 1902(e)(12) of the Act;
    (vi) The State provides a period of presumptive Medicaid 
eligibility for children, as authorized by section 1920A of the Act; or
    (vii) The State has simplified the enrollment and reenrollment 
processes for children and low-income families by implementing such 
improvements as shortened application forms.
    (3) Outcome Measure. (i) Beginning in FY 2002, we will measure the 
improvement in the percentage of individuals receiving TANF benefits 
who are also enrolled in Medicaid or CHIP, who leave TANF in a calendar 
year and are enrolled in Medicaid or CHIP in the sixth month after 
leaving TANF assistance (and are not receiving TANF assistance in the 
sixth month).

[[Page 68224]]

    (ii) For any given year, we will compare a State's performance on 
this measure to its performance in the previous year, beginning with a 
comparison of CY 2000 to CY 2001, based on a quarterly submission by 
the State of the above percentage as determined by matching individuals 
(adults and children) who have left TANF assistance and are not 
receiving it in the sixth month with Medicaid/CHIP enrollment data.
    (iii) We will rank the performance on this measure of all States 
that meet the conditions in paragraphs (d)(1) and (d)(2) of this 
section and will award bonuses to the 10 States with the greatest 
percentage improvement in this measure.
    (e) Measure of family formation and stability. (1) Beginning in FY 
2002, we will measure the increase in the percent of children below 200 
percent of poverty in each State who reside in married couple families, 
beginning with a comparison of data between CY 2000 and CY 2001, based 
on Census Bureau decennial and annual demographic program data. For any 
given subsequent year, we will compare a State's performance on this 
measure to its performance in the previous year.
    (2) We will rank all States and will award bonuses to the ten 
States with the greatest percentage improvement in this measure.


Sec. 270.5  What factors will we use to determine a State's score on 
the work measures?

    (a) Definitions. The work measures are defined as follows:
    (1) The Job Entry Rate means the unduplicated number of adult 
recipients who entered not fully subsidized employment for the first 
time in the performance year (job entries) as a percent of the total 
unduplicated number of adult recipients unemployed at some point in the 
performance year. Adult recipients in fully subsidized employment are 
not included in the numerator but are included in the denominator.
    (2) The Success in the Work Force Rate is composed of two 
submeasures defined as follows:
    (i) The Job Retention Rate means the performance year sum of the 
unduplicated number of employed adult recipients in each quarter one 
through four who were also employed in the first and second subsequent 
quarters, as a percent of the sum of the unduplicated number of 
employed adult recipients in each quarter. (At some point, the adult 
might become a former recipient.) Adult recipients in fully subsidized 
employment are not included in either the numerator or the denominator; 
and
    (ii) The Earnings Gain Rate means the performance year sum of the 
gain in earnings between the initial and second subsequent quarter in 
each of quarters one through four for adult recipients employed in both 
these quarters as a percent of the sum of their initial earnings in 
each of quarters one through four. (At some point, the adult might 
become a former recipient.) Earnings gains of adult recipients in fully 
subsidized employment are not included in either the numerator or the 
denominator.
    (3) The Increase in the Job Entry Rate means the positive 
difference between the performance year job entry rate and the 
comparison year job entry rate as a percentage of the comparison year 
job entry rate; and
    (4) The Increase in Success in the Work Force Rate means the 
positive difference between the performance year success in the work 
force rate and the comparison year success in the work force rate as a 
percent of the comparison year success in the work force rate. It is 
composed of two submeasures defined as follows:
    (i) The Increase in the Job Retention Rate means the positive 
difference between the performance year job retention rate and the 
comparison year job retention rate as a percent of the comparison year 
job retention rate; and
    (ii) The Increase in the Earning Gain Rate means the positive 
difference between the performance year earnings gain rate and the 
comparison year earnings gain rate as a percent of the comparison year 
earnings gain rate.
    (b) Ranking of States. (1) We will measure State performance in the 
work measures over the course of an entire fiscal year both for the 
performance year and the comparison year, if applicable.
    (2) We will rank the competing states on the work measures for 
which they:
    (i) Indicate they wish to compete; and
    (ii) Submit the data specified in Sec. 270.6 within the timeframes 
specified in Sec. 270.11.
    (3) We will rank the States on absolute performance in the case of 
the two work measures in paragraphs (a)(1) and (a)(2) of this section. 
For the two work measures in paragraphs (a)(3) and (a)(4) of this 
section, we will rank States based on the percentage increase in their 
improvement rate in the performance year compared to the comparison 
year. The rank of the performance in paragraphs (a)(2) and (a)(4) of 
this section will be a composite weighted score of the rank of the 
retention and the earnings gain measures with the job retention rank 
having a weight of two.
    (4) The rates for States submitting data for each work measure in 
this section will be ranked from high to low, with ``1'' being the rank 
for the State with the highest score. We will assign to each State not 
competing or submitting data for a work measure a rank that is the 
number following the last rank for States that properly submitted data 
on a timely basis and notified us of their interest in competing.
    (5) We will calculate the percentage rate for each work measure to 
two decimal points. If we identify more than ten States due to a tie in 
the rate for a specific work measure, we will calculate the rate to as 
many decimal points as necessary to eliminate the tie.
    (c) The Improvement Rate. The Improvement Rate means the positive 
percentage change between the performance year and the comparison year 
for each measured rate (job entry, retention, earnings gain).


