[Federal Register Volume 64, Number 233 (Monday, December 6, 1999)]
[Rules and Regulations]
[Pages 67997-68000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31492]



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

[[Page 67997]]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

RIN 0584-AC77


Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC): Non-Discretionary Funding Provisions of the William F. 
Goodling Child Nutrition Reauthorization Act of 1998

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule incorporates into the WIC program regulations 
numerous non-discretionary funding provisions mandated in the William 
F. Goodling Child Nutrition Reauthorization Act of 1998. This rule 
revises and expands backspend and spendforward authority, conversion of 
funds, multipurpose/infrastructure grants and the use of food funds for 
the purchase of breast pumps. The rule also revises nutrition services 
and administration expenditure standards and expands the timing for the 
use of vendor and participant collections. The provisions in this rule 
provide greater flexibility for State agencies in the operation of WIC 
program relating to funds management.

EFFECTIVE DATE: This rule is effective October 1, 1998.

FOR FURTHER INFORMATION CONTACT: Patricia Daniels, (703) 305-2746.

SUPPLEMENTARY INFORMATION:

Background

    On October 31, 1998, the President signed Public Law 105-336, the 
William F. Goodling Child Nutrition Reauthorization Act of 1998 (the 
Reauthorization Act), which included several non-discretionary funding 
provisions pertaining to the WIC program. The Reauthorization Act 
expands the use of funds recovered from vendors and participants, 
authorizes the use of food funds to purchase or rent breast pumps, 
reduces the nutrition services and administration (NSA) expenditure 
standard from 15 to 10 percent, provides a new option for converting 
food funds to nutrition services and administration funds, and adjusts 
the formula for grants for infrastructure, special projects, and 
breastfeeding promotion and support activities. The Reauthorization Act 
also authorizes back spending NSA funds, eliminates the spend forward 
authority for food funds, and expands the spend forward authority for 
NSA funds. We have also taken this opportunity to rewrite the affected 
provisions in a question and answer format to improve readability.

Good Cause Determination

    The provisions in this rule provide greater flexibility for State 
agencies in the operation of WIC program relating to funds management. 
All of these provisions are also non-discretionary. Because of the non-
discretionary nature of these legislative provisions, the Administrator 
of the Food and Nutrition Service (FNS) has determined that, in 
accordance with 5 U.S.C. 553, prior notice and comment is unnecessary 
and contrary to the public interest.

Effective Date

    These provisions of the Reauthorization Act became effective 
October 1, 1998. Therefore, we are making this rule effective 
retroactively to October 1, 1998.

Use of Recoveries From Vendors and Participants

    General appropriations principles permit collected claims to be 
used only in the fiscal year in which the initial obligation was made. 
In 1994 Public Law 103-448, the Healthy Meals for Healthy Americans Act 
of 1994, amended section 17(f)(21) of the Child Nutrition Act of 1966 
(CNA) (42 U.S.C. 1786(f)(21)) to permit funds recovered as a result of 
violations in the food delivery system to be used in the year in which 
they are collected as well. Section 203(d) of the Reauthorization Act 
further amended section 17(f)(21) of the CNA to expand this authority 
further and to allow funds recovered from vendors and participants as a 
result of a claim to be used in the fiscal year in which the claim 
arose, the fiscal year in which the funds are collected, or the fiscal 
year after collection. This is in addition to the general rule 
permitting use in the year in which the initial obligation was made. 
This rule amends section 246.14(e) of the WIC regulations to reflect 
this change and to make clear that State agencies may not credit funds 
recovered from participants until any administrative hearings held 
pursuant to section 246.9 have been completed.

Use of Food Funds To Purchase Breast Pumps

    Section 203(h) of the Reauthorization Act amended section 
17(h)(1)(C) of the CNA (42 U.S.C. 1786(h)(1)(C)) to allow food funds to 
be used to purchase breast pumps. State agencies may now use either NSA 
or food funds to purchase breast pumps. State and local agencies are 
not required to purchase breast pumps as they are not a required 
program benefit like supplemental foods or nutrition education. 
However, breast pumps are aids that a State or local agency may choose 
to offer certain WIC participants to facilitate breastfeeding. The 
option now available to State agencies to use food funds to purchase 
breast pumps will allow greater flexibility in funding sources for 
breast pump purchases.
    The option to use food funds to rent breast pumps was not 
specifically mentioned in the Reauthorization Act. However, State and 
local agencies frequently find that renting breast pumps is more cost 
effective than purchasing them. Representative Goodling, Chairman on 
the House Committee on Education and the Workforce, has indicated that 
the omission of specific mention of breast pump rental was not intended 
to preclude the use of food funds for this purpose. Consequently, in 
drafting this provision we have interpreted the word ``purchase'' in 
section 203(h) of the Reauthorization Act to include both the 
acquisition of an absolute ownership interest in breast pumps by State 
agencies and the securing by State agencies of the contractual right to 
the exclusive use of breast pumps for a finite period of time (i.e., 
the rental of breast pumps). In both situations, a State agency 
``purchases'' the exclusive right to use a breast pump, either forever 
or for a limited time period. Therefore,

[[Page 67998]]

this rule amends section 246.14(b) of the WIC program regulations to 
permit both the purchase and the rental of breast pumps with food 
funds.
    State agencies should note that any food funds expended to purchase 
or rent breast pumps will not count towards a State agency's nutrition 
education and breastfeeding promotion and support expenditure 
requirement. Although sections 17(h)(3) (B) and (C) continue to provide 
that a State agency may request approval to count the expenditure of 
other funds for the purpose of meeting the nutrition education and 
breastfeeding promotion and support activities, we do not interpret the 
phrase ``other funds'' to include food funds used to purchase or rent 
of breast pumps. This view is supported by the Senate report for the 
Reauthorization Act that states: ``the Committee intends that food 
funds used to provide breast pumps shall be in addition to a State's 
minimum required nutrition services and administration expenditure for 
breast-feeding support and promotion.'' (Senate Report Number 105-243, 
p. 35.) NSA grant expenditures for breast pumps continue to count 
towards these expenditure requirements.
    However, we recently discovered that the November 18, 1998 final 
rule concerning the non-discretionary provisions of Public Law 103-448 
and Public Law 103-227 (63 FR 63969) inadvertently removed the 
regulatory provisions in section 246.14(c)(1) concerning the use of 
other funds to meet the nutrition education and breastfeeding promotion 
and support expenditure requirements. This rule amends section 
246.14(c)(1) to reinstate these provisions and to make clear that food 
costs to purchase or rent breast pumps may not be counted toward the 
expenditure requirements.

Nutrition Services and Administration Expenditure Standard

    Section 203(i)(3) of the Reauthorization Act amended section 
17(h)(2)(B)(ii) of the CNA (42 U.S.C. 1786(h)(2)(B)(ii)) by lowering 
from 15 percent to 10 percent the maximum allowable percent a State 
agency's per participant NSA expenditures may exceed its per 
participant NSA grant without potentially suffering a reduction in its 
NSA grant. Prior to the Reauthorization Act, State agencies were held 
to the 15 percent standard. Section 17(h)(2)(B)(ii) of the CNA 
continues to permit the Secretary to lower a State agency's NSA grant 
if the State agency's per participant NSA expenditure exceeds the per 
participant NSA grant without good cause. This rule amends section 
246.16(e)(2)(ii) of the WIC program regulations to reflect this change.
    One of the primary reasons for this change was the revision of the 
conversion authority by the Reauthorization Act. Under the revised 
conversion authority, a State agency may now convert food funds to NSA 
funds based on projected increases in participation instead of just 
actual participation increases. The NSA expenditure standard was 
reduced to 10 percent to improve accountability for the new conversion 
authority and to prevent this expanded conversion authority from being 
used to substantially shift food money to NSA spending without 
increased cost containment savings and participation. We discuss this 
change to the conversion authority in more detail below.

Conversion of Food Funds to Nutrition Services and Administration 
Funds

    Section 203(i)(5) of the Reauthorization Act amended section 
17(h)(5)(A) of the CNA (42 U.S.C. 1786(h)(5)(A)) to allow a State 
agency to convert food funds to NSA funds in any fiscal year in which 
it submits a plan to reduce average food costs per participant and to 
increase participation above the FNS-projected level for the State 
agency. Before converting any funds, the State agency must obtain the 
Secretary's approval of the plan. The CNA continues to require that a 
State agency may convert food funds to NSA funds only to the extent 
necessary to (1) cover allowable expenditures in the fiscal year in 
which the conversion takes place, and (2) ensure that the State agency 
maintains the level established for the per participant NSA grant for 
that fiscal year.
    Prior to the Reauthorization Act, State agencies were allowed to 
convert food funds to NSA funds only after participation increases were 
actually achieved through acceptable measures. (``Acceptable measures'' 
is defined in section 17(h)(5)(C) of the CNA and section 246.16(f) of 
the current WIC regulations.) If actual participation levels exceeded 
the FNS-projected level, the State agency was permitted to convert a 
corresponding amount of food funds to cover actual NSA expenditures. 
The Reauthorization Act provides greater flexibility to State agencies 
by allowing conversion based on projected increases in participation. 
We will also continue to allow conversions based on actual 
participation increases. In these cases, State agencies do not need to 
submit a plan. This rule amends section 246.16(f) of the WIC 
regulations to reflect this change.