Sec. 270.6  What data for the work measures must a State report to us?

    (a) If a State wishes to compete on any of the work measures 
specified in Sec. 270.5(a), it must report one of the following 
alternative sets of data, as specified by the Secretary. The State must 
collect quarterly and report semi-annually for the performance year 
and, if the State chooses to compete on an improvement measure, the 
comparison year, either:
    (1) An unduplicated list of all adult recipients by name, social 
security number, and date of birth for each quarter; adult recipients 
in fully subsidized employment must be included in this list but 
identified separately; or
    (2) Based on a match between the State's adult recipient 
identification data and the Unemployment Insurance employment data, the 
following information:
    (i) The cumulative number of unduplicated adult recipients who, by 
the end of each quarter, were unemployed recipients at some point 
during the performance year. (Adult recipients in fully subsidized 
employment must be excluded from this data match but must be included 
in the count of unemployed recipients; employed adult recipients who 
became unemployed and entered new employment for the first time in the 
same quarter must also be included.);
    (ii) The total number of unduplicated adult recipients employed at 
any time during the quarter;

[[Page 68225]]

    (iii) The total number of employed adult recipients in paragraph 
(a)(2)(ii) of this section who, as a recipient in each quarter, entered 
employment for the first time this performance year;
    (iv) The total number of employed adult recipients in paragraph 
(a)(2)(ii) of this section who were also employed in the following 
quarter;
    (v) The total number of adult recipients in paragraph (a)(2)(ii) of 
this section who were also employed in the second following quarter;
    (vi) The total amount of earnings in each quarter of all employed 
adult recipients in paragraph (a)(2)(v) of this section; and
    (vii) The total amount of earnings in the second following quarter 
of all employed adult recipients in paragraph (a)(2)(v) of this 
section.
    (b) Each State must submit the information in paragraph (a) of this 
section for both adult TANF recipients and adult SSP-MOE recipients for 
whom the State would report the data described in paragraph (c) of this 
section.
    (c) Each State must file the information in Sections One and Three 
of the SSP-MOE Data Report as specified in Sec. 265.3(d) of this 
chapter.
    (d) Each State must specify to ACF the measures on which it is 
competing in each bonus year.


Sec. 270.7  What data will we use to measure performance on the non-
work measures?

    (a) We will use data from the Census Bureau's decennial and annual 
demographic programs to rank State performance on the measure of family 
formation and stability and the Food Stamp outcome measure.
    (b) We will measure State performance on the Medicaid/CHIP outcome 
measure based on quarterly data submitted by States as determined by 
matching individuals who are no longer receiving TANF assistance with 
Medicaid/CHIP enrollment data.


Sec. 270.8  How will we allocate the bonus award funds?

    (a) In FY 2002 and beyond, we will allocate and award $140 million 
to the ten States with the highest scores for each work measure as 
follows, subject to reallocation as specified in Sec. 270.9:

(1) Job Entry Rate--$56 million
(2) Success in the Work Force--$35 million
(3) Increase in Job Entry Rate--$28 million
(4) Increase in Success in the Work Force--$21 million;

    (b) In FY 2002 and beyond, we will allocate and award $60 million 
to the ten States with the greatest improvement in the non-work 
measures as follows, subject to reallocation as specified in 
Sec. 270.9:

(1) Food Stamp Measure--$20 million
(2) Medicaid/CHIP Measure--$20 million
(3) Family Formation/Stability--$20 million

    (c) We will distribute the bonus dollars for each measure based on 
each State's percentage of the total amount of the State family 
assistance grants of the 10 States that will receive a bonus.


Sec. 270.9  How will we redistribute funds if that becomes necessary?

    (a) If we cannot distribute the funds as specified in Sec. 270.8, 
due to the statutory limit on the amount of each State's bonus award, 
we will reallocate any undistributed funds among the measures listed in 
Sec. 270.4.
    (b) If funds still cannot be distributed within the bonus year, 
they will remain available for distribution in the next bonus year.


Sec. 270.10  How will we annually review the award process?

    (a) Annual determination. Annually, as needed, we will review the 
measures, data sources, and funding allocations specified in this part 
to determine if modifications, adjustments, or technical changes are 
necessary. We will add new measures or make changes in the funding 
allocations for the various measures only through regulations.
    (b) Criteria. We will determine if any modifications, adjustments, 
or technical changes need to be made based on:
    (1) Our experience in awarding high performance bonuses in previous 
years; and
    (2) The availability of national, State-reliable, and objective 
data.
    (c) Consultation. We will consult with the National Governors' 
Association, the American Public Human Services Association, and other 
interested parties before we make our final decisions on performance 
components for the bonus awards in FY 2002 through 2003 (and beyond) 
and will notify States of our decisions through annual program 
guidance. We will also post this information on the Internet.


Sec. 270.11  When must the States report the adult recipient data and 
other information related to the work measures?