Grants for Infrastructure, Special Projects, and Breastfeeding 
Promotion and Support Activities

    Section 203(n)(2)(A) of the Reauthorization Act amended section 
17(h)(10)(A) of the CNA (42 U.S.C. 1786 (h)(10)(A)) to require that the 
amount of funding for infrastructure, special projects, and 
breastfeeding promotion and support activities equal the total amount 
of NSA and food funds for the prior fiscal year that has not been 
obligated or $10 million, whichever is less. In the past, the amount of 
funding available for this purpose was equal to the lesser of $10 
million or the amount of unobligated NSA funds from the prior fiscal 
year. This provision helps to ensure the earlier identification of the 
total amount of funds available for this purpose because the total 
amount of unobligated funds has traditionally exceeded $10 million.
    The current regulations do not contain the formula for these grants 
and we do not see the need to add the revised formula to the 
regulations now. However, we did want to inform interested parties of 
the statutory change in methodology made by the Reauthorization Act.

NSA Back Spend Provisions

    Section 203(n)(1)(B) of the Reauthorization Act amended section 
17(i)(3)(A) of the CNA (42 U.S.C. 1786(i)(3)(A)) to allow a State 
agency to back spend NSA funds in an amount not more than one percent 
of the amount allocated for NSA from the current fiscal year to cover 
allowable expenses incurred in the prior fiscal year. To allow for 
greater flexibility, the law permits NSA funds spent back under this 
provision to be used for either food or NSA costs incurred in the prior 
year. There was no change in the provision allowing food funds to be 
spent back to cover allowable food expenses (but not NSA expenses) 
incurred in the prior year. State agencies may now back spend funds 
equal to one percent of their respective food grant and/or NSA grant.
    This rule amends section 246.16(b)(3) of the WIC regulations to 
reflect these changes. This rule also amends section 246.16(b)(3) to 
delete the cap on the combined amount of funds that could be spent 
forward and back in any fiscal year, consistent with the change made by 
section 203(n)(1)(B) of the Reauthorization Act.

Spend Forward Provisions

    Section 203(n)(1)(B) of the Reauthorization Act also amended 
section 17(i)(3)(A) of the CNA (42 U.S.C.

[[Page 67999]]

1786(i)(3)(A)) to (1) expand the spend forward authority for NSA funds, 
and (2) eliminate the spend forward authority for food funds. Under 
this provision, State agencies may spend forward NSA funds up to an 
amount equal to one percent of their total grant for each fiscal year 
to cover allowable NSA expenses in the next fiscal year. Additionally, 
the Reauthorization Act permits State agencies, with prior approval, to 
spend forward NSA funds up to an amount equal to one-half of one 
percent of their total grant for the development of management 
information systems, including electronic benefit transfer systems. 
Therefore, State agencies may now spend forward NSA funds up to an 
amount equal to one and one-half percent of their total grant (NSA plus 
food grants).
    State agencies may both back spend and spend forward funds in any 
given fiscal year. Therefore, both one percent of the total grant may 
be back spent and one and one-half of the total grant may be spent 
forward. State agencies should note varying limitations on the amount, 
the type of funds that may be spent back (both NSA and food funds) or 
spent forward (NSA funds only), and the use of the funds that are spent 
back or spent forward.
    This rule amends sections 246.16(b)(3)(ii) of the WIC regulations 
to reflect these changes in the spend forward authority.

Executive Order 12866

    This final rule has been determined to be not significant for 
purposes of Executive Order 12866 and therefore has not been reviewed 
by the Office of Management and Budget.

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1531 et seq.) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. Under section 202 of the 
UMRA (2 U.S.C. 1532), FNS generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
or tribal governments, in the aggregate, or to the private sector, of 
$100 million or more in any one year. When such a statement is needed 
for a rule, section 205 of the UMRA (2 U.S.C. 1535) generally requires 
FNS to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, most cost-effective or least 
burdensome alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments or the private sector of $100 million or more in any one 
year. Thus, this rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Regulatory Flexibility Act

    This final rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Samuel Chambers, 
Jr., Administrator of the Food and Nutrition Service, has certified 
that this rule will not have a significant economic impact on a 
substantial number of small entities. This rule provides additional 
flexibility in funds management and operations for WIC State agencies, 
which are not small entities under the Regulatory Flexibility Act.

Paperwork Reduction Act

    This final rule does not contain reporting or record keeping 
requirements subject to approval by the Office of Management and Budget 
under section 3507 of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-20).

Executive Order 12372

    The Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) is listed in the Catalog of Federal Domestic Assistance 
Programs under No. 10.557. For the reasons set forth in the final rule 
in 7 CFR 3015, Subpart V, and related Notice (48 FR 29114), this 
program is included in the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have a preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' paragraph of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the applications of its provisions, all applicable 
administrative procedures must be exhausted (7 U.S.C 6912(e)).

Executive Order 13132

    We have reviewed this final rule under the criteria of Executive 
Order 13132, Federalism. As noted above, all of the provisions in this 
rule are required by law. Therefore, we have not prepared a federalism 
summary impact statement for this rule.

List of Subjects in 7 CFR Part 246

    Administrative practice and procedure, Civil Rights, Food and 
Nutrition Service, Food assistance programs, Grant programs--health, 
Grant programs--Social programs, Indians, Infants and children, 
Maternal and child health, Nutrition, Nutrition education, Penalties, 
Reporting and recordkeeping requirements, Public assistance programs, 
WIC, Women.
    For reasons set forth in the preamble, 7 CFR Part 246 is amended as 
follows:

PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN

    1. The authority citation for part 246 continues to read as 
follows:

    Authority: 42 U.S. C. 1786.

    2. In Sec. 246.14:
    a. revise paragraph (b);
    b. add four new sentences to paragraph (c)(1) introductory text 
after the sixth sentence; and
    c. revise paragraph (e).
    The revisions and addition read as follows:


Sec. 246.14  Program costs.

* * * * *
    (b) What costs may I charge to the food grant?
    (1) The State agency may use food funds for costs of:
    (i) Acquiring supplemental foods provided to State or local 
agencies or participants, whichever receives the supplemental food 
first;
    (ii) Warehousing supplemental foods; and
    (iii) Purchasing and renting breast pumps.
    (2) For costs to be allowable, the State agency must ensure that 
food costs do not exceed the vendor's customary sales price. For 
example, in retail purchase systems, food costs may not exceed the 
shelf price of the supplemental food provided.
    (c) * * *
    (1) * * * If the State agency's total reported nutrition education 
and breastfeeding promotion and support expenditures are less than the 
required amount of expenditures, FNS will issue a claim for the 
difference. The State agency may request prior written

[[Page 68000]]

permission from FNS to spend less than the required portions of its NSA 
grant for either nutrition education or for breastfeeding promotion and 
support activities. FNS will grant such permission if the State agency 
has sufficiently documented that other resources, including in-kind 
resources, will be used to conduct these activities at a level 
commensurate with the requirements of this paragraph (c)(1). However, 
food costs used to purchase or rent breast pumps may not be used for 
this purpose. * * *
* * * * *
    (e) How and when may I use my funds recovered from vendors and 
participants? 
    (1) The State agency may keep funds collected through the recovery 
of claims assessed against food vendors or participants. Recovered 
funds include those withheld from a vendor as a result of reviews of 
food instruments prior to payment. Recovered funds may be used for 
either food or NSA costs.
    (2) These recovered funds may be used in the fiscal year:
    (i) In which the initial obligation was made;
    (ii) In which the claim arose;
    (iii) In which the funds are collected; or
    (iv) after the funds are collected.
    (3) The State agency may not credit any recoveries until:
    (i) In the case of a vendor claim, the vendor has had the 
opportunity to correct or justify the error or apparent overcharge in 
accordance with Sec. 246.12(r)(5)(iii ); or
    (ii) In the case of a participant, any administrative hearing 
requested in accordance with Sec. 246.9 has been completed.
    (4) The State agency must report vendor and participant recoveries 
to FNS through the normal reporting process;
    (5) The State agency must keep documentation supporting the amount 
and use of these vendor and participant recoveries.
    3. In Sec. 246.16, revise paragraphs (b)(3), (e)(2)(ii) and (f) to 
read as follows:


Sec. 246.16  Distribution of funds.