    (a) Each State must collect quarterly and submit semi-annually 
during the bonus year the data specified in Sec. 270.6(a) and (b) as 
follows:
    (1) The data must be submitted by February 28 of the bonus year for 
the first and second quarters of the performance year and, if a State 
chooses to compete on an improvement measure, the first and second 
quarters of the comparison year.
    (2) The data must be submitted by August 31 of the bonus year for 
the third and fourth quarters of the performance year and, if a State 
chooses to compete on an improvement measure, the third and fourth 
quarters of the comparison year.
    (b) Each State must collect quarterly its SSP-MOE Data Report as 
specified in Sec. 270.6(c) and submit it:
    (1) At the same time as it submits its quarterly TANF Data Report; 
or
    (2) At the time it seeks to be considered for a high performance 
bonus as long as it submits the required data for the full period for 
which this determination will be made.
    (c) Each State must submit the list of work measures on which it is 
competing, as specified in Sec. 270.6(d), by February 28 of the bonus 
year.


Sec. 270.12  Must States file the data electronically?

    Each State must submit the data required to compete for the high 
performance bonus work measures and the Medicaid/CHIP outcome measure 
electronically in a manner that we and HCFA will specify.


Sec. 270.13  What do States need to know about the use of bonus funds?

    (a) A State must use bonus award funds to carry out the purposes of 
the TANF block grant as specified in section 401 (Purpose) and section 
404 (Use of Grants) of the Act.
    (b) As applicable, these funds are subject to the requirements in 
and limitations of sections 404 and 408 (Prohibitions; Requirements) of 
the Act.
    (c) If the State uses bonus award funds to provide assistance, as 
defined in Sec. 260.30 of this chapter, the provisions of Sec. 263.11 
of this chapter also apply.
    (d) For Puerto Rico, Guam, the Virgin Islands, and American Samoa, 
the bonus award funds are not subject to the mandatory ceilings on 
funding established in section 1108(c)(4) of the Act.

    Note: The following Appendix will not appear in the Code of 
Federal Regulations:

[[Page 68226]]

Appendix

               State Family Assistance Grants Under PRWORA
------------------------------------------------------------------------
                                        State family      State family
                State                 assistance grant  assistance grant
                                             \1\         times 5 percent
------------------------------------------------------------------------
Alabama.............................       $93,315,207        $4,665,760
Alaska..............................        63,609,072         3,180,454
Arizona.............................       222,419,988        11,120,999
Arkansas............................        56,732,858         2,836,643
California..........................     3,733,817,784       186,690,889
Colorado............................       136,056,690         6,802,835
Connecticut.........................       266,788,107        13,339,405
Delaware............................        32,290,981         1,614,549
District of Col.....................        92,609,815         4,630,491
Florida.............................       562,340,120        28,117,006
Georgia.............................       330,741,739        16,537,087
Hawaii..............................        98,904,788         4,945,239
Idaho...............................        31,938,052         1,596,903
Illinois............................       585,056,960        29,252,848
Indiana.............................       206,799,109        10,339,955
Iowa................................       131,524,959         6,576,248
Kansas..............................       101,931,061         5,096,553
Kentucky............................       181,287,669         9,064,383
Louisiana...........................       163,971,985         8,198,599
Maine...............................        78,120,889         3,906,044
Maryland............................       229,098,032        11,454,902
Massachusetts.......................       459,371,116        22,968,556
Michigan............................       775,352,858        38,767,643
Minnesota...........................       267,984,886        13,399,244
Mississippi.........................        86,767,578         4,338,379
Missouri............................       217,051,740        10,852,587
Montana.............................        45,534,006         2,276,700
Nebraska............................        58,028,579         2,901,429
Nevada..............................        43,976,750         2,198,838
New Hampshire.......................        38,521,261         1,926,063
New Jersey..........................       404,034,823        20,201,741
New Mexico..........................       126,103,156         6,305,158
New York............................     2,442,930,602       122,146,530
North Carolina......................       302,239,599        15,111,980
North Dakota........................        26,399,809         1,319,990
Ohio................................       727,968,260        36,398,413
Oklahoma............................       148,013,558         7,400,678
Oregon..............................       167,924,513         8,396,226
Pennsylvania........................       719,499,305        35,974,965
Rhode Island........................        95,021,587         4,751,079
South Carolina......................        99,967,824         4,998,391
South Dakota........................        21,893,519         1,094,676
Tennessee...........................       191,523,797         9,576,190
Texas...............................       486,256,752        24,312,838
Utah................................        76,829,219         3,841,461
Vermont.............................        47,353,181         2,367,659
Virginia............................       158,285,172         7,914,259
Washington..........................       404,331,754        20,216,588
West Virginia.......................       110,176,310         5,508,816
Wisconsin...........................       318,188,410        15,909,421
Wyoming.............................        21,781,446         1,089,072
State Total.........................    16,488,667,235       824,433,362
------------------------------------------------------------------------
\1\ Grants are based on the Federal share of expenditures for FY 94, FY
  95 or the average of FYs 92-94, whichever is greatest.

[FR Doc. 99-30975 Filed 12-3-99; 8:45 am]
BILLING CODE 4184-01-U