* * * * *
    (b) * * *
    (3) When may I transfer funds from one fiscal year to another? 
    (i) Back spend authority. The State agency may back spend into the 
prior fiscal year up to an amount equal to one percent of its current 
year food grant and one percent of its current year NSA grant. Food 
funds spent back may be used only for food costs incurred during the 
prior fiscal year. NSA funds spent back may be used for either food or 
NSA costs incurred during the prior fiscal year. With prior FNS 
approval, the State agency may also back spend food funds up to an 
amount equal to three percent of its current year food grant in a 
fiscal year for food costs incurred in the prior fiscal year. FNS will 
approve such a request only if FNS determines there has been a 
significant reduction in infant formula cost containment savings that 
affected the State agency's ability to maintain its participation 
level.
    (ii) Spend forward authority. (A) The State agency may spend 
forward NSA funds up to an amount equal to one percent of their total 
grant (NSA plus food grants) in any fiscal year. These NSA funds spent 
forward may be used only for NSA costs incurred in the next fiscal 
year. Any food funds that the State agency converts to NSA funds 
pursuant to paragraph (f) of this section (based on projected or actual 
participation increases during a fiscal year) may not be spent forward 
into the next fiscal year. With prior FNS approval, the State agency 
may spend forward additional NSA funds up to an amount equal to one-
half of one percent of its total grant. These funds are to be used in 
the next fiscal year for the development of a management information 
system, including an electronic benefit transfer system.
    (B) Funds spent forward will not affect the amount of funds 
allocated to the State agency for any fiscal year. Funds spent forward 
must be the first funds expended by the State agency for costs incurred 
in the next fiscal year.
    (iii) Reporting requirements. In addition to obtaining prior FNS 
approval for certain spend forward/back spending options, the State 
agency must report to FNS the amount of all funds it already has or 
intends to back spend and spend forward. The spending options must be 
reported at closeout.
* * * * *
    (e) * * *
    (2) * * *
    (ii) Reduction of NSA grant. FNS will reduce the State agency's NSA 
grant for the next fiscal year if the State agency's current fiscal 
year per participant NSA expenditure is more than 10 percent higher 
than its per participant NSA grant. To avoid a reduction to its NSA 
grant level, the State agency may submit a ``good cause'' justification 
explaining why it exceeded the applicable limit on excess NSA 
expenditures. This justification must be submitted at the same time as 
the close-out report for the applicable fiscal year. Good cause may 
include dramatic and unforeseen increases in food costs, which would 
prevent a State agency from meeting its projected participation level.
* * * * *
    (f) How do I qualify to convert food funds to NSA funds? (1) 
Requirements. The State agency qualifies to convert food funds to NSA 
funds in any fiscal year in two ways:
    (i) Approved plan. A State agency may submit a plan to FNS to 
reduce average food costs per participant and to increase participation 
above the FNS-projected level for the State agency. If approved, the 
State agency may use funds allocated for food costs to pay NSA costs.
    (ii) Participation increases achieved. The State agency may also 
convert food funds to NSA funds in any fiscal year if it achieves, 
through acceptable measures, increases in participation in excess of 
the FNS-projected level for the State agency. Acceptable measures 
include use of cost containment measures, curtailment of vendor abuse, 
and breastfeeding promotional activities. FNS will disallow the State 
agency's conversion of food funds to NSA funds in accordance with 
paragraph (h) of this section if:
    (A) The State agency increases its participation level through 
measures that are not in the nutritional interests of participants; or
    (B) It is not otherwise allowable under program regulations.
    (2) Limitation. The State agency may convert food funds only to the 
extent that the conversion is necessary--
    (i) To cover NSA expenditures in the current fiscal year; and
    (ii) To ensure that the State agency maintains the level 
established for the per participant NSA grant for the current fiscal 
year.
    (3) Maximum amount. The maximum amount the State agency may convert 
equals the State agency's conversion rate times the projected or actual 
participation increase, as applicable. The conversion rate is the same 
as the per participant NSA grant and is determined by dividing the 
State agency's NSA grant by the FNS-projected participation level. The 
NSA grant used in the calculation equals the initial allocation of 
current year funds plus the operational adjustment funding allocated to 
the State agency for that fiscal year.
* * * * *

    Dated: November 26, 1999.
Samuel Chambers Jr.,
Administrator, Food and Nutrition Service.
[FR Doc. 99-31492 Filed 12-3-99; 8:45 am]
BILLING CODE 3410-30-P